<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 33-54239
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE 27, 1994
$1,000,000,000
CATERPILLAR FINANCIAL SERVICES CORPORATION
MEDIUM-TERM NOTES, SERIES E
WITH MATURITIES OF 9 MONTHS OR MORE FROM DATE OF ISSUE
The Company may offer from time to time up to $1,000,000,000 aggregate
principal amount of its Medium-Term Notes, Series E (or the equivalent in
other currencies, including composite currencies such as the European Currency
Unit (the "ECU")), which amount may be increased if duly authorized by the
Company. Each Note will mature 9 months or more from date of issue as selected
by the purchaser and agreed to by the Company. Unless otherwise indicated in
the applicable Pricing Supplement, the Notes will not be redeemable or
repayable prior to their maturity. The specific currencies or currency units,
interest rates, if any, and maturities of Notes sold will be established by
the Company at the date of issuance of such Notes and will be set forth
therein and specified in Pricing Supplements to this Prospectus Supplement.
Interest rates, or interest rate formulas, are subject to change by the
Company but no such change will affect any Note already issued or as to which
an offer to purchase has been accepted by the Company. Unless otherwise
indicated in the applicable Pricing Supplement, the Notes will bear interest
at a fixed rate or rates or at a rate or rates determined by reference to one
or more of the Commercial Paper Rate, Federal Funds Rate, CD Rate, Prime Rate,
LIBOR or Treasury Rate or such other interest rate basis or formula as may be
described in such Pricing Supplement, as adjusted by the Spread and/or Spread
Multiplier, if any, applicable to such Notes. See "Description of Notes."
Interest on the Fixed Rate Notes will be payable each April 1 and October 1
and at maturity. Interest on the Floating Rate Notes will be payable on the
dates specified therein and in the applicable Pricing Supplement.
Each Note may be denominated in United States dollars or in a foreign
currency, the ECU or such other composite currency unit specified in the
applicable Pricing Supplement (the "Specified Currency"). Notes denominated in
United States dollars will be issued in denominations of $1,000 and any
integral multiple of $1,000 in excess thereof. The authorized denominations of
Notes not denominated in United States dollars ("Foreign Currency Notes") will
be set forth in the applicable Pricing Supplement. The principal amount
payable at maturity and/or any interest or premium on a Note may be determined
by reference to the relationship between two or more currencies, to the price
of one or more specified securities or commodities, to one or more securities
or commodities exchange indices or other indices or other similar methods (an
"Indexed Note"), as set forth in the applicable Pricing Supplement. An Indexed
Note, the principal amount payable at maturity and/or the interest rate of
which is determined by reference to the relationship between two currencies,
two composite currencies or one currency and one composite currency, is
referred to herein as a "Currency Indexed Note."
The Notes, except for Foreign Currency Notes, will be represented by one or
more global securities registered in the name of a nominee of The Depository
Trust Company, as Depositary (the "Global Notes"). Interests in the Global
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. Except as described
in "Description of Notes--Book-Entry System," owners of beneficial interests
in the Global Notes will not be entitled to receive Notes in definitive form
and will not be considered the holders thereof. Foreign Currency Notes may be
represented either by Global Notes or by certificates issued in definitive
form ("Certificated Notes") as specified in the applicable Pricing Supplement.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT HERETO OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' DISCOUNTS AND
PUBLIC(1) COMMISSIONS(2) PROCEEDS TO COMPANY(2)(3)
--------- --------------------- -------------------------
<S> <C> <C> <C>
Per Note........ 100% .125%-.750% 99.875%-99.250%
Total(4)........ $1,000,000,000 $1,250,000-$7,500,000 $998,750,000-$992,500,000
</TABLE>
- ---------
(1) Notes will be issued at 100% of principal amount unless otherwise
specified in the applicable Pricing Supplement.
(2) The Company will pay Goldman, Sachs & Co., Lehman Brothers, Lehman
Brothers Inc. (including its affiliate Lehman Government Securities Inc.)
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as agents (the "Agents"), a commission (or grant a discount)
ranging from .125% to .750%, depending upon the maturity, of the principal
amount of any Note sold through any such firm as Agent. Commissions and
discounts with respect to Notes with maturities in excess of 30 years will
be negotiated between the Company and such Agent at the time of sale. The
Company may also sell Notes to an Agent as principal for resale to
investors and other purchasers at varying prices related to prevailing
market prices at the time of resale to be determined by such Agent or, if
so agreed, at a fixed public offering price. Unless otherwise specified in
the applicable Pricing Supplement, any Note sold to an Agent as principal
will be purchased by such Agent at a price equal to 100% of the principal
amount thereof less a percentage equal to the commission applicable to an
agency sale of a Note of identical maturity, and may be resold by such
Agent. The Company may also sell Notes directly to investors on its own
behalf, in which case no commission will be payable. The Company has
agreed to indemnify the Agents against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
(3) Before deduction of estimated expenses of $635,000.
(4) Or the equivalent thereof in foreign currencies or composite currency
units.
--------------
Offers to purchase Notes are being solicited on a best efforts basis from
time to time by the Agents on behalf of the Company. In addition, Notes may be
sold to the Agents, as principals, for resale to investors and other
purchasers at varying prices related to prevailing market prices at the time
of resale to be determined by such Agent or, if so agreed, at a fixed public
offering price. The Company reserves the right to sell the Notes directly on
its own behalf. The Company reserves the right to withdraw, cancel or modify
the offer made hereby without notice. No termination date for the offering of
the Notes has been established. The Company or the Agents may reject any order
as a whole or in part. The Notes will not be listed on any securities exchange
and there can be no assurance that the Notes offered by this Prospectus
Supplement will be sold or that there will be a secondary market for the
Notes. See "Supplemental Plan of Distribution."
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
--------------
The Date of this Prospectus Supplement is July 21, 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DESCRIPTION OF NOTES
The following description of the particular terms of the Medium-Term Notes,
Series E (the "Notes"), offered hereby supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of Debt Securities set forth in the accompanying Prospectus, to
which description reference is hereby made. The terms and conditions set forth
in this section "Description of Notes" will apply to each Note unless otherwise
specified in the applicable Pricing Supplement. Capitalized terms not defined
herein have the meanings assigned to such terms in the Prospectus or the
Indenture.
GENERAL
The Notes will be unsecured obligations of Caterpillar Financial Services
Corporation (the "Company") and will be issued only in the form of Global Notes
(except for Foreign Currency Notes and except as specified in "Book-Entry
System" below). Foreign Currency Notes may be represented either by Global
Notes or by Certificated Notes as specified in the applicable Pricing
Supplement.
The Company may offer from time to time up to $1,000,000,000 aggregate
principal amount of its Notes (or the equivalent in other currencies, including
composite currencies such as the ECU). The foregoing limit, however, may be
increased by the Company if in the future it determines that it may wish to
sell additional Notes. The United States dollar equivalent of Foreign Currency
Notes will be determined by the Exchange Rate Agent (as defined below) on the
basis of the noon buying rate for cable transfers in The City of New York, as
determined by the Federal Reserve Bank of New York (the "Market Exchange
Rate"), for such currencies on the Business Day immediately preceding the
applicable issue dates; provided, however, that in the case of ECU, the Market
Exchange Rate shall be the rate of exchange determined by the Commission of the
European Communities (or any successor thereof) as published in the Official
Journal of the European Communities or any successor publication on the
Business Day immediately preceding the applicable issue date. Special tax
considerations applicable to Foreign Currency Notes are set forth below under
"Certain United States Federal Income Tax Consequences--Nonfunctional Currency
Notes."
The Notes will be offered on a continuous basis and will mature nine months
or more from the date of issue, as selected by the initial purchaser and agreed
to by the Company.
