<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration No. 333-47955
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 23, 1998)
$755,000,000
Parker-Hannifin Corporation
MEDIUM-TERM NOTES
------------------------
Due More Than Nine Months From Date of Issue
------------------------
Parker-Hannifin Corporation (the "Company") may offer from time to time its
Medium-Term Notes (the "Notes"), which are issuable in one or more series and
may be offered and sold in the United States. The Notes offered by this
Prospectus Supplement are offered in the United States at an aggregate initial
public offering price of up to U.S. $755,000,000, or the equivalent thereof in
other currencies, including composite currencies such as the European Currency
Unit (the "Specified Currency"), subject to reduction as a result of the sale by
the Company of other Senior Debt Securities referred to in the accompanying
Prospectus. See "Important Currency Exchange Information" and "Plan of
Distribution." The interest rate on each Note will be either a fixed rate
established by the Company at the date of issue of such Note, which may be zero
in the case of certain Original Issue Discount Notes, or a floating rate as set
forth therein and specified in the applicable Pricing Supplement (as defined
herein). A Fixed Rate Note may pay a level amount in respect of both interest
and principal amortized over the life of the Note (an "Amortizing Note").
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note is payable on each Interest Payment Date set forth herein
and in the applicable Pricing Supplement and at maturity or upon earlier
redemption or repayment. Interest on each Floating Rate Note is payable on the
date set forth herein and in the applicable Pricing Supplement. Unless otherwise
specified in the applicable Pricing Supplement, Amortizing Notes will pay
principal and interest semiannually on each Interest Payment Date set forth
herein and in the applicable Pricing Supplement, or quarterly on each Interest
Payment Date as set forth herein and in the applicable Pricing Supplement, and
at maturity or upon earlier redemption or repayment. Each Note will mature on
any day more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. See "Description of Notes." Unless otherwise
specified in the applicable Pricing Supplement, the Notes may not be redeemed by
the Company or the holder prior to maturity and will be issued in fully
registered form in denominations of $1,000 (or, in the case of Notes not
denominated in U.S. dollars, the equivalent thereof in the Specified Currency,
rounded to the nearest 1,000 units of the Specified Currency) or any amount in
excess thereof which is an integral multiple of $1,000 (or, in the case of Notes
not denominated in U.S. dollars, 1,000 units of the Specified Currency). Any
terms relating to Notes being denominated in foreign currencies or composite
currencies will be as set forth in the applicable Pricing Supplement. Each Note
will be represented either by a Global Security registered in the name of a
nominee of The Depository Trust Company, as Depositary (a "Global Note"), or by
a certificate issued in definitive form (a "Definitive Note"), as set forth in
the applicable Pricing Supplement. Beneficial interests in Global Securities
representing Global Notes will be shown on, and transfer thereof will be
effected only through, records maintained by the Depositary (with respect to
participants' interests) and its participants. Global Notes will not be issuable
as Definitive Notes except under the circumstances described in the Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT, ANY SUPPLEMENT HERETO OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per Note................ 100.000% .125-.750% 99.875-99.250%
Total(4)................ $755,000,000 $943,750-5,662,500 $754,056,250-749,337,500
</TABLE>
(1) Unless otherwise specified in the applicable Pricing Supplement, Notes will
be sold at 100% of their principal amount. If the Company issues any Note at
a discount from or at a premium over its principal amount, the Price to
Public of any Note issued at a discount or premium will be set forth in the
applicable Pricing Supplement.
(2) The commission payable to an Agent for each Note sold through such Agent
shall range from .125% to .750% of the principal amount of such Note,
provided, however, that commissions with respect to Notes maturing in thirty
years or greater will be negotiated. The Company may also sell Notes to an
Agent, as principal at negotiated discounts, for resale to investors and
other purchasers.
(3) Before deducting expenses payable by the Company estimated at $260,000.
(4) Or the equivalent thereof in other currencies including composite
currencies.
------------------------
Offers to purchase the Notes are being solicited from time to time by Morgan
Stanley & Co. Incorporated, Citicorp Securities, Inc. and Salomon Brothers Inc
(individually, an "Agent" and collectively, the "Agents"), on behalf of the
Company. The Agents have agreed to use reasonable efforts to solicit purchases
of such Notes. The Company may also sell Notes to an Agent acting as principal
for its own account or otherwise, to be determined by such Agent. No termination
date for the offering of the Notes has been established. The Company or an Agent
may reject any order in whole or in part. The Notes will not be listed on any
securities exchange, and there can be no assurance that the Notes offered hereby
will be sold or that there will be a secondary market for the Notes. See "Plan
of Distribution."
------------------------
MORGAN STANLEY DEAN WITTER
CITICORP SECURITIES, INC.
SALOMON SMITH BARNEY
April 6, 1998
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING, AND MAY
BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Notes in U.S. dollars, and payments
of principal, premium, if any, and interest on the Notes will also be made in
U.S. dollars, unless the applicable Pricing Supplement provides that purchasers
are instead required to pay for the Notes in a Specified Currency, and/or that
payments of principal, premium, if any, and interest on such Notes will be made
in a Specified Currency. Currently, there are limited facilities in the United
States for the conversion of U.S. dollars into foreign currencies and vice
versa. In addition, most banks do not currently offer non-U.S. dollar
denominated checking or savings account facilities in the United States.
Accordingly, unless otherwise specified in a Pricing Supplement or unless
alternative arrangements are made, payment of principal, premium, if any, and
interest on Notes in a Specified Currency other than U.S. dollars will be made
to an account at a bank outside the United States. See "Description of Notes"
and "Foreign Currency Risks."
If the applicable Pricing Supplement provides for payments of principal of
and interest on a non-U.S. dollar denominated Note to be made in U.S. dollars or
for payments of principal of and interest on a U.S. dollar denominated Note to
be made in a Specified Currency other than U.S. dollars, the conversion of the
Specified Currency into U.S. dollars or U.S. dollars into the Specified
Currency, as the case may be, will be handled by the Exchange Rate Agent
identified in the Pricing Supplement. Any Agent may act, from time to time, as
Exchange Rate Agent. The costs of such conversion will be borne by the holder of
a Note through deductions from such payments.
Reference herein to "U.S. dollars" or "U.S. $" or "$" are to the currency
of the United States of America.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of certain provisions of the Indenture, dated as of May 3, 1996 (the
"Indenture"), between the Company and National City Bank, as trustee (the
"Trustee"), and the general terms and provisions of the Senior Debt Securities
set forth in the Prospectus, to which reference is hereby made. Such description
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all provisions of the Indenture, including the
definitions therein of certain terms. The particular terms of the Notes sold
pursuant to any pricing supplement (a "Pricing Supplement") will be described
therein. The terms and conditions set forth in "Description of Notes" will apply
to each Note unless otherwise specified in the applicable Pricing Supplement and
in such Note.
If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit ("ECU"), in which the principal,
premium, if any, and interest, if any, with respect to such Note are to be paid,
along with any other terms relating to the non-U.S. dollar denomination,
including exchange rates for the Specified Currency as against the U.S. dollar
at selected times during the last five years, and any exchange controls
affecting such Specified Currency. See "Foreign Currency Risks."
GENERAL
The Notes will constitute one or more series under the Indenture. The Notes
will rank pari passu with all other unsecured and unsubordinated indebtedness of
the Company. The Notes may be issued from time to time in an aggregate principal
amount of up to $755,000,000 or the equivalent thereof in one or more foreign or
composite currencies, subject to reduction as a result of the sale by the
Company of other Senior Debt Securities referred to in the accompanying
Prospectus. For the purpose of this Prospectus Supplement, (i) the principal
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amount of any Original Issue Discount Note (as defined below) means the Issue
Price (as defined below) of such Note and (ii) the principal amount of any Note
issued in a foreign currency or composite currency means the U.S. dollar
equivalent on the date of issue of the Issue Price of such Note.
The Notes will mature on any day more than nine months from the date of
issue, as set forth in the applicable Pricing Supplement. The Notes will be
issued only in fully registered form. Unless otherwise provided in the
applicable Pricing Supplement, Notes will be denominated in Authorized
Denominations (as defined below).
The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a Global Note or a Definitive Note. Except as set
forth in the Prospectus under "Description of Senior Debt Securities--Book-Entry
System," Global Notes will not be issuable as Definitive Notes. The laws of some
states may require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and such laws may impair the
ability to own, transfer or pledge beneficial interests in Global Securities.
See "Book-Entry System."
The Notes may be presented for payment of principal and interest, transfer
of the Notes will be registrable and the Notes will be exchangeable at the
agency in New York, New York, maintained by the Company for such purpose;
provided that Global Notes will be exchangeable only in the manner and to the
extent set forth in the Prospectus under "Description of Senior Debt
Securities--Book-Entry System." On the date hereof, the agent for the payment,
transfer and exchange of the Notes (the "Paying Agent") is National City Bank,
acting through its corporate trust office at Cleveland, Ohio.
The applicable Pricing Supplement will specify the price (the "Issue
Price") of each Note to be sold pursuant thereto (unless such Note is to be sold
at 100% of its principal amount), the interest rate or interest rate formula,
maturity, currency or composite currency and principal amount and any other
terms on which each Note will be issued.
As used herein, the following terms shall have the meanings set forth
below:
"Authorized Denominations" means, unless otherwise provided in the
applicable Pricing Supplement, (i) with respect to Notes denominated in
U.S. dollars, U.S. $1,000 or any amount in excess thereof which is an
integral multiple of U.S. $1,000 and (ii) with respect to Notes denominated
in foreign or composite currencies, the equivalent of $1,000 (rounded to an
integral multiple of 1,000 units of such Specified Currency), or any amount
in excess thereof which is an integral multiple of 1,000 units of such
Specified Currency, as determined by reference to the noon dollar buying
rate in New York City for cable transfers of such Specified Currency
published by the Federal Reserve Bank of New York (the "Market Exchange
Rate") on the Business Day (as defined below) immediately preceding the
date of issuance; provided, however, that in the case of ECU's, the Market
Exchange Rate shall be the rate of exchange determined by the Commission of
the European Communities (or any successor thereto) as published in the
Official Journal of the European Communities, or any successor publication,
on the Business Day immediately preceding the date of issuance.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close in The City of New
York and (i) with respect to LIBOR Notes (as defined below), is also a
London Banking Day, (ii) with respect to Notes denominated in a Specified
Currency other than U.S. dollars, Australian dollars or ECUs, in the
principal financial center of the country of the Specified Currency, (iii)
with respect to Notes denominated in Australian dollars, in Sydney and (iv)
with respect to Notes denominated in ECUs, that is not a non-ECU clearing
day, as determined by the ECU Banking Association in Paris.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
"London Banking Day" means any day on which dealings in deposits in
the Index Currency are transacted in the London interbank market.
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"Original Issue Discount Note" means any Note that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the
Indenture.
The "Record Date" with respect to any Interest Payment Date shall be
the date 15 calendar days prior to such Interest Payment Date, whether or
not such date shall be a Business Day.
PAYMENT CURRENCY
If the applicable Pricing Supplement provides for payments of interest and
principal on a non-U.S. dollar denominated Note to be made, at the option of the
holder of such Note, in U.S. dollars, conversion of the Specified Currency into
U.S. dollars will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of which may be the Exchange Rate
Agent) for the purchase by the quoting dealer of the Specified Currency for U.S.
dollars for settlement on such payment date in the aggregate amount of the
Specified Currency payable to the holders of Notes and at which the applicable
dealer commits to execute a contract. If such bid quotations are not available,
payments will be made in the Specified Currency. All currency exchange costs
will be borne by the holders of Notes by deductions from such payments.
Except as set forth below, if the principal of, premium, if any, or
interest on, any Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances beyond
the control of the Company or is no longer used by the government of the country
issuing such currency or for the settlement of transactions by public
institutions within the international banking community, then the Company will
be entitled to satisfy its obligations to holders of the Notes by making such
payments in U.S. dollars on the basis of the Market Exchange Rate on the date of
such payment or, if the Market Exchange Rate is not available on such date, as
of the most recent practicable date. Any payment made under such circumstances
in U.S. dollars where the required payment is in a Specified Currency other than
U.S. dollars will not constitute an Event of Default.
If payment in respect of a Note is required to be made in ECUs and ECUs are
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or are no longer used in the European Monetary
System, then all payments in respect of such Note shall be made in U.S. dollars
until ECUs are again available or so used. The amount of each payment in U.S.
dollars shall be computed on the basis of the equivalent of the ECU in U.S.
dollars, determined as described below, as of the second Business Day prior to
the date on which such payment is due.
The equivalent of the ECU in U.S. dollars as of any date shall be
determined by the Company or the Exchange Rate Agent on the following basis. The
component currencies of the ECU for this purpose (the "Components") shall be the
currency amounts that were components of the ECU as of the last date on which
the ECU was used in the European Monetary System. The equivalent of the ECU in
U.S. dollars shall be calculated by aggregating the U.S. dollar equivalents of
the Components. The U.S. dollar equivalent of each of the Components shall be
determined by the Company or the Exchange Rate Agent on the basis of the most
recently available Market Exchange Rates for such Components.
If the official unit of any Component is altered by way of combination or
subdivision, the number of units of that currency as a Component shall be
divided or multiplied in the same proportion. If two or more Components are
consolidated into a single currency, the amounts of those currencies as
Components shall be replaced by an amount in such single currency equal to the
sum of the appropriate amounts of the consolidated component currencies
expressed in such single currency. If any Component is divided into two or more
currencies, the amount of the original component currency shall be replaced by
the appropriate 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 shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on holders of Notes.
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INTEREST AND PRINCIPAL PAYMENTS
Interest will be payable to the person in whose name the Note is registered
at the close of business on the applicable Record Date; provided that the
interest payable upon maturity, redemption or repayment (whether or not the date
of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest payment
on a Note will be made on the first Interest Payment Date falling after the date
the Note is issued; provided, however, that payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Note issued less than
15 calendar days before an Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the holder of record on the Record Date with
respect to such succeeding Interest Payment Date, unless otherwise specified in
the applicable Pricing Supplement. See "United States Taxation--Tax Consequences
to Holders--Original Issue Discount Notes."
U.S. dollar payments of interest, other than interest payable at maturity
or on the date of redemption or repayment, if a Note is redeemed or repaid by
the Company prior to maturity, will be made by check mailed to the address of
the person entitled thereto as shown on the Note register. U.S. dollar payment
of principal, premium, if any, and interest upon maturity, redemption or
repayment will be made in immediately available funds against presentation and
surrender of the Note. Notwithstanding the foregoing, (a) the Depositary, as
holder of Global Notes, shall be entitled to receive payments of interest by
wire transfer of immediately available funds and (b) a holder of U.S.
