PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 28, 1993)
$150,000,000
J.B. HUNT TRANSPORT SERVICES, INC.
SENIOR MEDIUM-TERM NOTES, SERIES A
SUBORDINATED MEDIUM-TERM NOTES, SERIES B
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
--------------
J.B. Hunt Transport Services, Inc. (the "Company") may offer from time to
time $150,000,000 aggregate initial offering price, or the equivalent thereof in
one or more foreign or composite currencies, of its Medium-Term Notes Due Nine
Months or More from Date of Issue (the "Notes"). Such aggregate initial offering
price is subject to reduction as a result of the sale by the Company of other
Debt Securities described in the accompanying Prospectus. Each Note will mature
on any day nine months or more from the date of issue, as specified in the
applicable pricing supplement hereto (each, a "Pricing Supplement"), and may be
subject to redemption at the option of the Company or repayment at the option of
the Holder thereof, in each case, in whole or in part, prior to its Stated
Maturity Date, as set forth therein and specified in the applicable Pricing
Supplement. The Notes, other than Foreign Currency Notes, will be issued in
minimum denominations of $1,000 and integral multiples thereof, unless otherwise
specified in the applicable Pricing Supplement, while Foreign Currency Notes
will be issued in the minimum denominations specified in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will bear interest at fixed rates (the "Fixed Rate Notes") or at floating rates
(the "Floating Rate Notes"). The applicable Pricing Supplement will specify
whether a Floating Rate Note is a Regular Floating Rate Note, a Floating
Rate/Fixed Rate Note or an Inverse Floating Rate Note and whether the rate of
interest thereon is determined by reference to one or more of the CD Rate, the
CMT Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR, the Prime Rate or the Treasury Rate (each, an
"Interest Rate Basis"), or any other interest rate basis or formula, as adjusted
by any Spread and/or Spread Multiplier. Interest on each Floating Rate Note will
accrue from its date of issue and will be payable in arrears monthly, quarterly,
semiannually or annually, as specified in the applicable Pricing Supplement, and
on the Maturity Date. Unless otherwise specified in the applicable Pricing
Supplement, the rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually or annually, as set forth therein and
specified in the applicable Pricing Supplement. Interest on each Fixed Rate Note
will accrue from its date of issue and, unless otherwise specified in the
applicable Pricing Supplement, will be payable semiannually in arrears on May 15
and November 15 of each year and on the Maturity Date. The Notes may also be
issued with original issue discount, and such Notes may or may not pay any
interest. See "Description of Notes."
The interest rate, or the formula for the determination of any such
interest rate, applicable to each Note and the other variable terms thereof as
described herein will be established by the Company on the date of issue of such
Note and will be set forth therein and specified in the applicable Pricing
Supplement. Interest rates, interest rate formulae and such other variable terms
are subject to change by the Company, but no change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or in certificated form (a "Certificated Note"), as set forth in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the "Global Securities") deposited
with or on behalf of The Depository Trust Company (or such other depositary as
is identified in the applicable Pricing Supplement) (the "Depositary") and
registered in the name of the Depositary or the Depositary's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners).
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT, THE PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================================
PRICE TO AGENTS' DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(1)(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............................. 100% .125% - .750% 99.250% - 99.875%
- ------------------------------------------------------------------------------------------------------------------------------
Total(4)............................. $150,000,000 $187,500 - $1,125,000 $148,875,000 - $149,812,500
==============================================================================================================================
</TABLE>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and Stephens
Inc. (each, an "Agent" and collectively, the "Agents") will purchase the
Notes, as principal, from the Company, for resale to investors and other
purchasers at varying prices relating to prevailing market prices at the
time of resale as determined by the Agents, or, if so specified in the
applicable Pricing Supplement, for resale at a fixed public offering price.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price
equal to 100% of the principal amount thereof less a percentage of the
principal amount equal to the commission applicable to an agency sale (as
described below) of a Note of identical maturity. If agreed to by the
Company and the Agents, the Agents may utilize their reasonable efforts on
an agency basis to solicit offers to purchase the Notes at 100% of the
principal amount thereof, unless otherwise specified in the applicable
Pricing Supplement. The Company will pay a commission to each Agent, ranging
from .125% to .750% of the principal amount of a Note, depending upon its
stated maturity, sold through such Agent. Commissions with respect to Notes
with stated maturities in excess of 30 years that are sold through an Agent
will be negotiated between the Company and such Agent at the time of such
sale.
See "Plan of Distribution."
(2) 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. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $160,000.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
-------------------
The Notes are being offered on a continuous basis by the Company through
the Agents. Unless otherwise specified in the applicable Pricing Supplement, 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. The Company reserves the right to cancel or
modify the offer made hereby without notice. The Company or an Agent, if it
solicits the offer on an agency basis, may reject any offer to purchase Notes in
whole or in part. See "Plan of Distribution."
------------------------
MERRILL LYNCH & CO.
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY & CO.
INCORPORATED
STEPHENS INC.
------------
The date of this Prospectus Supplement is June 13, 1995
<PAGE>
IN CONNECTION WITH THE OFFERING OF NOTES, THE AGENTS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes will be used to
reduce indebtedness outstanding under the Company's existing commercial paper
program and for general corporate purposes. The indebtedness to be repaid under
the program bears interest at annual rates ranging from 6.20% to 6.91% and has
maturities ranging up to approximately seven months. The commercial paper to be
repaid using the proceeds of this offering was issued to finance the acquisition
of revenue equipment.
RATIO OF EARNINGS TO FIXED CHARGES
The consolidated historical ratio of earnings to fixed charges for the
Company for the years ended December 31, 1993 and 1994, and for the three months
ended March 31, 1995, were 5.70, 4.30 and 2.30, respectively. For information
regarding the method of computing such historical ratio, see Ratio of Earnings
to Fixed Charges' in the accompanying Prospectus.
DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities and will be either
Senior Debt Securities or Subordinated Debt Securities of the Company (each as
defined in the attached Prospectus). Whether an offering of Notes will
constitute Senior Debt Securities ("Senior Notes") or Subordinated Debt
Securities ("Subordinated Notes") of the Company will be set forth in Pricing
Supplements hereto. The Senior Notes are to be issued under a Senior Indenture
(the "Senior Indenture") between the Company and The First National Bank of
Chicago, as successor Trustee (the "Trustee"), dated as of July 1, 1993, and the
Subordinated Notes are to be issued under a Subordinated Indenture between the
Company and the Trustee, dated as of July 1, 1993 (the "Subordinated Indenture"
and, together with the Senior Indenture, the "Indentures"). The following
summary of certain provisions of the Notes and of the Indentures does not
purport to be complete and is qualified in its entirety by reference to the
Indentures, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus Supplement and the accompanying Prospectus
constitute a part. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indentures or the Notes, as the case may be. The
term "Debt Securities," as used in this Prospectus Supplement, refers to all
debt securities issued and issuable from time to time under the Indentures and
includes the Notes. The following description of Notes will apply to each Note
offered hereby unless otherwise specified in the applicable Pricing Supplement.
GENERAL
All Senior Debt Securities, including the Senior Notes, issued and to be
issued will be unsecured general obligations of the Company and will rank PARI
PASSU with all other unsecured and unsubordinated indebtedness of the Company
from time to time outstanding. All Subordinated Debt Securities, including the
Subordinated Notes, issued and to be issued will be unsecured and will be
subordinated as set forth under "Description of Debt Securities -- Provisions
Applicable Solely to Subordinated Debt Securities -- Subordination" in the
attached Prospectus. The Indentures do not limit the aggregate principal amount
of Debt Securities which may be issued thereunder and Debt Securities may be
issued thereunder from time to time in one or more series up to the aggregate
principal amount from time to time authorized by the Company for each series.
The Company may, from time to time, without the consent of the Holders of the
Notes, provide for the issuance of Notes
S-2
or other Debt Securities under the Indentures in addition to the $150,000,000
aggregate initial offering price of Notes offered hereby.
The Notes are currently limited to $150,000,000 aggregate initial offering
price, or the equivalent thereof in one or more foreign or composite currencies.
The Notes will be offered on a continuous basis and will mature on any day nine
months or more from their dates of issue, as specified in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing Supplement,
interest-bearing Notes will either be Fixed Rate Notes or Floating Rate Notes as
specified in the applicable Pricing Supplement. The Notes may also be issued
with original issue discount ("Original Issue Discount Notes") and such Notes
may or may not bear any interest.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in United States dollars and payments of principal of, and
premium, if any, and interest on, the Notes will be made in United States
dollars. The Notes may also be denominated in currencies or composite currencies
other than United States dollars ("Foreign Currency Notes") (the currency or
composite currency in which a Note is denominated, whether United States dollars
or otherwise, is herein referred to as the "Specified Currency"). See "Special
Provisions and Risks Relating to Foreign Currency Notes -- Payment of Principal
and Premium, if any, and Interest."
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for Foreign Currency Notes in the Specified Currency in
which such Notes are denominated. At the present time, there are limited
facilities in the United States for the conversion of United States dollars into
foreign currencies or composite currencies and vice versa, and commercial banks
do not generally offer non-United States dollar checking or savings account
facilities in the United States. If requested on or prior to the fifth Business
Day (as defined below) preceding the date of delivery of the Foreign Currency
Notes, or by such other day as determined by the Agents, the Agents are prepared
to arrange for the conversion of United States dollars into the Specified
Currency to enable the purchasers to pay for such Notes. Each such conversion
will be made by the Agents on such terms and subject to such conditions,
limitations and charges as the Agents may from time to time establish in
accordance with their regular foreign exchange practices. All costs of exchange
will be borne by the purchasers of the Foreign Currency Notes. See "Special
Provisions and Risks Relating to Foreign Currency Notes."
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other things, the aggregate principal amount of Notes
purchased in any transaction. 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.
Each Note will be issued in fully registered form as a Book-Entry Note or a
Certificated Note. The authorized denominations of each Note other than a
Foreign Currency Note will be $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement, while the authorized
denominations of each Foreign Currency Note will be specified in the applicable
Pricing Supplement.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency of the Company
maintained by the Company for such purpose in the Borough of Manhattan, The City
of New York. No service charge will be made by the Company or the Trustee for
any such registration of transfer or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith (other than exchanges
pursuant to the Indentures not involving any transfer).
Payments of principal of, and premium, if any, and interest on, Book-Entry
Notes will be made by the Company through the Trustee to the Depositary. See
"Book-Entry Notes." In the case of Certificated Notes, payment of principal and
premium, if any, due on the Stated Maturity Date or
S-3
any prior date on which the principal, or an installment of principal, of a Note
becomes due and payable, whether by the declaration of acceleration, call for
redemption at the option of the Company, repayment at the option of the Holder
or otherwise (the Stated Maturity Date or such prior date, as the case may be,
is herein referred to as the "Maturity Date") of each Certificated Note will be
made in immediately available funds upon presentation thereof at the office or
agency of the Company maintained by the Company for such purpose in the Borough
of Manhattan, The City of New York (or, in the case of any repayment on an
Optional Repayment Date, upon presentation of such Certificated Note in
accordance with the provisions described below). Payment of interest due on the
Maturity Date of each Certificated Note will be made to the person to whom
payment of the principal and premium, if any, shall be made. Payment of interest
due on each Certificated Note on any Interest Payment Date (as defined below)
(other than the Maturity Date) will be made at the office or agency of the
Company referred to above maintained for such purpose or, at the option of the
Company, may be made by check mailed to the address of the Holder entitled
thereto as such address shall appear in the Security Register of the Company.
Notwithstanding the foregoing, a Holder of $10,000,000 (or the equivalent
thereof with respect to the Specified Currency applicable to a Foreign Currency
Note) or more in aggregate principal amount of Notes (whether having identical
or different terms and provisions) will be entitled to receive interest payments
on any Interest Payment Date (other than the Maturity Date) by wire transfer of
immediately available funds if appropriate wire transfer instructions have been
received in writing by the Trustee not less than 15 days prior to such Interest
Payment Date. Such wire instructions, upon receipt by the Trustee, shall remain
in effect until revoked by such Holder. For special payment terms applicable to
Foreign Currency Notes, see "Special Provisions and Risks Relating to Foreign
Currency Notes -- Payment of Principal and Premium, if any, and Interest."
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law or executive order to close in The City of New
York; provided, however, that, with respect to Foreign Currency Notes the
payment of which is to be made in a Specified Currency other than United States
dollars, such day is also not a day on which banking institutions are authorized
or required by law or executive order to close in the principal financial center
of the country of such Specified Currency (or, in the case of the European
Currency Unit ("ECU"), is not a day designated as an ECU Non-Settlement Day by
the ECU Banking Association or otherwise generally regarded in the ECU interbank
market as a day on which payments in ECUs shall not be made); provided, further,
that, with respect to Notes as to which LIBOR is an applicable Interest Rate
Basis, such day is also a London Business Day (as defined below). "London
Business Day" means any day (i) if the Index Currency (as defined below) is
other than ECU, on which dealings in such Index Currency are transacted in the
London interbank market or (ii) if the Index Currency is ECU, that is not
designated as an ECU Non-Settlement Day by the ECU Banking Association or
otherwise generally regarded in the ECU interbank market as a day on which
payments in ECUs shall not be made.
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the Company
on any date on and after the applicable Initial Redemption Date in whole or from
time to time in part in increments of $1,000 or the minimum denomination
specified in such Pricing Supplement (provided that any remaining principal
amount thereof shall be at least $1,000 or such minimum denomination), at the
applicable Redemption Price (as defined below) on notice given not more than 60
nor less than 30 days prior to the date of redemption and in accordance with the
provisions of the Indentures. "Redemption Price," with respect to a Note, means
an amount equal to the sum of (i) the Initial
S-4
Redemption Percentage specified in such Pricing Supplement (as adjusted by the
Annual Redemption Percentage Reduction, if applicable) multiplied by the unpaid
principal amount or the portion to be redeemed plus (ii) accrued interest to the
date of redemption. The Initial Redemption Percentage, if any, applicable to a
Note shall decline at each anniversary of the Initial Redemption Date by an
amount equal to the applicable Annual Redemption Percentage Reduction, if any,
until the Redemption Price is equal to 100% of the unpaid principal amount
thereof or the portion thereof to be redeemed.
REPAYMENT AT THE OPTION OF THE HOLDER
If so specified in the applicable Pricing Supplement, the Notes will be
repayable by the Company in whole or in part at the option of the Holders
thereof on their respective Optional Repayment Dates specified in such Pricing
Supplement. If no Optional Repayment Date is specified with respect to a Note,
such Note will not be repayable at the option of the Holder thereof prior to the
Stated Maturity Date. Any repayment in part will be in increments of $1,000 or
the minimum denomination specified in the applicable Pricing Supplement
(provided that any remaining principal amount thereof shall be at least $1,000
or such minimum denomination). Unless otherwise specified in the applicable
Pricing Supplement, the repayment price for any Note to be repaid means an
amount equal to the sum of (i) 100% of the unpaid principal amount thereof or
the portion thereof plus (ii) accrued interest to the date of repayment. For any
Note to be repaid, such Note must be received, together with the form thereon
entitled "Option to Elect Repayment" duly completed, by the Trustee at its
Corporate Trust Office (or such other address of which the Company shall from
time to time notify the Holders) not more than 60 nor less than 30 days prior to
the date of repayment. Exercise of such repayment option by the Holder will be
irrevocable.