The Notes may be issued as Original Issue Discount Notes. An Original Issue
Discount Note is a Note, including any Zero-Coupon Note, which has a "stated
redemption price at maturity" that exceeds its issue price by more than a
specified de minimus amount. For additional information regarding payments upon
acceleration of the Maturity of an Original Issue Discount Note and regarding
the United States federal tax considerations of Original Issue Discount Notes,
see "Payment of Principal and Interest" and "Certain United States Federal
Income Tax Consequences--Original Issue Discount". Original Issue Discount
Notes will be treated as Original Issue Discount Securities for purposes of the
Indenture.
The Notes offered hereby constitute part of a single series of Debt
Securities for purposes of the Indenture (which term as used herein means the
Indenture, dated as of April 15, 1985, as supplemented from time to time). The
Notes will be on a parity in all respects with all Debt Securities issued under
the Indenture. For a description of the rights of the holders of securities
under the Indenture, including the Notes, see "Description of Debt Securities"
in the accompanying Prospectus attached hereto.
The Notes may be registered for transfer or exchanged at the principal office
of the Corporate Trust Department of the Trustee in New York City. The transfer
or exchange of Global Notes will be effected as specified in "Book-Entry
System" below.
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<PAGE>
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, payments of
principal of (and premium, if any) and interest on all Notes will be made in
the applicable Specified Currency, provided, however, that payments of
principal of (and premium, if any) and interest on Foreign Currency Notes will
nevertheless be made in U.S. dollars (i) if such Foreign Currency Notes are
Certificated Notes, at the option of the holders thereof under the procedures
described below, and (ii) if such Foreign Currency Notes are Global Notes,
unless the Depositary has received notice from any of its participants of their
election to receive payment in the Specified Currency as provided in "Book-
Entry System" below, and (iii) at the option of the Company if such Specified
Currency is unavailable, in the good faith judgment of the Company, due to the
imposition of exchange controls or other circumstances beyond the control of
the Company. See "Foreign Currency Risks--Payment Currency".
Payments of principal and premium, if any, and interest at Maturity to be
made in United States dollars will be made in immediately available funds,
provided that the Note is presented to Morgan Guaranty Trust Company of New
York (the "Trustee") in time for the Trustee to make such payments in such
funds in accordance with its normal procedures. Payments of interest (other
than interest payable at Maturity) to be made in United States dollars with
respect to Global Notes will be paid in immediately available funds to the
Depositary or its nominee. The Depositary will allocate payments relating to a
Global Note and make payments to the owners or holders thereof in accordance
with its existing operating procedures. Neither the Company nor the Trustee
shall have any responsibility or liability for such payments by the Depositary.
So long as the Depositary or its nominee is the registered owner of any Global
Note, the Depositary or its nominee, as the case may be, will be considered the
sole owner or holder of such Note for all purposes under the Indenture.
Payments of interest and, in the case of Amortizing Notes, principal and
premium, if any, with respect to any Certificated Note (other than such amounts
payable at Maturity) to be made in United States dollars will be paid by check
mailed to the address of the person entitled thereto as it appears in the
security register. Notwithstanding the foregoing, unless otherwise specified in
the applicable Pricing Supplement, a holder of U.S. $10,000,000 or more in
aggregate principal amount of Certificated Notes of like tenor and terms shall
be entitled to receive such payment of interest in U.S. dollars by wire
transfer of immediately available funds to such account with a bank located in
the United States as shall be designated by such person, but only if
appropriate payment instructions have been received in writing by the Trustee
on or prior to the Regular Record Date.
Unless otherwise indicated in the applicable Pricing Supplement, payments of
principal and premium, if any, and interest with respect to any Note to be made
in a Specified Currency other than United States dollars will be paid in
immediately available funds by wire transfer to such account maintained by the
holder with a bank located in the country issuing the Specified Currency (or,
with respect to Notes denominated in ECU, to an ECU account) or other
jurisdiction acceptable to the Company and the Trustee as shall have been
designated by the holder (which in the case of Global Notes will be the
Depositary or its nominee) on or prior to the Regular Record Date or at least
15 days prior to Maturity, as the case may be, provided, however, that with
respect to payments of principal and premium, if any, and interest at Maturity
the Note is presented to the Trustee in time for the Trustee to make such
payment in accordance with its normal procedures, which shall require
presentation no later than two Business Days prior to Maturity in order to
ensure the availability of immediately available funds in the Specified
Currency at Maturity. Such designation shall be made by filing the appropriate
information with the Trustee and, unless revoked, any such designation made
with respect to any Note by a holder will remain in effect with respect to any
further payments payable to such holder with respect to such Note.
Unless otherwise specified in the applicable Pricing Supplement, if any
Original Issue Discount Note is redeemed by the Company as described below
under "Redemption and Repurchase," or repaid at the option of the holder as
described below under "Repayment at Option of Holder," or if the principal
S-3
<PAGE>
of any Original Issue Discount Note is declared to be due and payable
immediately as described in the accompanying Prospectus under "Description of
Debt Securities--Events of Default and Notice Thereof," the amount of principal
due and payable with respect to such Note shall be limited to the sum of the
aggregate principal amount of such Note multiplied by the issue price
(expressed as a percentage of the aggregate principal amount) plus the original
issue discount accrued from the date of issue to the date of redemption,
repayment or declaration, as applicable, which accrual shall be calculated
using the "interest method" (computed in accordance with generally accepted
accounting principles) in effect on the date of redemption, repayment or
declaration, as applicable.
If so specified in the applicable Pricing Supplement, payments of principal
(and premium, if any) and interest with respect to any Foreign Currency Note
which is a Certificated Note will be made in U.S. dollars if the holder of such
Note elects to receive all such payments in U.S. dollars by delivery of a
written request to the Trustee on or prior to the Regular Record Date or at
least 15 days prior to Maturity, as the case may be. Such election may be in
writing (mailed or hand delivered) or by cable, telex or other form of
facsimile transmission. A holder of a Foreign Currency Note which is a
Certificated Note may elect to receive payment in U.S. dollars for all
principal, premium, if any, and interest payments and need not file a separate
election for each payment. Such election will remain in effect until revoked by
written notice to the Trustee, but written notice of such revocation must be
received by the Trustee on or prior to the Regular Record Date or at least 15
days prior to Maturity, as the case may be. Holders of Foreign Currency Notes
whose Notes held in the name of a broker or nominee should contact such broker
or nominee to determine whether and how an election to receive payments in U.S.
dollars may be made. Holders of Foreign Currency Notes which are Global Notes
will receive payments in U.S. dollars unless they notify the Depositary of
their election to receive payments in the Specified Currency. See "Book-Entry
System".
The U.S. dollar amount to be received by a holder of a Foreign Currency Note
will be based upon the exchange rate as determined by the Exchange Rate Agent
based on the highest firm bid quotation for United States dollars received by
such 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 in The City of New York selected by the
Exchange Rate Agent and approved by the Company (one of which may be the
Exchange Rate Agent) for the purchase by the quoting dealer, for settlement on
such payment date, of the aggregate amount of the Specified Currency payable on
such payment date in respect of all Notes denominated in such Specified
Currency. If no such bid quotations are available, payments will be made in the
Specified Currency, unless such Specified Currency is unavailable due to the
imposition of exchange controls or to other circumstances beyond the Company's
control, in which case payment will be made as described below under "Foreign
Currency Risks--Payment Currency." All currency exchange costs will be borne by
the holders of such Notes by deductions from such payments. Unless otherwise
specified in the applicable Pricing Supplement, Morgan Guaranty Trust Company
of New York will be the Exchange Rate Agent with respect to the Notes.