$10,000,000 (or the equivalent) or more in aggregate principal amount of
Definitive Notes having the same Interest Payment Date shall be entitled to
receive payments of interest by wire transfer of immediately available funds
upon written request to the Paying Agent, provided such request is received not
later than 15 calendar days prior to the applicable Interest Payment Date.
Unless otherwise specified in the applicable Pricing Supplement, a
beneficial owner of Global Notes denominated in a Specified Currency electing to
receive payments of principal or any premium or interest in a currency other
than U.S. dollars must notify the participant through which its interest is held
on or prior to the applicable Record Date, in the case of a payment of interest,
and on or prior to the sixteenth day prior to maturity, in the case of principal
or premium of such beneficial owner's election to receive all or a portion of
such payment in a Specified Currency. Such participant must notify the
Depositary (as defined below) of such election on or prior to the third Business
Day after such Record Date. The Depositary will notify the Paying Agent of such
election on or prior to the fifth Business Day after such Record Date. If
complete instructions are received by the participant and forwarded by the
participant to the Depositary, and by the Depositary to the Paying Agent, on or
prior to such dates, the beneficial owner will receive payments in the Specified
Currency by wire transfer of immediately available funds to an account
maintained by the payee with a bank located outside the United States; otherwise
the beneficial owner will receive payments in U.S. dollars.
Certain Notes, including Original Issue Discount Notes, may be considered
to be issued with original issue discount, which must be included in income for
United States federal income tax purposes at a constant rate. See "United States
Taxation--Tax Consequences to Holders--Original Issue Discount Notes" below.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Original Issue Discount Note is declared to be due and payable
immediately as described under "Description of Senior Debt Securities--Events of
Default" in the Prospectus, the amount of principal due and payable with respect
to such Note shall be limited to the aggregate principal amount of such Note
multiplied by the sum of its Issue Price (expressed as a percentage of the
aggregate principal amount) plus the original issue discount amortized from the
date of issue to the date of declaration, which amortization shall be calculated
using the "interest method" computed in accordance with generally accepted
accounting principles in effect on the date of declaration. Special
considerations applicable to any such Notes will be set forth in the applicable
Pricing Supplement.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issuance at the
annual rate stated on the face thereof, except as described below under
"Extension of Maturity," until the principal thereof is paid or made available
for payment. Unless otherwise specified in the applicable Pricing Supplement,
such interest will be computed on the basis of a 360-day year of twelve 30-day
months. Unless otherwise specified in the applicable Pricing Supplement,
payments of interest on Fixed Rate Notes other than Amortizing Notes will be
made
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semiannually on January 1 and July 1 of each year, each an Interest Payment
Date, and at maturity or upon any earlier redemption or repayment. Unless
otherwise specified in the applicable Pricing Supplement, payments of principal
and interest on Amortizing Notes, which are securities on which payments of
principal and interest are made in equal installments over the life of the
security, will be made either quarterly on January 1, April 1, July 1 and
October 1, or semiannually on January 1 and July 1, as set forth in the
applicable Pricing Supplement, and at maturity or upon any earlier redemption or
repayment. Payments with respect to Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in respect
of each Amortizing Note will be provided to the original purchaser and will be
available, upon request, to subsequent holders.
If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is a
Business Day, and no interest on such payment shall accrue for the period from
and after the Interest Payment Date. If the maturity (or date of redemption or
repayment) of any Fixed Rate Note falls on a day that is not a Business Day, the
payment of interest and principal (and premium, if any) will be made on the next
succeeding Business Day, and no interest on such payment shall accrue for the
period from and after the maturity date (or date of redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest from
and including the date of issue or from and including the last date in respect
of which interest has been paid, as the case may be, to, but excluding, the
Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from the date of issuance until
the principal thereof is paid or made available for payment at a rate determined
by reference to an interest rate basis or formula (the "Base Rate"), which may
be adjusted by a Spread and/or Spread Multiplier (each as defined below). The
applicable Pricing Supplement will designate one or more of the following Base
Rates as applicable to each Floating Rate Note: (a) the CD Rate (a "CD Rate
Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate Note"), (c) the
Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a "LIBOR Note"),
(e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate (a "Treasury
Rate Note"), (g) the CMT Rate (a "CMT Rate Note") or (h) such other Base Rate or
interest rate formula as is set forth in such Pricing Supplement and in such
Floating Rate Note. The "Index Maturity" for any Floating Rate Note is the
period of maturity of the instrument or obligation from which the Base Rate is
calculated and will be specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, and/or (ii) multiplied
by the Spread Multiplier, if any. The "Spread" is the number of basis points
(one one-hundredth of a percentage point) specified in the applicable Pricing
Supplement to be added to or subtracted from the Base Rate for such Floating
Rate Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement to be applied to the Base Rate for such Floating
Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or ceiling,
on the rate of interest which may accrue during any interest period ("Maximum
Interest Rate"); and (ii) a minimum limitation, or floor, on the rate of
interest which may accrue during any interest period ("Minimum Interest Rate").
In addition to any Maximum Interest Rate that may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on a Floating Rate
Note will in no event be higher than the maximum rate permitted by New York law,
as the same may be modified by United States law of general application. Under
current New York law, the maximum rate of interest, subject to certain
exceptions, for any loan in an amount less than $250,000 is 16% and for any loan
in the amount of $250,000 or more but less than $2,500,000 is 25% per annum on a
simple interest basis. These limits do not apply to loans of $2,500,000 or more.
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Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually (such period being the "Interest Reset
Period" for such Note, and the first day of each Interest Reset Period being an
"Interest Reset Date"), as specified in the applicable Pricing Supplement.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each Business
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, the Tuesday of each week, except as provided below; in the
case of Floating Rate Notes which reset monthly, the third Wednesday of each
month; in the case of Floating Rate Notes which reset quarterly, the third
Wednesday of March, June, September and December; in the case of Floating Rate
Notes which reset semiannually, the third Wednesday of two months of each year,
as specified in the applicable Pricing Supplement; and in the case of Floating
Rate Notes which reset annually, the third Wednesday of one month of each year,
as specified in the applicable Pricing Supplement; provided, however, that (a)
the interest rate in effect from the date of issue to the first Interest Reset
Date with respect to a Floating Rate Note will be the initial interest rate set
forth in the applicable Pricing Supplement (the "Initial Interest Rate") and (b)
unless otherwise specified in the applicable Pricing Supplement, the interest
rate in effect for the ten calendar days immediately prior to maturity,
redemption or repayment will be that in effect on the tenth calendar day
preceding such maturity, redemption or repayment date. If any Interest Reset
Date for any Floating Rate Note would otherwise be a day that is not a Business
Day, such Interest Reset Date shall be postponed to the next succeeding Business
Day, except that in the case of a LIBOR Note, if such Business Day is in the
next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset Date,
on the third Wednesday of each month or on the third Wednesday of March, June,
September and December, as specified in the applicable Pricing Supplement; (ii)
in the case of Floating Rate Notes with a quarterly Interest Reset Date, on the
third Wednesday of March, June, September and December; (iii) in the case of
Floating Rate Notes with a semiannual Interest Reset Date, on the third
Wednesday of the two months specified in the applicable Pricing Supplement; and
(iv) in the case of Floating Rate Notes with an annual Interest Reset Date, on
the third Wednesday of the month specified in the applicable Pricing Supplement.
If any Interest Payment Date for any Floating Rate Note would fall on a day that
is not a Business Day with respect to such Floating Rate Note, such Interest
Payment Date will be postponed to the following day that is a Business Day with
respect to such Floating Rate Note, except that, in the case of a LIBOR Note, if
such Business Day is in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding day that is a Business Day with
respect to such LIBOR Note. If the maturity date or any earlier redemption or
repayment date of a Floating Rate Note would fall on a day that is not a
Business Day, the payment of principal, premium, if any, and interest will be
made on the next succeeding Business Day, and no interest on such payment shall
accrue for the period from and after such maturity, redemption or repayment
date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes shall be the amount of interest accrued from
and including the date of issue or from and including the last date to which
interest has been paid to, but excluding, the Interest Payment Date or maturity
date or date of redemption or repayment.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by the
actual number of days in the year, in the case of Treasury Rate Notes and CMT
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-millionths
of a percentage point rounded upward, and all dollar amounts used in or
resulting from such calculation on Floating Rate Notes will be rounded to the
nearest cent, with one-half cent rounded upward. The interest rate in effect on
any Interest Reset Date will be the
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applicable rate as reset on such date. The interest rate applicable to any other
day is the interest rate from the immediately preceding Interest Reset Date (or,
if none, the Initial Interest Rate).
Unless otherwise stated in the applicable Pricing Supplement, the
calculation agent (the "Calculation Agent") with respect to any issue of
Floating Rate Notes shall be National City Bank. Upon the request of the holder
of any Floating Rate Note, the Calculation Agent will provide the interest rate
then in effect and, if determined, the interest rate that will become effective
on the next Interest Reset Date with respect to such Floating Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date for
CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, CMT Rate
Notes and Prime Rate Notes will be the second Business Day next preceding such
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a LIBOR Note will be the second London Banking Day preceding such
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a Treasury Rate Note will be the day of the week in which such
Interest Reset Date falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, but such auction may be held on the preceding Friday. If, as
the result of a legal holiday, an auction is so held on the preceding Friday,
such Friday will be the Interest Determination Date pertaining to the Interest
Reset Date occurring in the next succeeding week. If an auction falls on a day
that is an Interest Reset Date, such Interest Reset Date will be the next
following Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD Rate Notes
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity designated in
the applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable certificates
of deposit of major United States money center banks; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the CD Rate in effect for the applicable period will be the
same as the CD Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the CD
Rate Notes for which such CD Rate is being determined shall be the Initial
Interest Rate).
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Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement, as such rate shall be published in H.15(519), under the heading
"Commercial Paper -- Nonfinancial." In the event that such rate is not published
by 9:00 A.M., New York City time, on the Calculation Date pertaining to such
Interest Determination Date, then the Commercial Paper Rate shall be the Money
Market Yield of the rate on such Interest Determination Date for commercial
paper of the specified Index Maturity as published in Composite Quotations under
the heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet available in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate shall be the Money Market Yield of
the arithmetic mean of the offered rates as of 11:00 A.M., New York City time,
on such Interest Determination Date of three leading dealers of commercial paper
in The City of New York selected by the Calculation Agent for commercial paper
of the specified Index Maturity, placed for an industrial issuer whose bond
rating is "AA," or the equivalent, from a nationally recognized statistical
rating agency; provided, however, that if the dealers selected as aforesaid by
the Calculation Agent are not quoting offered rates as mentioned in this
sentence, the Commercial Paper Rate in effect for the applicable period will be
the same as the Commercial Paper Rate for the immediately preceding Interest
Reset Period (or, if there was no such Interest Reset Period, the rate of
interest payable on the Commercial Paper Rate Notes for which such Commercial
Paper Rate is being determined shall be the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
Money Market Yield = D X 360 X 100
-------------
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days for which interest is being calculated.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Federal Funds Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
funds, as of 9:00 A.M., New York City time, on such Interest Determination Date,
arranged by three leading brokers of Federal funds transactions in The City of
New York selected by the Calculation Agent; provided, however, that if the
brokers selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the Federal Funds Rate in effect for the applicable period will be
the same as the Federal Funds Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of interest
payable on the Federal Funds Rate Notes for which such Federal Funds Rate is
being determined shall be the Initial Interest Rate).
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<PAGE> 10
LIBOR Notes
LIBOR Notes will bear interest at the interest rate calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any, specified in
the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
for each Interest Determination Date will be determined by the Calculation Agent
as follows:
(i) As of the Interest Determination Date, LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the specified Designated LIBOR
Page (as defined below) by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in the Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, that appear on the Designated
LIBOR Page as of 11:00 A.M., London time, on that Interest Determination
Date, if at least two 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, the rate for
deposits in the Index Currency having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, that appears on the
Designated LIBOR Page as of 11:00 A.M., London time, on that Interest
Determination Date. If fewer than two offered rates appear (if "LIBOR
Reuters" is specified in the applicable Pricing Supplement) or no rate
appears (if "LIBOR Telerate" is specified in the applicable Pricing
Supplement), LIBOR in respect of the related Interest Determination Date
will be determined as if the parties had specified the rate described in
clause (ii) below.
(ii) With respect to an Interest Determination Date on which fewer
than two offered rates appear (if "LIBOR Reuters" is specified in the
applicable Pricing Supplement) or no rate appears (if "LIBOR Telerate" is
specified in the applicable Pricing Supplement), the Calculation Agent will
request the principal London offices of each of four major reference banks
in the London interbank market, as selected by the Calculation Agent, to
provide the Calculation Agent with its offered quotation for deposits in
the Index Currency for the period of the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, to prime banks in
the London interbank market at approximately 11:00 A.M., London time, on
such Interest Determination Date and in a principal amount of not less than
$1,000,000 (or the equivalent in the Index Currency, if the Index Currency
is not the U.S. dollar) that is representative of a single transaction in
such Index Currency in such market at such time. If at least two such
quotations are provided, LIBOR determined on such Interest Determination
Date will be the arithmetic mean of such quotations. If fewer than two
quotations are provided, LIBOR determined on such Interest Determination
Date will be the arithmetic mean of the rates quoted at approximately 11:00
A.M. (or such other time specified in the applicable Pricing Supplement),
in the applicable principal financial center for the country of the Index
Currency on such 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
of not less than $1,000,000 commencing on the second London Banking Day
immediately following such Interest Determination Date (or the equivalent
in the Index Currency, if the Index Currency is not the U.S. dollar) that
is representative for a single transaction in 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
in effect for the applicable period will be the same as LIBOR for the
immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the LIBOR Notes for
which such LIBOR is being determined shall be the Initial Interest Rate).
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
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<PAGE> 11
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated
in the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Telerate Service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency. If neither LIBOR Reuters nor
LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for the
applicable Index Currency will be determined as if LIBOR Telerate (and, if the
U.S. dollar is the Index Currency, Page 3750) had been specified.
