<PAGE>1
PROSPECTUS
$89,300,000
(MDFC LOGO APPEARS HERE)
McDonnell Douglas Finance Corporation
Series IX Medium-Term Notes
____________________
Due More Than Nine Months from Date of Issue
____________________
McDonnell Douglas Finance Corporation (the "Company") may offer from time
to time its Series IX Medium-Term Notes (the "Notes"), in an aggregate
principal amount up to $89,300,000 or the equivalent thereof in other
currencies, including composite currencies. Such Notes will be in addition to
the $416,200,000 aggregate principal amount of the Company's Series IX
Medium-Term Notes that are outstanding as of the date of this Prospectus. If
the Notes are to be denominated in a foreign currency or currency unit, the
provisions with respect thereto will be set forth in a foreign currency
supplement hereto ("Multi-Currency Prospectus Supplement") and currency
exchange rate information will be set forth in the applicable Pricing
Supplement. The Notes may be issued as senior debt securities ("Senior
Notes") or subordinated debt securities ("Subordinated Notes"). The Notes
will be unsecured obligations of the Company. The Senior Notes will rank
equally with all other unsecured and unsubordinated indebtedness of the
Company. Subordinated Notes will be subordinate to all Senior Notes and to
all existing and future Senior Indebtedness (as hereinafter defined) of the
Company and, unless specifically designated as ranking junior to other
subordinated debt securities of the Company, will be pari passu with all other
subordinated debt securities of the Company which have not been specifically
designated as ranking junior to other subordinated debt securities of the
Company. See "Description of Notes--Subordination". Unless otherwise
specified in an applicable Pricing Supplement, the Notes will bear interest at
fixed rates ("Fixed Rate Notes") or at floating rates ("Floating Rate Notes")
determined by reference to one or more of the Commercial Paper Rate, the 11th
District Cost of Funds Rate, LIBOR, the Prime Rate or the Treasury Rate (each,
a "Base Rate"), or any other interest rate formula, as adjusted by any Spread
or Spread Multiplier applicable to such Floating Rate Notes.
Unless otherwise specified in the applicable Pricing Supplement, interest
with respect to Senior Notes that are Fixed Rate Notes will be payable
semiannually on each March 15 and September 15 and interest with respect to
Subordinated Notes that are Fixed Rate Notes will be payable semiannually on
each January 15 and July 15 and in each case at maturity. Interest on each
Floating Rate Note will be payable on the dates set forth in the applicable
Pricing Supplement. Each Note will mature on a day more than nine months from
its date of issue, as set forth in the applicable Pricing Supplement. See
"Description of Notes". Unless otherwise specified in the applicable Pricing
Supplement, the Notes may not be redeemed by the Company prior to maturity and
will be issued in fully registered form in denominations of $100,000 or any
amount in excess thereof which is an integral multiple of $1,000.
Each Note will be represented either by a Global Note (as hereinafter
defined) registered in the name of a nominee of The Depository Trust Company,
as Depositary (a "Book-Entry Note"), or by a certificate issued in definitive
form (a "Certificated Note"), as set forth in the applicable Pricing
Supplement. Beneficial interests in Global Notes representing Book-Entry
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. Book-Entry Notes
may not be denominated in foreign or composite currencies and will not be
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issuable as Certificated Notes except under the limited circumstances
described herein. See "Description of Notes--Book-Entry System".
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS. ____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
Price to Agent's Proceeds to
Public(1) Discounts and Company(2)(3)
Commissions
(2)(5)
- -----------------------------------------------------------------------------
Per Note 100.00% .125% - .750% 99.875% - 99.250%
Total(4) $89,300,000 $111,625 - $89,188,375 -
$669,750 $88,630,250
- -----------------------------------------------------------------------------
(1) Unless otherwise specified in the applicable Pricing Supplement, Notes
will be sold at 100% of their principal amount. If the Company issues
any Note at a discount from or at a premium over its principal amount,
the price to public of such Note will be set forth in the applicable
Pricing Supplement.
(2) The commission payable to each agent participating in the distribution of
the Notes (each an "Agent" and collectively the "Agents") for each Note
sold through an Agent shall be computed based upon the price to public of
such Note and shall depend upon such Note's maturity. The Company may
also sell Notes to an Agent, as principal, for resale to investors at
varying market prices at the time of resale, in either case as determined
by such Agent.
(3) Before deduction of estimated expenses payable by the Company.
(4) Or the equivalent thereof in other currencies, including composite
currencies.
(5) The Company has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Act"). See "Plan of
Distribution."
The Company may sell Notes to one or more Agents for resale to one or more
investors at varying prices related to prevailing market prices at the time of
resale or otherwise, to be determined by the Agents. No termination date for
the offering of the Notes has been established. The Company or the Agents may
reject any order in whole or in part. The Company has reserved the right to
sell Notes directly on its own behalf to the public. The Notes will not be
listed on any securities exchange, and there can be no assurance that the
Notes offered hereby will be sold or that there will be a secondary market for
the Notes. See "Plan of Distribution".
____________________
The date of this Prospectus is January 5, 1995.
<PAGE>
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other
information can be inspected and copied at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and New York Regional Office, 13th Floor, Seven World Trade Center, New York,
New York 10048. Copies of such material can also be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such material also may be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005, on which exchange certain of the Company's securities
are listed.
This Prospectus constitutes a part of a Registration Statement on Form S-
3 (File No. 33-31419) (together with all exhibits thereto, the "Registration
Statement") filed with the Commission under the Act, with respect to
$1,000,000,000 aggregate principal amount of Senior Securities and
Subordinated Securities of the Company, including the Notes offered hereby.
This Prospectus does not contain all of the information contained in the
Registration Statement. Reference is made to the Registration Statement for
further information with respect to the Company and the Notes offered hereby.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1993, Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994,
June 30, 1994 and September 30, 1994 and Current Reports on Form 8-K dated
February 3, 1994 and July 7, 1994, each as filed with the Commission, are
hereby incorporated by reference into this Prospectus and made a part hereof.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the Notes
shall be deemed to be incorporated by reference into this Prospectus and made
a part hereof from the respective dates of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein, or contained in this Prospectus, shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus contains brief summaries of certain more detailed
information contained in documents incorporated herein by reference. Such
summaries are qualified in their entirety by the more detailed information
contained in the incorporated documents.
The Company will provide without charge to each person (including any
beneficial owner) to whom this Prospectus is delivered, upon the written or
oral request of any such person (identified to the Company's satisfaction), a
copy of any or all documents incorporated by reference into this Prospectus
(other than exhibits to such documents). Requests should be directed to:
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McDonnell Douglas Finance Corporation
4060 Lakewood Boulevard, 6th Floor
Long Beach, California 90808-1700
Attention: Treasury Department
Telephone: (310) 627-3100
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information and financial data appearing
elsewhere in this Prospectus, including without limitation
information incorporated herein by reference. See "RISK
FACTORS" for certain information that should be considered by
prospective investors.
The Company
The Company is a commercial finance company primarily
engaged in commercial aircraft financing and commercial
equipment leasing. The Company is a wholly-owned subsidiary of
McDonnell Douglas Financial Services Corporation, a wholly-
owned subsidiary of McDonnell Douglas Corporation ("MDC").
In 1990, after years of expansion and diversification, the
Company commenced a program to significantly scale back its
operations and focus its new business efforts almost entirely
within its two core business units, commercial aircraft
financing and commercial equipment leasing. The Company now
operates in three business segments: commercial aircraft
financing, commercial equipment leasing and non-core
businesses.
The Company's commercial aircraft financing group, located
in Long Beach, California, primarily finances the acquisition
of MDC aircraft by purchasing such aircraft subject to lease to
airlines and by providing secured and unsecured notes
receivable financing in connection with the acquisition of such
aircraft. Although in 1986 the Company began providing
financing to airlines for aircraft manufactured by
manufacturers other than MDC, aircraft manufactured by MDC
continue to comprise a substantial majority of the Company's
commercial aircraft portfolio. At December 31, 1993, the
carrying amount of the Company's commercial aircraft portfolio
was $1,237.5 million, with 31 customers (19 domestic and 12
foreign).
The commercial equipment leasing business segment provides
single-investor, tax-oriented lease financing as its primary
product. This segment, which maintains its principal
operations in Long Beach, California and has marketing offices
in Chicago, Illinois and Detroit, Michigan, obtains its
business primarily through direct solicitation by its marketing
personnel. The commercial equipment leasing business segment
specializes in leasing equipment such as over-the-road
transportation equipment, executive aircraft, machine tools,
printing equipment, shipping containers, textile manufacturing
equipment and other types of equipment which it believes will
maintain strong collateral and residual values. At December
31, 1993, the carrying amount of the Company's commercial
equipment leasing portfolio was $422.3 million.
The non-core businesses consist primarily of the remaining
assets of two business units: receivable inventory financing
and real estate financing. At December 31, 1993, the non-core
business portfolio was $173.7 million. The Company does not
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RISK FACTORS
Prior to deciding to invest in the Notes, potential purchasers should
carefully consider the following factors, together with the information herein
contained and incorporated herein by reference.
Erosion of Commercial Aircraft Values. The current severe economic
downturn within the airline industry has diminished significantly the demand
for new and used aircraft, with some airlines defaulting on contracts for firm
orders or postponing orders with the manufacturer while also disposing of or
grounding a portion of their fleets. This has resulted in an oversupply of
aircraft in the market, which has materially adversely affected the value of
the Company's aircraft. It is not clear whether this decline in aircraft
values will continue. Despite the erosion of aircraft values, the Company
believes that the value of realizable sales prices at the end of the lease
terms for substantially all the aircraft the Company has leased exceeds the
book value projected at the end of the lease terms. A substantial portion of
the Company's aircraft financings are to airlines which either have recently
emerged from bankruptcy or are in poor financial health. Two of the Company's
largest commercial aircraft financing customers emerged from bankruptcy in
1993. The Company's largest customer, Trans World Airlines, Inc. ("TWA"), may
be forced to seek bankruptcy protection again (see the discussion of TWA on
page 9 hereof). In addition, a substantial portion of the Company's total
portfolio is concentrated among a small number of the Company's commercial
aircraft finance customers. Repossession of aircraft in the currently
depressed aircraft market could materially adversely affect earnings from
continuing operations. In addition, if aircraft values remain depressed or
continue to decline and the Company is required as a result of customer
defaults to repossess a substantial number of aircraft prior to the expiration
of the related lease or financing, the Company could incur substantial losses
in remarketing the aircraft which could have a material adverse effect on the
financial condition of the Company. In this regard, the Company's financial
performance is dependent in part upon general economic conditions which may
affect the profitability of commercial airlines.
Liquidity and Capital Resources. The Company has significant liquidity
requirements. If cash provided by operations, borrowings under bank credit
lines, commercial paper borrowings and unsecured term borrowings do not
provide the necessary liquidity, the Company would be required to restrict its
new business volume unless it obtained access to other sources of capital at
rates that would allow for a reasonable return on new business. The Company
has been accessing the public debt market since mid-1993 and anticipates using
proceeds from the issuance of additional public debt to fund future growth.
However, no assurances can be made that the Company will be successful in
accessing the public debt market at rates that would allow for a reasonable
return on new business. See "Use of Proceeds".
Relationship with MDC. The financial well-being of MDC is vital to the
Company's ability to enter into significant amounts of new business in the
future. As of September 30, 1994, approximately 20% of the receivables from
the Company's total aircraft portfolio are supported by guarantees from MDC.
In the event a substantial portion of the guarantees become payable and in the
unlikely event that MDC is unable to honor its obligations under these
guarantees, such event could have a material adverse effect on the financial
condition of the Company. In addition, MDC participates as an intermediary in
certain financings of the Company's commercial aircraft customers and as a
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<PAGE>7
result thereof, as of September 30, 1994 MDC is the fourth largest commercial
aircraft financing customer of the Company.
Two of the principal industry segments in which MDC operates, military
aircraft and commercial aircraft, are especially competitive and have a
limited number of customers. As the Company focuses on its core businesses,
and primarily aircraft financing, its future business prospects become more
closely tied to the success of MDC, and especially the ability of MDC's
commercial aircraft business to generate additional sales. At September 30,
1994, 60.3% of the Company's total portfolio consisted of financings related
to MDC aircraft, compared with 56.5%, 43.1% and 27.8% at December 31, 1993,
1992 and 1991, respectively. The commercial aircraft business continues to be
highly market sensitive, and therefore competition and pricing are very
aggressive. Difficulties in the commercial aircraft industry may continue to
result in airlines not taking deliveries of aircraft, requesting changes in
delivery schedules, or defaulting on contracts for firm orders. Aircraft
delivery delays or defaults by commercial aircraft customers not anticipated
by MDC could have a negative short-term impact on cash flow. During recent
years, several airlines filed for protection under the Federal Bankruptcy Code
or became delinquent on their obligations for commercial aircraft. MDC also
has outstanding guarantees related to the marketing of commercial aircraft.