INTEREST RATE
Each Note, other than a Zero-Coupon Note, will bear interest from and
including the date of issue, or in the case of securities issued upon
registration of transfer or exchange from and including the most recent
Interest Payment Date (as defined below) to which interest on such Note has
been paid or duly provided for, at the fixed rate per annum, or at the rate per
annum determined pursuant to the interest rate formula or formulas, stated
therein and in the applicable Pricing Supplement until the principal thereof is
paid or made available for payment. Interest will be payable on each Interest
Payment Date and at Maturity. Interest will be payable to the person in whose
name a Note is registered at the close of business on the Regular Record Date
(as defined below) next preceding each Interest Payment Date; provided,
however, that interest payable at Maturity will be payable to the person to
whom principal
S-4
<PAGE>
shall be payable. The first payment of interest on any Note originally issued
between a Regular Record Date and an Interest Payment Date will be made on the
Interest Payment Date following the next succeeding Regular Record Date to the
registered owner on such next succeeding Regular Record Date. The "Regular
Record Date" with respect to Floating Rate Notes (as defined below) shall be
the date 15 calendar days prior to such Interest Payment Date, whether or not
such date shall be a Business Day. The Regular Record Dates with respect to
Fixed Rate Notes (as defined below) shall be the March 15 and September 15
next preceding the April 1 and October 1 Interest Payment Dates. Unless
otherwise provided in the applicable Pricing Supplement, Morgan Guaranty Trust
Company of New York will be the calculation agent (the "Calculation Agent")
with respect to the Floating Rate Notes.
Interest rates offered by the Company with respect to the Notes may differ
depending upon the aggregate principal amount of Notes purchased in any
transaction, and the Company expects generally to distinguish, with respect to
such offered rates, between purchases which are for less than, and purchases
which are equal to or greater than, specified dollar amount. Interest rates,
interest rate formulae and other variable terms of the Notes are subject to
change by the Company from time to time, but no such change will affect any
Note already issued or as to which an offer to purchase has been accepted by
the Company.
Unless otherwise specified in the applicable Pricing Supplement, each Note,
other than a Zero-Coupon Note, will bear interest at either (a) a fixed rate
(a "Fixed Rate Note") or (b) a variable rate determined by reference to an in-
terest rate formula or formulas (a "Floating Rate Note"), which may be ad-
justed by adding or subtracting the Spread and/or multiplying by the Spread
Multiplier (each as defined below). A Floating Rate Note may also have either
or both of the following: (a) a maximum numerical interest rate limitation, or
ceiling, on the rate of interest which may accrue during any interest period;
and (b) a minimum numerical interest rate limitation, or floor, on the rate of
interest which may accrue during any interest period. The "Spread" is the num-
ber of basis points specified in the applicable Pricing Supplement as being
applicable to the interest rate for such Note and the "Spread Multiplier" is
the percentage specified in the applicable Pricing Supplement as being appli-
cable to the interest rate for such Note. "Business Day" means (a) with re-
spect to any Note, any day that is not a Saturday or Sunday and that, in The
City of New York, is not a day on which banking institutions generally are au-
thorized or obligated by law to close, and (b) if the Note is denominated in a
Specified Currency other than United States dollars (i) not a day on which
banking institutions are authorized or required by law to close in the finan-
cial center of the country issuing the Specified Currency (which in the case
of Australian dollars shall be Sydney and Melbourne and in the case of ECU
shall be Brussels) and (ii) a day on which banking institutions in such finan-
cial center are carrying out transactions in such Specified Currency, and (c)
with respect to LIBOR Notes only, any such day which is also a day on which
dealings in deposits in United States dollars are transacted in the London
interbank market (a "London Business Day"). "Index Maturity" means, with re-
spect to a Floating Rate Note, the period to maturity of the instrument or ob-
ligation on which the interest rate formula is based, as specified in the ap-
plicable Pricing Supplement.
The applicable Pricing Supplement relating to a Fixed Rate Note will desig-
nate a fixed rate of interest per annum payable on such Fixed Rate Note. The
applicable Pricing Supplement relating to a Floating Rate Note will designate
an interest rate basis or bases for such Floating Rate Note. Such basis or ba-
ses may be: (a) the Commercial Paper Rate, in which case such Note will be a
Commercial Paper Rate Note, (b) the Federal Funds Rate, in which case such
Note will be a Federal Funds Rate Note, (c) the CD Rate, in which case such
Note will be a CD Rate Note, (d) the Prime Rate, in which case such Note will
be a Prime Rate Note, (e) LIBOR, in which case such Note will be a LIBOR Note,
(f) the Treasury Rate, in which case such Note will be a Treasury Rate Note,
or (g) such other interest rate formula or formulas (which may include a com-
bination of more than one of the interest rate bases described above) as may
be set forth in such Pricing Supplement. The applicable Pricing Supplement for
a Floating Rate Note also will specify the Spread and/or Spread Multiplier, if
any, and the maximum r minimum interest rate limitation, if any, applicable to
each Note. In addition, such Pricing Supplement will define or particularize
for each Note the following terms, if applicable: Initial Interest Rate, In-
terest Payment Dates, Index Maturity and Interest Reset Date with respect to
such Note.
S-5
<PAGE>
Unless otherwise specified in the applicable Pricing Supplement, the rate of
interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semi-annually or annually (each an "Interest Reset Date"), as
specified in the applicable Pricing Supplement. Unless otherwise indicated in
the applicable 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 the 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; 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 semi-
annually, 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 (as set
forth in the applicable Pricing Supplement) and (b) unless otherwise specified
in the applicable Pricing Supplement, the interest rate in effect for the ten
days immediately prior to maturity will be that in effect on the tenth day
preceding such maturity. If any Interest Reset Date for any Floating Rate Note
would otherwise be a day that is not a Business Day for such Floating Rate
Note, the Interest Reset Date for such Floating Rate Note shall be postponed
to the next day that is a Business Day for such Floating Rate Note, except
that in the case of LIBOR Notes, if such Business Day is in the next
succeeding calendar month, such Interest Reset Date shall be the immediately
preceding Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
Interest Determination Date pertaining to an Interest Reset Date for (a) a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination
Date") (b) a Federal Funds Rate Note (the "Federal Funds Interest
Determination Date"), (c) a CD Rate Note (the "CD Interest Determination
Date") or (d) a Prime Rate Note (the "Prime Rate Interest Determination Date")
will be the second Business Day preceding the Interest Reset Date with respect
to such Note. Unless otherwise specified in the applicable Pricing Supplement,
the Interest Determination Date pertaining to an Interest Reset Date for a
LIBOR Note (the "LIBOR Interest Determination Date") will be the second London
Business Day preceding such Interest Reset Date. Unless otherwise specified in
the applicable Pricing Supplement, the Interest Determination Date pertaining
to an Interest Reset Date for a Treasury Rate Note (the "Treasury Interest
Determination Date") 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 usually sold at auction on Monday for each week, unless that day is a
legal holiday, in which case the auction is usually held on the following
Tuesday, except that such auction may be held on the preceding Friday. If, as
the result of a legal holiday, an auction is so held on the preceding Friday,
such Friday will be the Treasury Interest Determination Date pertaining to the
Interest Reset Date occurring in the next succeeding week. If an auction date
shall fall on any Interest Reset Date for a Treasury Rate Note, then such
Interest Reset Date shall instead be the first Business Day immediately
following such auction date.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate
Notes which reset daily, weekly or monthly, on the third Wednesday of each
month or on the third Wednesday of March, June, September and December of each
year, as indicated in the applicable Pricing Supplement; in the case of
Floating Rate Notes which reset quarterly, on the third Wednesday of March,
June, September and December of each year; in the case of Floating Rate Notes
which reset semi-annually, on the third Wednesday of the two months of each
year specified in the applicable Pricing Supplement; and in the case of
Floating Rate Notes which reset annually, on the third Wednesday of the month
specified in the applicable Pricing Supplement (each an "Interest Payment
Date"), and in each case, at Maturity. If an Interest Payment Date with
respect to any Floating Rate Note would otherwise fall on a day that is not a