Prime Rate Notes
Prime Rate Notes will bear interest at the interest rate calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any,
specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 (as defined below)
as such bank's prime rate or base lending rate as in effect for such Interest
Determination Date as quoted on the Reuters Screen USPRIME1 on such Interest
Determination Date, or, if fewer than four such rates appear on the Reuters
Screen USPRIME1 for such Interest Determination Rate, the rate shall be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by 360 as of the close of business on such Interest
Determination Date by at least two of the three major money center banks in The
City of New York selected by the Calculation Agent from which quotations are
requested. If fewer than two quotations are provided, the Prime Rate shall be
calculated by the Calculation Agent and shall be determined as the arithmetic
mean on the basis of the prime rates in The City of New York by the appropriate
number of substitute banks or trust companies organized and doing business under
the laws of the United States, or any State thereof, in each case having total
equity capital of at least U.S. $500 million and being subject to supervision or
examination by federal or state authority, selected by the Calculation Agent to
quote such rate or rates; provided, however, that if the banks or trust
companies selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the "Prime Rate" in effect for the applicable period will be the
same as the Prime Rate for the immediately preceding Interest Reset Period (or,
if there was no such Interest Reset Period, the rate of interest payable on the
Prime Rate Notes for which such Prime Rate is being determined shall be the
Initial Interest Rate). "Reuters Screen USPRIME1" means the display designated
as Page "USPRIME1" on the Reuters Monitor Money Rates Services (or such other
page as may replace the USPRIME1 on that service for the purpose of displaying
prime rates or base lending rates of major United States banks).
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rate calculated with
reference to the Treasury Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if any,
specified in the Treasury Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury
Bills--auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury Bills having the Index Maturity designated in the applicable Pricing
Supplement are not published or reported as provided above by 3:00 P.M., New
York City time, on such Calculation Date or if no such auction is held on such
Interest Determination Date, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to
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<PAGE> 12
maturity (expressed as a bond equivalent, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) calculated using the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
P.M., New York City time, on such Interest Determination Date, of three leading
primary United States government securities dealers selected by the Calculation
Agent for the issue of Treasury Bills with a remaining maturity closest to the
Index Maturity designated in the applicable Pricing Supplement; provided,
however, that if the dealers selected as aforesaid by the Calculation Agent are
not quoting bid rates as mentioned in this sentence, the Treasury Rate for such
Interest Reset Date will be the same as the Treasury Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the rate of interest payable on the Treasury Rate Notes for which the Treasury
Rate is being determined shall be the Initial Interest Rate).
CMT Rate Notes
CMT Rate Notes will bear interest at the interest rate calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any,
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date, the rate displayed on
the Designated CMT Telerate Page (as defined below) under the caption
"--Treasury Constant Maturities--Federal Reserve Board Release H.15-- Mondays
Approximately 3:45 p.m.," under the column for the Designated CMT Maturity Index
(as defined below) for (i) if the Designated CMT Telerate Page is 7055, the rate
on such Interest Determination Date and (ii) if the Designated CMT Telerate Page
is 7052, the week or the month, as applicable, ended immediately preceding the
week in which the related Interest Determination Date occurs. If such rate is no
longer displayed on the relevant page, or if not displayed by 3:00 p.m., New
York City time, on the related Calculation Date, then the CMT Rate for such
Interest Determination Date will be 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 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 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 Interest
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity, based on the arithmetic mean of the secondary market closing
offer side prices as of approximately 3:30 p.m., New York City time, on the
Interest Determination Date reported, according to their written records, by
three leading primary United States government securities dealers (each, a
"Reference Dealer") in The City of New York (which may include the Agents or
their affiliates) selected by the Calculation Agent (from five such Reference
Dealers selected by the Calculation Agent, after consultation with the Company,
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 Unites States ("Treasury notes") with an original maturity of
approximately the Designated CMT Maturity Index and remaining term to maturity
of not less than such Designated CMT Maturity Index minus one year. If the
Calculation Agent cannot obtain three such Treasury notes quotations, the CMT
Rate for such Interest Determination Date will be calculated by the Calculation
Agent and will be a yield to maturity based on the arithmetic mean of the
secondary market offer side prices as of approximately 3:30 p.m., New York City
time, on the Interest Determination Date of three Reference Dealers in The City
of New York (from five 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 $100,000,000. 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
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Calculation Agent are quoting as described herein, the CMT Rate for such
Interest Reset Date will be the same as the CMT Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the rate of interest payable on the CMT Rate Notes for which the CMT Rate is
being determined shall be the Initial Interest Rate). If two Treasury notes with
an original maturity as described in the second preceding sentence have
remaining terms to maturity equally close to the Designated CMT Maturity Index,
the quotes for the Treasury note with the shorter remaining term to maturity
will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in an applicable Pricing Supplement (or any other
page as may replace 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" shall be the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in an applicable Pricing Supplement with respect to which the CMT Rate
will be calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be two years.
RENEWABLE NOTES
The Company may also issue from time to time variable rate renewable notes
(the "Renewable Notes") that will bear interest at the interest rate calculated
with reference to a Base Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if any,
specified in the Renewable Notes and in the applicable Pricing Supplement.
The Renewable Notes will mature on an Interest Payment Date as specified in
the applicable Pricing Supplement (the "Initial Maturity Date"), unless the
maturity of all or any portion of the principal amount thereof is extended in
accordance with the procedures described below. On the Interest Payment Dates in
May and November in each year (unless different Interest Payment Dates are
specified in the applicable Pricing Supplement) (each such Interest Payment
Date, an "Election Date"), the maturity of the Renewable Notes will be extended
to the Interest Payment Date occurring twelve months after such Election Date,
unless the holder thereof elects to terminate the automatic extension of the
maturity of the Renewable Notes or of any portion thereof having a principal
amount of $1,000 or any multiple of $1,000 in excess thereof by delivering a
notice to such effect to the Paying Agent not less than nor more than a number
of days to be specified in the applicable Pricing Supplement prior to such
Election Date. Such option may be exercised with respect to less than the entire
principal amount of the Renewable Notes; provided that the principal amount for
which such option is not exercised is at least $1,000 or any larger amount that
is an integral multiple of $1,000. Notwithstanding the foregoing, the maturity
of the Renewable Notes may not be extended beyond the Final Maturity Date, as
specified in the applicable Pricing Supplement (the "Final Maturity Date"). If
the holder elects to terminate the automatic extension of the maturity of any
portion of the principal amount of the Renewable Notes and such election is not
revoked as described below, such portion will become due and payable on the
Interest Payment Date falling six months (unless another period is specified in
the applicable Pricing Supplement) after the Election Date prior to which the
holder made such election.
An election to terminate the automatic extension of maturity may be revoked
as to any portion of the Renewable Notes having a principal amount of $1,000 or
any multiple of $1,000 in excess thereof by delivering a notice to such effect
to the Paying Agent on any day following the effective date of the election to
terminate the automatic extension of maturity and prior to the date 15 days
before the date on which such portion would otherwise mature. Such a revocation
may be made for less than the entire principal amount of the Renewable Notes for
which the automatic extension of maturity has been terminated; provided that the
principal amount of the Renewable Notes for which the automatic extension of
maturity has been terminated and for which such a revocation has not been made
is at least $1,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, a revocation may not be made during the period
from and including a Record Date to, but excluding the immediately succeeding
Interest Payment Date.
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An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon such subsequent holder.
The Renewable Notes may be redeemed in whole or in part at the option of
the Company on the Interest Payment Dates in each year specified in the
applicable Pricing Supplement, commencing with the Interest Payment Date
specified in the applicable Pricing Supplement, at a redemption price as stated
in the applicable Pricing Supplement, together with accrued and unpaid interest
to the date of redemption. Notwithstanding anything to the contrary in this
Prospectus Supplement, notice of redemption will be provided by mailing a notice
of such redemption to each holder by first class mail, postage prepaid, at least
180 days prior to the date fixed for redemption.
INDEXED NOTES
The Notes may be issued, from time to time, as Notes on which the principal
amount payable on a date more than nine months from the date of original issue
(the "Stated Maturity") and/or on which the amount of interest payable on an
Interest Payment Date will be determined by reference to currencies, currency
units, commodity prices, financial or non-financial indices or other factors
(the "Indexed Notes"), as indicated in the applicable Pricing Supplement.
Holders of Indexed Notes may receive a principal amount at maturity that is
greater than or less than the face amount of such Notes depending upon the
fluctuation of the relative value, rate or price of the specified index.
Specific information pertaining to the method for determining the principal
amount payable at maturity, a historical comparison of the relative value, rate
or price of the specified index and the face amount of the Indexed Note and
certain additional United States federal tax considerations will be described in
the applicable Pricing Supplement.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note (other than an Amortizing
Note) will indicate whether the Company has the option to extend the maturity of
such Note for one or more periods of one or more whole years (each an "Extension
Period") up to but not beyond the date (the "Final Maturity Date") set forth in
such Pricing Supplement. If the Company has such option with respect to any such
Note (an "Extendible Note"), the following procedures will apply, unless
modified as set forth in the applicable Pricing Supplement.
The Company may exercise such option with respect to an Extendible Note by
notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has already
been extended, prior to the maturity date then in effect (an "Extended Maturity
Date"). No later than 38 days prior to the Original Maturity Date or an Extended
Maturity Date, as the case may be (each, a "Maturity Date"), the Paying Agent
will mail to the holder of such Note a notice (the "Extension Notice") relating
to such Extension Period, by first class mail, postage prepaid, setting forth
(a) the election of the Company to extend the maturity of such Note; (b) the new
Extended Maturity Date; (c) the interest rate applicable to the Extension Period
which, in the case of a Floating Rate Note, will be calculated with reference to
a Base Rate and the Spread and/or Spread Multiplier, if any; and (d) the
provisions, if any, for redemption during the Extension Period, including the
date or dates on which, the period or periods during which and the price or
prices at which such redemption may occur during the Extension Period. Upon the
mailing by the Paying Agent of an Extension Notice to the holder of an
Extendible Note, the maturity of such Note shall be extended automatically, and,
except as modified by the Extension Notice and as described in the next
paragraph, such Note will have the same terms it had prior to the mailing of
such Extension Notice.
Notwithstanding the foregoing, not later than 10:00 A.M., New York City
time, on the twentieth calendar day prior to the Maturity Date then in effect
for an Extendible Note or, if such day is not a Business Day, not later than
10:00 A.M., New York City time, on the immediately succeeding Business Day, the
Company may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period by causing the Paying Agent to send notice of such higher
interest rate (or, in the case of a Floating Rate Note, a
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higher Spread and/or Spread Multiplier, if any) to the holder of such Note by
first class mail, postage prepaid, or by such other means as shall be agreed
between the Company and the Paying Agent. Such notice shall be irrevocable. All
Extendible Notes with respect to which the Maturity Date is extended in
accordance with an Extension Notice will bear such higher interest rate (or, in
the case of a Floating Rate Note, a higher Spread and/or Spread Multiplier, if
any) for the Extension Period, whether or not tendered for repayment.
If the Company elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Company to repay such
Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be repaid on such Maturity Date, the holder thereof must
follow the procedures set forth below under "Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for delivery
of such Note or notification to the Paying Agent shall be at least 25 but not
more than 35 days prior to the Maturity Date then in effect and except that a
holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect or, if such day is not a
Business Day, until 3:00 P.M., New York City time, on the immediately succeeding
Business Day.
DEFEASANCE
The provisions of Article Thirteen of the Indenture relating to defeasance
and covenant defeasance, described in the Prospectus under "Description of
Senior Debt Securities--Defeasance and Discharge, Covenant Defeasance," are
applicable to the Notes.
BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Global Notes having the same Issue Date,
interest rate, if any, amortization schedule, if any, maturity date and other
terms, if any, will be represented by one or more Global Securities, and all
Floating Rate Global Notes having the same Issue Date, Initial Interest Rate,
Base Rate, Interest Reset Period, Interest Payment Dates, Index Maturity, Spread
and/or Spread Multiplier, if any, Minimum Interest Rate, if any, Maximum
Interest Rate, if any, maturity date and other terms, if any, will be
represented by one or more Global Securities. Each Global Security representing
Global Notes will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depositary"), and registered in the name of a
nominee of the Depositary. Global Notes will not be exchangeable for Definitive
Notes, except under the circumstances described in the Prospectus under
"Description of Senior Debt Securities--Book-Entry System." Definitive Notes
will not be exchangeable for Global Notes and will not otherwise be issuable as
Global Notes.
A further description of the Depositary's procedures with respect to Global
Securities representing Global Notes is set forth in the Prospectus under
"Description of Senior Debt Securities--Book-Entry System." The Depositary has
confirmed to the Company, each Agent and the Trustee that it intends to follow
such procedures.
OPTIONAL REDEMPTIONS
The Pricing Supplement will indicate that the Notes cannot be redeemed
prior to maturity or will indicate the terms on which the Notes will be
redeemable at the option of the Company. Notice of redemption will be provided
by mailing a notice of such redemption to each holder by first class mail,
postage prepaid, at least 30 days and not more than 60 days prior to the date
fixed for redemption to the respective address of each holder as that address
appears upon the books maintained by the Paying Agent. Unless otherwise provided
in the applicable Pricing Supplement, the Notes, except for Amortizing Notes,
will not be subject to any sinking fund.
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
If applicable, the Pricing Supplement relating to each Note will indicate
that the Note will be repayable at the option of the holder on a date or dates
specified prior to its maturity date and, unless otherwise specified in such
Pricing Supplement, at a price equal to 100% of the principal amount thereof,
together with accrued interest to the date of repayment, unless such Note was
issued with original issue discount, in which case the Pricing Supplement will
specify the amount payable upon such repayment.
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In order for such a Note to be repaid, the Paying Agent must receive at
least 30 days but not more than 60 days prior to the repayment date (i) the Note
with the form entitled "Option to Elect Repayment" on the reverse of the Note
duly completed or (ii) a telegram, telex, facsimile transmission or a letter
from a member of a national securities exchange, or the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States setting forth the name of the holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed form
entitled "Option to Elect Repayment" on the reverse of the Note, will be
received by the Paying Agent not later than the fifth Business Day after the
date of such telegram, telex, facsimile transmission or letter, provided,
however, that such telegram, telex, facsimile transmission or letter shall only
be effective if such Note and form duly completed are received by the Paying
Agent by such fifth Business Day. Except in the case of Renewable Notes or
Extendible Notes, and unless otherwise specified in the applicable Pricing
Supplement, exercise of the repayment option by the holder of a Note will be
irrevocable. The repayment option may be exercised by the holder of a Note for
less than the entire principal amount of the Note but, in that event, the
principal amount of the Note remaining outstanding after repayment must be an
Authorized Denomination.
If a Note is represented by a Global Security, the Depositary's nominee
will be the holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different deadlines for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other direct or
indirect participant through which it holds an interest in a Note in order to
ascertain the deadline by which such an instruction must be given in order for
timely notice to be delivered to the Depositary.
The Company may purchase Notes at any price in the open market or
otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the Trustee for cancellation.
FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
Any investment in Notes that are denominated in, or the payment of which is
related to the value of, a Specified Currency other than U.S. dollars entails
significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the U.S.
dollar and the various foreign currencies or composite currencies and the
possibility of the imposition or modification of exchange controls by either the
U.S. or a foreign government. Such risks generally depend on economic and
political events over which the Company has no control. In recent years, rates
of exchange between U.S. dollars and certain foreign currencies have been highly
volatile and such volatility may be expected to continue in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations in such rate that may occur
during the term of any Note. Depreciation against the U.S. dollar of the
currency in which a Note is payable would result in a decrease in the effective
yield of such Note below its coupon rate and, in certain circumstances, could
result in a loss to the investor on a U.S. dollar basis. In addition, depending
on the specific terms of a currency linked Note, changes in exchange rates
relating to any of the currencies involved may result in a decrease in its
effective yield and, in certain circumstances, could result in a loss of all or
a substantial portion of the principal of a Note to the investor.
THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY PRICING
SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED
IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, A FOREIGN CURRENCY OR A
COMPOSITE CURRENCY AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE
PROSPECTIVE PURCHASERS OF SUCH RISKS AS THEY EXIST
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AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME
TO TIME. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED IN, OR
THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, SPECIFIED CURRENCIES OTHER THAN
U.S. DOLLARS. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the 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, premium, if
any, and interest on, the Notes. Such persons should consult their own counsel
with regard to such matters.
Governments have imposed from time to time, and may in the future impose,
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency at the time of payment of principal of, premium,
if any, or interest on, a Note. Even if there are no actual exchange controls,
it is possible that the Specified Currency for any particular Note not
denominated in U.S. dollars would not be available when payments on such Note
are due. In that event, the Company would make required payments in U.S. dollars
on the basis of the Market Exchange Rate on the date of such payment, or if such
rate of exchange is not then available, on the basis of the Market Exchange Rate
as of the most recent practicable date. See "Description of Notes--Payment
Currency."
With respect to any Note denominated in, or the payment of which is related
to the value of, a foreign currency or currency unit, the applicable Pricing
Supplement will include information with respect to applicable current exchange
controls, if any, and historic exchange rate information on such currency or
currency unit. The information contained therein shall constitute a part of this
Prospectus Supplement and is furnished as a matter of information only and
should not be regarded as indicative of the range of or trends in fluctuations
in currency exchange rates that may occur in the future.
GOVERNING LAW AND JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. In the event an action based on Notes denominated in a
Specified Currency other than U.S. dollars were commenced in a court in the
United States, it is likely that such court would grant judgment relating to the
Notes only in U.S. dollars.
UNITED STATES TAXATION
In the opinion of Jones, Day, Reavis & Pogue, tax counsel to the Company,
the following summary accurately describes the principal United States federal
income tax consequences to the initial holders of ownership and disposition of
the Notes. This summary is based on the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), administrative pronouncements, judicial
decisions and existing and proposed Treasury Regulations, including regulations
concerning the treatment of debt instruments issued with original issue discount
(the "OID Regulations"), changes to any of which subsequent to the date of this
Prospectus Supplement may affect the tax consequences described herein. This
summary discusses only Notes held as capital assets within the meaning of
Section 1221 of the Code. It does not discuss all of the tax consequences that
may be relevant to a holder in light of his particular circumstances or to
holders subject to special rules, such as certain financial institutions,
insurance companies, tax exempt organizations, dealers in securities or foreign
currencies, traders in securities that elect to mark to market, persons holding
Notes as a hedge against, or which are hedged against, currency risks, that are
part of a straddle or conversion transaction, persons who are not "Holders" (as
defined below) or holders whose functional currency (as defined in Code Section
985) is not the U.S. dollar. This summary also does not discuss Original Issue
Discount Notes (as defined below) which qualify as "applicable high-yield
discount obligations" under Section 163(i) of the Code. Holders of Original
Issue Discount Notes which are "applicable high-yield discount obligations" may
be subject to
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special rules. Moreover, this summary deals only with Notes that are due to
mature 30 years or less from the date on which they are issued. The United
States federal income tax consequences of ownership of Notes that are due to
mature more than 30 years from their date of issue will be discussed in an
applicable Pricing Supplement. Persons considering the purchase of Notes should
consult their tax advisors with regard to the application of the United States
federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used herein, the term "Holder" means a beneficial owner of a Note that
is, for United States federal income tax purposes, (i) a citizen or resident of
the United States, (ii) a corporation created under the laws of the United
States or of any political subdivision thereof, (iii) an estate the income of
which is subject to United States federal income taxation regardless of its
source; (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust; or (v) a partnership or other entity that is created or organized in or
under the laws of the United States or of any political subdivision thereof and
that is properly classified as a U.S. entity.
TAX CONSEQUENCES TO HOLDERS
Payments of Interest
Interest paid on a Note will generally be taxable to a Holder as ordinary
interest income at the time it accrues or is received in accordance with the
Holder's method of accounting for federal income tax purposes. Under the OID
Regulations, all payments of interest on a Note that matures one year or less
from its date of issuance will be included in the stated redemption price at
maturity of the Notes and will be taxed in the manner described below under
"Short Term Original Issue Discount Notes." Special rules governing the
treatment of interest paid with respect to Original Issue Discount Notes,
including certain Floating Rate Notes, Foreign Currency Notes, Currency Indexed
Notes, Notes providing for payments of principal or interest linked to commodity
prices, equity indices or other factors, are discussed below.
Original Issue Discount Notes
A Note the issue price of which is less than its stated redemption price at
maturity will generally be considered to have been issued at an original issue
discount for federal income tax purposes (an "Original Issue Discount Note").
The "issue price" of a Note will equal the first price at which a substantial
amount of the Notes is sold to the public (not including 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 will equal the sum of all payments required under the Note other than
payments of "qualified stated interest." "Qualified stated interest" is stated
interest unconditionally payable as a series of payments in cash or property
(other than debt instruments of the issuer) at least annually during the entire
term of the Note and equal to the outstanding principal balance of the Note
multiplied by a single fixed rate or certain variable rates of interest, or
certain combinations thereof.
If the difference between a Note's stated redemption price at maturity and
its issue price is less than a de minimis amount, i.e., 1/4 of 1 percent of the
Note's stated redemption price at maturity multiplied by the number of complete
years to maturity, then the Note will not be considered to have original issue
discount. Holders of Notes with a de minimis amount of original issue discount
will generally include such original issue discount in income, as capital gain,
on a pro rata basis as principal payments are made on the Note.
A Holder of Original Issue Discount Notes will be required to include any
qualified stated interest payments in income in accordance with the Holder's
method of accounting for federal income tax purposes. Holders of Original Issue
Discount Notes that mature more than one year from their date of issuance will
be required to include original issue discount in income for federal income tax
purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest, before the receipt of cash payments attributable to
such income. Under this method, Holders of Original Issue Discount Notes
generally will be required to include in income increasingly greater amounts of
original issue discount in successive accrual periods. The amount of original
issue discount includible in income by a Holder of an Original Issue Discount
Note is the sum of the
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daily portions of original issue discount with respect to the Original Issue
Discount Note for each day during the taxable year or portion of the taxable
year on which the Holder holds such Original Issue Discount Note ("accrued
original issue discount"). The daily portion is determined by allocating to each
day in any "accrual period" a pro rata portion of the original issue discount
allocable to that accrual period. Accrual periods with respect to a Note may be
of any length selected by the Holder and may vary in length over the term of the
Note as long as (i) no accrual period is longer than one year and (ii) each
scheduled payment of interest or principal on the Note occurs on either the
final or first day of an accrual period. The amount of original issue discount
allocable to an accrual period equals the excess of (a) the product of the
Original Issue Discount Note's adjusted issue price at the beginning of the
accrual period and such Note's yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of the accrual period) over (b) the sum of the payments of qualified
stated interest on the Note allocable to the accrual period. The "adjusted issue
price" of an Original Issue Discount Note at the beginning of any accrual period
is the issue price of the Note increased by (x) the amount of accrued original
issue discount for each prior accrual period and decreased by (y) the amount of
any payments previously made on the Note that were not qualified stated interest
payments. For purposes of determining the amount of original issue discount
allocable to an accrual period, if an interval between payments of qualified
stated interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual period
immediately following the interval) is allocated pro rata on the basis of
relative lengths to each accrual period in the interval, and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but that is not payable until the end of the
interval. The amount of original issue discount allocable to an initial short
accrual period may be computed using any reasonable method if all other accrual
periods other than a final short accrual period are of equal length. The amount
of original issue discount allocable to the final accrual period is the
difference between (x) the amount payable at the maturity of the Note (other
than any payment of qualified stated interest) and (y) the Note's adjusted issue
price as of the beginning of the final accrual period.
Acquisition Premium. A Holder that purchases a Note for an amount less
than or equal to the sum of all amounts payable on the Note after the purchase
date other than payments of qualified stated interest but in excess of its
adjusted issue price (any such excess being "acquisition premium") and that does
not make the election described below under "Constant Yield Election" is
permitted to reduce the daily portions of original issue discount by a fraction,
the numerator of which is the excess of the Holder's adjusted basis in the Note
immediately after its purchase over the adjusted issue price of the Note, and
the denominator of which is the excess of the sum of all amounts payable on the
Note after the purchase date, other than payments of qualified stated interest,
over the Note's adjusted issue price.
Market Discount. A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i) the amount for
which a Holder purchased the Note is less than the Note's issue price and (ii)
the Note's stated redemption price at maturity or, in the case of an Original
Issue Discount Note, the Note's "revised issue price", exceeds the amount for
which the Holder purchased the Note by at least 1/4 of 1 percent of such Note's
stated redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the Note's maturity. If such
excess is not sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount". The Code provides that,
for these purposes, the "revised issue price" of a Note generally equals its
issue price, increased by the amount of any original issue discount that has
accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a Holder of
Market Discount Note may elect to include market discount in income currently
over the life of the Note. Such an election shall apply to all debt instruments
with market discount acquired by the electing Holder on or after the first day
of the first taxable year to which the election applies. This election may not
be revoked without the consent of the Internal Revenue Service.
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Market discount on a Market Discount Note will accrue on a straight-line
basis unless the Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A Holder of a Market
Discount Note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Note in an amount not exceeding the accrued market discount on
such Note until the maturity or disposition of such Note.
Amortizable Bond Premium. If a Holder purchases a Note for an amount that
is greater than the amount payable at maturity, such Holder will be considered
to have purchased such Note with "amortizable bond premium" equal in amount to
such excess, and may elect (in accordance with applicable Code provisions) to
amortize such premium, using a constant yield method, over the remaining term of
the Note (where such Note is not optionally redeemable prior to its maturity
date). A Holder who elects to amortize bond premium must reduce his tax basis in
the Note by the amount of the premium amortized in any year. An election to
amortize bond premium applies to all taxable debt obligations then owned and
thereafter acquired by the taxpayer and may be revoked only with the consent of
the Internal Revenue Service.
The amount of bond premium allocable to an accrual period that exceeds the
amount of interest allocable to that period may not be deducted but may be
carried forward to future accrual periods. The yield on bonds providing for one
or more alternative payment schedules will be determined according to rules
similar to those described below under "Notes Subject to Contingencies Including
Optional Redemption."
Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year of the Note's
issue date and (iii) the payment will equal or exceed the amount of pre-issuance
accrued interest, then the Holder may elect to decrease the issue price of the
Note by the amount of pre-issuance accrued interest. In that event, a portion of
the first stated interest payment will be treated as a return of the excluded
pre-issuance accrued interest and not as an amount payable on the Note.
Short-Term Original Issue Discount Notes. Under the OID Regulations, a
Note that matures one year or less from its date of issuance will be treated as
a "short-term Original Issue Discount Note". In general, a cash method Holder of
a short-term Original Issue Discount Note is not required to accrue original
issue discount for United States federal income tax purposes unless it elects to
do so, but may be required to include any stated interest in income as the
interest is received. Holders who report income for federal income tax purposes
on the accrual method and certain other Holders, including banks, regulated
investment companies, common trust funds, Holders who hold Notes as part of
certain identified hedging transactions, certain pass-through entities and
dealers in securities, are required to include original issue discount in income
on such short-term Original Issue Discount Notes as it accrues on a
straight-line basis, unless an election is made to accrue the original issue
discount according to a constant yield method based on daily compounding. In the
case of a Holder who is not required and who does not elect to include original
issue discount on a Short-Term Original Issue Discount Note in income currently,
any gain realized on the sale, exchange or retirement of the short-term Original
Issue Discount Note will be ordinary income to the extent of the original issue
discount accrued on a straight-line basis (unless an election is made to accrue
the original issue discount under a constant-yield method) through the date of
sale, exchange or retirement. In addition, such Holders will be required to
defer deductions for any interest paid on indebtedness incurred to purchase or
carry short-term Original Issue Discount Notes in an amount not exceeding the
deferred interest income, until such deferred interest income is recognized.
For purposes of determining the amount of original issue discount subject
to these rules, all interest payments on a short-term Original Issue Discount
Note, including stated interest, are included in the short-term Original Issue
Discount Note's stated redemption price at maturity.
Constant Yield Election. Under the OID Regulations, a Holder may make an
election (the "Constant Yield Election") to include in gross income all interest
that accrues on a Note (including stated interest, acquisition discount,
original issue discount, de minimis original issue discount, market discount, de
minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium) in
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accordance with the constant yield method described above under "Original Issue
Discount Notes," with the modifications described below.
In applying the constant-yield method to a Note with respect to which the
Constant Yield Election has been made, the issue price of the Note will equal
the electing Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing Holder, and no payments on the Note will be treated as payments of
qualified stated interest. This election will generally apply only to the Note
with respect to which it is made and may not be revoked without the consent of
the Internal Revenue Service. If this election is made with respect to a Note
with amortizable bond premium, then the electing Holder will be deemed to have
elected to apply amortizable bond premium against interest with respect to all
debt instruments with amortizable bond premium, other than debt instruments the
interest on which is excludible from gross income, held by the electing Holder
as of the beginning of the taxable year in which the Note with respect to which
the election is made is acquired or thereafter acquired. The deemed election
with respect to amortizable bond premium may not be revoked without the consent
of the Internal Revenue Service.
If the Constant Yield Election is made with respect to a Market Discount
Note, the electing Holder will be treated as having made the election discussed
above under "--Original Issue Discount Notes--Market Discount" to include market
discount in income currently over the life of all debt instruments held or
thereafter acquired by such Holder.