MDC does not anticipate that the existence of such guarantees will have a
material adverse effect upon its cash flow or financial position.
Certain commercial aircraft contracts contain provisions requiring MDC to
repurchase used aircraft at the option of the commercial customers. In view
of the current market conditions for used aircraft, MDC's earnings and cash
flows could be adversely impacted by the exercise of such options. MDC has
also made offers to lease aircraft scheduled for delivery during 1995 through
1998. MDC does not anticipate that the existence of such repurchase
obligations and lease offers will have a material adverse effect upon its cash
flow or financial position.
MDC's outstanding guarantees include approximately $125 million related
to MD-11s operated by a foreign carrier. During March 1994, this carrier
notified its aircraft lenders and lessors that it was temporarily suspending
payments pending a restructuring of its financial obligations, and requested a
"standstill" agreement to protect itself from default remedies for 60 days.
MDC is currently making lease payments on behalf of the carrier. These
payments are not expected to have a significant adverse effect on cash flow or
financial position. Restructuring discussions that were initiated with the
carrier during the second quarter are still in progress.
MDC's largest aircraft leasing customer, TWA, has proposed a
restructuring plan relating to its indebtedness and leasehold obligations to
its creditors. As part of an overall plan, TWA has requested MDC to defer six
months of lease and other payments and to convert 50% of the deferral to
equity. MDC is currently evaluating the proposal and is engaged in
discussions with TWA. While the ultimate outcome of the proposed
restructuring plan is dependent upon factors beyond the control of MDC, it is
not expected to be materially adverse to MDC.
MDC's most significant customer in the military aircraft and missiles,
space and electronic systems segments is the U.S. Government. Certain foreign
governments also purchase a significant share of MDC's aerospace products.
Companies engaged in supplying military and space equipment to the U.S.
Government are subject to risks in addition to those found in commercial
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<PAGE>8
business. These additional risks include dependence on congressional
appropriations and annual administrative allotment of funds, general
reductions in the U.S. defense budget, and changes in Government policies. In
addition, at times MDC invests funds in programs that are both competitive and
still in the pre-development stage yet may never result in production.
Moreover, the costs of maintaining adequate research and development as well
as manufacturing capabilities are substantial.
MDC may also enter into firm fixed price contracts. Under these
arrangements, work is performed and paid for at a fixed amount without
adjustment for actual costs experienced in connection with the contract.
While this arrangement offers MDC opportunities for increased profits if costs
are lower than expected, risk of loss due to increased cost is also borne by
MDC.
In addition, the U.S. Government may terminate its contracts (i) for its
convenience whenever it believes that such termination would be in the best
interest of the Government or (ii) for default. Under contracts terminated
for the convenience of the Government, a contractor is generally entitled to
receive payments for its contract cost and the proportionate share of its fee
or earnings for the work done, subject to the availability of funding. The
U.S. Government may terminate a contract for default if the contractor
materially breaches the contract.
Defense spending by the U.S. Government has declined, and is likely to
continue to decline.
Further significant reductions in defense spending and the U.S.
Government's decision to emphasize weapons research over production may have a
material impact on MDC. The loss of a major program or a major reduction or
stretch-out in one or more programs could have a material adverse impact on
MDC's future revenues, earnings and cash flow. However, any such impact could
be mitigated by foreign sales and by programs to upgrade existing products.
Certain foreign sales may require some portion of the production to be
completed in the purchasing country.
In May 1993, a Defense Acquisition Board (DAB) initiated by the Under
Secretary of Defense for Acquisitions began a review of the C-17 program in an
effort to resolve outstanding issues and to make recommendations regarding the
C-17's future. In connection with the review, MDC provided data and
participated in numerous discussions. The Department of Defense (DoD), in
conjunction with the DAB, submitted a proposal to MDC in December 1993 for a
business settlement of a variety of issues concerning the C-17 program. In
January 1994, MDC and the DoD agreed to such a settlement.
The settlement covered many issues open as of the date of the settlement,
including the allocation of sustaining engineering costs to the development
and production contracts, the sharing of flight test costs over a previous
level, and the resolution of claims and of performance/specification issues.
Terms of the settlement also stipulated that MDC will expend funds on new or
modified systems and on product improvements. During 1994, the C-17
settlement was given congressional approval in the FY95 defense authorization
and appropriations bills, subject to certain limitations on the Air Force's
ability to obligate settlement funds. The Air Force and the DoD are in the
process of complying with the legislation. MDC and the Air Force are
developing contractual modifications and agreements to implement the
settlement. While some aspects of the compliance process are ongoing, MDC and
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<PAGE>9
the Air Force will execute the contract modifications and agreements when
applicable compliance is completed.
During the fourth quarter of 1993, MDC recorded a $450 million pre-tax
charge associated with the business settlement arranged with the DoD and with
cost growth on the development and initial production contracts. Based upon
further definition and pricing of issues in the settlement, during 1994 MDC
reduced cost estimates associated with the settlement. During 1994, MDC also
recognized additional cost growth for work being completed and yet to be
completed in the development and initial production lots.
The Navy on January 7, 1991, notified MDC and General Dynamics
Corporation (the Team) that it was terminating for default the Team's contract
for development and initial production of the A-12 aircraft. On June 7, 1991,
the Team filed a legal action to contest the Navy's default termination,
assert its rights to convert the termination to one for "the convenience of
the government", and obtain payment for work done and costs incurred on the A-
12 contract, but not paid to date. The Navy agreed to continue to defer
repayment of $1.335 billion alleged to be due with interest from January 7,
1991, from the Team as a result of the termination for default of the A-12
program. The agreement provides that it remains in force until the dispute as
to the type of termination is resolved by the pending litigation in the United
States Court of Federal Claims or negotiated settlement, subject to review by
the U.S. Government annually on December 1, to determine if there has been a
substantial change in the financial condition of either Team member such that
deferment is no longer in the best interest of the Government. On December 9,
1994, the U.S. Court of Federal Claims ordered that the decision terminating
the contract for default was not properly made and, therefore, was vacated.
At September 30, 1994, Contract in Process and Inventories include
approximately $540 million of recorded costs on the A-12 contract, against
which MDC has established a loss provision of $350 million. The amount of the
provision, which was established in 1990, was based on MDC's belief that the
termination for default would be converted to a termination for convenience,
that the Team will establish a minimum of $250 million in claims adjustments,
that there is a range of reasonably possible results on termination for
convenience, and that it is prudent to provide for what MDC believes is the
upper range of possible loss on termination for convenience, namely $350
million. In MDC's opinion, this loss provision continues to provide
adequately for the reasonably possible reduction in value of A-12 net
contracts in process and nonreimbursed supplier termination payments as of
December 31, 1994, as a result of a termination of the contract for the
convenience of the Government. MDC has been provided with an opinion of
outside counsel that the Government's termination of the contract for default
was contrary to law and fact, that the rights and obligations of MDC are the
same as if the termination has been issued for the convenience of the
Government, and that, subject to sustaining that the termination is properly
one for the convenience of the government, the probable adjustments are not
less than $250 million.
A 1991 Securities and Exchange Commission investigation looking into
whether MDC violated certain federal securities laws in connection with
disclosures about, and accounting for, the A-12 aircraft has been broadened to
include the C-17 and possibly other programs.
The Company and MDC presently file consolidated income tax returns and an
arrangement between the Company and MDC allows the Company to receive payments
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<PAGE>10
from MDC for most of the potential tax benefits generated by the Company's
leasing activities. The Company's ability to price its business competitively
and obtain new business volume is significantly dependent on its ability to
realize tax benefits generated by its leasing business. In some cases, the
Company's yields on receivables, without regard to tax benefits, may be less
than the Company's related financing costs. To the extent that MDC would be
unable on a long-term basis to utilize such tax benefits, or if for any reason
the above-described arrangement is not continued in its present form, the
Company would be required to restructure its financing activities and to
reprice its new financing transactions so as to make them profitable without
regard to MDC's utilization of tax benefits since there can be no assurance
that the Company would be able to utilize such benefits currently. No
assurances can be given that the Company would be successful in so
restructuring and repricing its financing activities.
These factors relating to MDC could have a material adverse effect on the
financial condition of the Company and, accordingly, could affect the market
value of the Notes.
Subordinated Notes. The Subordinated Notes will be subordinated in right
of payment to the prior payment in full of the Senior Notes and all other
Senior Indebtedness (as hereinafter defined) of the Company and, unless
specifically designated as ranking junior to other subordinated debt
securities of the Company, will be pari passu with all other subordinated debt
securities of the Company which have not specifically been designated as
ranking junior to other subordinated debt securities of the Company. The
indentures under which the Notes will be issued will not limit the incurrence
of additional indebtedness by the Company, including Senior Indebtedness. As
of September 30, 1994, there was approximately $1,108.8 million of Senior
Indebtedness of the Company outstanding. See "Description of Notes-
Subordination."
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MCDONNELL DOUGLAS FINANCE CORPORATION
General
The Company is a wholly-owned subsidiary of McDonnell Douglas Financial
Services Corporation, a wholly-owned subsidiary of MDC. The Company was
incorporated in Delaware in 1968 and originally financed only MDC manufactured
commercial jet transport aircraft. While this continues to represent a
significant portion of the Company's business, the Company also provides a
diversified range of financing including loans, finance leases and operating
leases, primarily involving equipment for commercial and industrial customers.
At September 30, 1994, the Company had approximately 83 employees. The
principal executive office of the Company is located at 4060 Lakewood
Boulevard, 6th Floor, Long Beach, California 90808-1700, telephone number
(310) 627-3000.
Company Operations
In 1990, after years of expansion and diversification, the Company
commenced a program to significantly scale back its operations and focus its
new business efforts almost entirely within its two core business units,
commercial aircraft financing and commercial equipment leasing. The Company
now operates in three business segments: commercial aircraft financing,
commercial equipment leasing and non-core businesses. In 1991, the Company
decided to exit each of the non-core businesses as market conditions
permitted.
Set forth below are the portfolio balances and new business volume for
each of the Company's three business segments:
Portfolio Balances
December 31,
1993 1992 1991 1990 1989
-----------------------------------------------
(Dollars in millions)
Commercial aircraft $1,237.5 $1,001.1 $ 908.3 $1,048.1 $ 948.1
financing
Commercial equipment 422.3 557.4 668.9 965.1 1,001.2
leasing
Non-core businesses 173.7 227.9 595.1 1,245.9 1,113.2
-----------------------------------------------
$1,833.5 $1,786.4 $2,172.3 $3,259.2 $3,062.5
===============================================
New Business Volume
Years Ended December 31,
1993 1992 1991 1990 1989
--------------------------------------------
(Dollars in millions)
Commercial aircraft $411.4 $153.2 $100.9 $155.4 $121.0
financing<PAGE>
<PAGE>12
Commercial equipment 41.5 50.7 91.8 189.1 305.4
leasing
Non-core businesses 0.1 2.6 38.6 416.8 536.2
-------------------------------------------
$453.0 $206.5 $231.3 $761.3 $962.6
===========================================
Non-core business new volume in 1993 and 1992 represents previous contractual
commitments and extensions of maturing transactions. The Company does not
intend to seek new contractual commitments in its non-core businesses.
Commercial Aircraft Financing. The Company's commercial aircraft group,
located in Long Beach, California, finances the acquisition of MDC aircraft by
purchasing such aircraft subject to lease to airlines and by providing secured
and unsecured notes receivable financing in connection with the acquisition of
such aircraft. Additionally, this group assists Douglas Aircraft Company's
("DAC's") own aircraft financing group with respect to financing of some of
DAC's aircraft. Beginning in 1986, the Company began providing financing to
airlines for aircraft manufactured by manufacturers other than MDC, but a
substantial majority of the commercial aircraft portfolio is comprised of
aircraft manufactured by MDC. Primarily due to the increased need of certain
of MDC's commercial aircraft customers for financing, the Company financed a
substantial amount of aircraft manufactured by MDC in 1993. At September 30,
1994, 60.3% of the Company's total portfolio consisted of financings related
to MDC aircraft, compared with 56.5%, 43.1% and 27.8% at December 31, 1993,
1992 and 1991, respectively.