Business Day with respect to such Note, such Interest Payment Date will be
postponed to the following day that is a Business Day with respect to such
Note, except that in the case of a LIBOR Note, if such day falls in the next
calendar month, such Interest Payment Date will be the preceding day that is a
Business Day
S-6
<PAGE>
with respect to such LIBOR Note. If the Maturity of any Note or an Interest
Payment Date for any Fixed Rate Note falls on a day that is not a Business Day,
the payment of principal, premium, if any, and interest may be made on the next
succeeding Business Day, and no interest on such payment shall accrue for the
period from and after Maturity or such Interest Payment Date, as the case may
be.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments, if any, will be the amount of interest accrued from and including the
last date in respect of which interest has been paid or duly provided for (or
from and including the date of issue if no interest has been paid or provided
for with respect to such Note) to but excluding the Interest Payment Date or
the date of Maturity. However, in the case of Floating Rate Notes on which the
interest rate is reset daily or weekly, the interest payments will, unless
otherwise specified in the applicable Pricing Supplement, include interest
accrued from but excluding the Regular Record Date through which interest has
been paid or duly provided for (or from and including the date of issue if no
interest has been paid with respect to such Note) through and including the
Regular Record Date next preceding the applicable Interest Payment Date, except
that the interest payment at Maturity will include interest accrued to but
excluding such date. With respect to a Floating Rate Note, accrued interest
from the date of issue or from the last date to which interest has been paid is
calculated by multiplying the face amount of such Floating Rate Note by an
accrued interest factor. Such accrued interest factor is computed by adding the
interest factor calculated for each day from the date of issue, or from the
last date to which interest has been paid, to the date for which accrued
interest is being calculated. The interest factor (expressed as a decimal
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five millionths of a percentage point rounded upwards (e.g.,
9.876545% or .09876545 being rounded to 9.87655% or .0987655, respectively))
for each such day is computed by dividing the interest rate (expressed as a
decimal rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point, with five millionths of a percentage point rounded upwards)
applicable to such date by 360, in the case of Commercial Paper Rate Notes,
Federal Funds Rate Notes, CD Rate Notes, Prime Rate Notes or LIBOR Notes, or by
the actual number of days in the year, in the case of Treasury Rate Notes.
In addition to any maximum interest rate which may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on the
Floating Rate Notes 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 present New York law the maximum rate of interest is 25% per
annum on a simple interest basis. The limit may not apply to Floating Rate
Notes in which $2,500,000 or more has been invested.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Date pertaining to any Interest Determination Date, other than with
respect to LIBOR Notes, shall be the earlier of (i) the tenth day after such
Interest Determination Date or, if any 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, as the case may be.
Upon the request of the holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect and, if different, the
interest rate which will become effective as a result of a determination made
on the most recent Interest Determination Date with respect to such Floating
Rate Note.
Fixed Rate Notes
Each Fixed Rate Note will bear interest from the date of issue, or in the
case of securities issued upon registration or transfer or exchange from the
most recent Interest Payment Date to which interest on such Note has been paid
or duly provided for, at the annual rate stated on the face thereof, and the
Interest Payment Dates for the Fixed Rate Notes will be April 1 and October 1
of each year until the principal thereof is paid or made available for payment.
Interest on Fixed Rate Notes will be computed
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on the basis of a 360-day year of twelve 30-day months. Interest on Fixed Rate
Notes will be payable generally to the person in whose name such a Note is
registered at the close of business on the March 15 or September 15 Regular
Record Date next preceding the April 1 or October 1 Interest Payment Date.
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any), and will be payable on the dates, specified on the
face of the Commercial Paper Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Commercial Paper Interest Determination
Date, the Money Market Yield (calculated as described below) of the rate on
such date for commercial paper having the Index Maturity specified in the
applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates" or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "Commercial Paper". In the event
that such rate is not published prior to 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Commercial Paper Interest Determination
Date, then the Commercial Paper Rate shall be the Money Market Yield of the
rate on such Commercial Paper Interest Determination Date for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release, "Composite 3:30 P.M. Quotations for U.S. Government Securities"
("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 published in
either H.15(519) or Composite Quotations, the rate for that Commercial Paper
Interest Determination Date shall be calculated by the Calculation Agent and
shall be the Money Market Yield of the arithmetic mean (rounded, if necessary,
to the nearest one hundred-thousandth of a percentage point, with five
millionths of a percentage point rounded upwards) of the offered rates, as of
11:00 A.M., New York City time, on that Commercial Paper 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 Index Maturity
specified in the applicable Pricing Supplement placed for an industrial issuer
whose bond rating is "AA", or the equivalent, from a nationally recognized
rating agency; provided, however, that if the dealers selected as aforesaid by
the Calculation Agent are not quoting as mentioned in this sentence, the
Commercial Paper Rate will be the Commercial Paper Rate in effect on such
Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point, with
five millionths of a percentage point rounded upwards) calculated in accordance
with the following formula:
D X 360
Money Market Yield = ------------ X 100
360 - (D X M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rates (calculated
with reference to the Federal Funds Rate and the Spread and/or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Federal Funds Rate Note and in the applicable Pricing Supplement.
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Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Federal Funds 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 Federal Funds
Interest Determination Date, the Federal Funds Rate will be the rate on such
Federal Funds Interest Determination Date as published in Composite Quotations
under the heading "Federal Funds/Effective Rate." If such rate is not published
by 3:00 p.m., New York City time, on the Calculation Date pertaining to such
Federal Funds Interest Determination Date, then the Federal Funds Rate for such
Federal Funds Interest Determination Date will be calculated by the Calculation
Agent and will be the arithmetic mean (rounded, if necessary, to the nearest
one hundred-thousandth of a percentage point, with five millionths of a
percentage point rounded upwards) of the rates as of 9:00 a.m., New York City
time, on such Federal Funds Interest Determination Date for the last
transaction in overnight Federal Funds arranged by three leading brokers of
Federal Funds transactions in The City of New York selected by the Calculation
Agent; provided, however, that if the brokers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the Federal
Funds Rate will be the Federal Funds Rate in effect on such Federal Funds
Interest Determination Date.
CD Rate Notes
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the CD Rate Note and in
the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, with respect to any CD 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 in 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 CD Interest
Determination Date, the CD Rate will be the rate on such CD Interest
Determination Date for negotiable certificates of deposit having the Index
Maturity designated in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Certificates of Deposit." If such rate
is not published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such CD Interest Determination Date, then the CD Rate for such CD
Interest Determination Date will be calculated by the Calculation Agent and
will be the arithmetic mean (rounded, if necessary, to the nearest one hundred-
thousandth of a percentage point, with five millionths of a percentage point
rounded upwards) of the secondary market offered rates as of 10:00 A.M., New
York City time, on such CD Interest Determination Date 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 (in the market for negotiable
certificates of deposit) with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing Supplement in a denomination of
$5,000,000; provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the CD Rate
will be the CD Rate in effect on such CD Interest Determination Date.