While the Book-Entry Notes are represented by the Global Securities held by
or on behalf of the Depositary, and registered in the name of the Depositary or
the Depositary's nominee, the option for repayment may be exercised by the
applicable Participant that has an account with the Depositary, on behalf of the
beneficial owners of the Global Security or Securities representing such
Book-Entry Notes, by delivering a written notice substantially similar to the
above-mentioned form to the Trustee at its Corporate Trust Office (or such other
address of which the Company shall from time to time notify the Holders), not
more than 60 nor less than 30 days prior to the date of repayment. Notices of
elections from Participants on behalf of beneficial owners of the Global
Security or Securities representing such Book-Entry Notes to exercise their
option to have such Book-Entry Notes repaid must be received by the Trustee by
5:00 P.M., New York City time, on the last day for giving such notice. In order
to ensure that a notice is received by the Trustee on a particular day, the
beneficial owner of the Global Security or Securities representing such
Book-Entry Notes must so direct the applicable Participant before such
participant's deadline for accepting instructions for that day. Different firms
may have different deadlines for accepting instructions from their customers.
Accordingly, beneficial owners of the Global Security or Securities representing
Book-Entry Notes should consult the Participants through which they own their
interest therein for the respective deadlines for such Participants. All notices
shall be executed by a duly authorized officer of such Participant (with
signature guaranteed) and shall be irrevocable. In addition, beneficial owners
of the Global Security or Securities representing Book-Entry Notes shall effect
delivery at the time such notices of election are given to the Depositary by
causing the applicable Participant to transfer such beneficial owner's interest
in the Global Security or Securities representing such Book-Entry Notes, on the
Depositary's records, to the Trustee. See "Book-Entry Notes."
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended, and any other securities
laws or regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may be held or
resold or, at the discretion of the Company, may be surrendered to the Trustee
for cancellation.
S-5
INTEREST
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, each Note
will bear interest from its date of issue at the rate per annum, in the case of
a Fixed Rate Note, or pursuant to the interest rate formula, in the case of a
Floating Rate Note, in each case as specified in the applicable Pricing
Supplement, until the principal thereof is paid or duly made available for
payment. Interest payments in respect of the Notes will equal the amount of
interest accrued from and including the immediately preceding Interest Payment
Date in respect of which interest has been paid or duly made available for
payment (or from and including the date of issue, if no interest has been paid
with respect to the applicable Note) to but excluding the related Interest
Payment Date or the Maturity Date, as the case may be.
Interest will be payable in arrears on each Interest Payment Date specified
in the applicable Pricing Supplement on which an installment of interest is due
and payable and on the Maturity Date. Unless otherwise specified in the
applicable Pricing Supplement, the first payment of interest on any Note
originally issued between a Record Date (as defined below) and the related
Interest Payment Date or on an Interest Payment Date will be made on the
Interest Payment Date immediately following the next succeeding Record Date to
the Holder on such next succeeding Record Date. Unless otherwise specified in
the applicable Pricing Supplement, a "Record Date" shall be the fifteenth
calendar day (whether or not a Business Day) immediately preceding the related
Interest Payment Date.
FIXED RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, the
"Interest Payment Dates" for the Fixed Rate Notes will be May 15 and November 15
of each year and the Maturity Date. Unless otherwise specified in the applicable
Pricing Supplement, interest on Fixed Rate Notes will be computed on the basis
of a 360-day year of twelve 30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note falls
on a day that is not a Business Day, the required payment of principal, premium,
if any, and/or interest will be made on the next succeeding Business Day as if
made on the date such payment was due, and no interest will accrue on such
payment for the period from and after such Interest Payment Date or the Maturity
Date, as the case may be, to the date of such payment on the next succeeding
Business Day.
FLOATING RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. The applicable Pricing Supplement
will specify certain terms with respect to which each Floating Rate Note is
being delivered, including: whether such Floating Rate Note is a "Regular
Floating Rate Note," a "Floating Rate/Fixed Rate Note" or an "Inverse Floating
Rate Note," Fixed Rate Commencement Date and Fixed Interest Rate, as applicable,
Interest Rate Basis or Bases, Initial Interest Rate, Interest Reset Period and
Dates, Record Dates, Interest Payment Period and Dates, Index Maturity, maximum
interest rate and minimum interest rate, if any, and Spread and/or Spread
Multiplier, if any, and if one or more of the applicable Interest Rate Bases is
LIBOR, the Index Currency and the Designated LIBOR Page, as described below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," an "Inverse Floating Rate Note" or as having an
Addendum attached, such Floating Rate Note will be designated as a "Regular
Floating Rate Note" and, except as described below or in the applicable
Pricing Supplement, bear interest at the rate determined by reference to the
applicable Interest Rate Basis or Bases (a) plus or minus the applicable
Spread, if any, and/or (b) multiplied by the applicable Spread Multiplier,
if any. Commencing on the first Interest Reset Date, the rate at which
interest on such Regular Floating Rate Note shall be payable shall be reset
as of each
S-6
Interest Reset Date; provided, however, that the interest rate in effect for
the period from the date of issue to the first Interest Reset Date will be
the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the first Interest Reset
Date, the rate at which interest on such Floating Rate/Fixed Rate Note shall
be payable shall be reset as of each Interest Reset Date; provided, however,
that (y) the interest rate in effect for the period from the date of issue
to the first Interest Reset Date will be the Initial Interest Rate and (z)
the interest rate in effect commencing on the Fixed Rate Commencement Date
to the Maturity Date shall be the Fixed Interest Rate, if such rate is
specified in the applicable Pricing Supplement or, if no such Fixed Interest
Rate is so specified, the interest rate in effect thereon on the day
immediately preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest equal to the Fixed
Interest Rate specified in the applicable Pricing Supplement minus the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any; provided, however, that, unless
otherwise specified in the applicable Pricing Supplement, the interest rate
thereon will not be less than zero. Commencing on the first Interest Reset
Date, the rate at which interest on such Inverse Floating Rate Note is
payable shall be reset as of each Interest Reset Date; provided, however,
that the interest rate in effect for the period from the date of issue to
the first Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted from
the related Interest Rate Basis or Bases applicable to such Floating Rate Note.
The "Spread Multiplier" is the percentage of the related Interest Rate Basis or
Bases applicable to such Floating Rate Note by which such Interest Rate Basis or
Bases will be multiplied to determine the applicable interest rate on such
Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Notwithstanding the foregoing, if such Floating Rate Note is designated as
having an Addendum attached as specified on the face thereof, such Floating Rate
Note shall bear interest in accordance with the terms described in such Addendum
and the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or in
the applicable Pricing Supplement, the interest rate in effect on each day shall
be (i) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds Rate,
(vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such other
Interest Rate Basis or interest rate formula as may be set forth in the
applicable Pricing Supplement; provided, however, that with respect to a
Floating Rate/Fixed Rate Note, the interest rate commencing on the Fixed Rate
Commencement Date to the Maturity Date shall be the Fixed Interest Rate, if such
rate is specified in the applicable Pricing Supplement or, if no such Fixed
Interest Rate is so specified, the interest rate in effect thereon on the day
immediately preceding the Fixed Rate Commencement Date.
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The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually, annually or such other specified period (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Date will be, in the case of
Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly, the
Wednesday of each week (with the exception of weekly reset Floating Rate Notes
as to which the Treasury Rate is an applicable Interest Rate Basis, which will
reset the Tuesday of each week, except as described below); (iii) monthly, the
third Wednesday of each month (with the exception of monthly reset Floating Rate
Notes as to which the Eleventh District Cost of Funds Rate is an applicable
Interest Rate Basis, which will reset on the first calendar day of the month);
(iv) quarterly, the third Wednesday of March, June, September and December of
each year, (v) semiannually, the third Wednesday of the two months specified in
the applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided however, that,
with respect to Floating Rate/Fixed Rate Notes, the fixed rate of interest in
effect for the period from the Fixed Rate Commencement Date to the Maturity Date
shall be the Fixed Interest Rate or, if no such Fixed Interest Rate is
specified, the interest rate in effect on the day immediately preceding the
Fixed Rate Commencement Date, as specified in the applicable Pricing Supplement.
If any Interest Reset Date for any Floating Rate Note would otherwise be a day
that is not a Business Day, such Interest Reset Date will be postponed to the
next succeeding day that is a Business Day, except that in the case of a
Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis, if
such Business Day falls in the next succeeding calendar month, such Interest
Reset Date will be the immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
Interest Reset Date with respect to such Interest Reset Period will be the rate
determined as of the applicable Interest Determination Date on or prior to the
Calculation Date (as defined below). The "Interest Determination Date" with
respect to the CD Rate, the CMT Rate, the Commercial Paper Rate, the Federal
Funds Rate and the Prime Rate will be the second Business Day immediately
preceding the applicable Interest Reset Date; the "Interest Determination Date"
with respect to the Eleventh District Cost of Funds Rate will be the last
working day of the month immediately preceding the applicable Interest Reset
Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco") publishes the Index (as defined below); and the "Interest
Determination Date" with respect to LIBOR will be the second London Business Day
immediately preceding the applicable Interest Reset Date. With respect to the
Treasury Rate, the "Interest Determination Date" will be the day in the week in
which the applicable Interest Reset Date falls on which day Treasury Bills (as
defined below) are normally auctioned (Treasury Bills are normally sold at an
auction held on Monday of each week, unless that day is a legal holiday, in
which case the auction is normally held on the following Tuesday, except that
such auction may be held on the preceding Friday); provided, however, that if an
auction is held on the Friday of the week preceding the applicable Interest
Reset Date, the Interest Determination Date will be such preceding Friday; and
provided, further, that if an auction falls on the applicable Interest Reset
Date, then the Interest Reset Date will instead be the first Business Day
following such auction. The "Interest Determination Date" pertaining to a
Floating Rate Note the interest rate of which is determined by reference to two
or more Interest Rate Bases will be the most recent Business Day which is at
least two Business Days prior to the applicable Interest Reset Date for such
Floating Rate Note on which each Interest Rate Basis is determinable. Each
Interest Rate Basis will be determined on such date, and the applicable interest
rate will take effect on the applicable Interest Reset Date.
A Floating Rate Note may also have either or both of the following: (i) a
maximum numerical limitation, or ceiling, on the rate at which interest may
accrue during any interest period and (ii) a minimum numerical limitation, or
floor, on the rate at which interest may accrue during any interest period. In
addition to any maximum interest rate that may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on Floating Rate
Notes will in no event be higher
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than the maximum rate permitted by New York law, as the same may be modified by
United States law of general application.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year, (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date") and, in each case, on the Maturity Date. If any Interest Payment
Date for any Floating Rate Note (other than the Maturity Date) would otherwise
be a day that is not a Business Day, such Interest Payment Date will be
postponed to the next succeeding day that is a Business Day, except that in the
case of a Floating Rate Note as to which LIBOR is an applicable Interest Rate
Basis, if such Business Day falls in the next succeeding calendar month, such
Interest Payment Date will be the immediately preceding Business Day. If the
Maturity Date of a Floating Rate Note falls on a day that is not a Business Day,
the required payment of principal, premium, if any, and/or interest will be made
on the next succeeding Business Day as if made on the date such payment was due,
and no interest shall accrue on such payment for the period from and after the
Maturity Date to the date of such payment on the next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
Specified Currency other than United States dollars, to the nearest unit (with
one-half cent or unit being rounded upward).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the period for which accrued interest is being calculated. Unless
otherwise specified in the applicable Pricing Supplement, the interest factor
for each such day will be computed by dividing the interest rate applicable to
such day by 360, in the case of Notes for which the Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of days
in the year in the case of Notes for which the Interest Rate Basis is the CMT
Rate or the Treasury Rate. Unless otherwise specified in the applicable Pricing
Supplement, the interest factor for Notes for which the interest rate is
calculated with reference to two or more Interest Rate Bases will be calculated
in each period in the same manner as if only one of the applicable Interest Rate
Bases applied as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, The First
National Bank of Chicago will be the "Calculation Agent." Upon request of the
Holder of any Floating Rate Note, the Calculation Agent will disclose 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 succeeding
Interest Reset Date with respect to such Floating Rate Note. Unless otherwise
specified in the applicable Pricing Supplement, the "Calculation Date," if
applicable, pertaining to any Interest Determination Date will be the earlier of
(i) the tenth calendar day after such Interest Determination Date, or, if such
day is not a Business Day, the next succeeding Business Day or (ii) the Business
Day immediately preceding the applicable Interest Payment Date or the Maturity
Date, as the case may be.
CD RATE. CD Rate Notes will bear interest at the rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in such CD Rate Notes and in the applicable Pricing Supplement.
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Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date relating to a CD Rate
Note or any Floating Rate Note for which the interest rate is determined with
reference to the CD Rate (a "CD Rate Interest Determination Date"), the rate on
such date for negotiable certificates of deposit having the Index Maturity
specified in the applicable Pricing Supplement as published by the Board of
Governors of the Federal Reserve System in "Statistical Release H.15(519),
Selected Interest Rates" or any successor publication ("H.15(519)") under the
heading "CDs (Secondary Market)," or, if not published by 3:00 P.M., New York
City time, on the related Calculation Date, the rate on such CD Rate Interest
Determination Date for negotiable certificates of deposit of the Index Maturity
specified in the applicable Pricing Supplement as published by the Federal
Reserve Bank of New York in its daily statistical release "Composite 3:30 P.M.
Quotations for U.S. Government Securities" or any successor publication
("Composite Quotations") under the heading "Certificates of Deposit." If such
rate is not yet published in either H.15(519) or Composite Quotations by 3:00
P.M., New York City time, on the related Calculation Date, then the CD Rate on
such CD Rate Interest Determination Date will be calculated by the Calculation
Agent and will be the arithmetic mean of the secondary market offered rates as
of 10:00 A.M., New York City time, on such CD Rate Interest Determination Date,
of three leading nonbank dealers in negotiable United States dollar certificates
of deposit in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent for negotiable certificates of
deposit of major United States money market banks for negotiable certificates of
deposit with a remaining maturity closest to the Index Maturity designated in
the applicable Pricing Supplement in an amount that is representative for a
single transaction in that market at that time; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the CD Rate determined as of such CD Rate Interest Determination
Date will be the CD Rate in effect on such CD Rate Interest Determination Date.