At December 31, 1993, the Company's commercial aircraft portfolio was
comprised of finance leases to 22 customers (18 domestic and four foreign)
with a carrying amount of $936.1 million (51.1% of total Company portfolio),
notes receivable from nine customers (four domestic and five foreign) with a
carrying amount of $101.3 million (5.5% of total Company portfolio) and
operating leases to nine customers (seven domestic and two foreign) with a
carrying amount of $200.1 million (10.9% of total Company portfolio).
A substantial portion of the Company's aircraft financings are to
airlines which either have recently emerged from bankruptcy or are in poor
financial health. The Company's first and third largest commercial aircraft
financing customers, Trans World Airlines, Inc. ("TWA") and Continental
Airlines, Inc. and its affiliated companies ("Continental"), emerged from
bankruptcy in 1993. Company financings to TWA accounted for $281.8 million
(16.1% of total Company portfolio) at September 30, 1994 and $102.9 million
(5.8% of total Company portfolio) at December 31, 1993. At September 30,
1994, the Company had commitments to provide additional aircraft-related
financing to TWA of $13.4 million. TWA is currently negotiating deferrals of
rent and other payments with its lessors and other creditors (including the
Company and MDC). At December 31, 1994, an aggregate of $16.0 million in rent
(not including interest and late fees thereon) had not been paid to MDFC. TWA
has publicly stated that it may be necessary to file again for bankruptcy
protection if it cannot reach agreement with its creditors. Company
financings to Continental accounted for $109.8 million (6.3% of total Company
portfolio) at September 30, 1994 and $120.9 million (6.8% of total Company
portfolio) at December 31, 1993. Pursuant to the terms of supplemental
guarantees executed by MDC in favor of the Company, up to an additional $25.0
million of the Company's financings to TWA and up to an additional $15.0
million of the Company's financings to Continental are guaranteed by MDC.
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<PAGE>13
These guarantees supplement individual guarantees provided by MDC with respect
to certain of the Company's financings to TWA and Continental to the extent
that the estimated fair market value of the financings (after applying the
individual guarantees) is less than the net asset value of the financings on
the Company's books. The supplemental guarantees terminate in March 1996, but
may be extended under certain circumstances.
A substantial portion of the Company's total portfolio is concentrated
among a small number of the Company's largest commercial aircraft finance
customers. P.T. Garuda Indonesia, which is the Company's second largest
commercial aircraft financing customer, accounted for $187.8 million (10.7% of
total Company portfolio) and $181.0 million (9.9% of total Company portfolio)
at September 30, 1994 and December 31, 1993. The five largest commercial
aircraft financing customers accounted for $739.7 million (42.1% of total
Company portfolio) and $718.5 million (39.2% of Company total portfolio) at
September 30, 1994 and December 31, 1993.
Commercial Equipment Leasing. The Company's commercial equipment leasing
group ("CEL") provides single-investor, tax-oriented lease financing as its
primary product. CEL, which maintains its principal operations in Long Beach,
California and has marketing offices in Chicago, Illinois and Detroit,
Michigan, obtains its business primarily through direct solicitation by its
marketing personnel. CEL specializes in leasing equipment such as over-the-
road transportation equipment, executive aircraft, machine tools, printing
equipment, shipping containers, textile manufacturing equipment and other
types of equipment which it believes will maintain strong collateral and
residual values. The lease term is generally between three and 10 years and
transaction sizes usually range between $2.0 million and $10.0 million. In
addition to financing transactions for the Company, CEL arranges third party
financings of equipment.
At December 31, 1993, the Company's CEL portfolio was comprised of
finance leases with a carrying amount of $235.2 million (12.8% of total
Company portfolio), operating leases with a carrying amount of $157.5 million
(8.6% of total Company portfolio), notes receivable with a carrying amount of
$28.8 million (1.6% of total Company portfolio) and preferred and preference
stock with a carrying amount of $0.8 million (.04% of total Company
portfolio).
Non-Core Businesses. The non-core businesses represent remaining
portfolios in markets in which the Company is no longer active. The non-core
businesses consist primarily of the remaining assets of two business units:
receivable inventory financing ("RIF") and real estate financing ("RE").
Since 1991, the Company has been liquidating or selling the assets of its non-
core businesses.
RIF finances dealers of rent-to-own products such as home appliances,
electronics and furniture through note arrangements secured by the products
and the rental amounts to be collected. RIF ceased pursuing new business
during 1991, but continues to service and finance existing customers.
RE previously specialized in fixed-rate, medium-term loans secured by a
first deed-of-trust or mortgage on commercial real estate properties such as
office buildings and small shopping centers. RE ceased originating new
transactions in 1990, but continues to manage its current portfolio. On
September 28, 1993, the Company sold, at estimated fair value, a majority of
the foreclosed properties comprising a portion of its RE assets. These
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<PAGE>14
properties were sold to an affiliate of MDC at a pre-tax loss of approximately
$5.7 million (after applying reserves). Consequently, real estate owned
through foreclosure totaled $12.9 million at December 31, 1993 compared to
$55.2 million at December 31, 1992. RE accounted for the largest write-off of
any business unit for each of the past four years. In addition, the Company's
real estate assets are largely concentrated in the western region of the
United States, principally in southern California, where values remain
depressed. At December 31, 1993, the Company had $33.9 million or 26.3% of
its real estate holdings in southern California. Office buildings, which
represent the largest southern California real estate holding, totaled $41.8
million at December 31, 1993.
At December 31, 1993, the Company's non-core business segment portfolio
was comprised of finance leases with a carrying amount of $2.2 million (0.1%
of total Company portfolio), operating leases with a carrying amount of $0.6
million (.03% of total Company portfolio) and notes receivable with a carrying
amount of $170.9 million (9.3% of total Company portfolio).
While the Company is actively managing the non-core business portfolios
with a view toward liquidating these portfolios over time, there can be no
assurances that the Company will be successful in profitably managing such
portfolios.
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of certain consolidated financial information
of the Company and its subsidiaries at the dates or for each of the periods
indicated. The selected consolidated financial data at and for each of the
years ended December 31, 1993, 1992 and 1991 have been derived from, should be
read in conjunction with, and is qualified in its entirety by reference to,
the audited consolidated financial statements and notes thereto of the Company
included in its Annual Report on Form 10-K for the year ended December 31,
1993, incorporated by reference in this Prospectus. The selected consolidated
financial data at and for the nine months ended September 30, 1994 has been
derived from, should be read in conjunction with, and is qualified in its
entirety by reference to, the unaudited interim consolidated financial
statements and notes thereto of the Company included in its Quarterly Report
on Form 10-Q for the nine months ended September 30, 1994, incorporated by
reference in this Prospectus. In the opinion of the Company, such unaudited
interim consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting only of normal accruals, necessary for a fair presentation of the
results for the interim periods. Results for the nine months ended
September 30, 1994 are not necessarily indicative of results that may be
expected for any other interim period or for the entire year ending December
31, 1994.
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<PAGE>15
Year Ended December 31, Nine Months Ended
1993 1992 1991 1990 1989 Sept 30 Sept 30
1994 1993
(Unaudited)
(Dollars in millions)
Selected earnings data:
Operating income
$ 198.5 $ 254.7 $ 342.3 $ 430.8 $ 320.7 $ 142.8 $ 138.7
Interest expense
116.4 145.9 198.5 216.4 184.0 83.2 87.3
Net income
16.8 27.7 36.7 65.5 149.7(1) 22.5 3.2
Ratio of earnings
to fixed charges
(Unaudited)(2)
1.34x 1.32x 1.28x 1.45x 1.41x 1.42x 1.21x
Selected balance sheet data:
Total assets
$2,055.5 $1,999.0 $2,582.3 $3,443.7 $3,133.7 $1,886.4 $1,899.5
Total debt
1,361.2 1,330.4 1,730.7 2,443.2 2,222.3 1,206.5 1,246.0
Shareholder's equity
269.4 256.4 340.5 364.9 317.0 274.6 256.8
Cash dividends paid (3)
3.6 105.8 59.0 23.5 142.2 17.8 1.8
_____________
(1) Included in the earnings for 1989 is a $100 million tax credit related to
the adoption of FASB Statement Number 96.
(2) For the purpose of computing the ratio of earnings to fixed charges,
earnings consists of earnings from continuing operations before income
taxes, cumulative effect of accounting changes and fixed charges and
fixed charges consist of interest expense and preferred stock dividends.
(3) The provisions of various credit and debt agreements require the Company
to maintain a minimum net worth, restrict indebtedness, and limit cash
dividends and other distributions. At December 31, 1993, at least $49.4
million of earnings retained for growth was available for dividends.
<PAGE>
<PAGE>16
INFORMATION CONCERNING MCDONNELL DOUGLAS CORPORATION
MDC, its divisions and its subsidiaries operate principally in four
industry segments: military aircraft; missiles, space and electronic systems;
commercial aircraft; and financial services and other. Operations in the
first two industry segments are conducted primarily by the McDonnell Douglas
Aerospace operating division, which is engaged in design, development and
production of the following major products: military transport aircraft;
combat aircraft and training systems; missiles; space launch vehicles and
space station systems and integration; defense and commercial electronics,
lasers, sensors, and command, control, communications, and intelligence
systems; and commercial and military helicopters and ordnance. Operations in
the commercial aircraft segment are conducted by Douglas Aircraft Company,
which designs, develops and produces, and sells commercial transport aircraft.
The financial services and other segment includes the operations of the
Company (aircraft and commercial equipment leasing), McDonnell Douglas Realty
Company (development and management of commercial real estate) and McDonnell
Douglas Travel Company (travel related services).
MDC is subject to the informational requirements of the Exchange Act, and
in accordance therewith files reports and other information with the
Commission (File No. 1-3685). Reports, proxy statements and other information
filed by MDC may be inspected and copied at the locations described under the
caption "Available Information" and at the offices of the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104. Prospective
investors are encouraged to consult the documents filed by MDC with the
Commission for more detailed information regarding such matters and for
further information regarding MDC.
USE OF PROCEEDS
Net proceeds from the sale of the Notes will be used to fund the
acquisition of receivables (possibly including without limitation the
acquisition of portfolios of receivables), to purchase equipment for lease,
for other corporate purposes, and to reduce, from time to time, other
indebtedness.
DESCRIPTION OF NOTES
The Senior Notes are to be issued under an indenture dated as of
April 15, 1987 (as amended or supplemented from time to time, the "Senior
Indenture"), between the Company and Bankers Trust Company, as trustee
("Bankers Trust"). The Senior Notes and all other indebtedness issued under
the Senior Indenture are referred to collectively herein as the "Senior
Securities". The Subordinated Notes are to be issued pursuant to an indenture
dated as of June 15, 1988 (as amended or supplemented from time to time, the
"Subordinated Indenture") between the Company and First Trust of California,
National Association, as trustee ("First Trust"). The Subordinated Notes and
all other indebtedness issued under the Subordinated Indenture are referred to
collectively herein as the "Subordinated Securities". The Senior Securities
and the Subordinated Securities are sometimes collectively referred to herein
as the "Securities". The Senior Indenture and the Subordinated Indenture are
referred to collectively herein as the "Indentures" and Bankers Trust and
First Trust are referred to collectively herein as the "Trustees". A copy of
each of the Indentures has been filed as an exhibit to the Registration
<PAGE>
<PAGE>17
Statement. The Indentures provide that there may be more than one Trustee,
each with respect to one or more series of Securities.
The Notes may be issued from time to time, and will initially be limited
to an aggregate principal amount of up to $89,300,000 or the equivalent
thereof in one or more Specified Currencies (as hereinafter defined). Such
aggregate principal amount may be reduced by the aggregate principal amount of
any other Securities issued by the Company pursuant to the Senior Indenture or
the Subordinated Indenture and may be increased from time to time as
authorized by, or pursuant to authority delegated by, the Board of Directors
of the Company. The Notes offered pursuant to this Prospectus are in addition
to the $660.7 million aggregate principal amount of the Company's Series IX
Medium-Term Notes previously issued ($416.2 million aggregate principal amount
of which are outstanding as of the date of this Prospectus) and $90.7 million
aggregate principal amount of General Term Notes(R) that are outstanding as of
the date of this Prospectus. The General Term Notes(R) are a separate series
of Senior Securities offered from time to time pursuant to a separate
prospectus. Neither Indenture limits the amount of additional indebtedness
the Company may incur thereunder. For the purpose of this paragraph, the
principal amount of any Note issued in a Specified Currency means the U.S.
dollar equivalent on the date of issue of the principal amount of such Note.