Prime Rate Notes
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any),
and will be payable, on the dates specified on the face of the Prime Rate Note
and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime Rate"
means, with respect to any Prime Rate Interest Determination Date, the rate set
forth for the relevant Prime Rate Interest Determination Date in H.15(519)
under the heading "Bank Prime Loan". In the event that such
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rate is not published prior to 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Prime Rate Interest Determination Date,
then the Prime Rate with respect to the Prime Rate Interest Determination Date
shall be the arithmetic mean (rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point, with five millionths of a percentage
point rounded upwards) of the rates of interest publicly announced by each bank
that appears on the Reuters Screen NYMF Page (as defined below) as such bank's
prime rate or base lending rate as in effect for that Prime Rate Interest
Determination Date. If fewer than four such rates but more than one such rate
appear on the Reuters Screen NYMF Page for the Prime Rate Interest
Determination Date, the Prime Rate will be the arithmetic mean (rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point, with
five millionths of a percentage point rounded upwards) of the prime rates
quoted on the basis of the actual number of days in the year divided by a 360-
day year as of the close of business on such Prime Rate Interest Determination
Date by at least two major money center banks in The City of New York selected
by the Calculation Agent. If fewer than two such rates are quoted as aforesaid,
the Prime Rate will be determined by the Calculation Agent on the basis of the
rates furnished in The City of New York by the appropriate number of substitute
banks or trust companies organized and doing business under the laws of the
United States, or any State thereof, having total equity capital of at least
$500 million and being subject to supervision or examination by Federal or
State authority, selected by the Calculation Agent to provide such rate or
rates; provided, however, that if the banks or trust companies selected as
aforesaid are not quoting as mentioned in this sentence, the Prime Rate will be
the Prime Rate in effect on such Prime Rate Interest Determination Date.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on the
Reuters Monitor Money Rates Service (or such other page as may replace the NYMF
page on that service for the purpose of displaying the prime rate or base
lending rate of major United States banks).
LIBOR Notes
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any), and will
be payable on the dates, specified on the face of the LIBOR Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR will
be determined by the Calculation Agent in accordance with the following
provisions:
(a) With respect to a LIBOR Interest Determination Date, LIBOR will be,
as specified in the applicable Pricing Supplement, either: (i) the
arithmetic mean (rounded, if necessary, to the nearest one hundred-
thousandth of a percentage point, with five millionths of a percentage
point rounded upwards) of the offered rates for deposits in U.S. dollars
having the Index Maturity designated in the applicable Pricing Supplement,
commencing on the second London Business Day immediately following such
LIBOR Interest Determination Date, that appear on the Reuters Screen LIBO
Page as of 11:00 A.M., London time, on such LIBOR Interest Determination
Date ("LIBOR Reuters"), or (ii) the rate for deposits in U.S. dollars
having the Index Maturity designated in the applicable Pricing Supplement,
commencing on the second London Business Day immediately following such
LIBOR Interest Determination Date, that appears on Telerate Page 3750 as of
11:00 A.M., London time, on such LIBOR Interest Determination Date ("LIBOR
Telerate"). "Reuters Screen LIBO Page" means the display designated as page
"LIBO" on the Reuters Monitor Money Rates Service (or such other page as
may replace page LIBO on that service for the purpose of displaying London
interbank offered rates of major banks). "Telerate Page 3750" means the
display designated as page "3750" on the Telerate Service (or such other
page as may replace the 3750 page on that service or such other service or
services as may be nominated by the British Bankers' Association for the
purpose of displaying London interbank offered rates for U.S. dollar
deposits). If neither LIBOR Reuters nor LIBOR Telerate is specified in the
applicable Pricing Supplement, LIBOR will be determined as if LIBOR
Telerate had been specified. If at least two such offered rates appear on
the Reuters Screen LIBO Page, the rate in respect of such LIBOR Interest
Determination Date
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will be the arithmetic mean of such offered rates as determined by the
Calculation Agent. In the case where (i) above applies, if fewer than two
offered rates appear on the Reuters Screen LIBO Page, or in the case where
(ii) above applies, if no rate appears on Telerate Page 3750, as
applicable, LIBOR in respect of such LIBOR Interest Determination Date will
be determined as if the parties had specified the rate described in (b)
below.
(b) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Reuters Screen LIBO Page as described
in (a)(i) above, or on which no rate appears on Telerate Page 3750, as
described in (a)(ii) above, as applicable, LIBOR will be determined on the
basis of the rates at approximately 11:00 A.M., London time, on such LIBOR
Interest Determination Date at which deposits in U.S. dollars having the
Index Maturity specified in the applicable Pricing Supplement are offered
to prime banks in the London interbank market by three major banks in the
London interbank market selected by the Calculation Agent commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date and in a principal amount equal to an amount of not less
than U.S.$1 million that in the Calculation Agent's judgment is
representative for a single transaction in such market at such time. The
Calculation Agent will request the principal London office of each of such
banks to provide a quotation of its rate. If at least two such quotations
are provided, LIBOR for such LIBOR Interest Determination Date will be the
arithmetic mean (rounded, if necessary, to the nearest one hundred-
thousandth of a percentage point, with five millionths of a percentage
point rounded upwards) of such quotations. If fewer than two quotations are
provided, LIBOR for such LIBOR Interest Determination Date will be the
arithmetic mean (rounded, if necessary, to the nearest one hundred-
thousandth of a percentage point, with five millionths of a percentage
point rounded upwards) of the rates quoted at approximately 11:00 A.M., New
York City time, on such LIBOR Interest Determination Date by three major
banks in The City of New York, selected by the Calculation Agent, for loans
in U.S. dollars to leading European banks, having the specified Index
Maturity commencing on the second London Business Day immediately following
such LIBOR Interest Determination Date and in a principal amount equal to
an amount of not less than U.S.$1 million that in the Calculation Agent's
judgment is representative for a single transaction in such market at such
time; provided, however, that if the banks selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR will
be the LIBOR in effect on such LIBOR Interest Determination Date.
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rates (calculated with
reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any), and will be payable on the dates, specified on the face of the Treasury
Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the Pricing Supplement, "Treasury Rate" means,
with respect to any Treasury Interest Determination Date, the rate for the most
recent auction of direct obligations of the United States ("Treasury bills")
having the Index Maturity specified in the applicable Pricing Supplement as
published in H.15(519) under the heading, "Treasury bills--auction average
(investment)" or, if not so published by 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Treasury Interest Determination Date, the
auction average rate (expressed as a bond equivalent, rounded, if necessary, to
the nearest one hundred-thousandth of a percentage point, with five millionths
of a percentage point rounded upwards, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) for such auction as
otherwise announced by the 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 in a particular week, then the
Treasury Rate shall be calculated by the Calculation Agent and shall be a yield
to
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maturity (expressed as a bond equivalent, rounded, if necessary, to the nearest
one hundred-thousandth of a percentage point, with five millionths of a
percentage point rounded upwards, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates as of approximately 3:30 P.M., New York City time,
on such Treasury 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 specified
Index Maturity; provided, however, that if the dealers selected as aforesaid by
the Calculation Agent are not quoting as mentioned in this sentence, the
Treasury Rate will be the Treasury Rate in effect on such Treasury Interest
Determination Date.
CURRENCY INDEXED NOTES
General
The Company may from time to time offer Notes (the "Currency Indexed Notes")
the principal amount payable at Maturity and/or the interest rate of which is
determined by reference to the rate of exchange between the Specified Currency
and the other currency or composite currency specified as the Indexed Currency
(the "Indexed Currency") in the applicable Pricing Supplement, or as determined
in such other manner as may be specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, holders of
Currency Indexed Notes will be entitled to receive (i) an amount of principal
exceeding the stated face amount of the principal (the "Face Amount") of,
and/or an amount of interest at an interest rate exceeding the stated rate of
interest on, their Currency Indexed Notes if, at Maturity or upon the relevant
Interest Payment Date, as the case may be, the rate at which the Specified
Currency can be exchanged for the Indexed Currency exceeds the rate of such
exchange designated as the Base Exchange Rate, expressed in units of the
Indexed Currency per one unit of the Specified Currency, in the applicable
Pricing Supplement (the "Base Exchange Rate") or (ii) an amount of principal
less than such Face Amount and/or an amount of interest at an interest rate
less than such stated interest rate if, at Maturity or upon the relevant
Interest Payment Date, as the case may be, the rate at which the Specified
Currency can be exchanged for the Indexed Currency is less than such Base
Exchange Rate, in each case determined as described below under "Payment of
Principal and Interest." Information as to the relative historical value (which
information is not necessarily indicative of relative future value) of the
applicable Specified Currency against the applicable Indexed Currency, any
exchange controls applicable to such Specified Currency or Indexed Currency and
certain tax consequences to holders of Currency Indexed Notes will be set forth
in the applicable Pricing Supplement. See "Foreign Currency Risks."