Notes Subject to Contingencies Including Optional Redemption. If a Note
provides for an alternative payment schedule or schedules applicable upon the
occurrence of a contingency or contingencies (other than a remote or incidental
contingency), whether such contingency relates to payments of interest or of
principal, if the timing and amount of the payments that comprise each payment
schedule are known as of the issue date and if one of such schedules is
significantly more likely than not to occur, the yield and maturity of the Note
are determined by assuming that the payments will be made according to that
payment schedule. If there is no single payment schedule that is significantly
more likely than not to occur (other than because of a mandatory sinking fund),
the Note will be subject to the general rules that govern contingent payment
obligations. These rules will be discussed in an applicable Pricing Supplement.
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Company or the holder has an
unconditional option or options that, if exercised, would require payments to be
made on the Note under an alternative payment schedule or schedules, then (i) in
the case of an option or options of the Company, the Company will be deemed to
exercise or not exercise an option or combination of options in the manner that
minimizes the yield on the Note and (ii) in the case of an option or options of
the holder, the holder will be deemed to exercise or not exercise an option or
combination of options in the manner that maximizes the yield on the Note. If
both the Company and the holder have options described in the preceding
sentence, those rules apply to such options in the order in which they may be
exercised. For purposes of those calculations, the yield on the Note is
determined by using any date on which the Note may be redeemed or repurchased as
the maturity date and the amount payable on such date in accordance with the
terms of the Note as the principal amount payable at maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the Note
is repaid as a result of the change in circumstances and solely for purposes of
determining the amount and accrual of Original Issue Discount, the yield and
maturity of the Note are redetermined by treating the Note as having been
retired and reissued on the date of the change in circumstances for an amount
equal to the Note's adjusted issue price on that date.
Aggregation. The OID Regulations contain aggregation rules stating that in
certain circumstances if more than one debt instrument is issued in connection
with the same transaction or related transactions, some or all of such Notes may
be treated together as a single debt instrument with a single issue price,
maturity date, yield to maturity and stated redemption price at maturity for
purposes of calculating and accruing any original issue discount. This rule
ordinarily applies only to instruments of a single issuer issued to a single
holder. Unless
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otherwise provided in the related Pricing Supplement, the Company does not
expect to treat any of the Notes as being subject to the aggregation rules for
purposes of computing original issue discount.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of a Note, a Holder will recognize
taxable gain or loss equal to the difference between the amount realized on the
sale, exchange or retirement and such Holder's adjusted tax basis in the Note.
For these purposes, the amount realized does not include any amount attributable
to accrued interest on the Note. Amounts attributable to accrued interest are
treated as interest as described under "Payments of Interest" above, in
accordance with the Holder's method of accounting for federal income tax
purposes as described therein. A Holder's adjusted tax basis in a Note will
equal the cost of the Note to such Holder, increased by the amount of any
original issue discount previously included in income by the Holder with respect
to such Note and reduced by any amortized bond premium and any principal
payments received by the Holder and, in the case of an Original Issue Discount
Note, by the amounts of any other payments that do not constitute qualified
stated interest (as defined above).
Subject to the discussion under "Foreign Currency Notes" below, gain or
loss realized on the sale, exchange or retirement of a Note will generally be
treated as capital gain or loss (except as described above under "Short Term
Original Issue Discount Notes" and "Market Discount" and below under "Notes
Linked to Commodity Prices, Equity Indices or other Factors, or otherwise
treated as Contingent Payment Debt Instruments"). The Taxpayer Relief Act of
1997 (the "1997 Act") has modified the tax treatment of capital gains in several
key respects. First, the maximum capital gains rate applicable to sales of
capital assets held by individuals for more than 18 months is now 20 percent (10
percent for individuals in the 15 percent tax bracket). Second, the maximum rate
applicable to sales of capital assets held by individuals for more than 12
months but not more than 18 months is now 28 percent (15 percent for individuals
in the 15 percent tax bracket). Holders are urged to consult their own tax
advisors regarding the impact of the 1997 Act on the proper treatment of any
gain or loss recognized with respect to a Note. As under prior law, gain on
capital assets held by individuals for 12 months or less will continue to be
taxed as ordinary income at rates as high as 39.6 percent. Capital gains
recognized by corporations will continue to be taxed at the same rates
applicable to ordinary income. The distinction between capital gain or loss and
ordinary income or loss continues to be relevant for purposes of, among other
things, limitations on the deductibility of capital losses.
Foreign Currency Notes
The following summary relates to Notes that are denominated in a currency
or currency unit other than the U.S. dollar ("Foreign Currency Notes").
A Holder who uses the cash method of accounting and who receives a payment
of qualified stated interest in a foreign currency with respect to a Foreign
Currency Note will be required to include in income the U.S. dollar value of the
foreign currency payment upon receipt (determined on the date of receipt)
regardless of whether the payment is in fact converted to U.S. dollars, and such
U.S. dollar value will be the Holder's tax basis in the foreign currency. A cash
method Holder who receives such a payment in U.S. dollars pursuant to an option
available under such Note will be required to include the amount of such payment
in income upon receipt.
In the case of accrual method taxpayers and Holders of Original Issue
Discount Notes, a Holder will be required to include in income the U.S. dollar
value of the amount of interest income (including original issue discount, but
reduced by amortizable bond premium to the extent applicable) that has accrued
and is otherwise required to be taken into account with respect to a Foreign
Currency Note during an accrual period. The U.S. dollar value of such accrued
income will be determined by translating such income at the average rate of
exchange for the accrual period or, with respect to an accrual period that spans
two taxable years, at the average rate for the partial accrual period within the
taxable year. Such Holder will recognize ordinary income or loss with respect to
accrued interest income on the date such income is actually received. The amount
of ordinary income or loss recognized will equal the difference between the U.S.
dollar value of the foreign currency payment received (determined on the date
such payment is received) in respect of such accrual period (or, where a Holder
receives U.S. dollars, the amount of such payment in respect of such accrual
period) and the U.S. dollar
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value of interest income that has accrued during such accrual period (as
determined above). A Holder may elect to translate interest income (including
original issue discount) into U.S. dollars at the spot rate on the last day of
the interest accrual period (or, in the case of a partial accrual period, the
spot rate on the last date of the taxable year) or, if the date of receipt is
within five business days of the last day of the interest accrual period, the
spot rate on the date of receipt. A Holder that makes such an election must
apply it consistently to all debt instruments from year to year and cannot
change the election without the consent of the Internal Revenue Service.
Original issue discount and amortizable bond premium on a Foreign Currency
Note are to be determined in the relevant foreign currency.
Any loss realized on the sale, exchange or retirement of a Foreign Currency
Note with amortizable bond premium by a Holder who has not elected to amortize
such premium under Section 171 of the Code will be a capital loss to the extent
of such bond premium. If such an election is made, amortizable bond premium
taken into account on a current basis shall reduce interest income in units of
the relevant foreign currency. Exchange gain or loss is realized on such
amortized bond premium with respect to any period by treating the bond premium
amortized in such period as a return of principal.
A Holder's tax basis in a Foreign Currency Note, and the amount of any
subsequent adjustment to such Holder's tax basis, will be the U.S. dollar value
of the foreign currency amount paid for such Foreign Currency Note, or of the
foreign currency amount of the adjustment, determined on the date of such
purchase or adjustment. A Holder who purchases a Foreign Currency Note with
previously owned foreign currency will recognize ordinary income or loss in an
amount equal to the difference, if any, between such Holder's tax basis in the
foreign currency and the U.S. dollar fair market value of the Foreign Currency
Note on the date of purchase.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss which will not be treated as interest income or
expense. Gain or loss attributable to fluctuations in exchange rates will equal
the difference between (i) the U.S. dollar value of the foreign currency
principal amount of such Note, and any payment with respect to accrued interest,
both determined on the date such payment is received or the Note is disposed of,
and (ii) the U.S. dollar value of the foreign currency principal amount of such
Note, determined on the date such Holder acquired such Note, and the U.S. dollar
value of the accrued interest received, determined by translating such interest
at the average exchange rate for the accrual period. Such foreign currency gain
or loss will be recognized only to the extent of the total gain or loss realized
by a Holder on the sale, exchange or retirement of the Foreign Currency Note.
The source of such foreign currency gain or loss will be determined by reference
to the residence of the Holder or the "qualified business unit" of the Holder on
whose books the Note is properly reflected. Any gain or loss realized by such a
Holder in excess of such foreign currency gain or loss will be capital gain or
loss except in the case of a short-term Original Issue Discount Note, to the
extent of any original issue discount not previously included in the Holder's
income, or in the case of a Market Discount Note, to the extent of accrued
market discount.
A Holder will have a tax basis in any foreign currency received on the
sale, exchange or retirement of a Foreign Currency Note equal to the U.S. dollar
value of such foreign currency, determined at the time of such sale, exchange or
retirement. Regulations issued under Section 988 of the Code provide a special
rule for purchases and sales of publicly traded Foreign Currency Notes by a cash
method taxpayer under which units of foreign currency paid or received are
translated into U.S. dollars at the spot rate on the settlement date of the
purchase or sale. Accordingly, no exchange gain or loss will result from
currency fluctuations between the trade date and the settlement of such a
purchase or sale. An accrual method taxpayer may elect the same treatment
required of cash-method taxpayers with respect to the purchases and sale of
publicly traded Foreign Currency Notes provided the election is applied
consistently. Such election cannot be changed without the consent of the
Internal Revenue Service. Any gain or loss realized by a Holder on a sale or
other disposition of foreign currency (including its exchange for U.S. dollars
or its use to purchase Foreign Currency Notes) will be ordinary income or loss.
Variable Rate Notes. A "Variable Rate Note" is a Note that: (i) has an
issue price that does not exceed the total noncontingent principal payments by
more than the lesser of (1) the product of (x) the total noncontingent
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principal payments, (y) the number of complete years to maturity from the issue
date and (z) .015, or (2) 15 percent of the total noncontingent principal
payments, and (ii) does not provide for stated interest other than stated
interest compounded or paid at least annually at (1) one or more "qualified
floating rates," (2) a single fixed rate and one or more qualified floating
rates, (3) a single "objective rate" or (4) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate."
A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the Note
is denominated or (ii) it is equal to the product of such a rate and either (a)
a fixed multiple that is greater than 0.65 but not more than 1.35, or (b) a
fixed multiple greater than 0.65 but not more than 1.35, increased or decreased
by a fixed rate. If a Note provides for two or more qualified floating rates
that (i) are within 0.25 percentage points of each other on the issue date or
(ii) can reasonably be expected to have approximately the same values throughout
the term of the Note, the qualified floating rates together constitute a single
qualified floating rate. A rate is not a qualified floating rate, however, if
the rate is subject to certain restrictions (including caps, floors, governors,
or other similar restrictions) unless such restrictions are fixed throughout the
term of the Note or are not reasonably expected to significantly affect the
yield on the Note.
An "objective rate" is a rate, other than a qualified floating rate, that
is determined using a single, fixed formula and that is based on objective
financial or economic information that is not within the control of or unique to
the circumstances of the issuer or a related party. A variable rate is not an
objective rate, however, if it is reasonably expected that the average value of
the rate during the first half of the Note's term will be either significantly
less than or significantly greater than the average value of the rate during the
final half of the Note's term. A objective rate is a "qualified inverse floating
rate" if (i) the rate is equal to a fixed rate minus a qualified floating rate,
and (ii) the variations in the rate can reasonably be expected to inversely
reflect contemporaneous variations in the cost of newly borrowed funds.
If interest on a Note is stated at a fixed rate for an initial period of
one year or less followed by either a qualified floating rate or an objective
rate for a subsequent period and (i) the fixed rate and the qualified floating
rate or objective rate have values on the issue date of the Note that do not
differ by more than 0.25 percentage points or (ii) the value of the qualified
floating rate or objective rate is intended to approximate the fixed rate, the
fixed rate and the qualified floating rate or the objective rate constitute a
single qualified floating rate or objective rate. Under these rules, Commercial
Paper Rate Notes, Prime Rate Notes, LIBOR Notes, Treasury Rate Notes, CD Rate
Notes, CMT Rate Notes and Federal Funds Rate Notes will generally be treated as
Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a
single qualified floating rate or objective rate, all stated interest on the
Note is qualified stated interest and the amount of Original Issue Discount, if
any, is determined by using, 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, in the case of an other
objective rate, a fixed rate that reflects the yield reasonably expected for the
Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or a single objective rate and also does not provide for
interest payable at a fixed rate (other than at a single fixed rate for an
initial period), the amount of interest and Original Issue Discount accruals on
the Note are generally determined by (i) determining a fixed rate substitute for
each variable rate provided under the Variable Rate Note (generally, the value
of each variable rate as of the issue date or, in the case of an objective rate
that is not a qualified inverse floating rate, a rate that reflects the
reasonably expected yield on the Note), (ii) constructing the equivalent fixed
rate debt instrument (using the fixed rate substitutes described above), (iii)
determining the amount of qualified stated interest and Original Issue Discount
with respect to the equivalent fixed rate debt instrument, and (iv) making the
appropriate adjustments for actual variable rates during the applicable accrual
period.
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If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and Original
Issue Discount accruals are determined as in the immediately preceding paragraph
with the modification that the Variable Rate Note is treated, for purposes of
the first three steps of the determination, as if it provided for a qualified
floating rate (or a qualified inverse floating rate, as the case may be) rather
than the fixed rate. The qualified floating rate (or qualified inverse floating
rate) replacing the fixed rate must be such that the fair market value of the
Variable Rate Note as of the issue date would be approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
the qualified floating rate (or qualified inverse floating rate) rather than the
fixed rate.
Notes Linked to Commodity Prices, Equity Indices or Other Factors, or
Otherwise Treated as Contingent Payment Debt Instruments
Notes the principal or interest payments on which are linked to commodity
prices, equity indices, the relative performance of currencies or other factors,
if treated as debt for United States federal income tax purposes, will generally
be treated as "contingent payment debt instruments." Floating rate notes that do
not qualify as variable rate debt instruments may also be treated as contingent
payment debt instruments for United States federal income tax purposes. Notes
issued by the Company with such features should constitute debt obligations of
the Company for United States federal income tax purposes and no portion of the
issue price of the Notes should be separately allocated to the foreign exchange
feature of the Notes. However, it is possible that these Notes could be
characterized for United States federal income tax purposes as debt coupled with
a forward contract or option to which a portion of the issue price of the Notes
must be allocated.