The following information concerning certain provisions of the Indentures
and the Notes is intended to provide a summary thereof and does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the detailed provisions of the Indentures including the definitions therein of
certain terms, and to the Notes. Wherever reference is made to defined terms
(which are capitalized herein) of the Indentures, such defined terms are
incorporated herein by reference. The terms and conditions set forth in this
section "Description of Notes" will apply to each Note unless otherwise
specified in the applicable Pricing Supplement or such Note. The particular
terms of the Notes sold pursuant to any pricing supplement (a "Pricing
Supplement") will be described therein.
If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including
composite currencies such as the European Currency Unit (each, a "Specified
Currency"), in which the principal and interest with respect to such Note are
to be paid, along with any other terms relating to the non-U.S. dollar
denomination, including exchange rates for the Specified Currency as against
the U.S. dollar at selected times immediately preceding the year in which such
Note is issued, and any exchange controls affecting such Specified Currency.
<PAGE>
<PAGE>18
General
The Senior Notes will constitute a single series under the Senior
Indenture and the Subordinated Notes will constitute a single series under the
Subordinated Indenture. The Senior Notes will rank pari passu with all other
Senior Securities of the Company and with all other unsecured and
unsubordinated indebtedness of the Company. The Subordinated Notes, unless
specifically designated as ranking junior to other subordinated debt
securities of the Company, will rank pari passu with all other subordinated
debt securities of the Company which have not been specifically designated as
ranking junior to other subordinated debt securities of the Company. The
Subordinated Notes, together with other subordinated indebtedness, if any,
issued by the Company, will be subordinated in right of payment to the prior
payment in full of the Senior Securities, including the Senior Notes, and all
other Senior Indebtedness of the Company. See "Description of Notes -
Subordination".
The Indentures do not limit the aggregate principal amount of Securities
that may be issued thereunder or of any particular series of such Securities
and provide that securities, in addition to the Securities, may be issued
thereunder from time to time in one or more series.
Under the Indentures, the Company will have the ability, in addition to
the ability to issue Securities with terms the same as or different from those
of Securities previously issued, to "reopen" a previous issue of a series of
Securities and issue additional Securities of such series.
Unless the applicable Pricing Supplement provides otherwise, the price at
which each Note will be issued will be 100% of the principal amount of the
Note. Notes will not be issued as discounted securities, at prices below
stated principal amounts, or having an original issue discount for U.S.
federal income tax purposes, unless the applicable Pricing Supplement so
provides and, if applicable, describes such U.S. federal income tax
consequences. The Notes are expected to be offered on a continuing basis and
will mature on any day more than nine months from the date of issue, as
selected by the purchaser and agreed to by the Company. Each interest bearing
Note will be either a Fixed Rate Note or a Floating Rate Note.
Notes offered pursuant to this Prospectus will be issued in registered
form without coupons. Each Note will be issued as a Book-Entry Note or as a
Certificated Note in the denomination of $100,000 or any amount in excess
thereof which is an integral multiple of $1,000. Notes will be exchangeable
for other Notes of any authorized denominations and of a like aggregate
principal amount and tenor. Book-Entry Notes may be transferred and exchanged
only through a participating member of The Depository Trust Company (or such
other depositary as is identified in an applicable Pricing Supplement) (the
"Depositary"). Only Notes denominated and payable in U.S. dollars will be
issued as Book-Entry Notes. Except as otherwise set forth herein, Book-Entry
Notes will not be issuable as Certificated Notes. See "Description of Notes -
Book-Entry System". Certificated Notes may be presented for exchange or
registration of transfer (duly endorsed, or accompanied by a duly executed
written instrument of transfer) at the office of Bankers Trust Company (in its
capacity as security registrar under the Senior Indenture or the Subordinated
Indenture, as applicable), Four Albany Street, New York, New York 10015,
Attention: Corporate Trust and Agency Group (the "Security Registrar") or at
the office of any transfer agent designated by the Company for such purpose
with respect to any Notes and referred to in the Pricing Supplement relating
<PAGE>
<PAGE>19
thereto. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. If a
Pricing Supplement refers to any transfer agents (in addition to the Security
Registrar) designated by the Company with respect to any Notes, the Company
may at any time rescind the designation of any such transfer agent or approve
a change in the location through which any such transfer agent acts, except
that the Company will be required to maintain a transfer agent in The City of
New York. The Company may at any time designate additional transfer agents
with respect to the Notes. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charges
that may be imposed in connection therewith.
Payments of principal, premium, if any, and interest at the Stated
Maturity on Book-Entry Notes or on the date of redemption, if such Notes are
redeemed prior to their Stated Maturity, or on a date fixed for payment
following a declaration of acceleration (each such date, a "Maturity"), will
be made by the Company through Bankers Trust Company, in its capacity as
paying agent under the Senior Indenture or the Subordinated Indenture (the
"Paying Agent"), as applicable, to the Depositary. In the case of
Certificated Notes, principal, premium, if any, and interest on each such Note
will be payable at Maturity in immediately available funds by wire transfer
against presentation and surrender of the Note at the Corporate Trust Office
of the Paying Agent in New York City or at such other place as the Company may
designate, except for a payment to a holder for which appropriate instructions
for payment as provided above have not been received by the Paying Agent by
the close of business at least ten Business Days prior to the related
Maturity, in which case such payment will be made by federal funds check to
the person entitled thereto. Interest payable at Maturity will be paid to the
person to whom principal of the Note shall be paid. Interest due other than
at Maturity will be payable by check mailed to the address of the person in
whose name the applicable Note is registered at the close of business on the
Regular Record Date (as defined herein) next preceding the related Interest
Payment Date (as defined herein) as shown on the security register maintained
pursuant to the appropriate Indenture. Notwithstanding the foregoing, a
holder of $10,000,000 or more in aggregate principal amount of Notes which pay
interest on the same Interest Payment Date shall be entitled to receive
payments of interest (other than at Maturity) by wire transfer of immediately
available funds if appropriate wire transfer instructions have been received
by the Paying Agent on or before the Regular Record Date immediately preceding
such Interest Payment Date. The Company may at any time designate additional
paying agents or rescind the designation of any paying agent or approve a
change in the office through which any paying agent acts, except that, with
respect to the Notes offered pursuant to this Prospectus, the Company will be
required to maintain a paying agent in The City of New York. All moneys paid
by the Company to the Paying Agent for the payment of principal of or
interest, if any, on any Note which remain unclaimed at the end of one year
after such principal or interest shall have become due and payable will be
repaid to the Company and the Holder of such Note will thereafter look only to
the Company for payment thereof.
A Pricing Supplement with respect to each offering of Notes by the
Company will set forth, among other things, the name of each Agent
participating in the distribution of such Notes, the price to public of such
Notes and the proceeds to the Company from such sale, any underwriting
discounts or commissions and other items constituting Agent's compensation,
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<PAGE>20
the date on which such Notes will be issued, the interest rate or interest
rate formula applicable to such Notes, whether such Notes are Senior or
Subordinated Notes, the Stated Maturity, currency and principal amount of such
Notes, whether such Notes will be subject to redemption by the Company prior
to Stated Maturity, whether such Notes will be issued in the form of Book-
Entry Notes or Certificated Notes and any other terms on which each such Note
will be issued.
As used herein, "Business Day" means any day that is not a Saturday or
Sunday and that is neither a legal holiday nor a day on which banking
institutions are authorized or required by law or regulation to close in New
York, New York, Los Angeles, California or (i) with respect to Notes
denominated in a Specified Currency other than U.S. dollars or ECUs, in the
capital city of the country of the Specified Currency, (ii) with respect to
Notes denominated in ECUs, in Brussels, Belgium or (iii) with respect to LIBOR
Notes (as defined herein), in the City of London.
As used herein, "London Business Day" means any day on which dealings in
deposits in U.S. dollars are transacted in the London interbank market.
Redemption
The Notes will not be subject to any sinking fund. If provided in the
applicable Pricing Supplement, the Notes may be subject to redemption, in
whole or in part, prior to their Stated Maturity at the option of the Company
or through operation of a sinking fund or analogous provisions. Such Pricing
Supplement will set forth the terms of such redemption, including, but not
limited to, the dates on which redemption may be effected, the price
(including premium, if any) at which such Notes may be redeemed, and required
notice provisions.
In the event of any partial redemption of Notes, the Company will not be
required to (i) issue, register the transfer of or exchange Notes during a
period beginning at the opening of business 15 days before any selection of
Notes to be redeemed and ending at the close of business on the day of mailing
of the relevant notice of redemption; or (ii) register the transfer of or
exchange any Note, or portion thereof, called for redemption, except the
unredeemed portion of any Note being redeemed in part.
Interest
General
Unless otherwise specified in the applicable Pricing Supplement, each
Note will bear interest from the date of issue at the rate per annum or, in
the case of a Floating Rate Note, pursuant to the interest rate formula,
stated therein until the principal thereof is paid or made available for
payment. Interest payments shall be the amount of interest accrued from and
including the next preceding Interest Payment Date (as defined herein) in
respect of which interest has been paid (or from and including the date of
issue if no interest has been paid with respect to such Note), to but
excluding the applicable Interest Payment Date (an "Interest Accrual Period").
However, in the case of Floating Rate Notes for which the interest rate is
reset daily or weekly, as more fully described below, the interest payments
shall include interest accrued only from but excluding the Regular Record Date
to which interest has been paid (or from and including the date of issue if no
interest has been paid with respect to such Note) to and including the Regular
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<PAGE>21
Record Date next preceding the applicable Interest Payment Date, except that
the interest payment at Maturity will include interest accrued to but
excluding such date.
Interest will be payable on each date specified in the Note on which an
installment of interest is due and payable (an "Interest Payment Date") and at
Maturity. Interest will be payable by check mailed to the address of the
person in whose name the applicable Note is registered at the close of
business on the Regular Record Date next preceding each Interest Payment Date;
provided, however, that interest payable at Maturity will be payable to the
person to whom principal shall be payable. If the original issue date of a
Note is between a Regular Record Date and the related Interest Payment Date,
the initial interest payment will be made on the Interest Payment Date
following the next succeeding Regular Record Date to the registered holder on
such next succeeding Regular Record Date. Unless otherwise specified in the
applicable Pricing Supplement, the "Regular Record Date" will be the date 15
calendar days (whether or not a Business Day) prior to each Interest Payment
Date.
U.S. dollar payments of interest, other than interest payable at
Maturity, will be made by check mailed to the address of the person entitled
thereto as shown on the security register. U.S. dollar payments of principal
and interest at Maturity will be made in immediately available funds against
presentation and surrender of the Note. Notwithstanding the foregoing, (a)
the Depositary, as holder of Book-Entry Notes, shall be entitled to receive
payments of interest by wire transfer of immediately available funds and (b) a
holder of $10,000,000 or more in aggregate principal amount of Certificated
Notes which pay interest on the same Interest Payment Date shall be entitled
to receive payments of interest (other than at Maturity) by wire transfer of
immediately available funds if appropriate wire transfer instructions have
been received by the Paying Agent on or before the Regular Record Date
immediately preceding such Interest Payment Date.
Interest rates, interest rate formulae and other variable terms of the
Notes are subject to change by the Company from time to time, but no such
change will affect any Note already issued or as to which an offer to purchase
has been accepted by the Company.
Fixed Rate Notes
Interest with respect to Senior Notes that are Fixed Rate Notes will be
payable semiannually on each March 15 and September 15 and interest with
respect to Subordinated Notes that are Fixed Rate Notes will be payable
semiannually on each January 15 and July 15 and in each case at Maturity. If
any Interest Payment Date or Maturity of a Fixed Rate Note falls on a day that
is not a Business Day, the related payment of principal, premium, if any, and
interest will be made on the next succeeding Business Day as if it were made
on the date such payment was due and no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date or Maturity,
as the case may be. Interest on each Fixed Rate Note will be calculated on
the basis of a 360-day year of twelve 30-day months.