Payment of Principal and Interest
Unless otherwise specified in the applicable Pricing Supplement, the payment
of principal at Maturity and interest on each Interest Payment Date (until the
principal thereof is paid or made available for payment) will be payable (i) in
the case of Certificated Notes, in the Specified Currency (except as otherwise
described under "Payment Currency"), and (ii) in the case of Global Notes, in
U.S. dollars (except as otherwise provided under "Book-Entry System"), in
amounts calculated in the manner described below.
Unless otherwise specified in the applicable Pricing Supplement, principal at
Maturity, if indexed, will be payable in an amount equal to the Face Amount of
the Currency Indexed Note, plus or minus an amount determined by reference to
the difference between the Base Exchange Rate specified in the applicable
Pricing Supplement and the rate at which the Specified Currency can be
exchanged for the Indexed Currency on the second Business Day (the
"Determination Date") prior to the Maturity of such Currency Indexed Noted, as
determined by the determination agent specified in the applicable Pricing
Supplement (the "Determination Agent"). Such rate of exchange shall be based
upon the highest bid of the open market spot offer quotations for the Indexed
Currency obtained by the Determination Agent
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from the Reference Dealers in The City of New York at approximately 11:00 A.M.,
New York City time, on the Determination Date, for an amount of Indexed
Currency equal to the aggregate Face Amount of such Currency Indexed Notes
multiplied by the Base Exchange Rate, with settlement at Maturity to be in the
Specified Currency (such rate of exchange, as so determined and expressed in
units of the Indexed Currency per one unit of the Specified Currency, is
hereafter referred to as the "Spot Rate"). If such quotations from the
Reference Dealers are not available on the Determination Date due to
circumstances beyond the control of the Company or the Determination Agent, the
Spot Rate will be determined on the basis of the most recently available
quotations from the Reference Dealers. As used herein, the term "Reference
Dealers" shall mean the three banks or firms specified as such in the
applicable Pricing Supplement, or if any of them shall be unwilling or unable
to provide the requested quotations, such other major money center bank or
banks in The City of New York selected by the Determination Agent to act as
Reference Dealer or Dealers in replacement therefor. In the absence of manifest
error, the determination by the Determination Agent of the Spot Rate and of the
amount of principal and interest payable in respect of Currency Indexed Notes
shall be final and binding on the Company and the holders of such Currency
Indexed Notes.
Unless otherwise specified in the applicable Pricing Supplement, on the basis
of the aforesaid determination by the Determination Agent and the formulas and
limitations set forth below, (i) if the Base Exchange Rate equals the Spot Rate
for any Currency Indexed Note, then the principal amount of such Currency
Indexed Note payable at Maturity would be equal to the Face Amount of such
Currency Indexed Note; (ii) if the Spot Rate exceeds the Base Exchange Rate
(i.e., the Specified Currency has appreciated against the Indexed Currency
during the term of the Currency Indexed Note), then the principal amount so
payable would be greater than the Face Amount of such Currency Indexed Note;
(iii) if the Spot Rate is less than the Base Exchange Rate (i.e., the Specified
Currency has depreciated against the Indexed Currency during the term of the
Currency Indexed Note) but is greater than one-half of the Base Exchange Rate,
then the principal amount so payable would be less than the Face Amount of such
Currency Indexed Note; and (iv) if the Spot Rate is less than or equal to one-
half of the Base Exchange Rate, then the Spot Rate will be deemed to be one-
half of the Base Exchange Rate and no principal amount of the Currency Indexed
Note would be payable at Maturity.
Unless otherwise specified in the applicable Pricing Supplement, interest
will be payable by the Company based on the Face Amount of the Currency Indexed
Notes, and such interest will be payable at the rate and times and in the
manner set forth herein and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the formulas
to be used by the Determination Agent to determine the principal amount of a
Currency Indexed Note payable at Maturity will be as follows:
If the Spot Rate equals or exceeds the Base Exchange Rate, the principal
amount of a Currency Indexed Note payable at Maturity shall equal:
<TABLE>
<S> <C> <C>
Face Amount + (Face Amount X Spot Rate - Base Exchange Rate )
------------------------------
Spot Rate
</TABLE>
and if the Base Exchange Rate exceeds the Spot Rate, the principal amount of a
Currency Indexed Note payable at Maturity (which shall, in no event, be less
than zero) shall equal:
<TABLE>
<S> <C> <C>
Face Amount - (Face Amount X Base Exchange Rate - Spot Rate ).
------------------------------
Spot Rate
</TABLE>
If the formulas set forth above are applicable, the maximum principal amount
payable at Maturity in respect of a Currency Indexed Note would be an amount
equal to twice the Face Amount and the minimum principal amount so payable
would be zero.
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OTHER INDEXED NOTES AND CERTAIN TERMS APPLICABLE TO ALL INDEXED NOTES
In addition to Currency Indexed Notes, Notes may be issued as other Indexed
Notes, the principal amount payable at Maturity and/or the interest rate to be
paid thereon to be determined by reference to the relationship between two or
more currencies, to the price of one or more specified securities or
commodities, to one or more securities or commodities exchange indices or other
indices or by other similar methods or formulas. The Pricing Supplement
relating to such an Indexed Note will describe, as applicable, the method by
which the amount of interest payable on any Interest Payment Date and the
amount of principal payable at Maturity in respect of such Indexed Note will be
determined, certain special tax consequences of the purchase, ownership or
disposition of such Indexed Notes, certain risks associated with an investment
in such Indexed Notes and other information relating to such Indexed Notes.
An investment in Indexed Notes entails significant risks, including wide
fluctuations in market value as well as in the amounts of payments due
thereunder, that are not associated with a similar investment in a conventional
debt security. Such risks depend on a number of factors including supply and
demand for the particular security or commodity and economic and political
events over which the Company has no control. Fluctuations in the price of any
particular security or commodity, in the rates of exchange between particular
currencies or in particular indices that have occurred in the past are not
necessarily indicative, however, of fluctuations in the price or rates of
exchange that may occur during the term of any Indexed Notes. ACCORDINGLY,
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS
TO THE RISKS ENTAILED BY AN INVESTMENT IN INDEXED NOTES. INDEXED NOTES ARE NOT
AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO
SECURITIES, COMMODITIES AND/OR FOREIGN CURRENCY TRANSACTIONS.
DUAL CURRENCY NOTES
The Company may from time to time offer Notes (the "Dual Currency Notes") as
to which the Company has a one-time option, exercisable on any one of the dates
specified in the applicable Pricing Supplement (each an "Option Election Date")
in whole, but not in part, with respect to all Dual Currency Notes issued on
the same day and having the same terms (a "Tranche"), of thereafter making all
payments of principal, premium, if any, and interest (which payments would
otherwise be made in the Specified Currency of such Notes) in the optional
currency specified in the applicable Pricing Supplement (the "Optional Payment
Currency"). Information as to the relative value of the Specified Currency
compared to the Optional Payment Currency will be set forth in the applicable
Pricing Supplement. See "Foreign Currency Risks."