CMT RATE NOTES. CMT Rate Notes will bear interest at the rates (calculated
with reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in such CMT Rate Notes and any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date relating to a CMT Rate
Note or any Floating Rate Note for which the interest rate is determined with
reference to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate
displayed on the Designated CMT Telerate Page (as defined below) under the
caption "...Treasury Constant Maturities... Federal Reserve Board Release
H.15... Mondays Approximately 3:45 P.M.," under the column for the Designated
CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate
Page is 7055, the rate on such CMT Rate Interest Determination Date and (ii) if
the Designated CMT Telerate Page is 7052, the week, or the month, as applicable,
ended immediately preceding the week in which the related CMT Rate Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as published in the relevant H.15(519). If such rate is no longer
published, or if not published by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index (or other United States Treasury rate for the Designated CMT
Maturity Index) for the CMT Rate Interest Determination Date with respect to
such Interest Reset Date as may then be published by either the Board of
Governors of the Federal Reserve System or the United States Department of the
Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not provided by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate for the CMT Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be a yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 P.M., New
S-10
York City time, on the CMT Rate Interest Determination Date reported, according
to their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in The City of New York (which
may include the Agent or its affiliates) selected by the Calculation Agent (from
five such Reference Dealers selected by the Calculation Agent and eliminating
the highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for the
most recently issued direct noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not less than
such Designated CMT Maturity Index minus one year. If the Calculation Agent
cannot obtain three such Treasury Note quotations, the CMT Rate for such CMT
Rate Interest Determination Date will be calculated by the Calculation Agent and
will be a yield to maturity based on the arithmetic mean of the secondary market
offer side prices as of approximately 3:30 P.M., New York City time, on the CMT
Rate Interest Determination Date of three Reference Dealers in The City of New
York (from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for Treasury Notes with an original maturity of the number of years
that is the next highest to the Designated CMT Maturity Index and a remaining
term to maturity closest to the Designated CMT Maturity Index and in an amount
of at least $100 million. If three or four (and not five) of such Reference
Dealers are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offer prices obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided however, that if fewer than
three Reference Dealers selected by the Calculation Agent are quoting as
described herein, the CMT Rate will be the CMT Rate in effect on such CMT Rate
Interest Determination Date. If two Treasury Notes with an original maturity as
described in the third preceding sentence have remaining terms to maturity
equally close to the Designated CMT Maturity Index, the quotes for the Treasury
Note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20, or 30 years) specified
in the applicable Pricing Supplement with respect to which the CMT Rate will be
calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be 2 years.
COMMERCIAL PAPER RATE. Commercial Paper Rate Notes will bear interest at the
rates (calculated with reference to the Commercial Paper Rate and the Spread
and/or Spread Multiplier, if any) specified in such Commercial Paper Rate Notes
and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Interest Determination Date relating to a
Commercial Paper Rate Note or any Floating Rate 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 published in H.15(519) under the heading
"Commercial Paper." In the event that such rate is not published by 3:00 P.M.,
New York City time, on the related Calculation Date, then the Commercial Paper
Rate will be the Money Market Yield on such Commercial Paper Rate Interest
Determination Date of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in Composite
Quotations under the heading "Commercial Paper" (with an Index Maturity of one
month or three months being
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deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If by 3:00 P.M., New York City time, on the related Calculation
Date such rate is not yet published in either H.15(519) or Composite Quotations,
then the Commercial Paper Rate on such Commercial Paper Rate Interest
Determination Date will be calculated by the Calculation Agent and will be the
Money Market Yield of the arithmetic mean of the offered rates at approximately
11:00 A.M., New York City time, on such Commercial Paper Rate Interest
Determination Date of three leading dealers of commercial paper in The City of
New York (which may include the Agents or their affiliates) selected by the
Calculation Agent for commercial paper having the Index Maturity designated in
the applicable Pricing Supplement placed for an industrial issuer whose bond
rating is "AA," or the equivalent, from a nationally recognized statistical
rating organization; provided, however, that if the dealers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Commercial
Paper Rate determined as of such Commercial Paper Rate Interest Determination
Date will be the Commercial Paper Rate in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
D X 360
Money Market Yield = ---------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
ELEVENTH DISTRICT COST OF FUNDS RATE. Eleventh District Cost of Funds Rate
Notes will bear interest at the rates (calculated with reference to the Eleventh
District Cost of Funds Rate and the Spread and/or Spread Multiplier, if any)
specified in such Eleventh District Cost of Funds Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Eleventh
District Cost of Funds Rate" means, with respect to any Interest Determination
Date relating to an Eleventh District Cost of Funds Rate Note or any Floating
Rate Note for which the interest rate is determined with reference to the
Eleventh District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate
Interest Determination Date"), the rate equal to the monthly weighted average
cost of funds for the calendar month immediately preceding the month in which
such Eleventh District Cost of Funds Rate Interest Determination Date falls, as
set forth under the caption "11th District" on Telerate Page 7058 as of 11:00
A.M., San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on any
related Eleventh District Cost of Funds Rate Interest Determination Date, the
Eleventh District Cost of Funds Rate for such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding the
date of such announcement. If the FHLB of San Francisco fails to announce such
rate for the calendar month immediately preceding such Eleventh District Cost of
Funds Rate Interest Determination Date, then the Eleventh District Cost of Funds
Rate determined as of such Eleventh District Cost of Funds Rate Interest
Determination Date will be the Eleventh District Cost of Funds Rate in effect on
such Eleventh District Cost of Funds Rate Interest Determination Date.
FEDERAL FUNDS RATE. Federal Funds Rate Notes will bear interest at the rates
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any) specified in such Federal Funds Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Determination Date relating to a
Federal Funds Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Federal Funds Rate
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(a "Federal Funds Rate Interest Determination Date"), the rate on such date for
federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If by 3:00 P.M., New York City time, on the
related Calculation Date such rate is not published in either H.15(519) or
Composite Quotations, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the rates for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent prior to 9:00 A.M., New York City
time, on such Federal Funds Rate Interest Determination Date; provided, however
that if the brokers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Federal Funds Rate determined as of such Federal
Funds Rate Interest Determination Date will be the Federal Funds Rate in effect
on such Federal Funds Rate Interest Determination Date.
LIBOR. LIBOR Notes will bear interest at the rates (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any) specified in
such LIBOR Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
means the rate determined by the Calculation Agent in accordance with the
following provisions:
(i) With respect to an Interest Determination Date relating to a LIBOR
Note or any Floating Rate Note for which the interest rate is determined
with reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be either: (a) if "LIBOR Reuters" is specified in the applicable Pricing
Supplement, the arithmetic mean of the offered rates (unless the specified
Designated LIBOR Page by its terms provides only for a single rate, in which
case such single rate shall be used) for deposits in the Index Currency
having the Index Maturity designated in the applicable Pricing Supplement,
commencing on the second London Business Day immediately following such
LIBOR Interest Determination Date, that appear on the Designated LIBOR Page
specified in the applicable Pricing Supplement as of 11:00 A.M. London time,
on such LIBOR Interest Determination Date, if at least two such offered
rates appear (unless, as aforesaid, only a single rate is required) on such
Designated LIBOR Page, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement or if neither "LIBOR Reuters" nor "LIBOR
Telerate" is specified as the method for calculating LIBOR, the rate for
deposits in the Index Currency having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Business Day
immediately following such LIBOR Interest Determination Date that appears on
the Designated LIBOR Page specified in the applicable Pricing Supplement as
of 11:00 A.M., London time, on such LIBOR Interest Determination Date. If
fewer than two such offered rates appear, or if no such rate appears, as
applicable, LIBOR in respect of the related LIBOR Interest Determination
Date will be determined in accordance with the provisions described in
clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the applicable Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity designated in the applicable Pricing Supplement, commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination
Date and in a principal amount that is representative for a single
transaction in such Index Currency in such market at
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such time. If at least two such quotations are provided, LIBOR determined on
such LIBOR Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR determined on
such LIBOR Interest Determination Date will be the arithmetic mean of the
rates quoted at approximately 11:00 A.M., in the applicable Principal
Financial Center, on such LIBOR Interest Determination Date by three major
banks in such Principal Financial Center selected by the Calculation Agent
for loans in the Index Currency to leading European banks, having the Index
Maturity designated in the applicable Pricing Supplement and in a principal
amount that is representative for a single transaction in such Index
Currency in such market at such time; provided, however, that if the banks
so selected by the Calculation Agent are not quoting as mentioned in this
sentence, LIBOR determined as of such LIBOR Interest Determination Date will
be LIBOR in effect on such LIBOR Interest Determination Date.
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is specified in
the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is specified
in the applicable Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR
Telerate" is specified as the method for calculating LIBOR, the display on the
Dow Jones Telerate Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency.
"Principal Financial Center" will generally be the capital city of the
country of the specified Index Currency, except that with respect to United
States dollars, Deutsche Marks, Dutch Guilders, Italian Lire, Swiss Francs and
ECUs, the Principal Financial Center shall be The City of New York, Frankfurt,
Amsterdam, Milan, Zurich and Luxembourg, respectively.
PRIME RATE. Prime Rate Notes will bear interest at the rates (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any) specified in such Prime Rate Notes and 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 Floating Rate Note for which the interest rate is determined
with reference to the Prime Rate (a "Prime Rate Interest Determination Date"),
the rate on such date as such rate is published in H.15(519) under the heading
"Bank Prime Loan." If such rate is not published prior to 3:00 P.M., New York
City time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen NYMF Page (as defined below) as such bank's prime
rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates but more than one such rate
appear on the Reuters Screen NYMF Page for such Prime Rate Interest
Determination Date, the Prime 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 a
360-day year as of the close of business on such Prime Rate Interest
Determination Date by four major money center banks in The City of New York
selected by the Calculation Agent. If fewer than two such rates appear on the
Reuters Screen NYMF Page, the Prime Rate will be determined by the Calculation
Agent on the basis of the rates furnished in The City of New York by three
substitute banks or trust companies organized and doing business under the laws
of the United States, or any State thereof, having total equity capital of at
least $500 million and being subject to supervision or examination by Federal or
State authority, selected by the Calculation Agent to provide such rate or
rates; provided, however, that if the banks or trust companies selected as
aforesaid are not quoting as mentioned in this sentence, the Prime Rate
determined as of such Prime Rate Interest Determination Date will be the Prime
Rate in effect on such Prime Rate Interest Determination Date.
S-14
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on
the Reuters Monitor Money Rates Service (or such other page as may replace the
NYMF page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
TREASURY RATE. Treasury Rate Notes will bear interest at the rates
(calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any) specified in such 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 or any Floating Rate Note for which the interest rate is
determined by reference to the Treasury Rate (a "Treasury Rate Interest
Determination Date"), the rate applicable to the most recent auction of direct
obligations of the United States ("Treasury Bills") having the Index Maturity
specified in the applicable Pricing Supplement, as such rate is published in
H.15(519) under the heading "Treasury Bills-auction average (investment)" or, if
not published by 3:00 P.M., New York City time, on the related Calculation Date,
the auction average rate (expressed as a bond equivalent on the basis of a year
of 365 or 366 days, as applicable, and applied on a daily basis) 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 reported as provided by 3:00 P.M., New
York City time, on such Calculation Date, or if no such auction is held in a
particular week, then the Treasury Rate will be calculated by the Calculation
Agent and will be a yield to maturity (expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily basis)
of the 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
(which may include the Agents or their affiliates) selected by the Calculation
Agent, for the issue of Treasury Bills with a remaining maturity closest to the
Index Maturity designated in the applicable Pricing Supplement; provided,
however, that if the dealers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the Treasury Rate determined as of such
Treasury Rate Interest Determination Date will be the Treasury Rate in effect on
such Treasury Rate Interest Determination Date.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to the Notes, including the determination of an
Interest Rate Basis, the calculation of the interest rate applicable to a
Floating Rate Note, and the specification of one or more Interest Rate Bases,
the Interest Payment Dates, the Maturity Date or any other variable term
relating thereto, may be modified as specified under "Other Provisions" on the
face thereof or in an Addendum relating thereto, if so specified on the face
thereof and in the applicable Pricing Supplement.
ORIGINAL ISSUE DISCOUNT NOTES
The Company may offer Original Issue Discount Notes from time to time. Such
Original Issue Discount Notes may currently pay no interest or interest at a
rate which at the time of issuance is below market rates. In the event of
redemption, repayment or acceleration of maturity in respect of an Original
Issue Discount Note, the amount payable to the holder of such Original Issue
Discount Note will be equal to (i) the Amortized Face Amount (as defined below)
as of the date of such event, plus (ii) with respect to any redemption of an
Original Issue Discount Note, the Initial Redemption Percentage specified in the
applicable Pricing Supplement (as adjusted by the Annual Redemption Percentage
Reduction, if applicable) minus 100% multiplied by the Issue Price specified in
such Pricing Supplement (the "Issue Price"), net of any portion of such Issue
Price which has been paid prior to the date of redemption, or the portion of the
Issue Price (or the net amount) proportionate to the portion of the unpaid
principal amount to be redeemed, plus (iii) any accrued interest to the date of
such event the payment of which would constitute qualified stated interest
payments within the meaning of Treasury Regulation Section 1.1273-1(c) under the
Internal Revenue Code of 1986, as
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amended (the "Code"). The "Amortized Face Amount" of an Original Issue Discount
Note means an amount equal to (i) the Issue Price thereof plus (ii) the
aggregate portions of the original issue discount (the excess of the amounts
considered as part of the "stated redemption price at maturity" of such Original
Issue Discount Note within the meaning of Section 1273(a)(2) of the Code,
whether denominated as principal or interest, over the Issue Price) which shall
theretofore have accrued pursuant to Section 1272 of the Code (without regard to
Section 1272(a)(7) of the Code) from the date of issue of such Original Issue
Discount Note to the date of determination, minus (iii) any amount considered as
part of the "stated redemption price at maturity" of such Original Issue
Discount Note which has been paid from the date of issue to the date of
determination. Certain additional considerations relating to the offering of any
Original Issue Discount Notes may be set forth in the applicable Pricing
Supplement.
INDEXED NOTES
Notes may be issued with the amount of principal, premium and/or interest
payable in respect thereof to be determined with reference to the price or
prices of specified commodities or stocks, the exchange rate of one or more
specified currencies (including a composite currency such as the ECU) relative
to an indexed currency or such other price or exchange rate ("Indexed Notes"),
as set forth in the applicable Pricing Supplement. In certain cases, Holders of
Indexed Notes may receive a principal amount on the Maturity Date that is
greater than or less than the face amount of the Notes depending upon the
relative value on the Maturity Date of the specified indexed item. Information
as to the method for determining the amount of principal, premium, if any,
and/or interest payable in respect of Indexed Notes, certain historical
information with respect to the specified indexed item and tax considerations
associated with an investment in such Indexed Notes will be set forth in the
applicable Pricing Supplement.
BOOK-ENTRY NOTES
The following provisions assume that the Company has established a
depository arrangement with The Depository Trust Company with respect to the
Book-Entry Notes. Any additional or differing terms of the depository
arrangements with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes up to $150,000,000 aggregate principal
amount bearing interest (if any) at the same rate or pursuant to the same
formula and having the same date of issue, redemption provisions (if any),
repayment provisions (if any), Stated Maturity Date and other variable terms
will be represented by a single Global Security. Each Global Security
representing Book-Entry Notes will be deposited with, or on behalf of, the
Depositary and will be registered in the name of the Depositary or a nominee of
the Depositary. No Global Security may be transferred except as a whole by a
nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor of the
Depositary of such successor.
So long as the Depositary or its nominee is the registered owner of a Global
Security, the Depositary or its nominee, as the case may be, will be the sole
Holder of the Book-Entry Notes represented thereby for all purposes under the
Indentures. Except as otherwise provided in this section, the beneficial owners
of the Global Security or Securities representing Book-Entry Notes will not be
entitled to receive physical delivery of Certificated Notes and will not be
considered the Holders thereof for any purpose under the Indentures, and no
Global Security representing Book-Entry Notes shall be exchangeable or
transferrable. Accordingly, each person owning a beneficial interest in a Global
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest in order to exercise any rights of a Holder under the
Indentures. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
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limits and such laws may impair the ability to transfer beneficial interests in
a Global Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each Global
Security representing Book-Entry Notes is exchangeable for Certificated Notes of
like tenor and terms and of differing authorized denominations aggregating a
like amount, only if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for the Global Securities, (ii)
the Depositary ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (iii) the Company in its
sole discretion determines that the Global Securities shall be exchangeable for
Certificated Notes or (iv) there shall have occurred and be continuing an Event
of Default under the Indentures with respect to the Notes. Upon any such
exchange, the Certificated Notes shall be registered in the names of the
beneficial owners of the Global Security or Securities representing Book-Entry
Notes as provided by the Depositary's relevant participants (as identified by
the Depositary).