Under Regulations, the value of contingent payments on a contingent payment
debt instrument issued for money or publicly traded property is estimated at
issuance under the noncontingent bond method. The yield of a Note deemed to be a
contingent payment debt instrument that is issued for money or publicly traded
property is first determined by reference to comparable yields at which the
issuer would issue a fixed rate debt instrument having similar terms and
conditions, with the payment schedule then set to fit the yield. Projected
payments are generally based on the forward price of payments where price quotes
are readily available for contingencies. Where price quotes are not readily
available for contingencies, projected payments will be based on the expected
amount of the payment as of the issue date, set in some cases by reference to a
yield assumed to be the applicable federal rate. Interest income of a Holder
would be measured with reference to the projected yield, which might be less
than or greater than the stated interest rate under the instrument. In the event
that the actual amount of a contingent payment differs from the projected amount
of that payment, the difference would generally increase or reduce taxable
income, or create a loss.
Because the proper treatment of Note payments of principal and interest
linked to commodity prices, equity indices, the relative performance of
currencies or other factors will depend on the exact terms of the Notes, Holders
should consult with their tax advisors as to the United States federal income
tax consequences of the ownership and disposition of Notes containing any such
features and should refer to any discussion relating to taxation in the
applicable Pricing Supplement.
Extension of Maturity
In general, whether the extension of the maturity of a Note not occurring
by operation of the original terms of the instrument will result in a taxable
exchange depends on the changes in the yield, if any, in the timing and amounts
of payments, and on any changes in other relevant terms. Under Regulations, the
alteration of the terms of a debt instrument (a "modification") will, if
significant, result in a deemed exchange of the original debt instrument for a
modified debt instrument. In addition, certain changes that occur by operation
of the original terms of a debt instrument, such as an option exercisable by a
holder that results in a deferral or reduction of any scheduled payment, are
considered "modifications" and, if significant, will result in a deemed exchange
of the original debt instrument for a "modified" debt instrument.
The determination of whether a modification is significant is made based on
all relevant facts and circumstances. A modification that changes the timing of
payments due under a debt instrument is a significant
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<PAGE> 26
modification if it results in the "material deferral" of scheduled payments.
However, deferral will not be material if a deferred payment is unconditionally
payable no later than the earlier of the expiration of five years or 50 percent
of the original term of the instrument.
Under OID Regulations, if the extension of the maturity of a Note does not
result in an exchange under the principles discussed above, such extension will
result in an exchange solely for the purposes of accrual of Original Issue
Discount if the extension results in the material deferral of a scheduled
payment or payments. If the terms of a debt instrument are modified to defer one
or more payments, then for purposes of the original issue discount provisions
the debt instrument will be treated as retired and reissued on the date of the
modification for an amount equal to the instrument's adjusted issue price on
that date.
Amortizing Notes
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to any Notes providing for
the periodic payment of principal over the life of the Note.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of a
Note before maturity within the United States to, and to the accrual of original
issue discount on an Original Issue Discount Note with respect to, non-corporate
Holders, and such Holders may be subject to backup withholding at a rate of 31%
on such payments. Backup withholding will apply only if the Holder (i) fails to
furnish its Taxpayer Identification Number ("TIN") which, for an individual,
would be his Social Security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the Internal Revenue Service that it has failed to properly report
payments of interest and dividends or (iv) under certain circumstances, fails to
certify, under penalty of perjury, that it has furnished a correct TIN and has
not been notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments. Holders should
consult their tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption if
applicable.
The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company through
the Agents, who have agreed to use reasonable efforts to solicit offers to
purchase Notes. The Company will have the sole right to accept offers to
purchase Notes and may reject any offer to purchase Notes in whole or in part.
An Agent will have the right to reject any offer to purchase Notes solicited by
it in whole or in part. Payment of the purchase price of the Notes will be
required to be made in immediately available funds. The Company will pay an
Agent, in connection with sales of Notes resulting from a solicitation made or
an offer to purchase received by such Agent, a commission ranging from .125% to
.750% of the principal amount of Notes to be sold, provided, however, that
commissions with respect to Notes maturing in thirty years or greater will be
negotiated.
The Company may also sell Notes to an Agent as principal for its own
account at discounts to be agreed upon at the time of sale. Such Notes may be
resold to investors and other purchasers at prevailing market prices, or prices
related thereto at the time of such resale, as determined by the Agent or, if so
agreed, at a fixed public offering price. In addition, the Agents may offer the
Notes they have purchased as principal to other dealers. The Agents may sell
Notes to any dealer at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not be
in excess of the discount to be received by such Agent from the Company. After
the initial public offering of Notes to be resold to investors and other
purchasers, the public offering price (in the case of Notes to be resold at a
fixed public offering price), concession and discount may be changed.
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The Company has reserved the right to sell the Notes directly to investors,
and may solicit and accept offers to purchase Notes directly from investors from
time to time on its own behalf. The Company may accept (but not solicit) offers
to purchase Notes through additional agents and may appoint additional agents
for the purpose of soliciting offers to purchase Notes, in either case on terms
substantially identical to the terms contained in the Distribution Agreement.
Such other agents, if any, will be named in the applicable Pricing Supplement.
An Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933 (the "Securities Act"). The Company and the Agents have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments made in
respect thereof.
The Company does not intend to apply for the listing of the Notes on a
national securities exchange. The Company has been advised by the Agents that
the Agents intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Agents are not obligated to do so, however, and the Agents
may discontinue making a market at any time without notice. No assurance can be
given as to the liquidity of any trading market for the Notes.
In order to facilitate the offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Agents may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may bid
for, and purchase, the Notes in the open market. Finally, the Agents may reclaim
selling concessions allowed to a dealer for distributing the Notes in the
offering, if the Agents repurchase previously distributed Notes in transactions
to cover short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Agents are not required to engage in these
activities, and may end any of these activities at any time.
Concurrently with the offering of Notes through the Agents as described
herein, the Company may issue other Senior Debt Securities pursuant to the
Indenture referred to herein.
The Agents and/or certain of their affiliates have provided and will in the
future continue to provide investment banking and other financial services for
the Company and certain of its affiliates in the ordinary course of business for
which they have received and will receive customary compensation.
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PROSPECTUS
$755,000,000
PARKER-HANNIFIN CORPORATION
SENIOR DEBT SECURITIES*
------------------
Parker-Hannifin Corporation (the "Company") intends to issue from time to
time in one or more series its senior unsecured debt securities (the "Senior
Debt Securities"), consisting of debentures, notes, bonds and/or other unsecured
evidences of indebtedness, at an aggregate initial offering price not to exceed
U.S. $755,000,000 or the equivalent thereof if Senior Debt Securities are
denominated in one or more foreign currencies or foreign currency units, at
prices and on terms to be determined at or prior to the time of sale.
Specific terms of the Senior Debt Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth in an
accompanying supplement to this Prospectus (each, a "Prospectus Supplement"),
together with the terms of the offering of the Offered Securities, the initial
offering price and the net proceeds to the Company from the sale thereof. The
accompanying Prospectus Supplement will set forth, among other items, the
following with respect to the Offered Securities: the specific designation,
aggregate principal amount, authorized denominations, maturity, rate or method
of calculation of interest, if any, and dates for payment thereof, any
redemption, prepayment or sinking fund provisions, any exchange rights, and the
currency, currencies or currency units in which principal, premium, if any, or
interest, if any, is payable.
The Offered Securities may be sold through underwriters, dealers or agents
or may be sold directly to purchasers. If any underwriters, dealers or agents
are involved in the sale of any Offered Securities, their names and any
applicable fee, commission or discount arrangements will be set forth in the
accompanying Prospectus Supplement. The net proceeds to the Company of the sale
of Offered Securities will be the purchase price of such Offered Securities less
attributable issuance expenses, including underwriters', dealers' or agents'
compensation. See "Plan of Distribution" for indemnification arrangements for
underwriters, dealers and agents.
* Pursuant to Rule 429 under the Securities Act of 1933 (the "Securities Act"),
this Prospectus also relates to an additional $155,000,000 of Senior Debt
Securities which were registered under Registration Statement No. 333-02761.
This Prospectus may not be used to consummate sales of Senior Debt
Securities unless accompanied by a Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
THE DATE OF THIS PROSPECTUS IS MARCH 23, 1998.
<PAGE> 29
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR
THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY AGENT, DEALER OR UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER
OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN OR IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING PROSPECTUS SUPPLEMENT
CONSTITUTES AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SENIOR DEBT
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the following regional offices of the Commission: New York Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048, and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained by mail at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web
site (http : / / www.sec.gov) that contains reports, proxy and information
statements regarding registrants that file electronically with the Commission.
The Company's Common Stock is listed on the New York Stock Exchange, and such
reports, proxy and information statements and other information concerning the
Company may also be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act. This Prospectus and the accompanying Prospectus Supplement
omit certain of the information contained in the Registration Statement in
accordance with the rules and regulations of the Commission. Reference is hereby
made to the Registration Statement and related exhibits for further information
with respect to the Company and the Senior Debt Securities. Statements contained
herein concerning the provisions of any document are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
are incorporated by reference in this Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1997; and
(ii) The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1997 and December 31, 1997; and
(iii) The Company's Current Report on Form 8-K, dated December 15, 1997.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering hereunder shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of the filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein or in the accompanying Prospectus
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<PAGE> 30
Supplement modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents which have been incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Parker-Hannifin Corporation, 6035 Parkland Blvd., Cleveland, Ohio
44124-4141, Attention: Joseph D. Whiteman, Esq., Vice President, General Counsel
and Secretary, telephone (216) 896-3000.
THE COMPANY
Parker-Hannifin Corporation (the "Company") is a leading worldwide
full-line manufacturer of motion control products, including fluid power
systems, electromechanical controls and related components. Fluid power involves
the transfer and control of power through the medium of liquid, gas or air, in
hydraulic, pneumatic and vacuum applications. Fluid power systems move and
position materials, control machines, vehicles and equipment and improve
industrial efficiency and productivity. Components of a simple fluid power
system include a pump which generates pressure, valves which control the fluid's
flow, an actuator which translates the pressure in the fluid into mechanical
energy, a filter to remove contaminants and numerous hoses, couplings, fittings
and seals. Electromechanical control involves the use of electronic components
and systems to control motion and precisely locate or vary speed in automation
applications. In addition to motion control products, the Company also is a
leading worldwide producer of fluid purification, fluid flow, process
instrumentation, air conditioning, refrigeration, and electromagnetic shielding
and thermal management products.
The Company's manufacturing, service, distribution and administrative
facilities are located in 35 states, Puerto Rico and worldwide in 37 foreign
countries. Its motion control technology is used in products of its two business
segments: Industrial and Aerospace. The products are sold as original and
replacement equipment through product and distribution centers worldwide. The
Company markets its products through its direct-sales employees and more than
7,500 independent distributors. The Company's products are supplied to over
350,000 customer outlets in virtually every significant manufacturing,
transportation and processing industry.
The Company was incorporated in Ohio in 1938. Its principal executive
offices are located at 6035 Parkland Boulevard, Mayfield Heights, Ohio
44124-4141, telephone (216) 896-3000.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for each of the last five fiscal years ended June 30, 1997 and for
the six months ended December 31, 1997 and December 31, 1996. For the purpose of
calculating the ratio of earnings to fixed charges, "earnings" consist of income
from continuing operations before income taxes and fixed charges (excluding
capitalized interest). "Fixed charges" consist of (i) interest on indebtedness,
whether expensed or capitalized, and (ii) that portion of rental expense the
Company believes to be representative of interest.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
-------------------------- -------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1996 1997 1996 1995 1994 1993
------------ ------------ ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges................... 8.98 6.52 8.34 9.09 10.16 3.68 3.05
</TABLE>
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Senior
Debt Securities for general corporate purposes, which may include refinancing or
repayment of indebtedness, financing acquisitions as they may arise,
repurchasing the Company's equity securities, and financing of capital
expenditures and working capital. Further details relating to the uses of the
net proceeds of any such offering will be set forth in the applicable Prospectus
Supplement.
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<PAGE> 31
DESCRIPTION OF SENIOR DEBT SECURITIES
The following description of the Senior Debt Securities sets forth certain
general terms and provisions of the Senior Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Senior Debt
Securities offered by any Prospectus Supplement (the "Offered Securities") and
the extent, if any, to which such general provisions may apply to the Senior
Debt Securities so offered will be described in the Prospectus Supplement or
Prospectus Supplements relating to such Offered Securities.
The Offered Securities are to be issued under an Indenture (the
"Indenture"), dated as of May 3, 1996, between the Company and National City
Bank, as Trustee (the "Trustee"). The Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available for
inspection at the corporate trust office of the Trustee at 1900 East Ninth
Street, Cleveland, Ohio 44114, or as described above under "Available
Information." The following summaries of certain provisions of the Senior Debt
Securities and the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms, and, with respect
to any particular Offered Securities, to the description of the terms thereof
included in the Prospectus Supplement relating thereto. Section numbers below
refer to provisions of the Indenture.