The Pricing Supplement for each issuance of Dual Currency Notes will specify,
among other things, the Specified Currency and Optional Payment Currency of
such issuance and the Designated Exchange Rate for such issuance, which will be
a fixed exchange rate used for converting amounts denominated in the Specified
Currency into amounts denominated in the Optional Payment Currency (the
"Designated Exchange Rate"). The Pricing Supplement will also specify the
Option Election Dates and Interest Payment Dates for the related issuance of
Dual Currency Notes. Each Option Election Date will be a certain number of days
before an Interest Payment Date or the Stated Maturity, as set forth in the
applicable Pricing Supplement, and will be the date on which the Company may
select whether to make all scheduled payments due thereafter in the Optional
Payment Currency rather than in the Specified Currency.
If the Company makes such an election, the amount payable in the Optional
Payment Currency shall be determined using the Designated Exchange Rate
specified in the applicable Pricing Supplement. If such election is made,
notice of such election shall be mailed in accordance with the terms of the
applicable Tranche of Dual Currency Notes within two Business Days of the
Option Election Date and shall state (i) the first date, whether an Interest
Payment Date and/or the Stated Maturity, on
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which scheduled payments in the Optional Payment Currency will be made and (ii)
the Designated Exchange Rate. Any such notice by the Company, once given, may
not be withdrawn. The equivalent value in the Specified Currency of payments
made after such an election in the Optional Payment Currency may be less, at
the then current exchange rate, than if the Company had made such payments in
the Specified Currency.
For federal income tax purposes, holders of Dual Currency Notes may be
subject to rules which differ from the general rules applicable to holders of
other types of Notes offered hereby. The applicable Pricing Supplement will
describe any special tax consequences to holders of Dual Currency Notes.
AMORTIZING NOTES
The Company may from time to time offer Amortizing Notes. Unless otherwise
specified in the applicable Pricing Supplement, interest on each Amortizing
Note will be computed on the basis of a 360-day year of twelve 30-day months.
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. Further information concerning additional terms and conditions of any
issue of Amortizing Notes will be provided in the applicable Pricing
Supplement. A table setting forth repayment information in respect of each
Amortizing Note will be included in the applicable Pricing Supplement and set
forth on such Notes.
INTEREST RATE RESET
If the Company has the option with respect to any Note to reset the interest
rate, in the case of a Fixed Rate Note, or to reset the Spread and/or Spread
Multiplier, in the case of a Floating Rate Note, the Pricing Supplement
relating to such Note will indicate such option, and, if so, (i) the date or
dates on which such interest rate or such Spread and/or Spread Multiplier, as
the case may be, may be reset (each an "Optional Reset Date") and (ii) the
basis or formula, if any, for such resetting.
The Company may exercise such option with respect to a Note by notifying the
Trustee of such exercise at least 45 but not more than 60 days prior to an
Optional Reset Date for such Note. Not later than 40 days prior to such
Optional Reset Date, the Trustee will mail to the holder of such Note a notice
(the "Reset Notice"), first class, postage prepaid, setting forth (i) the
election of the Company to reset the interest rate, in the case of a Fixed Rate
Note, or the Spread and/or Spread Multiplier, in the case of a Floating Rate
Note, (ii) such new interest rate or such new Spread and/or Spread Multiplier,
as the case may be, and (iii) the provisions, if any, for redemption during the
period from such Optional Reset Date to the next Optional Reset Date or, if
there is no such next Optional Reset Date, to the Stated Maturity of such Note
(each such period a "Subsequent Interest Period"), including the date or dates
on which or the period or periods during which and the price or prices at which
such redemption may occur during such Subsequent Interest Period.
Notwithstanding the foregoing, not later than 20 days prior to an Optional
Reset Date for a Note, the Company may, at its option, revoke the interest
rate, in the case of a Fixed Rate Note, or the Spread and/or Spread Multiplier,
in the case of a Floating Rate Note, in either case provided for in the Reset
Notice and establish a higher interest rate, in the case of a Fixed Rate Note,
or a higher Spread and/or Spread Multiplier, in the case of a Floating Rate
Note, for the Subsequent Interest Period commencing on such Optional Reset Date
by mailing or causing the Trustee to mail notice of such higher interest rate
or higher Spread and/or Spread Multiplier, as the case may be, first class,
postage prepaid, to the holder of such Note. Such notice shall be irrevocable.
All Notes with respect to which the interest rate or Spread and/or Spread
Multiplier is reset on an Optional Reset Date will bear such higher interest
rate, in the case of a Fixed Rate Note, or higher Spread and/or Spread
Multiplier, in the case of a Floating Rate Note.
If the Company elects to reset the interest rate or the Spread and/or Spread
Multiplier of a Note, the holder of such Note will have the option to elect
repayment of such Note by the Company on any
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Optional Reset Date at a price equal to the principal amount thereof plus any
accrued interest to such Optional Reset Date. In order for a Note to be so
repaid on an Optional Reset Date, the holder thereof must follow the procedures
set forth below under "Repayment at Option of Holder" for optional repayment,
except that the period for delivery of such Note or notification to the Trustee
shall be at least 25 but not more than 35 days prior to such Optional Reset
Date and except that a holder who has tendered a Note for repayment pursuant to
a Reset Notice may, by written notice to the Trustee, revoke any such tender
for repayment until the close of business on the tenth day prior to such
Optional Reset Date.
EXTENSION OF MATURITY
If the Company has the option to extend the Stated Maturity of any Note for
one or more periods (each an "Extension Period") up to but not beyond the date
(the "Final Maturity Date") set forth in the Pricing Supplement relating to
such Note, such Pricing Supplement will indicate such option and the basis or
formula, if any, for setting the interest rate, in the case of a Fixed Rate
Note, or the Spread and/or Spread Multiplier, in the case of a Floating Rate
Note, applicable to any such Extension Period, and such Pricing Supplement will
describe any special tax consequences to holders of such Notes.
The Company may exercise such option with respect to a Note by notifying the
Trustee of such exercise at least 45 but not more than 60 days prior to the
Stated Maturity of such Note in effect prior to the exercise of such option
(the "Original Stated Maturity"). No later than 40 days prior to the Original
Stated Maturity, the Trustee will mail to the holder of such Note a notice (the
"Extension Notice") relating to such Extension Period, first class, postage
prepaid, setting forth (i) the election of the Company to extend the Stated
Maturity of such Note, (ii) the new Stated Maturity, (iii) in the case of a
Fixed Rate Note, the interest rate applicable to the Extension Period or, in
the case of a Floating Rate Note, the Spread and/or Spread Multiplier
applicable to the Extension Period, and (iv) the provisions, if any, for
redemption during the Extension Period, including the date or dates on which or
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
Trustee of an Extension Notice to the holder of a Note, the Stated Maturity of
such Note shall be extended automatically as set forth in the Extension Notice,
and, except as modified by the Extension Notice and as described in the next
paragraph, such Note will have the same terms as prior to the mailing of such
Extension Notice.
Notwithstanding the foregoing, not later than 20 days prior to the Original
Stated Maturity for a Note, the Company may, at its option, revoke the interest
rate, in the case of a Fixed Rate Note, or the Spread and/or Spread Multiplier,
in the case of a Floating Rate Note, provided for in the Extension Notice and
establish a higher interest rate, in the case of a Fixed Rate Note, or a higher
Spread and/or Spread Multiplier, in the case of a Floating Rate Note, for the
Extension Period by mailing or causing the Trustee to mail notice of such
higher interest rate or higher Spread and/or Spread Multiplier, as the case may
be, first class, postage prepaid, to the holder of such Note. Such notice shall
be irrevocable. All Notes with respect to which the Stated Maturity is extended
will bear such higher interest rate, in the case of a Fixed Rate Note, or
higher Spread and/or Spread Multiplier, in the case of a Floating Rate Note,
for the Extension Period.