The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's partnership nominee).
One fully registered Global Security will be issued for each issue of
Book-Entry Notes, each in the aggregate principal amount of such issue, and
will be deposited with the Depositary. If, however, the aggregate principal
amount of any issue exceeds $150,000,000, one Global Security will be issued
with respect to each $150,000,000 of principal amount and an additional
Global Security will be issued with respect to any remaining principal
amount of such issue.
The Depositary 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
Exchange Act. The Depositary holds securities that its participants
("Participants") deposit with the Depositary. The Depositary also
facilitates the settlement among Participants of securities transactions,
such as transfers 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 include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The
Depositary 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 the Depositary'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 Participant"). The rules applicable to the Depositary and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be made
by or through Direct Participants, which will receive a credit for such
Book-Entry Notes on the Depositary's records. The ownership interest of each
actual purchaser of each Book-Entry Note represented by a Global Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary 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 Participants through which such Beneficial Owner entered
into the transaction. Transfers of ownership interests in a Global Security
representing Book-Entry Notes are to be accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners of a Global Security representing Book-Entry Notes will not receive
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Certificated Notes representing their ownership interests therein, except in
the event that use of the book-entry system for such Book-Entry Notes is
discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with the Depositary are registered in
the name of the Depositary's nominee, Cede & Co. The deposit of Global
Securities with the Depositary and their registration in the name of Cede &
Co. effect no change in beneficial ownership. The Depositary has no
knowledge of the actual Beneficial Owners of the Global Securities
representing the Book-Entry Notes; the Depositary'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 the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will by
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
Book-Entry Notes within an issue are being redeemed, the Depositary's
practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect
to the Global Securities representing the Book-Entry Notes. Under its usual
procedures, the Depositary mails an Omnibus Proxy to the Company as soon as
possible after the applicable 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 applicable record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and interest payments on the Global
Securities representing the Book-Entry Notes will be made to the Depositary.
The Depositary's practice is to credit Direct Participants' accounts on the
applicable payment date in accordance with their respective holdings shown
on the Depositary's records unless the Depositary has reason to believe that
it will not receive payment on such date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is 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 the Depositary, the Trustee or
the Company, subject to any statutory or regulatory requirements as may be
in effect from time to time. Payment of principal, premium, if any, and
interest to the Depositary is the responsibility of the Company or the
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
A Beneficial Owner shall give notice to elect to have its Book-Entry
Notes repaid by the Company, through its Participant, to the Trustee, and
shall effect delivery of such Book-Entry Notes by causing the Direct
Participant to transfer the Participant's interest in the Global Security or
Securities representing such Book-Entry Notes, on the Depositary's records,
to the Trustee. The requirement for physical delivery of Book-Entry Notes in
connection with a demand for repayment will be deemed satisfied when the
ownership rights in the Global Security or Securities representing such
Book-Entry Notes are transferred by Direct Participants on the Depositary's
records.
The Depositary may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Company or the Trustee. Under such circumstances,
in the event that a successor securities depository is not obtained,
Certificated Notes are required to be printed and delivered.
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The Company may decide to discontinue use of a system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
CERTAIN INVESTMENT CONSIDERATIONS
An investment in Notes indexed, as to principal, premium and/or interest, to
one or more values of currencies (including exchange rates between currencies),
commodities or interest rate indices entails significant risks that are not
associated with similar investments in a conventional fixed-rate debt security.
If the interest rate of such a Note is so indexed, it may result in an interest
rate that is less than that payable on a conventional fixed-rate debt security
issued at the same time, including the possibility that no interest will be
paid, and, if the principal of and/or premium on such a Note is so indexed, the
amount of principal and/or premium payable in respect thereof may be less than
the original purchase price of such Note if allowed pursuant to the terms
thereof, including the possibility that no such amount will be paid. The
secondary market for such Notes will be affected by a number of factors,
independent of the creditworthiness of the Company and the value of the
applicable currency, commodity or interest rate index, including the volatility
of the applicable currency, commodity or interest rate index, the time remaining
to the maturity of such Notes, the amount outstanding of such Notes and market
interest rates. The value of the applicable currency, commodity or interest rate
index depends on a number of interrelated factors, including economic, financial
and political events, over which the Company has no control. Additionally, if
the formula used to determine the amount of principal, premium and/or interest
payable with respect to such Notes contains a multiple or leverage factor, the
effect of any change in the applicable currency, commodity or interest rate
index will be increased. The historical experience of the relevant currencies,
commodities or interest rate indices should not be taken as an indication of
future performance of such currencies, commodities or interest rate indices
during the term of any Note. The credit ratings assigned to the Company's
medium-term note program are a reflection of the Company's credit status and, in
no way, are a reflection of the potential impact of the factors discussed above,
or any other factors, on the market value of the Notes. Accordingly, prospective
investors should consult their own financial and legal advisors as to the risks
entailed by an investment in such Notes and the suitability of such Notes in
light of their particular circumstances.
SPECIAL PROVISIONS AND RISKS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Notes
denominated in other than United States dollars or ECUs will not be sold in, or
to residents of, the country issuing the Specified Currency in which the
particular Notes are denominated. The information set forth in this Prospectus
Supplement is directed to prospective purchasers who are United States residents
and, with respect to Foreign Currency Notes, is by necessity incomplete. The
Company disclaims any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to any matters
that may affect the purchase, holding or receipt of payments of principal of and
premium, if any, and interest on the Notes. Such persons should consult their
own financial and legal advisors with regard to such matters.
THIS PROSPECTUS SUPPLEMENT DOES NOT DESCRIBE ALL RISKS OF AN INVESTMENT IN
FOREIGN CURRENCY NOTES THAT RESULT FROM SUCH NOTES BEING DENOMINATED OR
PAYABLE IN A SPECIFIED CURRENCY OTHER THAN UNITED
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STATES DOLLARS, EITHER AS SUCH RISKS EXIST AT THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME. PROSPECTIVE PURCHASERS
SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED
BY AN INVESTMENT IN FOREIGN CURRENCY NOTES. FOREIGN CURRENCY NOTES ARE NOT AN
APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO
FOREIGN CURRENCY TRANSACTIONS.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes entails significant risks that are
not associated with a similar investment in a debt security denominated in
United States dollars. Such risks include, without limitation, the possibility
of significant changes in the rate of exchange between the United States dollar
and the applicable Specified Currency and the possibility of the imposition or
modification of foreign exchange controls by either the United States or foreign
governments. Such risks generally depend on events over which the Company has no
control, such as economic and political events and the supply and demand for the
relevant currencies. In recent years, rates of exchange between the United
States dollar and certain foreign currencies have been highly volatile and such
volatility may be expected in the future. Fluctuations in any particular
exchange rate that have occurred in the past are not necessarily indicative,
however, of fluctuations in the rate that may occur during the term of any
Foreign Currency Note. Depreciation of the Specified Currency applicable to a
Foreign Currency Note against the United States dollar would result in a
decrease in the United States dollar-equivalent yield of such Note, in the
United States dollar-equivalent value of the principal and premium, if any,
payable on the Maturity Date of such Note, and, generally, in the United States
dollar-equivalent market value of such Note.
Governments have imposed from time to time exchange controls and may in the
future impose or revise exchange controls at or prior to the date on which any
payment of principal of or premium, if any, or interest on a Foreign Currency
Note is due, which could affect exchange rates as well as the availability of
the Specified Currency on such date. Even if there are no exchange controls, it
is possible that the Specified Currency for any particular Foreign Currency Note
would not be available on the applicable payment date due to other circumstances
beyond the control of the Company. In that event, the Company will make the
required payment in respect of such Foreign Currency Note in United States
dollars on the basis of the Market Exchange Rate (as defined below). See
"Payment Currency."
GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If an action based on Foreign Currency Notes were
commenced in a court of the United States, it is likely that such court would
grant judgment relating to such Notes only in United States dollars. It is not
clear, however, whether, in granting such judgment, the rate of conversion into
United States dollars would be determined with reference to the date of default,
the date judgment is rendered or some other date. Under current New York law, a
state court in the State of New York rendering a judgment on a Foreign Currency
Note would be required to render such judgment in the Specified Currency in
which such Foreign Currency Note is denominated, and such judgment would be
converted into United States dollars at the exchange rate prevailing on the date
of entry of the judgment. Accordingly, Holders of Foreign Currency Notes would
bear the risk of exchange rate fluctuations between the time the amount of the
judgment is calculated and the time such amount is converted from United States
dollars into the applicable Specified Currency.
PAYMENT OF PRINCIPAL AND PREMIUM, IF ANY, AND INTEREST
The Company is obligated to make payments of principal of and premium, if
any, and interest on Foreign Currency Notes in the applicable Specified Currency
(or, if such Specified Currency is not at
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the time of such payment legal tender for the payment of public and private
debts, in such other coin or currency of the country which issued such Specified
Currency as at the time of such payment is legal tender for the payment of such
debts). Any such amounts paid by the Company will, unless otherwise specified in
the applicable Pricing Supplement, be converted by the Exchange Rate Agent named
in the applicable Pricing Supplement into United States dollars for payment to
Holders. However, unless otherwise specified in the applicable Pricing
Supplement, the Holder of a Foreign Currency Note may elect to receive such
payments in the applicable Specified Currency as hereinafter described.
Any United States dollar amount to be received by a Holder of a Foreign
Currency Note will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of whom may be the Exchange Rate
Agent) selected by the Exchange Rate Agent and approved by the Company for the
purchase by the quoting dealer of the Specified Currency for United States
dollars for settlement on such payment date in the aggregate amount of the
Specified Currency payable to all Holders of Foreign Currency Notes scheduled to
receive United States dollar payments and at which the applicable dealer commits
to execute a contract. All currency exchange costs will be borne by the Holder
of such Foreign Currency Note by deductions from such payments. If three such
bid quotations are not available, payments will be made in the Specified
Currency.
Unless otherwise specified in the applicable Pricing Supplement, a Holder of
a Foreign Currency Note may elect to receive payment of the principal of and
premium, if any, and/or interest on such Note in the Specified Currency by
submitting a written request for such payment to the Trustee at its corporate
trust office in The City of New York on or prior to the applicable Record Date
or at least fifteen calendar days prior to the Maturity Date, as the case may
be. Such written request may be mailed or hand delivered or sent by cable, telex
or other form of facsimile transmission. A Holder of a Foreign Currency Note may
elect to receive payment in the applicable Specified Currency for all such
principal, premium, if any, and interest payments and need not file a separate
election for each payment. Such election will remain in effect until revoked by
written notice to the Trustee, but written notice of any such revocation must be
received by the Trustee on or prior to the applicable Record Date or at least
fifteen calendar days prior to the Maturity Date, as the case may be. Holders of
Foreign Currency Notes whose Notes are to be held in the name of a broker or
nominee should contact such broker or nominee to determine whether and how an
election to receive payments in the applicable Specified Currency may be made.
Payments of the principal of and premium, if any, and interest on Foreign
Currency Notes which are to be made in U.S. dollars will be made in the manner
specified herein with respect to Notes denominated in United States dollars. See
"Description of Notes -- General." Payments of interest on Foreign Currency
Notes which are to be made in the applicable Specified Currency on an Interest
Payment Date (other than the Maturity Date) will be made by check mailed at the
address of the Persons entitled thereto as they appear in the Security Register.
Payments of principal of and premium, if any, and interest on Foreign Currency
Notes which are to be made in the applicable Specified Currency on the Maturity
Date will be made by wire transfer of immediately available funds to an account
with a bank designated at least fifteen calendar days prior to the Maturity Date
by the applicable Holder, provided that such bank has appropriate facilities
therefor and that the applicable Note is presented at the principal corporate
trust office of the Trustee in time for the Trustee to make such payments in
such funds in accordance with its normal procedures.
Unless otherwise specified in the applicable Pricing Supplement, a
beneficial owner of a Global Security or Securities representing Book-Entry
Notes denominated in a Specified Currency other than United States dollars which
elect to receive payments of principal, premium, if any, and interest in such
Specified Currency must notify the participant through which its interest is
held on or prior to the applicable Record Date or at least fifteen calendar days
prior to the Maturity Date, as the case
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may be, of such beneficial owner's election to receive all or a portion of such
payment in such Specified Currency. Such participant must notify the Depositary
of such election on or prior to the third Business Day after such Record Date or
at least ten calendar days prior to the Maturity Date, as the case may be, and
the Depositary will notify the Trustee of such election on or prior to the fifth
Business Day after such Record Date or at least ten calendar days prior to the
Maturity Date, as the case may be. If complete instructions are received by the
participant and forwarded by the participant to the Depositary, and by the
Depositary to the Trustee, on or prior to such dates, then the beneficial owner
will receive payments in such Specified Currency.
PAYMENT CURRENCY
If the applicable Specified Currency is not available for the payment of
principal, premium, if any, or interest with respect to a Foreign Currency Note
due to the imposition of exchange controls or other circumstances beyond the
control of the Company, the Company will be entitled to satisfy its obligations
to the Holder of such Foreign Currency Note by making such payment in United
States dollars on the basis of the Market Exchange Rate on the second Business
Day prior to such payment or, if such Market Exchange Rate is not then
available, on the basis of the most recently available Market Exchange Rate or
as otherwise specified in the applicable Pricing Supplement. The "Market
Exchange Rate" for a Specified Currency other than United States dollars means
the noon dollar buying rate in the City of New York for cable transfer for such
Specified Currency as certified for customs purposes by (or if not so certified,
as otherwise determined by) the Federal Reserve Bank of New York. Any payment
made under such circumstances in United States dollars where the required
payment is in a Specified Currency other than United States dollars will not
constitute an Event of Default under the Indentures with respect to the Notes.
If payment in respect of a Foreign Currency Note is required to be made in
any currency unit (E.G., ECU), and such currency unit is unavailable due to the
imposition of exchange controls or other circumstances beyond the Company's
control, then the Company will be entitled, but not required, to make any
payments in respect of such Note in United States dollars until such currency
unit is again available. The amount of each payment in United States dollars
shall be computed on the basis of the equivalent of the currency unit in United
States dollars, which shall be determined by the Company or its agent on the
following basis. The component currencies of the currency unit for this purpose
(collectively, the "Component Currencies" and each, a "Component Currency")
shall be the currency amounts that were components of the currency unit as of
the last day on which the currency unit was used. The equivalent of the currency
unit in United States dollars shall be calculated by aggregating the United
States dollar equivalents of the Component Currencies. The United States dollar
equivalent of each of the Component Currencies shall be determined by the
Company or such agent on the basis of the most recently available Market
Exchange Rate for each such Component Currency, or as otherwise specified in the
applicable Pricing Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
All determinations referred to above made by the Company or its agent
(including the Exchange Rate Agent) shall be at its sole discretion and shall,
in the absence of manifest error, be conclusive for all purposes and binding on
the Holders of the Foreign Currency Notes.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal income tax
consequences to purchasers that are likely to result from the purchase,
ownership and sale or other taxable disposition of the Notes under currently
applicable laws and is based upon laws, regulations, rulings and decisions now
in effect, all of which are subject to change (including changes in effective
dates) or possible differing interpretations. The following summary deals only
with Notes held as capital assets and does not purport to deal with persons in
special tax situations, such as financial institutions, insurance companies,
regulated investment companies, dealers in securities or currencies, persons
holding Notes as a hedge against currency risks or as a position in a "straddle"
for tax purposes, or persons whose functional currency is not the United States
dollar. It also does not deal with holders other than original purchasers
(except where otherwise specifically noted). Persons considering the purchase of
the Notes should consult their own tax advisors concerning the application of
United States Federal income tax laws to their particular situations as well as
any consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. As used herein, the term
"non-U.S. Holder" means a holder of a Note that is not a U.S.
Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST
Payments of interest on a Note generally will be taxable to a U.S. Holder as
ordinary interest income at the time such payments are accrued or are received
(in accordance with the U.S. Holder's regular method of tax accounting).
ORIGINAL ISSUE DISCOUNT
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Discount Notes"). The
following summary is based upon final Treasury regulations (the "OID
Regulations") issued by the Internal Revenue Service ("IRS") on January 27, 1994
under the original issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a DE MINIMIS amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date). The issue price of an issue
of Notes equals the first price at which a substantial amount of such Notes has
been sold (ignoring sales to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). The stated redemption price at maturity of a Note is the sum of
all payments provided by the Note other than "qualified stated interest"
payments. The term "qualified stated interest" generally means stated interest
that is unconditionally payable in cash or property (other than debt instruments
of the issuer) at least annually at a single fixed rate. In addition, under the
OID Regulations, if a Note bears interest for one or more accrual periods at a
rate below the rate applicable for the remaining term of such Note (E.G., Notes
with teaser rates or interest holidays), and if the greater of either the
resulting foregone interest on such Note or any "true" discount on such Note
(I.E., the excess of the Note's stated principal amount over its issue price)
equals or exceeds a
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specified DE MINIMIS amount, then the stated interest on the Note would be
treated as original issue discount rather than qualified stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of such U.S. Holder's
regular method of tax accounting. In general, the amount of original issue
discount included in income by the initial U.S. Holder of a Discount Note is the
sum of the daily portions of original issue discount with respect to such
Discount Note for each day during the taxable year (or portion of the taxable
year) on which such U.S. Holder held such Discount Note. The "daily portion" of
original issue discount on any Discount Note is determined by allocating to each
day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Discount Note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on the first day of an accrual period. The amount of original issue
discount allocable to each accrual period is generally equal to the difference
between (i) the product of the Discount Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and appropriately
adjusted to take into account the length of the particular accrual period) and
(ii) the amount of any qualified stated interest payments allocable to such
accrual period. The "adjusted issue price" of a Discount Note at the beginning
of any accrual period is the sum of the issue price of the Discount Note plus
the amount of original issue discount allocable to all prior accrual periods
minus the amount of any prior payments on the Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder must
include in its gross income with respect to such Discount Note for any taxable
year (or portion thereof in which the U.S. Holder holds the Discount Note) will
be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes are subject to special rules
whereby a Floating Rate Note will qualify as a "variable rate debt instrument"
if (a) its issue price does not exceed the total noncontingent principal
payments due under the Floating Rate Note by more than a specified DE MINIMIS
amount and (b) it provides for stated interest, paid or compounded at least
annually, at current values of (i) one or more qualified floating rates, (ii) a
single fixed rate and one or more qualified floating rates, (iii) a single
objective rate, or (iv) a single fixed rate and a single objective rate that is
a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly-borrowed funds in the currency in which the
Floating Rate Note is denominated. Although a multiple of a qualified floating
rate will generally not itself constitute a qualified floating rate, a variable
rate equal to the product of a qualified floating rate and a fixed multiple that
is greater than zero but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than zero but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID
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Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Floating Rate Note (E.G., two or more qualified floating rates with values
within 25 basis points of each other as determined on the Floating Rate Note's
issue date) will be treated as a single qualified floating rate. Notwithstanding
the foregoing, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a maximum
numerical limitation (I.E., a cap) or a minimum numerical limitation (I.E., a
floor) may, under certain circumstances, fail to be treated as a qualified
floating rate under the OID Regulations. An "objective rate" is a rate that is
not itself a qualified floating rate but which is determined using a single
fixed formula and which is based upon (i) one or more qualified floating rates,
(ii) one or more rates where each rate would be a qualified floating rate for a
debt instrument denominated in a currency other than the currency in which the
Floating Rate Note is denominated, (iii) either the yield or changes in the
price of one or more items of actively traded personal property (other than
stock or debt of the issuer or a related party) or (iv) a combination of
objective rates. The OID Regulations also provide that other variable interest
rates may be treated as objective rates if so designated by the IRS in the
future. Despite the foregoing, a variable rate of interest on a Floating Rate
Note will not constitute an objective rate if it is reasonably expected that the
average value of such rate during the first half of the Floating Rate Note's
term will be either significantly less than or significantly greater than the
average value of the rate during the final half of the Floating Rate Note's
term. A "qualified inverse floating rate" is any objective rate where such rate
is equal to a fixed rate minus a qualified floating rate, as long as variations
in the rate can reasonably be expected to inversely reflect contemporaneous
variations in the cost of newly-borrowed funds. The OID Regulations also provide
that if a Floating Rate Note provides for stated interest at a fixed rate for an
initial period of less than one year followed by a variable rate that is either
a qualified floating rate or an objective rate and if the variable rate on the
Floating Rate Note's issue date is intended to approximate the fixed rate (E.G.,
the value of the variable rate on the issue date does not differ from the value
of the fixed rate by more than 25 basis points), then the fixed rate and the
variable rate together will constitute either a single qualified floating rate
or objective rate, as the case may be.
If a Floating Rate Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually will
constitute qualified stated interest and will be taxed accordingly. Thus, a
Floating Rate Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Floating Rate Note is issued at a "true" discount
(I.E., at a price below the Note's stated principal amount) in excess of a
specified DE MINIMIS amount. Original issue discount on such a Floating Rate
Note arising from "true" discount is allocated to an accrual period using the
constant yield method described above by assuming that the variable rate is a
fixed rate equal to (i) in the case of a qualified floating rate or qualified
inverse floating rate, the value as of the issue date, of the qualified floating
rate or qualified inverse floating rate, or (ii) in the case of an objective
rate (other than a qualified inverse floating rate), a fixed rate that reflects
the yield that is reasonably expected for the Floating Rate Note.
In general, any other Floating Rate Note that qualifies as a "variable rate
debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of original issue
discount and qualified stated interest on the Floating Rate Note. The OID
Regulations generally require that such a Floating Rate Note be converted into
an "equivalent" fixed rate debt instrument by substituting any qualified
floating rate or qualified inverse floating rate provided for under the terms of
the Floating Rate Note with a fixed rate equal to the value of the qualified
floating rate or qualified inverse floating rate, as the case may be, as of the
Floating Rate Note's issue date. Any objective rate (other than a qualified
inverse floating rate) provided for under the terms of the Floating Rate Note is
converted into a fixed rate that reflects the yield that is
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reasonably expected for the Floating Rate Note. In the case of a Floating Rate
Note that qualifies as a "variable rate debt instrument" and provides for stated
interest at a fixed rate in addition to either one or more qualified floating
rates or a qualified inverse floating rate, the fixed rate is initially
converted into a qualified floating rate (or a qualified inverse floating rate,
if the Floating Rate Note provides for a qualified inverse floating rate). Under
such circumstances, the qualified floating rate or qualified inverse floating
rate that replaces the fixed rate must be such that the fair market value of the
Floating Rate Note as of the Floating Rate Note's issue date is approximately
the same as the fair market value of an otherwise identical debt instrument that
provides for either the qualified floating rate or qualified inverse floating
rate rather than the fixed rate. Subsequent to converting the fixed rate into
either a qualified floating rate or a qualified inverse floating rate, the
Floating Rate Note is then converted into an "equivalent" fixed rate debt
instrument in the manner described above.
Once the Floating Rate Note is converted into an "equivalent" fixed rate
debt instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Floating Rate Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed rate
debt instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Floating Rate Note during the accrual period.
If a Floating Rate Note does not qualify as a "variable rate debt
instrument" under the OID Regulations, then the Floating Rate Note would be
treated as a contingent payment debt obligation. The anticipated United States
Federal income tax treatment of Floating Rate Notes that are treated as
contingent payment debt obligations will be described in the applicable Pricing
Supplement.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, DE
MINIMIS original issue discount, market discount, DE MINIMIS market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions. This election is only available for debt instruments
acquired on or after April 4, 1994.
SHORT-TERM NOTES
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount. In general,
an individual or other cash method U.S. Holder is not required to accrue such
original issue discount unless the U.S. Holder elects to do so. If such an
election is not made, any gain recognized by the U.S. Holder on the sale,
exchange or maturity of the Short-Term Note will be ordinary income to the
extent of the original issue discount accrued on a straight-line basis, or upon
election under the constant yield method (based on daily compounding), through
the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-
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Term Note on a straight-line basis unless an election is made to accrue the
original issue discount under a constant yield method (based on daily
compounding).
MARKET DISCOUNT
If a U.S. Holder purchases a Note, other than a Discount Note, for an amount
that is less than its issue price (or, in the case of a subsequent purchaser,
its stated redemption price at maturity) or, in the case of a Discount Note, for
an amount that is less than its adjusted issue price as of the purchase date,
the amount of the difference will be treated as "market discount," unless such
difference is less than a specified DE MINIMIS amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Note, any payment that
does not constitute qualified stated interest) on, or any gain realized on the
sale, exchange, retirement or other disposition of, a Note as ordinary income to
the extent of the lesser of (i) the amount of such payment or realized gain or
(ii) the market discount which has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
U.S. Holder elects to accrue market discount on the basis of semiannual
compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
its earlier disposition in a taxable transaction, because a current deduction is
only allowed to the extent the interest expense exceeds an allocable portion of
market discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Note and upon the receipt of certain
cash payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States Federal income tax purposes.
PREMIUM
If a U.S. Holder purchases a Note for an amount that is greater than its
stated redemption price at maturity, such U.S. Holder will be considered to have
purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some bond premium until later in the
term of the Note.
DISPOSITION OF A NOTE
Except as discussed above, upon the sale, exchange or retirement of a Note,
a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement and
such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Note. Such gain or loss generally will be long-term capital
gain or loss if the Note were held for more than one year.
NOTES DENOMINATED OR ON WHICH INTEREST IS PAYABLE IN A FOREIGN CURRENCY
As used herein, "Foreign Currency" means a currency or currency unit other
than U.S. dollars.
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PAYMENTS OF INTEREST IN A FOREIGN CURRENCY
CASH METHOD. A U.S. Holder who uses the cash method of accounting for
United States Federal income tax purposes and who receives a payment of
interest on a Note (other than original issue discount or market discount)
will be required to include in income the U.S. dollar value of the Foreign
Currency payment (determined on the date such payment is received) regardless
of whether the payment is in fact converted to U.S. dollars at that time, and
such U.S. dollar value will be the U.S. Holder's tax basis in such Foreign
Currency.
ACCRUAL METHOD. A U.S. Holder who uses the accrual method of accounting for
United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the U.S.
dollar value of the amount of interest income (including original issue discount
or market discount and reduced by amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Note during an accrual period. The U.S. dollar value of such
accrued income will be determined by translating such income at the average rate
of exchange for the accrual period or, with respect to an accrual period that
spans two taxable years, at the average rate for the partial period within the
taxable year. A U.S. Holder may elect, however, to translate such accrued
interest income using the rate of exchange on the last day of the accrual period
or, with respect to an accrual period that spans two taxable years, using the
rate of exchange on the last day of the taxable year. If the last day of an
accrual period is within five business days of the date of receipt of the
accrued interest, a U.S. Holder may translate such interest using the rate of
exchange on the date of receipt. The above election will apply to other debt
obligations held by the U.S. Holder and may not be changed without the consent
of the IRS. A U.S. Holder should consult a tax advisor before making the above
election. A U.S. Holder will recognize exchange gain or loss (which will be
treated as ordinary income or loss) with respect to accrued interest income on
the date such income is received. The amount of ordinary income or loss
recognized will equal the difference, if any, between the U.S. dollar value of
the Foreign Currency payment received (determined on the date such payment is
received) in respect of such accrual period and the U.S. dollar value of
interest income that has accrued during such accrual period (as determined
above).
PURCHASE, SALE AND RETIREMENT OF NOTES
A U.S. Holder who purchases a Note with previously owned Foreign Currency
will recognize ordinary income or loss in an amount equal to the difference, if
any, between such U.S. Holder's tax basis in the Foreign Currency and the U.S.
dollar fair market value of the Foreign Currency used to purchase the Note,
determined on the date of purchase.
Except as discussed above with respect to Short-Term Notes, upon the sale,
exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement and such U.S. Holder's adjusted tax basis in the Note. Such gain
or loss generally will be capital gain or loss (except to the extent of any
accrued market discount not previously included in the U.S. Holder's income) and
will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held by such U.S. Holder for more than one year. To
the extent the amount realized represents accrued but unpaid interest, however,
such amounts must be taken into account as interest income, with exchange gain
or loss computed as described in "Payments of Interest in a Foreign Currency"
above. If a U.S. Holder receives Foreign Currency on such a sale, exchange or
retirement the amount realized will be based on the U.S. dollar value of the
Foreign Currency on (i) the date of receipt of such Foreign Currency in the case
of a cash basis U.S. Holder and (ii) the date of disposition in the case of an
accrual basis U.S. Holder. In the case of a Note that is denominated in a
Foreign Currency and is traded on an established securities market, a cash basis
U.S. Holder (or, upon election, an accrual basis U.S. Holder) will determine the
U.S. dollar value of the amount realized by translating the Foreign Currency
payment at the spot rate of exchange on the settlement date of the sale. A U.S.
Holder's adjusted tax basis in a Note will equal the cost of the Note to such
holder, increased by the amounts
S-28
of any market discount or original issue discount previously included in income
by the holder with respect to such Note and reduced by any amortized acquisition
or other premium and any principal payments received by the holder. A U.S.
Holder's tax basis in a Note, and the amount of any subsequent adjustments to
such holder's tax basis, will be the U.S. dollar value of the Foreign Currency
amount paid for such Note, or of the Foreign Currency amount of the adjustment,
determined on the date of such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date such payment is received or the Note is disposed
of, and the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date the U.S. Holder acquired the Note. Such Foreign
Currency gain or loss will be recognized only to the extent of the total gain or
loss realized by the U.S. Holder on the sale, exchange or retirement of the
Note.
ORIGINAL ISSUE DISCOUNT
In the case of a Discount Note or Short-Term Note, (i) original issue
discount is determined in units of the Foreign Currency, (ii) accrued original
issue discount is translated into U.S. dollars as described in "Payments of
Interest in a Foreign Currency -- Accrual Method" above and (iii) the amount of
Foreign Currency gain or loss on the accrued original issue discount is
determined by comparing the amount of income received attributable to the
discount (either upon payment, maturity or an earlier disposition), as
translated into U.S. dollars at the rate of exchange on the date of such
receipt, with the amount of original issue discount accrued, as translated
above.