Floating Rate Notes
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. Interest on Floating Rate Notes
will be determined by reference to a "Base Rate", which may be (a) the
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<PAGE>22
Commercial Paper Rate, in which case such Note will be a "Commercial Paper
Rate Note"; (b) the 11th District Cost of Funds Rate, in which case such Note
will be an "11th District Cost of Funds Rate Note"; (c) LIBOR, in which case
such Note will be a "LIBOR Note"; (d) the Prime Rate, in which case such Note
will be a "Prime Rate Note"; (e) the Treasury Rate, in which case such Note
will be a "Treasury Rate Note"; or (f) such other interest rate formula as may
be set forth in the applicable Pricing Supplement. In addition, a Floating
Rate Note may bear interest at the lowest of two or more Base Rates determined
in the same manner as the Base Rates are determined for the types of Notes
described above (except the interest rate for such Notes will not be
determined with reference to the 11th District Cost of Funds Rate or the
Treasury Rate).
The applicable Pricing Supplement will specify the Base Rate or Rates and
the Spread or Spread Multiplier, if any, and the maximum or minimum interest
rate limitation, if any, applicable to each Floating Rate Note. In addition,
such Pricing Supplement will define or particularize for each Floating Rate
Note the following terms, if applicable: Initial Interest Rate, Index
Maturity, Interest Payment Dates, Interest Rate Reset Period, Calculation
Agent and Interest Reset Dates and Alternate Rate Event Spread, if applicable.
A Floating Rate Note may also have either or both of the following which will
be specified in such Pricing Supplement if applicable: (a) a maximum limit,
or ceiling, on the rate of interest which may accrue during any Interest
Accrual Period, and (b) a minimum limit, or floor, on the rate of interest
which may accrue during any Interest Accrual Period.
The interest rate on each Floating Rate Note will be calculated by
reference to the specified Base Rate or the lowest of two or more specified
Base Rates, in either case, plus or minus the Spread, if any, or multiplied by
the Spread Multiplier, if any, and in the case of 11th District Cost of Funds
Rate Notes, plus or minus, the Alternate Rate Event Spread, if applicable.
The "Spread" and the "Alternate Rate Event Spread" are the number of basis
points (each basis point being equal to one one-hundredth of a percentage
point) to be added to or subtracted from the related Base Rate or Rates
applicable to such Floating Rate Note to determine the interest rate on such
Note for the related Interest Reset Period (as defined below). The "Spread
Multiplier" is the percentage by which the related Base Rate or Rates
applicable to such Floating Rate Note are multiplied to determine the interest
rate on such Note for the related Interest Reset Period. The "Index Maturity"
is the period to maturity of the instrument or obligation with respect to
which the related Base Rate or Rates is calculated.
Each Floating Rate Note and the applicable Pricing Supplement will
specify whether the rate of interest on such Floating Rate Note will be reset
daily, weekly, monthly, quarterly, semiannually or annually (each, an
"Interest Reset Period") and the date on which such interest rate will be
reset (each, an "Interest Reset Date"). Except as otherwise specifically set
forth herein or in the applicable Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset (a) daily, each
Business Day; (b) weekly, Wednesday of each week (with the exception of weekly
reset Treasury Rate Notes which reset the Tuesday of each week); (c) monthly,
the third Wednesday of each month (with the exception of 11th District Cost of
Funds Rate Notes which reset the first Business Day of each month); (d)
quarterly, with respect to Floating Rate Notes which are Senior Notes the
third Wednesday of March, June, September and December of each year, and with
respect to Floating Rate Notes which are Subordinated Notes, the third
Wednesday of January, April, July and October of each year; (e) semiannually,
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<PAGE>23
the third Wednesday of each of the two months specified in such Pricing
Supplement; and (f) annually, the third Wednesday of the month specified in
such Pricing Supplement. If any Interest Reset Date for any Floating Rate
Note would otherwise be a day that is not a Business Day, such Interest Reset
Date will be postponed to the next succeeding day that is a Business Day,
except that in the case of a LIBOR Note (or a Note for which the interest rate
is determined with reference to LIBOR), if such business Day is in the next
succeeding calendar month, such Interest Reset Date shall be the next
preceding London Business Day.
The interest rate applicable to each Interest Reset Period commencing on
an Interest Reset Date will be the rate determined on the "Interest
Determination Date". The Interest Determination Date with respect to the
Commercial Paper Rate and the Prime Rate will be the second Business Day
preceding each Interest Reset Date. The Interest Determination Date with
respect to LIBOR will be the second London Business Day preceding each
Interest Reset Date. With respect to the Treasury Rate, the Interest
Determination Date will be the day of the week in which the Interest Reset
Date falls on which Treasury Bills are actually 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); provided,
however, that if as a result of a legal holiday an auction is held on the
Friday of the week preceding an Interest Reset Date, the related Interest
Determination Date shall be such preceding Friday; and provided, further, that
if an auction shall fall on any Interest Reset Date, then the Interest Reset
Date shall instead be the first Business Day following such auction. The
Interest Determination Date with respect to an Interest Reset Date for the
11th District Cost of Funds Rate will be the last working day of the month
immediately preceding such Interest Reset Date on which the Federal Home Loan
Bank of San Francisco (the "FHLB of San Francisco") publishes the monthly 11th
District Cost of Funds Index (as defined herein). The Interest Determination
Date pertaining to a Note the interest rate of which is determined with
reference to two or more Base Rates will be the first Business Day which is at
least two Business Days prior to the Interest Reset Date for such a Note on
which each Base Rate shall be determinable. Each Base Rate shall be
determined and compared on such date, and the applicable interest rate shall
take effect on the related Interest Reset Date.
Except as otherwise provided below or in the applicable Pricing
Supplement, interest will be due and payable, in the case of Floating Rate
Notes which reset (a) daily, weekly or monthly, on the third Wednesday of each
month or with respect to Floating Rate Notes which are Senior Notes, on the
third Wednesday of March, June, September and December of each year and with
respect to Floating Rate Notes which are Subordinated Notes, the third
Wednesday of January, April, July and October of each year, as specified in
the applicable Pricing Supplement or, in the case of 11th District Cost of
Funds Rate Notes, on the first Business Day of each month or the first
Business Day of each March, June, September and December, as specified in the
applicable Pricing Supplement; (b) quarterly, with respect to Floating Rate
Notes which are Senior Notes, on the third Wednesday of March, June, September
and December of each year and with respect to Floating Rate Notes which are
Subordinated Notes, on the third Wednesday of January, April, July and October
of each year; (c) semiannually, on the third Wednesday of each of the two
months of each year specified in the applicable Pricing Supplement; and (d)
annually, on the third Wednesday of the month specified in the applicable
Pricing Supplement and, in each case, at Maturity.
<PAGE>
<PAGE>24
If any Interest Payment Date for a Floating Rate Note falls on a day that
is not a Business Day with respect to such Note, such Interest Payment Date
will be the following day that is a Business Day with respect to such Note,
except that, in the case of a LIBOR Note (or a Note for which the interest
rate is determined with reference to LIBOR), if such Business Day is in the
next succeeding calendar month, such Interest Payment Date shall be the
immediately preceding day that is a Business Day with respect to such Note.
If the Maturity of a Floating Rate Note falls on a day that is not a Business
Day, the payment of principal, premium, if any, and interest may be made on
the next succeeding Business Day, and no interest on such payment shall accrue
for the period from and after the Maturity.
The interest rate in effect with respect to a Floating Rate Note on each
day that is not an Interest Reset Date will be the interest rate determined as
of the Interest Determination Date pertaining to the immediately preceding
Interest Reset Date and the interest rate in effect on any day that is an
Interest Reset Date will be the interest rate determined as of the Interest
Determination Date pertaining to such Interest Reset Date, subject in either
case to any maximum or minimum interest rate limitation referred to above;
provided, however, that the interest rate in effect with respect to a Floating
Rate Note for the period from the date of issue to the first Interest Reset
Date will be the Initial Interest Rate (as defined herein) specified in the
applicable Pricing Supplement and the related Note and the interest rate in
effect for the 10 calendar days immediately prior to Maturity will be the
interest rate in effect on the 10th calendar day preceding such Maturity.
With respect to each Floating Rate Note, accrued interest for each
Interest Accrual Period shall be calculated by multiplying the principal
amount of such Floating Rate Note by an accrued interest factor. Such accrued
interest factor will be computed by adding the interest factor calculated for
each day from the date of issue, or from the last date to which interest has
been paid, to the date for which accrued interest is being calculated. The
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of Commercial Paper Rate Notes,
11th District Cost of Funds Rate Notes, LIBOR Notes and Prime Rate Notes, or
by the actual number of days in the year in the case of Treasury Rate Notes.
Unless otherwise specified in the applicable Pricing Supplement, the interest
factor for Floating Rate Notes for which the interest rate is calculated with
reference to the lowest of two or more Base Rates will be calculated in each
period in the same manner as if only the lowest of the applicable Base Rates
applied.
All percentages resulting from any calculation of the applicable Base
Rate or Rates on Floating Rate Notes will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-millionths
of a percentage point rounded upward (e.g. 9.876545% (or .09876545) will be
rounded upward to 9.87655% (or .0987655)), and all dollar amounts used in or
resulting from such calculation on Floating Rate Notes will be rounded to the
nearest cent (with one-half cent being rounded upward).
The applicable Pricing Supplement will specify the "Calculation Agent"
for each related Floating Rate Note. Upon the request of the holder of any
Floating Rate Note, the Calculation Agent will provide the interest rate then
in effect and, if determined, the interest rate that will become effective as
a result of a determination made for the next Interest Reset Date with respect
to such Floating Rate Note. The Company will notify the Trustee of each
determination of the interest rate applicable to any such Floating Rate Note
<PAGE>
<PAGE>25
promptly after such determination is made. The "Calculation Date", where
applicable, pertaining to any Interest Determination Date will be the earlier
of the tenth calendar day after such Interest Determination Date or the next
succeeding Record Date after such Interest Determination Date, or, if either
such day is not a Business Day, the next succeeding Business Day.
The interest rate in effect with respect to a Floating Rate Note from the
date of issue to the first Interest Reset Date (the "Initial Interest Rate")
will be specified in the applicable Pricing Supplement. The interest rate for
each subsequent Interest Reset Date will be determined by the Calculation
Agent as follows:
Commercial Paper Rate. Commercial Paper Rate Notes will bear interest at
the interest rates (calculated with reference to the Commercial Paper Rate and
the Spread or Spread Multiplier, if any) specified in such Commercial Paper
Rate Notes and in the applicable Pricing Supplement.
"Commercial Paper Rate" means, with respect to any Interest Determination
Date relating to a Commercial Paper Rate Note or any Interest Determination
Date for a Note for which the interest rate is determined with reference to
the Commercial Paper Rate (a "Commercial Paper Rate Interest Determination
Date"), the Money Market Yield (as defined below) on such date of the rate for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement as such rate shall be published in the "Federal Reserve Statistical
Release H.15(519), Selected Interest Rates" or any successor publication
("H.15(519)") under the heading "Commercial Paper". In the event that such
rate is not published prior to 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Commercial Paper Rate Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield on such Commercial Paper Rate Interest Determination Date of the rate
for commercial paper of the specified Index Maturity as published by the
Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" or any successor
publication ("Composite Quotations") under the heading "Commercial Paper". If
by 3:00 P.M., New York City time, on such Calculation Date, such rate is not
yet available in either H.15(519) or Composite Quotations, then the Commercial
Paper Rate shall be calculated by the Calculation Agent and will be the Money
Market Yield of the arithmetic mean of the offered rates, as of 11:00 A.M.,
New York City time, on such Commercial Paper Rate Interest Determination Date,
of three leading dealers of commercial paper in New York, New York selected by
the Calculation Agent (after consultation with the Company) for commercial
paper of the specified Index Maturity, placed for an industrial issuer whose
bond rating is "AA", or the equivalent, from a nationally recognized rating
agency; provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting offered rates as mentioned in this sentence,
the Commercial Paper Rate determined on such Commercial Paper Rate Interest
Determination Date will be the rate determined on the immediately preceding
Commercial Paper Rate Interest Determination Date or, in the case of the first
Commercial Paper Rate Interest Determination Date, the Initial Interest Rate.
"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)
<PAGE>
<PAGE>26
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 Index Maturity.
11th District Cost of Funds Rate. 11th District Cost of Funds Rate Notes
will bear interest at the interest rates (calculated with reference to the
11th District Cost of Funds Rate as adjusted by the Spread or Spread
Multiplier, if any, or Alternate Rate Event Spread, if applicable) specified
in such 11th District Cost of Funds Rate Notes and the applicable Pricing
Supplement.