GENERAL
The Senior Debt Securities will be unsecured obligations of the Company and
will rank on a parity with all other unsecured unsubordinated indebtedness of
the Company. The Indenture does not limit the amount of Senior Debt Securities
that may be issued thereunder and provides that Senior Debt Securities may be
issued from time to time in one or more series. (Section 301)
The Prospectus Supplement or Prospectus Supplements relating to the
particular series of Senior Debt Securities offered thereby will describe the
following terms of the Offered Securities or the series of which they are a
part: (i) the title of the Offered Securities; (ii) any limit on the aggregate
principal amount of the Offered Securities; (iii) the Person to whom any
interest on the Offered Securities shall be payable, if other than the Person in
whose name that Offered Security is registered on the Regular Record Date for
such interest; (iv) the date or dates on which the principal of any Offered
Security is payable; (v) the rate or rates at which the Offered Securities will
bear interest, if any, and the date or dates from which such interest will
accrue and the dates on which such interest will be payable and the Regular
Record Dates for such Interest Payment Dates; (vi) the place or places where the
principal of and any premium and interest on any Offered Securities is payable;
(vii) the period or periods within which, the price or prices at which and the
terms and conditions upon which the Offered Securities may be redeemed in whole
or in part at the option of the Company; (viii) any mandatory or optional
sinking fund or analogous provisions; (ix) if other than denominations of $1,000
and any integral multiple thereof, the denominations in which any securities
will be issuable; (x) if the amount of payments of principal of and any premium
or the interest on the Offered Securities may be determined with reference to an
index or pursuant to a formula, the manner in which such amounts shall be
determined; (xi) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any premium
or interest on any Offered Securities is payable and the manner of determining
the equivalent thereof in the currency of the United States of America under the
Indenture; (xii) if the principal of or any premium or interest on any Offered
Securities is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than that or those in
which such Offered Securities are stated to be payable, the currency, currencies
or currency units in which the principal of or any premium or interest on such
Securities as to which such election is made shall be payable, the periods
within which and the terms and conditions upon which such election is to be made
and the amount so payable, or the manner in which such amount shall be
determined; (xiii) if other than the entire principal amount thereof, the
portion of the principal amount of any Offered Securities which will be payable
upon declaration of acceleration of the Maturity thereof; (xiv) if the principal
amount payable at the Stated Maturity of any Offered Securities will not be
determinable as of any one or more dates prior to the Stated Maturity, the
amount which shall be deemed to be the principal amount of such Offered
Securities as of any such date for any purpose under the Indenture; (xv) if
applicable, that the Offered Securities, in whole or any specified part, shall
be defeasible pursuant to the Indenture; (xvi) if applicable, that any Offered
Securities will be issuable in whole or in part in the form of one or more
Global Securities and, if so,
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<PAGE> 32
the respective Depositaries for such Global Securities, the form of any legend
or legends to be borne by any such Global Security in addition to or in lieu of
the legend referred to under "Book-Entry System" and, if different from those
described under such caption, any circumstances under which any such Global
Security may be exchanged in whole or in part for Senior Debt Securities
registered, and any transfer of such Global Security in whole or in part may be
registered, in the names of persons other than the Depositary for such Global
Security or its nominee; (xvii) any addition to or change in the Events of
Default applicable to any Offered Securities and any change in the right of the
Trustee or the requisite Holders of such Offered Securities to declare the
principal amount thereof due and payable pursuant to the Indenture; (xviii) any
addition to or change in the covenants set forth in Article Ten of the
Indenture, including, without limitation, those described in "Certain Covenants
of Senior Debt Securities," which apply to such Offered Securities; and (xix)
any other terms of the Offered Securities not inconsistent with the provisions
of the Indenture. (Section 301)
DENOMINATIONS, REGISTRATION OF TRANSFER AND EXCHANGE
Unless otherwise indicated in the Prospectus Supplement or Prospectus
Supplements relating thereto, the Senior Debt Securities will be issued only in
registered form, without coupons and only in denominations of $1,000 or any
integral multiple thereof. (Section 302)
Senior Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount below their
stated principal amount. Certain United States federal income tax consequences,
if any, and other special considerations applicable to any such Original Issue
Discount Securities will be described in the Prospectus Supplement or Prospectus
Supplements relating thereto. "Original Issue Discount Security" means any
Senior Debt Security which provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the Maturity
thereof upon the occurrence of an Event of Default and the continuation thereof.
(Section 101) In addition, certain United States federal income tax or other
considerations, if any, applicable to any Senior Debt Securities which are
denominated in a currency or currency unit other than United States dollars may
be described in the applicable Prospectus Supplement.
Subject to the terms of the Indenture and the limitations applicable to
Global Securities, upon surrender for registration of transfer of any Senior
Debt Security of a series at the office or agency of the Company in the Place of
Payment for that series, the Company will execute, and the Trustee will
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Senior Debt Securities of the same series, of any
authorized denominations and of like tenor and aggregate principal amount. At
the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities, Senior Debt Securities of any
series may be exchanged for other Senior Debt Securities of the same series, of
any authorized denominations and of like tenor and aggregate principal amount,
upon surrender of the Senior Debt Securities to be exchanged at such office or
agency. No service charge will be made for any registration of transfer or
exchange of the Offered Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms.
"Subsidiary" is defined as a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company and/or
one or more Subsidiaries of the Company.
"Restricted Subsidiary" is defined as a Subsidiary of the Company
substantially all the property of which is located, or substantially all of the
business of which is carried on, within the United States and which owns a
Principal Property.
"Principal Property" is defined to mean any manufacturing or processing
plant or warehouse owned by the Company or any Restricted Subsidiary which is
located within the United States and the gross book value of which (including
related land, improvements, machinery and equipment without deduction of any
depreciation reserves) on the date as of which the determination is being made,
exceeds 1% of Consolidated Net Tangible
5
<PAGE> 33
Assets, other than properties or any portion of a particular property which in
the opinion of the Company's Board of Directors are not of material importance
to the Company's business or to the use or operation of such property.
"Attributable Debt" is defined to mean the total net amount of rent
required to be paid during the remaining primary term of certain leases,
discounted at a rate per annum equal to the weighted average yield to maturity
of the Senior Debt Securities calculated in accordance with generally accepted
financial practices.
"Consolidated Net Tangible Assets" is defined to mean the aggregate amount
of assets, less applicable reserves and other properly deductible items, after
deducting (i) all liabilities other than deferred income taxes, Funded Debt and
shareholders' equity, and (ii) all goodwill and other intangibles of the Company
and its consolidated Subsidiaries.
"Funded Debt" is defined to mean (i) all indebtedness for money borrowed
having a maturity of more than 12 months from the date as of which the
determination is made or having a maturity of 12 months or less but by its terms
being renewable or extendible beyond 12 months from such date at the option of
the borrower and (ii) rental obligations payable more than 12 months from such
date under leases which are capitalized in accordance with generally accepted
accounting principles (such rental obligations to be included as Funded Debt at
the amount so capitalized at the date of such computation and to be included for
the purposes of the definition
of Consolidated Net Tangible Assets both as an asset and as Funded Debt at the
respective amounts so capitalized).
CERTAIN COVENANTS OF SENIOR DEBT SECURITIES
The Indenture contains, among other things, the following covenants:
Restrictions of Secured Debt. The Company will not itself, and will not
permit any Restricted Subsidiary to, incur, issue, assume or guarantee any
evidence of indebtedness for money borrowed ("Debt") secured by a mortgage,
pledge or lien ("Mortgage") on any Principal Property of the Company or any
Restricted Subsidiary, or on any shares of stock of or Debt of any Restricted
Subsidiary, without effectively providing that the Senior Debt Securities are
secured equally and ratably with, or, at the Company's option, prior to, such
secured Debt, unless the aggregate amount of all such secured Debt, together
with all Attributable Debt of the Company and its Restricted Subsidiaries with
respect to sale and leaseback transactions involving Principal Properties, with
the exception of such transactions which are excluded as described in
"Restrictions on Sales and Leasebacks" below, would not exceed 10% of
Consolidated Net Tangible Assets.
The above restriction does not apply to, and there will be excluded from
Debt in any computation under such restriction, (i) Debt secured by Mortgages on
property of, or on any shares of stock of or Debt of, any corporation existing
at the time such corporation becomes a Restricted Subsidiary, (ii) Debt secured
by Mortgages in favor of the Company or a Restricted Subsidiary, (iii) Debt
secured by Mortgages in favor of governmental bodies to secure progress or
advance payments or payments pursuant to contracts or statute, (iv) Debt secured
by Mortgages on property, shares of stock or Debt existing at the time of
acquisition thereof, including acquisition through merger or consolidation, and
Debt secured by Mortgages to finance the acquisition of property, shares of
stock or Debt or to finance construction on property which is incurred within
180 days of such acquisition or completion of construction, (v) Debt secured by
Mortgages securing industrial revenue or pollution control bonds, or (vi) any
extension, renewal or replacement of any Debt referred to in the foregoing
clauses (i) through (v) inclusive, provided, however, that such extension,
renewal or replacement Mortgage shall be limited to all or part of the same
property, shares of stock or Debt that secured the Mortgage extended, renewed or
replaced, plus improvements on such property. (Section 1007)
Restrictions on Sales and Leasebacks. Neither the Company nor any
Restricted Subsidiary may enter into any sale and leaseback transaction
involving any Principal Property, unless the aggregate amount of all
Attributable Debt of the Company and its Restricted Subsidiaries with respect to
such transaction plus all secured Debt to which the restrictions described under
"Restrictions on Secured Debt" above apply would not exceed 10% of Consolidated
Net Tangible Assets.
This restriction does not apply to, and there shall be excluded from
Attributable Debt in any computation under such restriction, any sale and
leaseback transaction if (i) the lease is for a period of not in excess of three
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<PAGE> 34
years, including renewal rights, (ii) the sale or transfer of the Principal
Property is made within 180 days after the later of its acquisition or
completion of construction, (iii) the lease secures or relates to industrial
revenue or pollution control bonds, (iv) the transaction is between the Company
and a Restricted Subsidiary or between Restricted Subsidiaries, or (v) the
Company or such Restricted Subsidiary, within 180 days after the sale is
completed, applies (A) to the retirement of the Senior Debt Securities, other
Funded Debt of the Company ranking on a parity with or senior to the Senior Debt
Securities, or Funded Debt of a Restricted Subsidiary, or (B) to the purchase of
other property which will constitute a Principal Property having a value at
least equal to the value of the Principal Property leased, an amount equal to
the greater of (i) the net proceeds of the sale of the Principal Property
leased, or (ii) the fair market value of the Principal Property leased. In lieu
of applying proceeds to the retirement of Funded Debt, the Company may surrender
debentures or notes, including the Senior Debt Securities, to the Trustee for
retirement and cancellation, or the Company or a Restricted Subsidiary may
receive credit for the principal amount of Funded Debt voluntarily retired
within 180 days after such sale. (Section 1008)
EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to Senior Debt
Securities of any series as being any one of the following events and such other
events as may be established for the Senior Debt Securities of a particular
series: (i) default for 30 days in any payment of interest on any Senior Debt
Security of such series; (ii) default in any payment of principal of or any
premium on any Senior Debt Security of such series when due; (iii) default in
the payment of any sinking fund installment with respect to such series when
due; (iv) default for 60 days after appropriate notice in performance of any
other covenant or warranty included in the Indenture, other than those covenants
or warranties included solely for the benefit of series of Senior Debt
Securities other than that series; (v) default under any evidence of
indebtedness of the Company or any Restricted Subsidiary exceeding $10,000,000
in aggregate principal amount, including a default with respect to Senior Debt
Securities of series other than that series or under any mortgage, indenture or
instrument under which any such indebtedness is issued or secured, including the
Indenture, which default results in acceleration of the maturity of such
indebtedness, if such acceleration is not rescinded or annulled or if such
indebtedness is not discharged within 10 days after written notice as provided
in the Indenture; (vi) certain events in bankruptcy, insolvency or
reorganization; or (vii) any other Event of Default provided with respect to
Senior Debt Securities of that series. (Section 501) If an Event of Default with
respect to Senior Debt Securities of any series at the time Outstanding occurs
and is continuing, either the Trustee or the Holders of at least 25% in
principal amount of the Outstanding Senior Debt Securities of that series may
declare the principal of such series, or, if the Senior Debt Securities of that
series are Original Issue Discount Securities, such portion of the principal as
may be specified by the terms of that series, to be due and payable immediately.
At any time after a declaration of acceleration with respect to Senior Debt
Securities of any series has been made, but before a judgment or decree based on
acceleration has been obtained, the Holders of a majority in principal amount of
the Outstanding Senior Debt Securities of that series may, under certain
circumstances, rescind and annul such acceleration. (Section 502)
Reference is made to the Prospectus Supplement or Prospectus Supplements
relating to each series of Offered Securities which are Original Issue Discount
Securities for the particular provisions relating to acceleration of the
Maturity of a portion of the principal amount of such Original Issue Discount
Securities upon the occurrence of an Event of Default and the continuation
thereof.
The Indenture requires the Company to file annually with the Trustee an
Officers' Certificate as to the absence of certain defaults under the terms of
the Indenture. (Section 1009) The Indenture provides that if a default occurs
with respect to Senior Debt Securities of any series, the Trustee will give the
Holders of such series notice of such default when, as and to the extent
provided by the Trust Indenture Act, provided, however, that in the case of any
default under any covenant referenced in clause (iv) above with respect to such
series, no such notice to Holders will be given until at least thirty days after
the occurrence thereof. (Section 602)
The Indenture provides that the Trustee will be under no obligation,
subject to the duty of the Trustee during default to act with the required
standard of care, to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. (Section 603) Subject to such
provisions for indemnification of the Trustee, the Holders of a majority
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<PAGE> 35
in principal amount of the Outstanding Senior Debt Securities of any series will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, with respect to the Senior Debt Securities of that
series. (Section 512)
MODIFICATION AND WAIVER
Without the consent of any Holders, the Company and the Trustee, at any
time from time to time, may modify or amend the Indenture to (i) evidence the
succession of another Person to the Company and such Person's assumption of any
covenants of the Company under the Indenture and any Senior Debt Securities;
(ii) add covenants of the Company for the benefit of Holders of all or any
series of Senior Debt Securities or to surrender any right or power conferred
upon the Company; (iii) add any additional Events of Default for the benefit of
the Holders of all or any series of Senior Debt Securities; (iv) add to or
change any provisions of the Indenture to the extent necessary to permit or
facilitate the issuance of Senior Debt Securities in bearer form, registrable or
not registrable as to principal, and with or without interest coupons, or to
permit or facilitate the issuance of Senior Debt Securities in uncertificated
form; (v) add to, change or eliminate any of the provisions of the Indenture in
respect of one or more series of Senior Debt Securities, subject to certain
limitations; (vi) secure the Senior Debt Securities; (vii) establish the form or
terms of Senior Debt Securities of any series; (viii) evidence and provide for
the acceptance of appointment by a successor Trustee with respect to one or more
series of Senior Debt Securities; or (ix) to cure any ambiguity, to correct or
supplement any provision in the Indenture which may be defective or inconsistent
with any other provision of the Indenture, provided that such action will not
adversely affect the interests of Holders of Senior Debt Securities of any
series in any material respect. (Section 901)
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each outstanding Senior Debt
Security affected thereby, (i) change the stated maturity date of the principal
of, or any installment of principal of or interest on, any Senior Debt Security,
(ii) reduce the principal amount of, or any premium or interest on, any Senior
Debt Security, (iii) reduce the amount of principal of an Original Issue
Discount Security or any other Senior Debt Security payable upon acceleration of
the Maturity thereof, (iv) change the place or currency of payment of principal
of, or any premium or interest on, any Senior Debt Security, (v) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Senior Debt Security or (vi) reduce the percentage in principal amount of
Outstanding Senior Debt Securities of any series, the consent of whose Holders
is required for modification or amendment of the Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults. (Section 902)
The Holders of 66 2/3% in principal amount of the Outstanding Senior Debt
Securities of any series may on behalf of the Holders of all Senior Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with certain restrictive provisions of the Indenture. (Section
1010) The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of any series may on behalf of the Holders of all Senior Debt
Securities of that series waive any past default under the Indenture with
respect to that series, except a default in the payment of the principal of, or
any premium or interest on, any Senior Debt Security of that series or in
respect of a provision which under the Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Senior Debt Security of
that series affected. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge into or convey, transfer or
lease its property and assets substantially as an entirety to any person (a
"successor Person") unless (i) that person is a corporation, partnership or
trust organized and validly existing under the laws of the United States of
America or any State or the District of Columbia, (ii) the successor Person
assumes by supplemental indenture all of the Company's obligations on the Senior
Debt Securities outstanding at that time, (iii) after giving effect thereto, no
Event of Default, and no event which, after notice or lapse of time, would
become an Event of Default, shall have occurred and be continuing and (iv)
certain other conditions are met. The Indenture further provides that no
consolidation
8
<PAGE> 36
or merger of the Company with or into any other corporation and no conveyance,
transfer or lease of its property substantially as an entirety to another
corporation may be made if, as a result thereof, any Principal Property of the
Company or any Restricted Subsidiary or any shares of Capital Stock or Debt of a
Restricted Subsidiary would become subject to a Mortgage which is not expressly
excluded from the restrictions or permitted by the provisions of Section 1008
(see "Restrictions on Secured Debt"), unless the Senior Debt Securities are
secured equally and ratably with, or prior to, all indebtedness secured thereby.