PREMIUM AND MARKET DISCOUNT
In the case of a Note with market discount, (i) market discount is
determined in units of the Foreign Currency, (ii) accrued market discount taken
into account upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note (other than accrued market
discount required to be taken into account currently) is translated into U.S.
dollars at the exchange rate on such disposition date (and no part of such
accrued market discount is treated as exchange gain or loss) and (iii) accrued
market discount currently includable in income by a U.S. Holder for any accrual
period is translated into U.S. dollars on the basis of the average exchange rate
in effect during such accrual period, and the exchange gain or loss is
determined upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note in the manner described in
"Payments of Interest in a Foreign Currency -- Accrual Method" above with
respect to computation of exchange gain or loss on accrued interest.
With respect to a Note issued with amortizable bond premium, such premium is
determined in the relevant Foreign Currency and reduces interest income in units
of the Foreign Currency. Although not entirely clear, a U.S. Holder should
recognize exchange gain or loss equal to the difference between the U.S. dollar
value of the bond premium amortized with respect to a period, determined on the
date the interest attributable to such period is received, and the U.S. dollar
value of the bond premium determined on the date of the acquisition of the Note.
EXCHANGE OF FOREIGN CURRENCIES
A U.S. Holder will have a tax basis in any Foreign Currency received as
interest or on the sale, exchange or retirement of a Note equal to the U.S.
dollar value of such Foreign Currency, determined at the time the interest is
received or at the time of the sale, exchange or retirement. Any gain or loss
realized by a U.S. Holder on a sale or other disposition of Foreign Currency
(including its exchange for U.S. dollars or its use to purchase Notes) will be
ordinary income or loss.
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NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of the Company, a controlled foreign corporation
related to the Company or a bank receiving interest described in Section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. The Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Notes will not be includable in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the Company
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
S-30
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the Company,
through the Agents, who will purchase the Notes, as principal, from the Company
from time to time, for resale to investors and other purchasers at varying
prices relating to prevailing market prices at the time of resale as determined
by the Agents, or, if so specified in the applicable Pricing Supplement, for
resale at a fixed public offering price. Unless otherwise specified in the
applicable Pricing Supplement, any Note sold to an Agent as principal will be
purchased by such Agent at a price equal to 100% of the principal amount thereof
less a percentage of the principal amount equal to the commission applicable to
an agency sale (as described below) of a Note of identical maturity. If agreed
to by the Company and the Agents, the Agents may utilize their reasonable
efforts on an agency basis to solicit offers to purchase the Notes at 100% of
the principal amount thereof, unless otherwise specified in the applicable
Pricing Supplement. The Company will pay a commission to each Agent, ranging
from .125% to .750% of the principal amount of each Note, depending upon its
stated maturity, sold through such Agent. Commissions with respect to Notes with
stated maturities in excess of 30 years that are sold through an Agent will be
negotiated between the Company and such Agent at the time of such sale.
The Agents may sell Notes they have purchased from the Company as principal
to other dealers for resale to investors and other purchasers, and may allow any
portion of the discount received in connection with such purchase from the
Company to such dealers. After the initial public offering of Notes, the public
offering price (in the case of Notes to be resold at a fixed public offering
price), the concession and the discount may be changed.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject orders in whole or in part (whether placed
directly with the Company or through an Agent). Each Agent will have the right,
in its discretion reasonably exercised, to reject in whole or in part any offer
to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
vailable funds in the applicable Specified Currency in The City of New York on
the date of settlement. See "Description of Notes -- General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or liquidity in the secondary market if one develops. From
time to time, the Agents may make a market in the Notes, but the Agents are not
obligated to do so and may discontinue any market-making activity at any time.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to indemnify the Agents against certain liabilities (including
liabilities under the Securities Act), or to contribute to payments the Agents
may be required to make in respect thereof. The Company has agreed to reimburse
the Agents for certain other expenses.
Concurrently with the offering of Notes described herein, the Company may
issue other Debt Securities described in the accompanying Prospectus pursuant to
the Indentures.
S-31
PROSPECTUS
$250,000,000
[LOGO]
J.B. HUNT TRANSPORT SERVICES, INC.
DEBT SECURITIES
--------------
J.B. Hunt Transport Services, Inc. ("J.B. Hunt" or the "Company") may
offer and sell from time to time, in one or more series, its debt securities
(the "Debt Securities") with an aggregate initial offering price not to exceed
$250,000,000. The Debt Securities will be offered in amounts, at prices and on
terms to be determined at the time of offering and to be set forth in
supplements to this Prospectus. The Company may sell Debt Securities to or
through underwriters or dealers designated from time to time, and may also
sell Debt Securities directly to other purchasers or through agents designated
from time to time. See "Plan of Distribution." The specific designation,
aggregate principal amount, ranking as senior or subordinated Debt Securities,
maturity, rate or rates (or method of determining the same) and time or times
of payment of interest, if any, purchase price, any terms in addition to or
different from those described herein for redemption or repurchase, the names
of and the principal amounts to be purchased by or through agents, dealers or
underwriters, if any, the compensation of such persons and other special terms
in connection with the offering and sale of the series of Debt Securities in
respect of which this Prospectus is being delivered are set forth in the
accompanying Prospectus Supplement (the "Prospectus Supplement").
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------
This Prospectus may not be used to consummate sales of Debt Securities
unless accompanied by a Prospectus Supplement.
-------------------
THE DATE OF THIS PROSPECTUS IS JULY 28, 1993.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Debt Securities offered by this Prospectus. Certain portions
of the Registration Statement have not been included in this Prospectus as
permitted by the Commission's rules and regulations. For further information,
reference is made to the Registration Statement and the exhibits thereto. The
Company is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports and other information with the Commission. The Registration
Statement (with exhibits), as well as such reports and other information filed
by the Company with the Commission, may be inspected and copied at the public
reference facilities maintained by the Commission at its principal offices at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
its regional offices at 7 World Trade Center, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are incorporated herein by reference and made a
part of this Prospectus, except as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1992.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Debt Securities pursuant hereto shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document incorporated
by reference in this Prospectus (not including exhibits to those documents
unless such exhibits are specifically incorporated by reference into the
information incorporated into this Prospectus). Requests for such copies should
be directed to Mr. Kirk Thompson, J.B. Hunt Transport Services, Inc., 615 J.B.
Hunt Corporate Drive, Lowell, Arkansas 72745, telephone number (501) 820-0000. 2
THE COMPANY
J.B. Hunt Transport Services, Inc. is a diversified transportation company
focusing on the movement of full-load containerizable freight in North America.
The Company primarily operates as an irregular route, dry van truckload carrier
transporting general commodities through a combination of traditional truck
transportation and an expanding intermodal network through alliances with major
railroads. J.B. Hunt currently provides service throughout the 48 contiguous
states, the Canadian provinces of Quebec, Ontario and British Columbia, and
Mexico by contracting with selected Mexican carriers. The Company operates 20
terminals strategically spread throughout the United States, with its
headquarters located in Lowell, Arkansas. The Company's principal executive
offices are located at 615 J.B. Hunt Corporate Drive, Lowell, Arkansas 72745,
and its telephone number there is (501) 820-0000.
USE OF PROCEEDS
Except as otherwise described in the Prospectus Supplement relating to an
offering of Debt Securities, the net proceeds from the sale of the Debt
Securities offered by this Prospectus and the Prospectus Supplement (the
"Offered Debt Securities") will be used for general corporate purposes,
including the refinancing of outstanding indebtedness and the financing of
capital expenditures. Any specific allocation of the net proceeds of an offering
of Debt Securities to a specific expenditure will be determined at the time of
such offering and will be described in the related Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratio of earnings
to fixed charges for the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
----------------------------------------------------- ENDED
1988 1989 1990 1991 1992 MARCH 31, 1993
--------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGE COVERAGE RATIO.............................. 9.19 6.56 7.90 5.54 6.33 3.68
</TABLE>
The ratios of earnings to fix charges were computed by dividing earnings by
fixed charges. For this purpose, earnings represent operating income before
fixed charges, income taxes and cumulative effect of changes in accounting
methods. Fixed charges include interest and amortization of debt expenses.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either senior or subordinated debt of
the Company and will be issued, in the case of Debt Securities that will be
senior debt ("Senior Debt Securities"), under a Senior Indenture (the "Senior
Debt Indenture") dated as of July 1, 1993, between the Company and Morgan
Guaranty Trust Company of New York, as trustee, and, in the case of Debt
Securities that will be subordinated debt ("Subordinated Debt Securities"),
under a Subordinated Indenture dated as of July 1, 1993 (the "Subordinated Debt
Indenture"), between the Company and Morgan Guaranty Trust Company of New York,
as trustee. The Senior Debt Indenture and the Subordinated Debt Indenture are
sometimes hereinafter referred to individually as an "Indenture" and
collectively as the "Indentures". Morgan Guaranty Trust Company of New York (and
any successor thereto as trustee under the Indentures) is hereinafter referred
to as the "Trustee". The Indentures are filed as exhibits to the Registration
Statement. The following summaries of certain provisions of the Indentures and
the Debt Securities do not purport to be complete and such summaries are subject
to the detailed provisions of the applicable Indenture to which reference is
hereby made for a full description of such provisions, including the definition
of certain terms used herein. Section references in parentheses below are to
sections in both Indentures unless otherwise indicated. Wherever particular
sections or defined terms of the applicable Indenture are referred to, such
sections or defined terms are incorporated herein by reference as part of the
statement made, and the statement is qualified in
3
its entirety by such reference. The Indentures are substantially identical,
except for certain covenants of the Company and provisions relating to
subordination.
The Debt Securities may be issued from time to time in one or more series.
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities of all series. The particular terms
of each series of Debt Securities offered by any Prospectus Supplement will be
described therein.
PROVISIONS APPLICABLE TO BOTH SENIOR AND SUBORDINATED DEBT SECURITIES
GENERAL. The Debt Securities will be unsecured senior or subordinated
obligations of the Company and may be issued from time to time in one or more
series. The Indentures do not limit the amount of Debt Securities, Senior
Indebtedness (as defined below), debentures, notes or other types of
indebtedness that may be issued by the Company or any of its Subsidiaries (as
defined below) nor do they restrict transactions between the Company and its
Affiliates (as defined below), the payment of dividends by the Company, or the
transfer of assets by the Company to its Subsidiaries. The Company currently
conducts substantially all its operations through Subsidiaries. Consequently,
the rights of the Company to receive assets of any Subsidiary (and thus the
ability of holders of Debt Securities to benefit indirectly from such assets)
are subject to the prior claims of creditors of that Subsidiary. Other than as
may be set forth in any Prospectus Supplement, the Indentures do not and the
Debt Securities will not contain any covenants or other provisions that are
intended to afford holders of the Debt Securities special protection in the
event of either a change of control of the Company or a highly leveraged
transaction by the Company.
Reference is made to the applicable Prospectus Supplement for the following
terms of and information relating to the Offered Debt Securities (to the extent
such terms are applicable to such Offered Debt Securities): (i) the title of the
Offered Debt Securities; (ii) classification as Senior Debt Securities or
Subordinated Debt Securities, aggregate principal amount, purchase price and
denomination; (iii) the date or dates on which the Offered Debt Securities will
mature; (iv) the method by which amounts payable in respect of principal,
premium, if any, or interest, if any, on or upon the redemption of such Offered
Debt Securities may be calculated; (v) the interest rate or rates (or the method
by which such will be determined), and the dates from which such interest, if
any, will accrue; (vi) the date or dates on which any such interest will be
payable; (vii) the place or places where and the manner in which the principal
of, premium, if any, and interest, if any, on the Offered Debt Securities will
be payable and the place or places where the Offered Debt Securities may be
presented for transfer; (viii) the obligation, if any, of the Company to redeem,
repay or purchase the Offered Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of a holder thereof or the right, if any,
of the Company to redeem, repay or purchase the Offered Debt Securities at its
option and the period or periods within which, the price or prices at which and
the terms and conditions upon which the Offered Debt Securities will be
redeemed, repaid or purchased to any such obligation or right (including the
form or method payment thereof if other than cash); (ix) any terms applicable to
the Offered Debt Securities issued at an original issue discount below their
stated principal amount, including the issue price thereof and the rate or rates
at which such original issue discount shall accrue; (x) any index used to
determine the amount of payments of principal of and any premium and interest on
the Offered Debt Securities; (xi) any applicable United States federal income
tax consequences; and (xii) any other specific terms of the Offered Debt
Securities, including any additional or different events of default or remedies
or any additional covenants provided with respect to such Offered Debt
Securities, and any terms which may be required by or advisable under applicable
laws or regulations.
Unless otherwise specified in any Prospectus Supplement, the Debt Securities
will be issued only in fully registered form and in denominations of $1,000 and
any integral multiples thereof (Section 2.7). No service charge will be made for
any transfer or exchange of any Debt Securities but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith (Section 2.8).
4
Debt Securities may bear interest at a fixed rate or a floating rate. Debt
Securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate may be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par which are treated as having been issued at a
discount for United States federal income tax purposes will be described in the
applicable Prospectus Supplement.
The Indentures are, and the Debt Securities will be, governed by New York
law.
CERTAIN DEFINITIONS. The following definitions are applicable to both
Senior and Subordinated Debt Securities (Article One of each Indenture).
"Affiliate" of any specified Person (as defined below) means any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust, estate,
unincorporated organization or government or any agency or political subdivision
thereof.
"Subsidiary" means any corporation of which the Company, or the Company and
one or more Subsidiaries, or any one or more Subsidiaries, directly or
indirectly own voting securities entitling any one or more of the Company and
its Subsidiaries to elect a majority of the directors of such corporation,
either at all times or so long as there is no default or contingency permitting
the holders of any other class or classes of securities to vote for the election
of one or more directors.
"U.S. Government Obligations" means direct obligations of the United States
of America, backed by its full faith and credit.
GLOBAL SECURITIES. The Debt Securities of a series may be issued in whole
or in part in the form of one or more global securities ("Global Securities")
that will be deposited with, or on behalf of, a depositary (the "Depositary")
identified in the Prospectus Supplement relating to such series. Global
Securities may be issued only in fully registered form and in either temporary
or permanent form. Unless and until it is exchanged in whole or in part for the
individual Debt Securities represented thereby, a Global Security may not be
transferred except as a whole by the Depositary for such Global Security to its
nominee or by a nominee of such Depositary to such Depositary or another nominee
of such Depositary or by such Depositary or any such nominee to a successor
Depositary or nominee of such successor Depositary (Sections 2.4 and 2.8).
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to such
series. The Company anticipates that the following provisions will generally
apply to depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit, on its book-entry registration and transfer
system, the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depositary. Such accounts shall be designated by the dealers,
underwriters or agents with respect to such Debt Securities or by the Company if
such Debt Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Global Security will be limited to persons that have
accounts with the applicable Depositary ("participants") or persons that may
hold interests through participants. Ownership of beneficial interests in such
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants). The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
5
So long as the Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Depositary or its nominee, as the
case may be, will be considered the sole owner or holder of the Debt Securities
of the series represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have any of
the individual Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Debt Securities in definitive form and will not be
considered the owners or holders thereof under the Indenture governing such Debt
Securities.