"11th District Cost of Funds Rate" means, with respect to any Interest
Determination Date relating to an 11th District Cost of Funds Rate Note (an
"11th District Cost of Funds Interest Determination Date"), the rate equal to
the monthly 11th District Cost of Funds Index (the "Index") published by the
FHLB of San Francisco during the month immediately preceding the Interest
Reset Date to which such 11th District Cost of Funds Interest Determination
Date applies.
The Index is normally published by the FHLB of San Francisco on the last
day on which the FHLB of San Francisco is open for business in each month and
represents the monthly weighted average cost of funds for savings institutions
in the 11th District of the Federal Home Loan Bank System for the month
preceding the month in which the Index is published. Currently, the Index is
computed by the FHLB of San Francisco for each month by dividing the cost of
funds (interest paid during the month by 11th District savings institutions on
savings, advances and other borrowings) by the average of the total amount of
those funds outstanding at the end of that month and the prior month and
annualizing and adjusting the result to reflect the actual number of days in
the particular month. If necessary, before these calculations are made, the
component figures are adjusted by the FHLB of San Francisco to neutralize the
effect of events such as member institutions leaving the 11th District or
acquiring institutions outside the 11th District. Receipt by mail of
bulletins announcing Index changes may be arranged by contacting the FHLB of
San Francisco.
If the FHLB of San Francisco shall fail in any month to publish the Index
(each such failure being referred to herein as an "Alternate Rate Event"),
then the 11th District Cost of Funds Rate for the first 11th District Cost of
Funds Interest Determination Date after the Alternate Rate Event shall be
calculated on the basis of the Index most recently published prior to such
11th District Cost of Funds Interest Determination Date. If any Alternate
Rate Event occurs in the month immediately following a month in which a prior
Alternate Rate Event occurred, then the 11th District Cost of Funds Rate for
the 11th District Cost of Funds Interest Determination Date immediately
following such second Alternate Rate Event shall be calculated on the basis of
the Index most recently published prior to such 11th District Cost of Funds
Interest Determination Date and, thereafter, the 11th District Cost of Funds
Rate for each succeeding 11th District Cost of Funds Interest Determination
Date until Maturity of such 11th District Cost of Funds Rate Notes shall be
LIBOR, determined as if such 11th District Cost of Funds Rate Notes were LIBOR
Notes, and the Spread shall be plus or minus the number of basis points
specified in the applicable Pricing Supplement as the "Alternate Rate Event
Spread", if any.
<PAGE>
<PAGE>27
In determining that the FHLB of San Francisco has failed to publish the
Index, the Calculation Agent may rely conclusively on any written advice from
the FHLB of San Francisco to such effect.
LIBOR. LIBOR Notes will bear interest at the interest rates (calculated
with reference to LIBOR and the Spread or Spread Multiplier, if any) specified
in such LIBOR Notes and in the applicable Pricing Supplement.
"LIBOR" for each Interest Reset Date will be determined by the
Calculation Agent as follows:
(a) With respect to an Interest Determination Date relating to a
LIBOR Note or any Interest Determination Date for a note for which the
interest rate is determined with reference to LIBOR (a "LIBOR Interest
Determination Date"), the Calculation Agent will determine the arithmetic
mean of all available offered rates for deposits in United States dollars
for the period of the Index Maturity designated in the applicable Pricing
Supplement commencing on the second London Business Day immediately
following such LIBOR Interest Determination, which appear on the Reuters
Screen LIBO Page as of approximately 11:00 A.M., London time, on such
LIBOR Interest Determination Date. "Reuters Screen LIBO Page" means the
display designated as page "LIBO" on the Reuters Monitor Money Rate
Service (or such other page as may replace the LIBO page on the service
for the purpose of displaying London interbank offered rates of major
banks).
(b) If fewer than two offered rates appear on the Reuters Screen
LIBO Page, the Calculation Agent will request the principal London
offices of each of four major banks in the London interbank market, as
selected by the Calculation Agent (after consultation with the Company),
to provide the Calculation Agent with its offered quotations for deposits
in United States dollars for the period of the specified Index Maturity
to prime banks in the London interbank market as of approximately 11:00
A.M., London time, on such LIBOR Interest Determination Date and in a
principal amount equal to an amount of not less than U.S. $1 million that
is representative of a single transaction in such market at such time.
If at least two such quotations are provided, LIBOR for such LIBOR
Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR for such
LIBOR Interest Determination Date will be the arithmetic mean of the
rates quoted by three major banks in New York, New York selected by the
Calculation Agent (after consultation with the Company) as of
approximately 11:00 A.M., New York City time, on such LIBOR Interest
Determination Date for loans in U.S. dollars to leading European banks,
for the period of the specified Index Maturity and in a principal amount
equal to an amount of not less than U.S. $1 million that is
representative of a single transaction in such market at such time;
provided, however, that if fewer than three banks selected as aforesaid
by the Calculation Agent (after consultation with the Company) are
quoting rates as mentioned in this sentence, LIBOR determined on such
LIBOR Interest Determination Date will be LIBOR determined on the
immediately preceding LIBOR Interest Determination Date, or in the case
of the first LIBOR Interest Determination Date, the Initial Interest
Rate.
Prime Rate. Prime Rate Notes will bear interest at the interest rates
(calculated with reference to the Prime Rate and the Spread or Spread
<PAGE>
<PAGE>28
Multiplier, if any) specified in such Prime Rate Notes and in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date relating to a
Prime Rate Note or any Interest Determination Date for a Note for which the
interest rate is determined with reference to the Prime Rate (a "Prime Rate
Interest Determination Date"), the rate set forth in H.15(519) for such date
opposite the caption "Bank Prime Loan". If such rate is not yet published by
9:00 A.M., New York City time, on the Calculation Date, the Prime Rate for
such Prime Rate Interest Determination Date will be the arithmetic mean of the
rates of interest publicly announced by each bank named on the Reuters Screen
NYMF Page as such bank's prime rate or base lending rate as in effect for such
Prime Rate Interest Determination Date as quoted on the Reuters Screen NYMF
Page on such Prime Rate Interest Determination Date. "Reuters Screen NYMF
Page" means the display designated as page "NYMF" on the Reuters Monitor Money
Rate Service (or such other page as may replace the NYMF page on the service
for the purpose of displaying the prime rate or base lending rate of major
banks). If fewer than four such rates appear on the Reuters Screen NYMF Page
for such Prime Rate Interest Determination Date, the rate shall be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by 360 as of the close of business on such Prime Rate
Interest Determination Date by at least two of the three major money center
banks in New York, New York selected by the Calculation Agent (after
consultation with the Company) from which quotations are requested. If fewer
than two quotations are provided, the Prime Rate shall be calculated by the
Calculation Agent and shall be determined as the arithmetic mean on the basis
of the prime rates in New York, New York by the appropriate number of
substitute banks or trust companies organized and doing business under the
laws of the United States, or any State thereof, in each case having total
equity capital of at least U.S. $500 million and being subject to supervision
or examination by federal or state authority, selected by the Calculation
Agent (after consultation with the Company) to quote such rate or rates.
If in any month the Prime Rate is not published in H.15(519) and the
banks or trust companies selected as aforesaid are not quoting as mentioned in
the preceding paragraph, the Prime Rate determined on such Prime Rate Interest
Determination Date will be the Prime Rate determined on the immediately
preceding Prime Rate Interest Determination Date, or in the case of the first
Prime Rate Interest Determination Date, the Initial Interest Rate.
Treasury Rate. Treasury Rate Notes will bear interest at the interest
rate (calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, if any) specified in the Treasury Rate Notes and in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Treasury Rate" means, with respect to any Interest Determination Date
relating to a Treasury Rate Note (a "Treasury Rate Interest Determination
Date"), the rate for the auction held on such date of direct obligations of
the United States ("Treasury Bills") having the Index Maturity designated in
the applicable Pricing Supplement, as published in H.15(519) under the heading
"Treasury Bills - auction average (investment)" or, if not so published by
9:00 A.M., New York City time, on the Calculation Date pertaining to such
Treasury Rate Interest Determination Date, the auction average rate on such
Treasury Rate Interest Determination Date (expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
<PAGE>
<PAGE>29
basis) as otherwise announced by the United States Department of the Treasury.
In the event that the results of the auction of Treasury Bills having the
Index Maturity designated in the applicable Pricing Supplement are not
published or reported as provided above by 3:00 P.M., New York City time, on
such Calculation Date, or if no such auction is held on such Treasury Rate
Interest Determination Date, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 P.M., New York City time, on such Treasury
Rate Interest Determination Date, of three leading primary United States
government securities dealers selected by the Calculation Agent (after
consultation with the Company), for the issue of Treasury Bills with a
remaining maturity closest to the Index Maturity designated in the applicable
Pricing Supplement; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting bid rates as mentioned in
this sentence, the Treasury Rate with respect to such Treasury Rate Interest
Determination Date will be the Treasury Rate determined on the immediately
preceding Treasury Rate Interest Determination Date or, in the case of the
first Treasury Rate Interest Determination Date, the Initial Interest Rate.
Global Notes
The Notes may be issued in whole or in part in global form. Notes in
global form (a "Global Note") will be deposited with, or on behalf of, the
Depositary.
Book-Entry System
Upon issuance, all Fixed Rate Book-Entry Notes having the same Issue
Date, interest rate, amortization schedule, if any, redemption provisions, if
any, ranking and Stated Maturity will be represented by a single Global Note,
and all Floating Rate Book-Entry Notes having the same Issue Date, Initial
Interest Rate, Base Rate, Interest Reset Period, Interest Payment Dates, Index
Maturity, Spread or Spread Multiplier, if any, Minimum Interest Rate, if any,
Maximum Interest Rate, if any, redemption provisions, if any, ranking and
Stated Maturity will be represented by a single Global Note; provided,
however, that if by reason of the foregoing a single Global Note would exceed
$150,000,000 in aggregate principal amount, one Global Note will be issued to
represent each $150,000,000 of aggregate principal amount and an additional
Global Note will be issued to represent any remaining principal amount. Each
Global Note representing Book-Entry Notes will be deposited with, or on behalf
of, the Depositary. Except as set forth below, a Global Note may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any nominee to a successor of the
Depositary or a nominee of such successor.
The Depository Trust Company, New York, New York ("DTC") will be the
initial Depositary with respect to the Book-Entry Notes. DTC is a limited-
purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers
<PAGE>
<PAGE>30
and pledges, in deposited securities through electronic computerized book-
entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants ("Direct
Participants") include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to DTC's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Book-Entry Notes under the DTC's system must be made by or
through Direct Participants, which will receive a credit for the Book-Entry
Notes on DTC's records. The ownership interest of each actual purchaser of
each Book-Entry Note ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Book-Entry Notes are to
be accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Book-Entry Notes, except in the
event that use of the book-entry system for one or more Book-Entry Notes is
discontinued.
To facilitate subsequent transfers, all Global Notes deposited by
Participants with DTC are registered in the name of the DTC's partnership
nominee, Cede & Co. The deposit of Global Notes with DTC and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the Book-
Entry Notes; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Book-Entry Notes are credited, which may
or may not be the Beneficial Owners. The Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, and unless otherwise notified by either the Company
or the Trustee, DTC's practice is to determine by lot the amount of the
interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to Notes.
Under its usual procedures, DTC will mail an Omnibus Proxy to the Company as
soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Book-Entry Notes are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
<PAGE>
<PAGE>31
Principal and interest payments on the Book-Entry Notes will be made to
DTC. DTC's practice is to credit Direct Participants' accounts on the payable
date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on the
payable date. Payments by Participants to Beneficial Owners will be governed
by standing instructions and customary practices, as in the case with
securities held for the accounts of customers in bearer form or registered in
"street name" and will be the responsibility of such Participant and not of
DTC, any Agents, or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal and
interest to DTC is the responsibility of the Company, disbursement of such
payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
If the Depositary with respect to any Global Note or Notes is at any time
unwilling or unable to continue as Depositary and a successor Depositary is
not appointed by the Company within 90 days, the Company will issue
Certificated Notes in exchange for the Book-Entry Notes represented by such
Global Note or Notes. In addition, the Company may at any time and in its
sole discretion determine not to have Global Notes, and, in such event, will
issue Certificated Notes in exchange for the Book-Entry Notes represented by
such Global Notes.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
Neither the Company, the Trustees, any paying agent nor the registrar for
the Book-Entry Notes will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Certain Defined Terms
Unless otherwise noted herein all defined terms are applicable to both
the Senior and the Subordinated Indentures.