(Section 801)
DEFEASANCE AND DISCHARGE, COVENANT DEFEASANCE
The Company may elect, at its option at any time, to effect a defeasance
and discharge (a "Defeasance") or a covenant defeasance (a "Covenant
Defeasance") in respect of the Senior Debt Securities or any series thereof
designated as being defeasible pursuant to its terms.
Upon the Company's exercise of its option to effect a Defeasance, the
Company will be deemed to have been discharged from its obligations with respect
to such Senior Debt Securities on and after the date the conditions to
Defeasance described below are satisfied. For purposes of the Indenture,
Defeasance means the Company will be deemed to have paid and discharged the
entire indebtedness represented by such Senior Debt Securities and to have
satisfied all of its other obligations under or with respect to such Senior Debt
Securities and under the Indenture, except for the following (i) the rights of
Holders of such Senior Debt Securities to receive, solely from the trust fund
described in the Indenture, payments in respect of principal of, and any premium
and interest on, such Senior Debt Securities when due, (ii) certain of the
Company's obligations under the Indenture with respect to temporary securities;
registration, registration of transfer and exchange; mutilated, destroyed, lost
or stolen securities; maintenance of an office or agency; and money held in
trust for the benefit of Holders of Senior Debt Securities, (iii) the rights,
powers, trusts, duties and immunities of the Trustee and (iv) the foregoing
provisions. (Section 1302)
Upon the Company's exercise of its option to effect a Covenant Defeasance
with respect to any Senior Debt Securities or any series thereof, (i) the
Company will be released from its obligations with respect to liens resulting
from consolidations or mergers and its covenants relating to existence,
maintenance of properties, payment of taxes and other claims as well as any
additional covenants specified in the terms of such series of Senior Debt
Securities or any supplemental indenture related thereto, and (ii) the
occurrence of certain events of default related to the foregoing covenants will
be deemed not to be or result in an Event of Default, in each case after the
date that the conditions to Covenant Defeasance described below are satisfied.
(Section 1303)
The conditions that the Company must satisfy in order to effect a
Defeasance or a Covenant Defeasance in respect of the Senior Debt Securities or
any series thereof are as follows: (i) the Company will irrevocably deposit or
cause to be deposited with the Trustee as trust funds for the purpose of making
payments when due under the Indenture money or U.S. Government Obligations or a
combination thereof in an amount sufficient to pay and discharge the principal
of and any premium and interest on such Senior Debt Securities on the respective
Stated Maturities in accordance with the terms of such Senior Debt Securities
and the Indenture; (ii) delivery by the Company of an Opinion of Counsel
regarding the tax effects of such action on the Holders of Senior Debt
Securities; (iii) delivery of an Officer's Certificate to the effect that no
listed Senior Debt Securities will be delisted; (iv) no Event of Default shall
have occurred and be continuing at the time of the deposit or, regarding
bankruptcy-related events, at any time on or prior to the 90th day after such
deposit; (v) such deposit will not cause the Trustee to have a conflicting
interest under the Trust Indenture Act; (vi) such Defeasance or Covenant
Defeasance will not result in a breach of or default under any other agreement
to which the Company is a party or by which it is bound; (vii) such Defeasance
or Covenant Defeasance will not result in the trust arising from such deposit
constituting an investment company within the meaning of the Investment Company
Act unless the trust is registered or exempted thereunder; and (viii) delivery
by the Company to the Trustee of any Officer's Certificate and Opinion of
Counsel, each stating that all conditions precedent with respect to such
Defeasance or Covenant Defeasance have been complied with. (Section 1304)
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PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Senior Debt Security on any Interest Payment Date will be made
to the person in whose name such Senior Debt Security or one or more Predecessor
Senior Debt Securities is registered at the close of business on the Regular
Record Date for such interest. (Section 307)
The Company will maintain in each Place of Payment for any series of Senior
Debt Securities an office or agency where Senior Debt Securities of that series
may be presented or surrendered for payment, where Senior Debt Securities of
that series may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Senior Debt
Securities of that series and the Indenture may be served. (Section 1002)
If the Company acts as its own Paying Agent with respect to any series of
Senior Debt Securities, it will, on or before each due date of the principal of,
or any premium or interest on, any securities of such series, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal and any premium and interest so becoming due until such sums are
paid to such Persons or otherwise disposed of and will promptly notify the
Trustee of its action or failure to so act. Whenever the Company will have one
or more Paying Agents for any series of Senior Debt Securities, it will, prior
to each due date of the principal of, or any premium or interest on, any Senior
Debt Securities of that series, deposit with the Paying Agent a sum sufficient
to pay such amount, such sum to be held as provided by the Trust Indenture Act,
and, unless such Paying Agent is the Trustee, the Company will promptly notify
the Trustee of its action or failure to so act.
The Company will cause each Paying Agent for any series of Senior Debt
Securities other than the Trustee to execute and deliver to the Trustee an
instrument in which such Paying Agent agrees with the Trustee, subject to the
Indenture, that such Paying Agent will (i) comply with the provisions of the
Trust Indenture Act applicable to it as a Paying Agent and (ii) during the
continuance of any default by the Company , or any other obligor upon the Senior
Debt Securities of that series, in the making of any payment in respect of the
Senior Debt Securities of that series, upon the written request of the Trustee,
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Senior Debt Securities of that series. (Section 1003)
REGARDING THE TRUSTEE
National City Bank is the Trustee under the Indenture. National City Bank
is currently committed to provide loans to the Company under (i) a $100,000,000
unsecured revolving credit facility, which expires October 31, 2002, and (ii) a
$3,000,000 line of credit for the leasing of manufacturing equipment, which
expires October 31, 2002. Both Duane E. Collins, President, Chief Executive
Officer and Director of the Company, and John G. Breen, a Director of the
Company, are directors of National City Bank.
BOOK-ENTRY SYSTEM
If so specified in the Prospectus Supplement or Prospectus Supplements,
Senior Debt Securities of any series may be issued under a book-entry system in
the form of one or more global securities (each a "Global Security"). Each
Global Security will be deposited with, or on behalf of, a depositary, which,
unless otherwise specified in the Prospectus Supplement or Prospectus
Supplements, will be The Depository Trust Company, New York, New York (the
"Depositary"). The Global Securities will be registered in the name of the
Depositary or its nominee and will bear a legend regarding the restrictions on
exchanges and registration of transfers thereof referred to below and any other
matters as may be provided for pursuant to the Indenture.
The Depositary has advised the Company that 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 the Exchange Act. The Depositary
was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among its participants
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's
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participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations, some of whom, and/or
their representatives, own the Depositary. Access to the Depositary's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Upon the issuance of a Global Security in registered form, the Depositary
will credit, on its book-entry registration and transfer system, the respective
principal amounts of the Senior Debt Securities represented by such Global
Security to the accounts of participants. The accounts to be credited will be
designated by the underwriters, dealers or agents, if any, or by the Company, if
such Senior Debt Securities are offered and sold directly by the Company.
Ownership of beneficial interests in the Global Security will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests by participants in the Global Security will be shown on,
and the transfer of that ownership interest will be effected only through,
records maintained by such participants. The laws of some jurisdictions may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such laws may impair the ability to transfer
beneficial interest in a Global Security.
So long as the Depositary or its nominee is the registered owner of a
Global Security, it will be considered the sole owner or holder of the Senior
Debt Securities represented by such Global Security for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in such
Global Security will not be entitled to have the Senior Debt Securities
represented thereby registered in their names, will not receive or be entitled
to receive physical delivery of certificates representing the Senior Debt
Securities and will not be considered the owners or holders thereof under the
Indenture. Accordingly, each person owning a beneficial interest in such 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, to exercise any rights of a holder under the
Indenture. The Company understands that under existing practice, in the event
that the Company requests any action of the holders or a beneficial owner
desires to take any action a holder is entitled to take, the Depositary would
act upon the instructions of, or authorize, the participant to take such action.
Payment of principal of, and any premium and interest on, Senior Debt
Securities represented by a Global Security will be made to the Depositary or
its nominee, as the case may be, as the registered owner and holder of the
Global Security representing such Senior Debt Securities. None of the Company,
the Trustee, any paying agent or registrar for such Senior 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 in the Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company has been advised by the Depositary that the Depositary will
credit participants' accounts with payments of principal and any premium or
interest on the payment date thereof in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Security
as shown on the records of the Depositary. The Company expects that payments by
participants to owners of beneficial interests in the 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 registered in "street name," and will be the responsibility of such
participants.
A Global Security may not be exchanged or transferred except as a whole by
the Depositary to a nominee or successor of the Depositary or by a nominee of
the Depositary to another nominee of the Depositary. A Global Security
representing all but not part of the Senior Debt Securities being offered hereby
is exchangeable or transferable for Senior Debt Securities in definitive form of
like tenor and terms if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as depositary for such Global Security or if at
any time the Depositary is no longer eligible to be or in good standing as a
clearing agency registered under the Exchange Act, and in either case, a
successor depositary is not appointed by the Company within 90 days of receipt
by the Company of such notice or of the Company becoming aware of such
ineligibility, or (ii) the Company in its sole discretion at any time determines
not to have all of the Senior Debt Securities represented by a Global Security
and notifies the Trustee thereof. A Global Security exchangeable pursuant to the
preceding sentence shall be exchangeable for Senior Debt Securities registered
in such names and in such authorized denominations as the Depositary for such
Global Security shall direct. (Section 305)
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PLAN OF DISTRIBUTION
The Company may sell the Offered Securities in four ways: (i) directly to
purchasers, (ii) through agents, (iii) to or through underwriters and (iv) to
dealers.
The distribution of Senior Debt Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or 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 Senior Debt Securities, underwriters or
agents may receive compensation from the Company or from purchasers of Senior
Debt Securities for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell Senior Debt Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commission
from the purchasers from whom they may act as agents. Any underwriters or agents
participating in the distribution of Senior Debt Securities may be deemed to be
underwriters, and any discounts or commissions received by them from the Company
and any profit on the resale of Senior Debt Securities may be deemed to be
underwriting discounts and commission under the Securities Act.
Offers to purchase Offered Securities may be solicited directly by the
Company and sales thereof may be made by the Company directly to institutional
investors or others. The terms of any such sales will be set forth in the
accompanying Prospectus Supplement.
Offers to purchase Offered Securities may be solicited by agents designated
by the Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the offer
or sale of the Offered Securities in respect of which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent set forth, in the accompanying Prospectus Supplement. Unless otherwise
indicated in the accompanying Prospectus Supplement, any such agent will be
acting on a reasonable efforts basis for the period of its appointment. Agents
may be entitled under agreements which may be entered into with the Company to
indemnification by the Company against certain civil liabilities, including
liabilities under the Securities Act, and may be customers of, engage in
transactions with or perform services for the Company in the ordinary course of
business.
If any underwriters are utilized in the sale of the Offered Securities in
respect of which this Prospectus is delivered, the Company will enter into an
underwriting agreement with such underwriters at the time of sale to them and
the names of the specific managing underwriter or underwriters, as well as any
other underwriters and the terms of the transaction will be set forth in the
accompanying Prospectus Supplement, which will be used by the underwriters to
make resales of the Offered Securities in respect of which this Prospectus is
delivered to the public. The underwriters may be entitled, under the relevant
underwriting agreement, to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with, or perform services for, the Company
in the ordinary course of business.
If a dealer is utilized in the sale of the Offered Securities in respect of
which this Prospectus is delivered, the Company will sell such Offered
Securities to the dealer, as principal. The dealer may then resell such Offered
Securities to the public at varying prices to be determined by such dealer at
the time of resale. Dealers may be entitled to indemnification by the Company
against certain liabilities, including liabilities under the Securities Act, and
may be customers of, engaged in transactions with, or perform services of, the
Company in the ordinary course of business.
Offered Securities may also be offered or sold, if so indicated in the
accompanying Prospectus Supplement, in connection with a remarketing upon their
purchase, in accordance with their terms, by one or more firms ("remarketing
firms"), acting as principals for their own accounts or as agents for the
Company. Any remarketing firm will be identified and the terms of its agreement,
if any, with the Company and its compensation will be described in the
accompanying Prospectus Supplement. Remarketing firms may be entitled under
agreements which may be entered into with the Company to indemnification by the
Company against certain civil liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with, or perform
services for, the Company in the ordinary course of business.
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If so indicated in the accompanying Prospectus Supplement, the Company will
authorize agents and underwriters or dealers to solicit offers by certain
purchasers to purchase Offered Securities from the Company at the public
offering price set forth in the accompanying Prospectus Supplement pursuant to
delayed delivery contracts providing for payments and delivery on a specified
date in the future. Such contracts will be subject to only those conditions set
forth in the accompanying Prospectus Supplement, and the accompanying Prospectus
Supplement will set forth the commission payable for solicitation of such
offers. The obligations of any purchaser under any such contract will be subject
to the condition that the purchase of such Senior 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 other agents will not have
any responsibility in respect of the validity or performance of such contracts.
Any underwriters, agents or dealers utilized in the sale of Offered
Securities will not confirm sales to accounts over which they exercise
discretionary authority.
LEGAL MATTERS
The validity of the Senior Debt Securities offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio, and for any
underwriters or agents by Sullivan & Cromwell, New York, New York. Sullivan &
Cromwell has on occasion been retained to perform legal services for the
Company.
EXPERTS
The consolidated financial statements of the Company contained in its
Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed with
the Commission and incorporated in this Prospectus have been examined by Coopers
& Lybrand L.L.P., independent accountants, to the extent and for the periods set
forth in their report dated July 31, 1997, incorporated in this Prospectus by
reference, and are incorporated by reference in reliance upon the report and the
authority of said firm as experts in accounting and auditing.
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