Payments of principal of, premium, if any, and interest, if any, on
individual Debt Securities represented by a Global Security registered in the
name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Security
representing such Debt Securities. Neither the Company, the Trustee for such
Debt Securities, any paying agent nor the registrar for such Debt Securities
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests of the Global
Security for such Debt Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
The Company expects that the Depositary for a series of Debt Securities or
its nominee, upon receipt of any payment of principal, premium or interest in
respect of a Global Security representing any such Debt Securities, immediately
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Security for such Debt Securities as shown on the records of such Depositary or
its nominee. The Company also expects that payments by participants to owners of
beneficial interests in such Global Security held through such participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name". Such payments will be the responsibility of such participants.
If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, the Company will issue individual Debt
Securities of such series in exchange for the Global Security representing such
series of Debt Securities. In addition, the Company may at any time and in its
sole discretion, subject to any limitations described in the Prospectus
Supplement relating to such Debt Securities, determine not to have any Debt
Securities of a series represented by one or more Global Securities and, in such
event, will issue individual Debt Securities of such series in exchange for the
Global Security or Securities representing such series of Debt Securities.
Further, if the Company so specifies with respect to the Debt Securities of a
series, an owner of a beneficial interest in a Global Security representing Debt
Securities of such series may, on terms acceptable to the Company and the
Depositary for such Global Security, receive individual Debt Securities of such
series in exchange for such beneficial interests, subject to any limitations
described in the Prospectus Supplement relating to such Debt Securities. In any
such instance, an owner of a beneficial interest in a Global Security will be
entitled to a physical delivery of individual Debt Securities of the series
represented by such Global Security equal in principal amount to such beneficial
interest and to have such Debt Securities registered in its name. Individual
Debt Securities of such series so issued will be issued in denominations, unless
otherwise specified by the Company, of $1,000 and integral multiples thereof.
EVENTS OF DEFAULT. Unless otherwise specified in the Prospectus Supplement,
an Event of Default is defined under each Indenture with respect to the Debt
Securities of any series issued under such Indenture as being: (a) default in
the payment of any interest with respect to Debt Securities of such series when
due, continued for a period of 30 days; (b) default in the payment of principal
or premium, if any, with respect to Debt Securities of such series when due; (c)
default in the payment or satisfaction of any sinking fund or other purchase
obligation with respect to Debt Securities of such series when due; (d) default
in the performance of any other covenant of the Company applicable to Debt
Securities of such series, continued for 60 days after written notice by the
Trustee or the holders
6
of at least 25% in aggregate principal amount of the Debt Securities of such
series then outstanding (or, in the case of any series of Debt Securities
originally issued at a discount from their stated principal amount, at least 25%
of the amount of principal thereof that would be due and payable on such date of
determination in the event of an acceleration of the maturity of such series on
such date); (e) certain events of bankruptcy, insolvency or reorganization; and
(f) default under any instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness (as defined in such
Indenture) for money borrowed of the Company or (in the case of the Senior Debt
Indenture) any Subsidiary resulting in the acceleration of such Indebtedness, or
any default in payment of any such Indebtedness (after expiration of any
applicable grace periods and presentation of any debt instruments, if required),
if the total of all such Indebtedness which has been so accelerated and with
respect to which there has been such a default in payment shall exceed
$15,000,000 and there shall have been a failure to obtain rescission or
annulment of all such accelerations or to discharge all such defaulted
Indebtedness within 10 days after written notice of the type specified in the
foregoing clause (g) (Section 5.1). If any Event of Default shall occur and be
continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Debt Securities of such series then outstanding (or, in
the case of any series of Debt Securities originally issued at a discount from
their stated principal amount, not less than 25% of the amount of principal
thereof that would be due and payable on such date of determination in the event
of an acceleration of the maturity of such series on such date), by notice in
writing to the Company (and to the Trustee, if given by the holders), may
declare the Debt Securities of such series due and payable immediately, but the
holders of a majority in aggregate principal amount of the Debt Securities of
such series then outstanding (or, in the case of any series of Debt Securities
originally issued at a discount from their stated principal amount, a majority
of the amount of principal thereof that would be due and payable on such date of
determination in the event of an acceleration of the maturity of such series on
such date), by notice in writing to the Company and the Trustee, may rescind
such declaration if all defaults under such Indenture are cured or waived
(Section 5.1).
Each Indenture provides that no holder of any series of Debt Securities then
outstanding may institute any suit, action or proceeding with respect to, or
otherwise attempt to enforce, such Indenture, unless (i) such holder shall have
given to the Trustee written notice of default and of the continuance thereof,
(ii) the holders of not less than 25% in aggregate principal amount of such
series of Debt Securities then outstanding (or, in the case of any series of
Debt Securities originally issued at a discount from their stated principal
amount, not less than of the amount of principal thereof that would be due and
payable on such date of determination in the event of an acceleration of the
maturity of such series on such date) shall have made written request to the
Trustee to institute such suit, action or proceeding and shall have offered to
the Trustee such reasonable indemnity as it may require with respect thereto and
(iii) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding; provided that, subject to the subordination
provisions applicable to the Subordinated Debt Securities, the right of any
holder of any Debt Security to receive payment of the principal of, premium, if
any, and interest, if any, on such Debt Security, on or after the respective due
dates, or to institute suit for the enforcement of any such payment shall not be
impaired or affected without the consent of such holder (Section 5.4). The
holders of a majority in aggregate principal amount of the Debt Securities of
such series then outstanding (or, in the case of any series of Debt Securities
originally issued at a discount from their stated principal amount, a majority
of the amount of principal thereof that would be due and payable on such date of
determination in the event of an acceleration of the maturity of such series on
such date) may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee, provided that such direction shall not be in conflict
with any rule of law or the Indenture or involve the Trustee in personal
liability (Section 5.7).
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under each Indenture
(Section 4.3).
7
CONSOLIDATION, MERGER, SALE, ETC. Each Indenture provides that the Company
may consolidate or merge with or into any other corporation, and may sell,
lease, exchange or otherwise dispose of all or substantially all of its property
and assets to any other corporation, provided that in any such case (i)
immediately after such transaction the Company will not be in default under such
Indenture, (ii) the corporation (if other than the Company) formed by or
surviving any such consolidation or merger, or to which such sale, lease,
exchange or other disposition shall have been made, shall be a corporation
organized under the laws of the United States of America, any state thereof or
the District of Columbia, and (iii) the corporation (if other than the Company)
formed by such consolidation, or into which the Company shall have been merged,
or the corporation which shall have acquired or leased such property and assets,
shall assume, by a supplemental indenture, the Company's obligations under such
Indenture (Section 9.1). In case of any such consolidation, merger, sale, lease,
exchange or other disposition and upon any such assumption by the successor
corporation, such successor corporation shall succeed to and be substituted for
the Company, with the same effect as if it had been named in such Indenture as
the Company, and the Company shall be relieved of any further obligation under
such Indenture and any Debt Securities issued thereunder (Section 9.2 of the
Subordinated Debt Indenture and Section 9.3 of the Senior Debt Indenture).
DISCHARGE AND DEFEASANCE. The Company may discharge or defease its
obligations with respect to each series of Debt Securities as set forth below
(Article Ten).
The Company may discharge all of its obligations (except those set forth
below) to holders of any series of Debt Securities issued under either Indenture
which have not already been delivered to the Trustee for cancellation and which
either have become due and payable or are by their terms due and payable within
one year (or are to be called for redemption within one year) by depositing with
the Trustee cash or U.S. Government Obligations, or a combination thereof, as
trust funds in an amount certified to be sufficient to pay when due the
principal of premium, if any, and interest, if any, on all outstanding Debt
Securities of such series and to make any mandatory sinking fund payments
thereon when due (Section 10.1(B)).
Unless otherwise provided in the applicable Prospectus Supplement, the
Company may also discharge at any time all of its obligations (except those set
forth below) to holders of any series of Debt Securities issued under either
Indenture ("defeasance") only if, among other things: (i) the Company
irrevocably deposits with the Trustee cash or U.S. Government Obligations, or a
combination thereof, as trust funds in an amount certified by a nationally
recognized firm of independent public accountants to be sufficient to pay when
due the principal of, premium, if any, and interest, if any, on all outstanding
Debt Securities of such series and to make any mandatory sinking fund payments
thereon when due and such funds have been so deposited for 91 days; (ii) such
defeasance will not result in a breach or violation of, or cause a default
under, any agreement or instrument to which the Company is a party or by which
it is bound; and (iii) the Company delivers to the Trustee an opinion of counsel
to the effect that the holders of such series of Debt Securities will not
recognize income, gain or loss for United States federal income tax purposes as
a result of such defeasance and that defeasance will not otherwise alter the
United States federal income tax treatment of such holders' principal and
interest payments on such series of Debt Securities. Such opinion of counsel
must be based on a ruling of the Internal Revenue Service or a change in United
States federal income tax law occurring after the date of the Indenture relating
to the Debt Securities of such series (Section 10.1(C)).
In the event of such discharge and defeasance of a series of Debt
Securities, the holders thereof would be entitled to look only to such trust
funds for payment of the principal of and any premium and interest on such Debt
Securities.
Notwithstanding the foregoing, no discharge or defeasance described above
shall affect the following obligations to or rights of the holders of any series
of Debt Securities: (i) rights of registration of transfer and exchange of Debt
Securities of such series; (ii) rights of substitution of mutilated, defaced,
destroyed, lost or stolen Debt Securities of such series; (iii) rights of
holders of
8
Debt Securities of such series to receive payments of principal thereof and
premium, if any, and interest, if any, thereon, when due and to receive
mandatory sinking fund payments thereon when due, if any, from the trust funds
held by the Trustee; (iv) the rights, obligations, duties and immunities of the
Trustee; (v) the rights of holders of Debt Securities of such series as
beneficiaries with respect to property deposited with the Trustee payable to all
or any of them; and (vi) the obligations of the Company to maintain an office or
agency in respect of Debt Securities of such series.
MODIFICATION OF INDENTURE. Each Indenture provides that the Company and the
Trustee may enter into supplemental indentures without the consent of the
holders of the Debt Securities to (a) evidence the assumption by a successor
corporation of the obligations of the Company under such Indenture, (b) add
covenants or new events of default for the protection of the holders of such
Debt Securities, (c) cure any ambiguity or correct any inconsistency in the
Indenture, (d) establish the form and terms of such Debt Securities, (e)
evidence the acceptance of appointment by a successor trustee, (f) amend the
Indenture in any other manner which the Company may deem necessary or desirable
and which will not adversely affect the interests of the holders of Debt
Securities issued thereunder or (g), in the case of Senior Debt Securities,
secure such Debt Securities (Section 8.1).
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of Debt Securities of each series then outstanding
(or, in the case of any series of Debt Securities originally issued at a
discount from their stated principal amount, not less than a majority of the
amount of principal thereof that would be due and payable on such date of
determination in the event of an acceleration of the maturity of such series on
such date) and affected, to add any provisions to, or change in any manner or
eliminate any of the provisions of, such Indenture or modify in any manner the
rights of the holders of the Debt Securities of such series, PROVIDED that the
Company and the Trustee may not, without the consent of the holder of each
outstanding Debt Security affected thereby, (a) extend the stated maturity of
the principal of any Debt Security, reduce the principal amount thereof, reduce
the rate or extend the time of payment of any interest thereon, reduce or alter
the method of computation of any amount payable on redemption, repayment or
purchase thereof, reduce the portion of the principal amount of any Original
Issue Discount Security (as defined in the Indentures) payable upon acceleration
or provable in bankruptcy, change the coin or currency in which principal and
interest, if any, are payable, impair or affect the right to institute suit for
the enforcement of any payment, repayment or purchase thereof or, if applicable,
adversely affect any right of repayment at the option of the holder or (b)
reduce the percentage in aggregate principal amount of Debt Securities of any
series issued under such Indenture, the consent of the holders of which is
required for any such modification (Section 8.2).
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Subordinated Debt Securities without the
consent of each holder of Senior Indebtedness then outstanding that would be
adversely affected thereby (Section 8.6 of the Subordinated Debt Indenture).
PROVISIONS APPLICABLE SOLELY TO SENIOR DEBT SECURITIES
GENERAL. Senior Debt Securities will be issued under the Senior Debt
Indenture, and each series will rank PARI PASSU as to the right of payment of
principal, premium, if any, and interest, if any, with each other series and
with all other Senior Debt (as defined below) of the Company.
CERTAIN DEFINITIONS. For purposes of the following discussion, the
following definitions, together with those under "Provisions Applicable to Both
Senior and Subordinated Debt Securities -- Certain Definitions", are applicable
(Article One of the Senior Debt Indenture).
"Assets" means any property of the Company or a Subsidiary used in
businesses in which the Company and its Subsidiaries are engaged at the date of
the Senior Debt Indenture.
9
"Attributable Debt" means, with respect to any Sale and Lease-Back
Transaction (as defined below) as of any particular time, the present value of
the obligations of the lessee under the lease for net rental payments during the
term of such lease determined by discounting such net rental payments at the
rate of interest implicit in the terms of such lease.
"Capitalized Lease" means any lease of property where the obligations of the
lessee thereunder are required to be classified and accounted for as a
capitalized lease on a balance sheet of such lessee under generally accepted
accounting principles.
"Consolidated Net Worth" at any date means the amount of total stockholders'
equity that would be shown on a consolidated balance sheet of the Company and
its Subsidiaries as of such date.
"Indebtedness" means (i) any indebtedness of the Company or any Subsidiary
for money borrowed or for the deferred purchase price of property or services
including obligations as lessee under Capitalized Leases, (ii) any such
indebtedness or obligation of others secured by any lien on the assets of the
Company or any Subsidiary, and (iii) any such indebtedness or obligation of
others which the Company or any Subsidiary has directly or indirectly
guaranteed, endorsed with recourse (otherwise than for collection, deposit or
other similar transactions in the ordinary course of business), agreed to
purchase or repurchase or in respect of which the Company or any Subsidiary has
agreed contingently to supply or advance funds.
"Senior Debt" means Indebtedness which is not (i) Indebtedness of the
Company to any Subsidiary and (ii) Indebtedness of the Company which by its
terms is subordinate or junior in any respect to any other Indebtedness or other
obligation of the Company.
LIMITATIONS ON LIENS. The Company will not, nor will it permit any
Subsidiary to, issue, assume, guarantee or suffer to exit any Indebtedness if
such Indebtedness is secured by a mortgage, pledge, security interest or lien
("Secured Debt" and a "mortgage" or "mortgages") upon any properties of the
Company or any Subsidiary or upon any shares of stock or indebtedness of any
Subsidiary (whether such properties, shares or indebtedness is now owned or
hereafter acquired) without in any such case effectively providing that the
Securities shall be secured equally and ratably with (or prior to) such Secured
Debt, except that the foregoing restrictions shall not apply to: (a) mortgages
on any property acquired, constructed or improved by the Company or any
Subsidiary after the date of the Senior Debt Indenture which are created within
180 days after such acquisition (or in the case of property constructed or
improved, after the completion and commencement of commercial operation of such
property, whichever is later) to secure or provide for the payment of the
purchase price or cost thereof, PROVIDED that in the case of such construction
or improvement the mortgages shall not apply to any property theretofore owned
by the Company or any Subsidiary other than theretofore unimproved real
property; (b) existing mortgages on property acquired (including mortgages on
any property acquired from a Person which is consolidated with or merged with or
into the Company or a Subsidiary) and mortgages outstanding at the time any
corporation becomes a Subsidiary, PROVIDED that such mortgages shall only apply
to property owned by such corporation at the time it becomes a Subsidiary or
that is acquired thereafter other than from the Company or another Subsidiary;
(c) mortgages in favor of the Company or any Subsidiary; (d) mortgages in favor
of domestic or foreign governmental bodies to secure advances or other payments
pursuant to any contract or statute or to secure indebtedness incurred to
finance the purchase price or cost of constructing or improving the property
subject to such mortgages, including mortgages to secure Secured Debt of the
pollution control or industrial revenue bond type; and (e) any extension,
renewal or replacement (or successive extensions, renewals or replacements), in
whole or in part, of any mortgage referred to in the foregoing clauses (a), (b),
(c) or (d), inclusive, PROVIDED that the principal amount of Secured Debt
secured thereby shall not exceed the principal amount of Secured Debt so secured
at the time of such extension, renewal or replacement, and that such extension,
renewal or replacement shall be limited to all or a part of the property which
secured the mortgage so extended, renewed or replaced (plus improvements in such
property). (Section 3.6 of the Senior Debt Indenture).