"Consolidated Assets" is defined as the amount of all assets which under
generally accepted accounting principles would appear on a consolidated
balance sheet of the Company and its Subsidiaries (after deducting related
depreciation, amortization, unearned finance charges, allowance for credit
losses, and other valuation reserves), but shall not include goodwill,
unamortized debt discount and expenses, corporate organization expense,
patents and trademarks.
"Consolidated Liabilities" is defined as the amount of all liabilities
which under generally accepted accounting principles (as in effect as of the
date of the related consolidated balance sheet) would appear on the
consolidated balance sheet of the Company and its Subsidiaries including,
without limitation, the par value or involuntary liquidation value, whichever
is greater, of minority interests, if any, in preference stock of all
Subsidiaries, but not including any of the following: redeemable preferred or
preference stock, minority interests, if any, in common stock of Subsidiaries,
valuation reserves (including unearned finance charges and allowances for
credit losses deducted from assets), Capital Stock and surplus and surplus
<PAGE>
<PAGE>32
reserves of the Company, deferred taxes, deferred investment tax credit and
any Senior Indebtedness of the Company.
"Debt" is defined as, with respect to any Person, all obligations for
borrowed money of such Person which in accordance with generally accepted
accounting principles shall be classified upon a balance sheet of such Person
as liabilities of such Person, including all (a) direct Debt and other similar
monetary obligations of such Person, (b) obligations secured by any lien upon
Property owned by such Person or obligations created or arising under any
conditional sale, capital lease, or other title retention agreement with
respect to Property acquired by such Person; provided, however, that Debt does
not include any indebtedness, including purchase money indebtedness, with
respect to which a creditor has no recourse against the obligor except
recourse to specific Property the acquisition of which was financed by or
otherwise secures such indebtedness, or to the proceeds of any sale or lease
of such Property or both, (c) obligations under agreements to pay installments
of purchase price or other like payments with respect to fixed assets not
utilized by such Person or its subsidiaries in the ordinary course of its
business, including obligations ostensibly to pay rent under which an equity
interest is to be acquired in the rented Property. In addition, Debt includes
all Guarantees of such Person to the extent the amount of such Guarantees is
in excess of 50% of the Shareholder's Equity of such Person.
"Lien" is defined as any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract (but excluding a
landlord's statutory lien for rent not yet due), and including, but not
limited to, the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting Property. Under
the Indentures, the Company or a Subsidiary will be deemed to be the owner of
any Property which it has acquired or holds subject to a conditional sales
agreement, capital lease or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
"Original Issue Discount Security" is defined as any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof, as
provided in the applicable Indenture.
"Property" is defined as any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Senior Indebtedness" as defined in the Subordinated Indenture shall mean
all of the indebtedness of, or guaranteed by, the Company for borrowed money
(including the principal of, premium, if any, or interest on any such borrowed
money and any commitment fees for unborrowed amounts which, if borrowed, would
constitute Senior Indebtedness), whether currently outstanding or hereafter
incurred, unless, under the instrument evidencing the same or under which the
same is outstanding, it is expressly provided that such indebtedness is
subordinate to other indebtedness and obligations of the Company.
<PAGE>
<PAGE>33
"Shareholder's Equity" of any Person shall mean the shareholder's equity
appearing on the balance sheet of such Person as determined under generally
accepted accounting principles.
"Subordinated Indebtedness" as defined in the Subordinated Indenture
shall mean the Subordinated Securities and all other indebtedness of, or
guaranteed by, the Company whether or not outstanding on the date of the
Subordinated Indenture, which is by the terms thereof made subordinate and
junior in right of payment to all Senior Indebtedness.
Certain Covenants
Limitation on Dividends. The Indentures provide that no dividend shall
be paid or declared or other distribution made on any Capital Stock of the
Company (except in shares of Capital Stock of the Company), and neither the
Company nor any Subsidiary of the Company shall acquire any shares of such
stock unless, after giving effect thereto, Consolidated Assets would be at
least equal to 115% of Consolidated Liabilities. For purposes of this
limitation, the definition of Capital Stock shall not include any preferred
stock issued by the Company or its subsidiaries. The foregoing restrictions,
however, shall not prevent any acquisition of shares of Capital Stock of the
Company solely in exchange for other shares of Capital Stock of the Company,
or any acquisition of such shares of Capital Stock through the application of
the net proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of other shares of such Capital Stock of the
Company, or the payment of any dividend within 60 days after the date of
declaration thereof, if at such date such declaration complied with the
restrictions of such limitation.
Limitation upon Liens. The Indentures provide that the Company will not,
and will not permit any Subsidiary to, create or permit to continue in
existence any Lien or charge of any kind upon any Property or assets of the
Company or of any Subsidiary unless the Securities then outstanding shall be
equally and ratably secured (subject, in the case of the Subordinated
Securities, to subordination as to rights of payment as provided in the
Subordinated Indenture), with any other obligation or indebtedness so secured,
subject to certain exceptions including (a) leases or subleases of Property in
the ordinary course of business of the Company or any Subsidiary, or if such
Property is not needed in the operation of the business; (b) Liens created
within 12 months after the acquisition or construction of Property to secure
or to provide for the Payment of the purchase or construction price of such
Property and Liens existing on any Property at the time of acquisition or
certain pre-existing Liens and conditional sales agreements and/or title
retention agreements with respect to any subsequently acquired Property,
provided that the aggregate principal amount of the indebtedness secured by
all such Liens on any particular Property may not exceed the cost (including
improvements thereon) of such Property to the Company or any Subsidiary, and
that such Lien(s) do not extend to other Property owned prior to such
acquisition or construction or to Property thereafter acquired or constructed;
(c) Liens securing indebtedness incurred to finance or refinance the
acquisition of the Property subject to the Lien and in respect of which the
creditor has no recourse against the Company or any Subsidiary except recourse
to such Property, or to the proceeds of any sale or lease of such Property or
both; (d) Liens on Property of the Company or a Subsidiary in favor of the
United States or any State thereof, or any department, governmental body,
agency or instrumentality or political subdivision of any such jurisdiction,
to secure partial, progress, advance or other payments pursuant to any
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<PAGE>34
contract or statute relating thereto; (e) deposits with or security interest
given to a governmental agency as a condition to the transaction of business
or the exercise of a privilege, or made to enable the Company or such
Subsidiary to maintain self-insurance or participate in any fund, or in
connection with workmen's compensation, unemployment insurance, old age
pensions, or other social security, or to share in any privileges or other
benefits available to corporations participating in any such arrangements, or
for any other purpose required by law or regulation promulgated by said
governmental agency as a condition to the transaction of any business or the
exercise of any privilege or license, or deposit assets of the Company or such
Subsidiary with any surety company or clerk of any court or in escrow, as
collateral in connection with, or in lieu of, any bond on appeal by the
Company or such Subsidiary from any judgment or in connection with any other
judicial proceedings by or against the Company or such Subsidiary;
(f)(i) Liens for taxes, assessments or other governmental charges or levies
which are not yet due or are payable without penalty or are being contested in
good faith and against which reserves deemed adequate by the Company or such
Subsidiary have been established, provided that foreclosure or similar
proceedings have not been commenced (unless cured by payment), (ii) Liens of
any judgment and other similar Liens arising in connection with court
proceedings, providing such Lien is discharged or the execution or other
enforcement of such Lien is effectively stayed within six months of the
creation of such Lien, (iii) undetermined Liens or charges incident to
construction, (iv) mechanics' or other like Liens arising in the ordinary
course of business in respect of obligations which are not overdue or which
are being contested by the Company or such Subsidiary in good faith, or
deposits to obtain the release of such Liens, (v) immaterial encumbrances
consisting of zoning restrictions, licenses, easements and restrictions on the
use of real property and minor defects and irregularities in the title
thereto; (g) banker's liens and rights of off-set in the holders of
indebtedness such as commercial paper or monies of the Company or a Subsidiary
deposited with such Lender in the ordinary course of business; (h) Liens
related solely to the purchase of, or the investment in or with respect to, a
specific item or items of tangible personal property and securing indebtedness
evidenced by participation certificates, trust certificates, indentures or the
like, however denominated, provided that no such Lien shall constitute a
general lien or mortgage on substantially all the tangible assets of the
Company; (i) refundings, replacements or extensions of any permitted Liens not
exceeding the principal amount of indebtedness so refunded or extended at the
time of such refunding or extension and covering the same Property theretofore
securing the same; (j) deposits or pledges as security for the performance of
any contract or undertaking in the ordinary course of business but unrelated
to the borrowing of money or to the securing of indebtedness; (k) Liens
existing on April 15, 1987 on its Property (with respect to the Senior
Indenture) and Liens existing on June 15, 1988 on its Property (with respect
to the Subordinated Indenture); (l) liens on aircraft or equipment held by the
Company or a Subsidiary or leased to third parties, if such obligation is
without recourse to the Company or such Subsidiary; and (m) in addition to
Liens permitted under clauses (a) through (l) above, Liens with respect to an
aggregate amount of indebtedness of the Company (including its Subsidiaries)
not in excess of an amount equal to 15% of Consolidated Assets.
Mergers and Sales of Assets by the Company
The Company may consolidate or merge with or into any other corporation,
and the Company may convey, transfer or lease all or substantially all of its
Properties or assets to another Person provided that (a) the corporation (if
<PAGE>
<PAGE>35
other than the Company) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets shall be a
corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume payment of the principal of (and premium, if any) and interest
(including all Additional Amounts) on the Securities and the performance and
observance of the respective Indenture, and (b) the Company or such successor
corporation shall not immediately thereafter be in default under the
respective Indenture and certain other conditions are met.
Events of Default, Notice and Waiver
If an Event of Default with respect to the Securities of any series then
outstanding shall have occurred and be continuing, the Trustee under such
Indenture or the Holders of at least 25% in principal amount of the Securities
of such series then outstanding may declare the principal (or, if the
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that series) and
accrued interest of all the Securities of such series to be due and payable
immediately; provided, that, in certain cases, if all Events of Default with
respect to such series shall have been remedied, the Holders of a majority in
aggregate principal amount of the Securities of such series then outstanding
may rescind and annul such declaration and its consequences. Reference is
made to the Pricing Supplement relating to any series of Securities which is
issued at a substantial discount from the principal amount thereof for the
particular provisions relating to acceleration of the maturity of a portion of
the principal amount of such Securities upon the occurrence of an Event of
Default and the continuation thereof.
An Event of Default with respect to the Securities of any series then
outstanding is defined in the Indenture as being: default for a period of 30
days or more in the payment of any interest on the Securities of such series
whether or not, in the case of the Subordinated Securities, such payment is
prohibited by the subordination provisions referred to below under
"Subordination"; default in payment of any principal of (or premium, if any,
on) the Securities of such series whether or not, in the case of the
Subordinated Securities, such payment is prohibited by the subordination
provisions referred to below under "Subordination"; default in the deposit of
any sinking fund payment, when and as due by the terms of a Security of that
series whether or not, in the case of the Subordinated Securities, such
payment is prohibited by the subordination provisions referred to below under
"Subordination"; default for a period of 60 days after notice by the Holders
of at least 25% in principal amount of the Outstanding Securities of that
series or by the respective trustee in the performance of any other covenant
or warranty of the Company in the respective Indenture with respect to a
series of the Securities; an event of default, as defined in any mortgage,
indenture or instrument evidencing any indebtedness of the Company for money
borrowed (including other series of the Securities) in excess of $10,000,000
aggregate principal amount then outstanding (except that such dollar amount
shall not apply with respect to a default with respect to Securities of any
series outstanding), as a result of which such indebtedness of the Company
shall have been accelerated and such acceleration shall not have been annulled
or rescinded within a period of 20 days after written notice thereof; or
certain events of bankruptcy, insolvency or reorganization.
The Trustees are required, within 90 days after the occurrence of any
default which is known to such Trustee and is continuing, to give to the
<PAGE>
<PAGE>36
Holders of the applicable series of Securities with respect to which such
default has occurred notice of such default; provided that, except in the case
of default in the payment of principal (including any sinking fund payment) or
interest on a series of Securities with respect to which such default has
occurred, the Trustees shall be protected in withholding such notice if they
determine in good faith that the withholding of such notice is in the interest
of the Holders of the Securities of such series.
The Trustees, subject to their duties during default to act with the
required standard of care, may require indemnification by the Holders of a
series of Securities with respect to which a default has occurred before
proceeding to exercise any right or power under the respective Indentures at
the request of the Holders of Securities of such series. The Holders of a
majority in principal amount of the Outstanding Securities of such series may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustees, or exercising any trust or power conferred on the
Trustees.
In certain cases, the Holders of a majority in principal amount of an
outstanding series of Securities may, on behalf of the Holders of all
Securities of such series, and any coupons appertaining thereto, waive any
past default with respect to such series except a default in the payment of
the principal or interest (except to the extent that such interest has been
paid) on such series of Securities with respect to which such default has
occurred.
The Company is required to file annually with each Trustee a certificate
as to the absence of defaults under each respective Indenture.
Notices
Notices to Holders of the Notes will be given by mail to the addresses of
such Holders as they appear in the Security Registers.
Modification of the Indentures
Modification and amendment of the Indentures may be made by the Company
and the respective Trustee with the consent of the Holders of not less than
66- % in aggregate principal amount of the Outstanding Securities of an
affected series, provided that no such modification or amendment may, without
the consent of the Holder of each Outstanding Security affected thereby,
(a) change the Stated Maturity of, or any installment of principal or interest
of, any Outstanding Security, or reduce the principal amount or rate of
interest thereon, or change the Redemption Price; (b) change the place or
currency of payment of principal of or premium, if any, or interest on any
Security; (c) impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof; (d) reduce the above-
stated percentage of Outstanding Securities necessary to modify or amend the
respective Indentures; (e) modify the foregoing requirements or reduce the
percentage of Outstanding Securities necessary to waive any past default or
compliance with certain restrictive provisions to less than a majority;
(f) with respect to the Senior Securities, reduce the amount of principal of
an Original Issue Discount Security payable upon acceleration of the Maturity
thereof; or (g) with respect to the Subordinated Securities, reduce the amount
of principal of or the rate of interest on a Security payable upon
acceleration of the Maturity thereof. The Holders of at least a majority in
<PAGE>
<PAGE>37
aggregate principal amount of the Outstanding Securities may waive past
defaults and compliance by the Company with certain restrictive provisions.
Modification and amendment of the Indentures may be made by the Company
and the respective Trustee without the consent of any Holder, for any of these
purposes: (a) to evidence the succession of another corporation to the
Company; (b) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities; (c) to add additional Events of
Default; (d) to change any provision of the Indentures or either of them to
facilitate the issuance of Securities in bearer form; (e) to change or
eliminate any provision of any Indenture, provided no Security Outstanding of
any series is entitled to the benefit of such provision; (f) to secure the
Securities; (g) to establish the form or terms of Securities; (h) to provide
for the acceptance of appointment by a successor Trustee; or (i) to cure any
ambiguity, defect or inconsistency in either Indenture or both of them
provided such action does not adversely affect the interests of Holders of
Securities.
Subordination
The indebtedness evidenced by the Subordinated Securities and the payment
of the principal of (and premium, if any) and interest on each and all of the
Subordinated Securities are subordinated in right of payment to the prior
payment in full of Senior Indebtedness and, unless specifically designated as
ranking junior to other subordinated debt securities of the Company, are pari
passu with all other subordinated debt securities of the Company which have
not been specifically designated as ranking junior to other subordinated debt
securities of the Company. The Company has not issued any subordinated debt
ranking junior to the Subordinated Securities but the Company may issue such
junior subordinated debt.
If the Company defaults in the payment of any Senior Indebtedness, unless
and until such default shall have been cured or waived, no direct or indirect
payment shall be made on the account of the principal of, premium, if any or
interest or any Additional Amounts on the Subordinated Securities, or in
respect of any sinking fund for, or redemption, retirement or purchase or
other acquisition of any of the Subordinated Securities.
If any other event of default occurs with respect to any Senior
Indebtedness, permitting the holders thereof to accelerate the maturity
thereof, then, unless and until such event of default shall have been cured or
waived, no direct or indirect payment shall be made on account of the
principal of, or premium, if, any, or interest (including Additional Amounts)
on any Subordinated Securities or in respect of any sinking fund for, or
redemption, retirement or purchase or other acquisition of the Subordinated
Securities, during any period of 90 days after written notice of such default
shall have been given to the Company by any holder of Senior Indebtedness or
during any period in which any judicial proceeding is pending in respect of
such default and a notice of acceleration of the maturity of such Senior
Indebtedness has been transmitted to the Company in respect of such default.
In the event of: (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment or other similar proceeding of or
relating to the Company, its creditors or its property; (ii) any proceeding
for the liquidation, dissolution or other winding up of the Company, whether
voluntary or involuntary, whether or not involving bankruptcy proceeding;
(iii) or any assignment by the Company for the benefit of creditors, or
<PAGE>
<PAGE>38
(iv) any other marshalling of the assets of the Company, all Senior
Indebtedness shall first be paid in full before any payment or distribution
shall be made to any Holder of Subordinated Securities.
If any such payment or distribution to be paid to the holders of Senior
Indebtedness shall be made to any Holder of Subordinated Securities in
contravention of the foregoing and before all the Senior Indebtedness shall
have been paid in full, such payment or distribution shall be received in
trust for the benefit of, and shall be paid over or delivered and transferred
to, the holders of Senior Indebtedness at the time outstanding in accordance
with the priorities then existing among such holders for applications to the
payment of all Senior Indebtedness remaining unpaid.
Senior Indebtedness shall not be deemed to have been paid in full unless
the holders thereof shall have received cash equal to the amount of Senior
Indebtedness then outstanding. Upon payment in full of all Senior
Indebtedness, the Holders of Subordinated Securities shall be subrogated to
all rights of any holders of Senior Indebtedness to receive any further
payments or distributions applicable to the Senior Indebtedness until all
amounts owing on the Subordinated Securities shall have been paid in full, and
such payments or distributions which otherwise would be paid or distributed to
the holders of Senior Indebtedness, shall, as between the Company and its
creditors (other than the holders of Senior Indebtedness), on the one hand,
and the Holders of the Subordinated Securities, on the other hand, be deemed
to be a payment by the Company on account of Senior Indebtedness and on
account of the Subordinated Securities.
As of September 30, 1994, the Company had issued $1,918.8 million of its
Senior Securities pursuant to the Senior Indenture and $82.9 million of its
Subordinated Securities pursuant to the Subordinated Indenture. As of
September 30, 1994, there was $1,108.8 million of Senior Indebtedness of the
Company outstanding and $97.7 million of Subordinated Indebtedness of the
Company outstanding. Pursuant to certain indebtedness of the Company not
covered by the Indentures, the Company's most restrictive covenants regarding
the incurrence of Senior Indebtedness allow the Company to incur Senior
Indebtedness to the extent of 450% of the sum of Net Worth plus Subordinated
Indebtedness, less certain adjustments. For the purposes of such covenants,
Subordinated Indebtedness in excess of 50% of Net Worth constitutes Senior
Indebtedness. The maximum amount of additional Senior Indebtedness which
could have been incurred as of September 30, 1994 was $435.3 million. In
addition, certain of the Company's other indebtedness not covered by the
Indentures contains covenants restricting the incurrence of Senior
Indebtedness. However, such covenants are not as restrictive as the covenants
described in this paragraph.
The holders of the Securities should not rely on the continued existence
of the covenants described above because they will expire (1) as the
indebtedness related thereto matures and is paid (the Company currently has no
indebtedness outstanding under the revolving credit facility), (2) if the
Company prepays such related indebtedness and (3) if the Company amends or
deletes such restrictions through the process of negotiation or (4) with
respect to the most restrictive covenants, if the Company terminates its
revolving credit facility.
<PAGE>
<PAGE>39
The Trustees Under the Indentures
Bankers Trust is the Trustee under the Senior Indenture. Bankers Trust
is also the Trustee for certain other series of the Company's medium term
notes. The Company maintains banking and borrowing relations with Bankers
Trust.
First Trust is Trustee under the Subordinated Indenture.
PLAN OF DISTRIBUTION
The Company expects to sell the Notes to investors through one or more
agents (each an "Agent" and collectively the "Agents"). Notes may be sold to
the Agents for resale to investors at varying prices related to prevailing
market prices at the time of resale, to be determined by such Agents. The
Company will pay each Agent a commission, in the form of a discount, of from
.125% to .750%, depending upon maturity, of the principal amount of Notes sold
through such firm, as agent, and may also sell Notes to each Agent, as
principal, at a discount.
A Pricing Supplement with respect to each offering of Notes by the
Company will set forth, among other things, the name of each Agent
participating in the distribution of such Notes, the price to public of such
Notes and the proceeds to the Company from such sale, any underwriting
discounts or commissions and other items constituting Agent's compensation.
The Company has reserved the right to sell Notes on its own behalf to the
public. In such circumstances, the Company will have the sole right to accept
offers to purchase Notes and may reject any proposed purchase of Notes in
whole or part. In the case of sales made directly by the Company, no
underwriting discount or commission will be payable.
<PAGE>
<PAGE>40
The agreement governing the purchase and sale of the Notes will provide
that the obligations of any Agent to purchase Notes will be subject to certain
conditions precedent.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Act. The Company will agree to indemnify each Agent against certain
liabilities, including liabilities under the Act, or to contribute to payments
that the Agents may be required to make in respect thereof.
The Notes will not be listed on any securities exchange and will not be
traded, when issued, on any other established trading market. There can thus
be no assurance that a secondary market for the Notes will exist or as to the
liquidity or continuation of any such market. Moreover, the Company reserves
the right to withdraw, cancel or modify the offer made hereby at any time
without notice, and any such withdrawal, cancellation or modification also may
adversely affect the liquidity of the Notes.
LEGAL OPINIONS
If the Company renders a legal opinion in connection with the
distribution of the Notes, the validity of the Notes may be passed upon for
the Company by Michael C. Draffin, Vice President - Taxes & Associate General
Counsel and Secretary of McDonnell Douglas Finance Corporation, and for the
Agents by Brown & Wood. Mr. Draffin may rely, as to all matters governed by
New York law, on the opinion of Brown & Wood.
EXPERTS
The consolidated financial statements and schedules of McDonnell Douglas
Finance Corporation and subsidiaries incorporated by reference in this
Prospectus have been audited by Ernst & Young, independent auditors, for the
periods indicated in their report thereon. The information under the caption
"Selected Consolidated Financial Data" for each of the five years ended
December 31, 1993, included herein have been derived from the consolidated
financial statements audited by Ernst & Young. Ernst & Young's report on the
consolidated financial statements, schedules and selected consolidated
financial data is included in the Annual Report on Form 10-K for the year
ended December 31, 1993. Such consolidated financial statements, schedules
and selected consolidated financial data have been incorporated herein by
reference or included in reliance upon the report of Ernst & Young, given upon
the authority of such firm as experts in accounting and auditing.
HDH95015.DOC
<PAGE>
<PAGE>41
___________________________________________
___________________________________________
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus or
any Pricing Supplement and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Company or any underwriter or agent. Neither this Prospectus nor any Pricing
Supplement constitutes an offer to sell or a solicitation of an offer to buy
any of the securities offered hereby in any jurisdiction to any person to whom
it is unlawful to make such offer in such jurisdiction. Neither the delivery
of this Prospectus nor any Pricing Supplement at any time shall imply that the
information herein or therein is correct as of any time subsequent to its
date.
____________________
TABLE OF CONTENTS
Page
Prospectus
Available Information . . . 3
Incorporation of Certain Documents by
Reference . . . . . . . . 3
Prospectus Summary . . . . 5
Risk Factors . . . . . . . 8
McDonnell Douglas Finance Corporation 13
Selected Consolidated Financial Data 16
Information Concerning McDonnell Douglas
Corporation . . . . . . 18
Use of Proceeds . . . . . 18
Description of Notes . . 18
Plan of Distribution . . 41
Legal Opinions . . . . . 42
Experts . . . . . . . . . 42
<PAGE>
<PAGE>42
___________________________________________
___________________________________________
$89,300,000
(MDFC LOGO APPEARS HERE)
McDonnell Douglas
Finance Corporation
Series IX
Medium-Term Notes
____________________
P R O S P E C T U S
____________________
____________________
January 5, 1995
____________________________________________
____________________________________________