10
Notwithstanding the foregoing, the Company and any Subsidiary may, without
securing the Senior Debt Securities, issue, assume or guarantee Secured Debt
(which would otherwise be subject to the foregoing restrictions) in an aggregate
amount which, together with all such Secured Debt and the Attributable Debt in
respect of Sale and Lease-Back Transactions of the Company and its Subsidiaries
existing at such time (other than Sale and Lease-Back Transactions the proceeds
of which have been applied to the retirement of Senior Debt or which are
referred to in the last sentence under "Limitations on Sale and Lease-Back
Transactions"), does not exceed 10% of Consolidated Net Worth as of a date not
more than 90 days prior to the proposed transaction. (Section 3.6 of the Senior
Debt Indenture).
LIMITATIONS ON SALE AND LEASE-BACK TRANSACTIONS. The Company will not, nor
will it permit any Subsidiary to, enter into any arrangement with any Person
providing for the leasing by the Company or a Subsidiary of any property
acquired or placed in service more than 180 days prior to such arrangement
(except for leases of three years or less), whereby such property has been or is
to be sold or transferred by the Company or any Subsidiary to such Person
(herein referred to as a "Sale and Lease-Back Transaction"), unless either: (a)
the Company or such Subsidiary would be entitled to incur Secured Debt on the
property to be leased in an amount equal to the Attributable Debt with respect
to such Sale and Lease-Back Transaction without equally and ratably securing the
Senior Debt Securities; or (b) the Company shall apply an amount equal to the
net proceeds from the sale of the property so leased to (i) the retirement
(other than any mandatory retirement), within 90 days of the effective date of
any such Sale and Lease-Back Transaction, of Securities or of Senior Debt of the
Company or a Subsidiary or (ii) the purchase or acquisition, within twelve
months of such effective date, of Assets. This covenant shall not apply to, and
there shall be excluded from any computation of Attributable Debt under this
covenant, any Sale and Lease-Back Transaction (1) entered into in connection
with an industrial revenue bond or pollution control financing or (2) between
the Company and/or one or more Subsidiaries. (Section 3.7 of the Senior Debt
Indenture).
SENIOR DEBT SECURITIES TO BE SECURED IN CERTAIN EVENTS. If, upon any
consolidation or merger of the Company, or any sale, lease, exchange or other
disposition of all or of substantially all of its property, permitted by the
Senior Debt Indenture, any property of the Company or a Subsidiary would become
subject to any mortgage or lien (other than those permitted by Section 3.6 of
the Senior Debt Indenture), then the Company, at or prior to the consummation of
any such transaction, shall by supplemental indenture secure all Senior Debt
Securities then outstanding equally and ratably with (or prior to) all
Indebtedness secured thereby (Section 9.2 of the Senior Debt Indenture).
PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES
SUBORDINATION. The Subordinated Debt Securities will be subordinate and
junior in right of payment, to the extent set forth in the Subordinated Debt
Indenture, to all Senior Indebtedness of the Company. If the Company should
default in the payment of any principal of or premium or interest on any Senior
Indebtedness when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration of acceleration or otherwise, then,
upon written notice of such default to the Company by the holders of such Senior
Indebtedness or any trustee therefor and subject to certain rights of the
Company to dispute such default and subject to proper notification of the
Trustee, unless and until such default shall have been cured or waived or shall
have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) will be made or agreed to be made for
principal of, premium, if any, or interest, if any, on the Subordinated Debt
Securities, or in respect of any redemption, retirement, purchase or other
acquisition of the Subordinated Debt Securities other than those made in capital
stock of the Company (or cash in lieu of fractional shares thereof) (Sections
13.1, 13.4 and 13.5 of the Subordinated Debt Indenture).
"Senior Indebtedness" is defined in Article One of the Subordinated Debt
Indenture as Indebtedness (as defined below) of the Company outstanding at any
time except (a) any Indebtedness as to which, by the terms of the instrument
creating or evidencing the same, it is provided that such Indebtedness is not
senior in right of payment to the Subordinated Debt Securities, (b) the
11
Subordinated Debt Securities, (c) any Indebtedness of the Company to a
wholly-owned Subsidiary of the Company, (d) interest accruing after the filing
of a petition initiating certain bankruptcy or insolvency proceedings unless
such interest is an allowed claim enforceable against the Company in a
proceeding under federal or state bankruptcy laws and (e) trade accounts
payable. "Indebtedness" is defined in Article One of the Subordinated Debt
Indenture as, with respect to any Person, (a)(i) the principal of and premium
and interest, if any, on indebtedness for money borrowed of such Person
evidenced by bonds, notes, debentures or obligations, including any guaranty by
such Person of any indebtedness for money borrowed of any other Person, whether
any such indebtedness or guaranty is outstanding on the date of the Subordinated
Debt Indenture or is thereafter created, assumed or incurred, (ii) the principal
of and premium and interest, if any, on indebtedness for money borrowed,
incurred, assumed or guaranteed by such Person in connection with the
acquisition by it or any of its subsidiaries of any other businesses, properties
or other assets and (iii) lease obligations which such Person capitalizes in
accordance with Statement of Financial Accounting Standards No. 13 promulgated
by the Financial Accounting Standards Board or such other generally accepted
accounting principles as may be from time to time in effect, (b) any other
indebtedness of such Person, including any indebtedness representing the balance
deferred and unpaid of the purchase price of any property or interest therein,
including any such balance that constitutes a trade account payable, and any
guaranty, endorsement or other contingent obligation of such Person in respect
of any indebtedness of another, which is outstanding on the date of the
Subordinated Debt Indenture or is thereafter created, assumed or incurred by
such Person and (c) any amendments, modifications, refundings, renewals or
extensions of any indebtedness or obligation described as Indebtedness in clause
(a) or (b) above.
If (i) without the consent of the Company a court shall enter (A) an order
for relief with respect to the Company under the United States federal
bankruptcy laws, (B) a judgment, order or decree adjudging the Company a
bankrupt or insolvent, or (C) an order for relief for reorganization,
arrangement, adjustment or composition of or in respect of the Company under the
United States federal bankruptcy laws or state insolvency laws or (ii) the
Company shall institute proceedings for the entry of an order for relief with
respect to the Company under the United States federal bankruptcy laws or for an
adjudication of insolvency, or shall consent to the institution of bankruptcy or
insolvency proceedings against it, or shall file a petition seeking, or seek or
consent to reorganization, arrangement, composition or similar relief under any
applicable law, or shall consent to the filing of such petition or to the
appointment of a receiver, custodian, liquidator, assignee, trustee,
sequestrator or similar official in respect of the Company or of substantially
all of its property, or the Company shall make a general assignment for the
benefit of creditors, then all Senior Indebtedness (including any interest
thereon accruing after the commencement of any such proceedings) will first be
paid in full before any payment or distribution, whether in cash, securities or
other property, is made on account of the principal of, premium, if any, or
interest, if any, on the Subordinated Debt Securities. In such event, any
payment or distribution on account of the principal of, premium, if any, or
interest, if any, on the Subordinated Debt Securities, whether in cash,
securities or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in the subordination
provisions with respect to the Subordinated Debt Securities, to the payment of
all Senior Indebtedness then outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), which would
otherwise (but for the subordination provisions) be payable or deliverable in
respect of the Subordinated Debt Securities will be paid or delivered directly
to the holders of Senior Indebtedness in accordance with the priorities then
existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any such proceedings) has
been paid in full. If any payment or distribution on account of the principal
of, premium, if any, or interest, if any, on the Subordinated Debt Securities of
any character, whether in cash, securities or other property (other than
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of
12
which is subordinate, at least to the extent provided in the subordination
provisions with respect to the Subordinated Debt Securities, to the payment of
all Senior Indebtedness then outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), shall be
received by the Trustee or any holder of any Subordinated Debt Securities in
contravention of any of the terms of the Subordinated Debt Indenture, such
payment or distribution will be received in trust for the benefit of, and will
be paid over or delivered and transferred to, the holders of the Senior
Indebtedness then outstanding in accordance with the priorities then existing
among such holders for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all such Senior Indebtedness in
full. In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Subordinated Debt
Securities, together with the holders of any obligations of the Company ranking
on a parity with the Subordinated Debt Securities, will be entitled to be repaid
from the remaining assets of the Company the amounts at that time due and owing
on account of unpaid principal of or any premium or any interest on the
Subordinated Debt Securities and such other obligations before any payment or
other distribution, whether in cash, property or otherwise, shall be made on
account of any capital stock or obligations of the Company ranking junior to the
Subordinated Debt Securities and such other obligations (Section 13.1 of the
Subordinated Debt Indenture).
By reason of such subordination, in the event of the insolvency of the
Company, holders of Senior Indebtedness and holders of other obligations of the
Company that are not subordinated to Senior Indebtedness may receive more,
ratably, than holders of the Subordinated Debt Securities. Such subordination
will not prevent the occurrence of an Event of Default or limit the right of
acceleration in respect of the Subordinated Debt Securities.
CONCERNING THE TRUSTEE
Pursuant to the Trust Indenture Act of 1939, as amended, should a default
occur with respect to either the Senior Debt Securities or the Subordinated Debt
Securities, Morgan Guaranty Trust Company of New York would be required to
resign as Trustee under one of the Indentures within 90 days of such default
unless such default were cured, duly waived or otherwise eliminated.
Morgan Guaranty Trust Company of New York, the Trustee under both
Indentures, is a depositary for funds of, and performs other services for the
Company in the normal course of business.
J. P. Morgan Securities Inc. may act as an underwriter, dealer or agent with
respect to the offer and sale of the Debt Securities. Morgan Guaranty Trust
Company of New York, the Trustee under both Indentures, is affiliated with J. P.
Morgan Securities Inc. by virtue of their common ownership by J. P. Morgan & Co.
Incorporated.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell Offered Debt Securities to or through underwriters or
dealers, and also may sell Offered Debt Securities directly to one or more other
purchasers or through agents. The applicable Prospectus Supplement will set
forth the names of any underwriters or agents involved in the sale of the
Offered Debt Securities and any applicable commissions or discounts.
Underwriters, dealers or agents may offer and sell the Offered Debt
Securities at a fixed price or prices, which may be changed, or from time to
time at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. In connection with the sale of
the Offered Debt Securities, underwriters or agents may be deemed to have
received compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the Offered Debt
Securities for whom they may act as agent. Underwriters or agents may sell the
Offered Debt Securities to or through dealers, and such dealers
13
may receive compensation in the form of discounts, concessions or commissions
from the underwriters or commissions from the purchasers for whom they may act
as agent.
Offered Debt Securities, when first issued, will have no established trading
market. Any underwriters or agents to or through whom Offered Debt Securities
are sold by the Company for public offering and sale may make a market in such
Offered Debt Securities, but such underwriters or agents will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any Offered
Debt Securities.
Any underwriters, dealers or agents participating in the distribution of
Offered Debt Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Offered Debt Securities may be deemed to be underwriting discounts and
commission under the Securities Act. Underwriters, dealers or agents may be
entitled, under agreements entered into with the Company, to indemnification
against or contribution toward certain civil liabilities, including liabilities
under the Securities Act.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Debt Securities from
the Company pursuant to contracts providing for payment and delivery on a future
date. Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases will be
subject to the approval of the Company. The obligations of any purchaser under
any such contract will be subject to the condition that the purchase of Offered
Debt Securities shall not at the time of delivery be prohibited under the laws
of the jurisdiction to which such purchaser is subject. The underwriters and
such agents will not have any responsibility in respect of the validity or
performance of such contracts.
LEGAL OPINIONS
The legality of the Offered Debt Securities, as well as certain tax matters
in connection therewith, are being passed upon for the Company by Wright,
Lindsey & Jennings, Little Rock, Arkansas. Certain legal matters in connection
with the Offered Debt Securities may be passed upon for any underwriters,
dealers or agents by Fulbright & Jaworski L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements and schedules of J.B. Hunt Transport
Services, Inc. and subsidiaries, as of December 31, 1992 and 1991, and for each
of the years in the three-year period ended December 31, 1992, incorporated by
reference herein and elsewhere in the registration statement have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. To the extent that KPMG Peat Marwick audits and
reports on consolidated financial statements of the Company at future dates, and
consents to the use of their report thereon, such financial statements also will
be incorporated by reference in the Registration Statement in reliance upon
their report and said authority. The report of KPMG Peat Marwick covering the
December 31, 1991 financial statements refers to a change in revenue recognition
method for freight in transit and the report of KPMG Peat Marwick covering the
December 31, 1992 financial statements refers to a change in method of
accounting for the cost of tires in service.
With respect to the unaudited interim financial information for the periods
ended March 31, 1993 and 1992 incorporated by reference herein, the independent
certified public accountants have reported that they applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate report included in the Company's quarterly report on
14
Form 10-Q for the quarter ended March 31, 1993 and incorporated by reference
herein, state that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
reports on such information should be restricted in light of the limited nature
of the review procedures applied. The accountants are not subject to the
liability provisions of section 11 of the Securities Act of 1933 for their
report on the unaudited interim financial information because that report is not
a "report" or a "part" of the registration statement prepared or certified by
the accountants within the meaning of sections 7 and 11 of the Act.
15
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR
THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT,
THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE AGENTS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE
MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
-------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
---------------------
Use of Proceeds...................... S-2
Ratio of Earnings to Fixed Charges... S-2
Description of Notes................. S-2
Certain Investment Considerations.... S-19
Special Provisions and Risks Relating
to Foreign Currency Notes.......... S-19
Certain United States Federal Income
Tax Considerations................. S-23
Plan of Distribution................. S-31
PROSPECTUS
----------
Available Information................ 2
Incorporation of Certain Information
By Reference..................... 2
The Company.......................... 3
Use of Proceeds...................... 3
Ratio of Earnings to Fixed Charges... 3
Description of Debt Securities....... 3
Plan of Distribution................. 13
Legal Opinions....................... 14
Experts.............................. 14
$150,000,000
J.B. HUNT TRANSPORT
SERVICES, INC.
SENIOR MEDIUM-TERM NOTES
SERIES A
SUBORDINATED MEDIUM-TERM NOTES
SERIES B
---------------------
PROSPECTUS SUPPLEMENT
---------------------
MERRILL LYNCH & CO.
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY & CO.
INCORPORATED
STEPHENS INC.
JUNE 13, 1995