If the Company elects to extend the Stated Maturity of a Note, the holder of
such Note will have the option to elect repayment of such Note by the Company
at the Original Stated Maturity at a price equal to the principal amount
thereof plus any accrued interest to such date. In order for a Note to be so
repaid on the Original Stated Maturity, the Holder thereof must follow the
procedures set forth below under "Repayment at Option of Holder" for optional
repayment, except that the period for delivery of such Note or notification to
the Trustee shall be at least 25 but not more than 35 days prior to the
Original Stated Maturity and except that a holder who has tendered a Note for
repayment pursuant to an Extension Notice may, by written notice to the
Trustee, revoke any such tender for repayment until the close of business on
the tenth day prior to the Original Stated Maturity.
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BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Notes (except Foreign Currency Notes issued as
Certificated Notes) having the same original issuance date, interest rate,
Specified Currency and Stated Maturity and other terms, if any, will be
represented by a single Global Note. In addition, upon issuance, all Floating
Rate Notes (except Foreign Currency Notes issued as Certificated Notes) having
the same original issuance date, interest rate basis, Initial Interest Rate,
Interest Reset Dates, Interest Payment Dates, Index Maturity, maximum interest
rate (if any), minimum interest rate (if any), Spread (if any), Spread
Multiplier (if any), Specified Currency, Stated Maturity and other terms, if
any, will be represented by a single Global Note. Each Global Note will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York (the "Depositary") and registered in the name of the Depositary's nominee.
Except as set forth below, Global Notes may be transferred, in whole and not in
part, only by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary.
The Depositary has advised the Company and the Agents as follows: The
Depositary is a limited-purpose trust company organized under 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 Securities
Exchange Act of 1934, as amended. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The Depositary also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. "Direct
Participants" include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. The Depositary is owned
by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc, and the National Association of
Securities Dealers, Inc. Access to the Depositary's system is also available to
others such as securities brokers and dealers, banks, and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The Rules applicable
to the Depositary and its Participants are on file with the Securities and
Exchange Commission.
Purchases of interests in the Global Notes under the Depositary's system must
be made by or through Direct Participants, which will receive a credit for such
interests on the Depositary's records. The ownership interest of each actual
purchaser of interests in the Global Notes ("Beneficial Owner") is in turn to
be recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchase,
but Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner
entered into the transaction. Transfers of ownership interests in the Global
Notes are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the Global Notes, except
as described below.
To facilitate subsequent transfers, all Global Notes deposited by
Participants with the Depositary are registered in the name of the Depositary's
partnership nominee, Cede & Co. The deposit of Global Notes with the Depositary
and their registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners of
the interests in the Global Notes; the Depositary's records reflect only the
identity of the Direct Participants to whose accounts interests in the Global
Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
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Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
interests in a Global Note are being redeemed, the Depositary's practice is to
determine by lot the amount of the interest of each Direct Participant in such
Global Note to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Global Notes. Under its usual procedures, the Depositary mails an Omnibus
Proxy to the issuer as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts interests in the Global Notes are credited on
the record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Global Notes will be made to the
Depositary. The Depositary's practice is to credit Direct Participants'
accounts on the payment date in accordance with their respective holdings shown
on the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on the payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of the Depositary, the Trustee, or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to the Depositary is the
responsibility of the Company or the Trustee, disbursement of such payments to
Direct Participants shall be the responsibility of the Depositary, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
All payments of principal and any interest on Foreign Currency Notes which
are Global Notes will be made in U.S. dollars unless the Depositary has
received notice in accordance with its procedures from any Participants of
their election to receive all or a specified portion of such payments in the
Specified Currency, in which case payments in the Specified Currency will be
made directly to such Participants.
The Notes represented by one or more Global Notes are exchangeable for
Certificated Notes of like tenor as such Notes if (i) the Depositary for such
Global Notes notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Notes or if at any time such Depositary ceases to be
a clearing agency registered under the Securities Exchange Act of 1934, as
amended, (ii) the Company in its discretion at any time determines not to have
all of the Notes of such series represented by one or more Global Note or Notes
and notifies the Trustee thereof, or (iii) an Event of Default has occurred and
is continuing with respect to the Notes of such series. Any Note that is
exchangeable pursuant to the preceding sentence is exchangeable for
Certificated Notes issuable in authorized denominations and registered in such
names as the Depositary holding such Global Notes shall direct. The authorized
denominations of the Notes denominated in United States dollars will be $1,000
or any greater amount that is an integral multiple of $1,000. The authorized
denominations of Notes denominated in a Specified Currency other than United
States dollars will be set forth in the applicable Pricing Supplement. Subject
to the foregoing, a Global Note is not exchangeable, except for a Global Note
or Global Notes of the same aggregate denominations to be registered in the
name of such Depositary or its nominee.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
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REDEMPTION AND REPURCHASE
If the Pricing Supplement relating to a Note so indicates, such Note will be
redeemable at the option of the Company on a date or dates specified prior to
the Stated Maturity at a price or prices set forth in the applicable Pricing
Supplement, together with accrued interest to the date of redemption. The Notes
will not be subject to any sinking fund. The Company may redeem any of the
Notes which are redeemable and remain outstanding either in whole or from time
to time in part, upon not less than 30 nor more than 60 days' notice.
The Company may at any time purchase Notes at any price in the open market or
otherwise. Notes so purchased by the Company may, at its discretion, be held,
resold or surrendered to the Trustee for cancellation.
REPAYMENT AT OPTION OF HOLDER
If the Pricing Supplement relating to a Note so indicates, such Note will be
repayable at the option of the holder on a date or dates specified prior to the
Stated Maturity at a price or prices set forth in the applicable Pricing
Supplement, together with accrued interest to the date of repayment.
In order for a Note to be repaid, the Trustee must receive at the principal
office of the Corporate Trust Department of the Trustee in New York City at
least 30 days, but not more than 45 days, prior to the specified repayment date
notice of the holder's exercise of its repayment option as specified in the
Note. Exercise of the repayment option by the holder of a Note shall be
irrevocable, except as otherwise described under "Interest Rate Reset" and
"Extension of Maturity". The repayment option may be exercised by the holder of
a Note for less than the entire principal amount of the Note provided that the
principal amount of the Note remaining outstanding after repayment, if any, is
an authorized denomination.
The Depositary or its nominee will be the holder of Global Notes and
therefore will be the only entity that can exercise a right to repayment with
respect to such Notes. In order to ensure that the Depositary or its nominee
will timely exercise a right to repayment with respect to a particular Global
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 cut-off times 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 cut-off time by which such an
instruction must be given in order for timely notice to be delivered to the
Depositary.
IMPORTANT CURRENCY INFORMATION
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for Foreign Currency Notes in the Specified Currency. At
the present time there are limited facilities in the United States for the
conversion of United States dollars into foreign currencies and vice versa, and
banks generally do not offer non-United States dollar checking or savings
account facilities in the United States. However, if requested on or prior to
the fifth Business Day preceding the date of delivery of any Foreign Currency
Notes, or by such other day as determined by the Agent who presented such offer
to purchase any Foreign Currency Notes to the Company, such Agent is prepared
to arrange for the conversion of United States dollars into the Specified
Currency set forth in the applicable Pricing Supplement to enable the
purchasers to pay for the Notes. Each such conversion will be made by the
applicable Agent on such terms and subject to such conditions, limitations and
charges as the applicable Agent may from time to time establish in accordance
with its regular foreign exchange practices. All costs of exchange will be
borne by the purchasers of the Notes.
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FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in, or the payment of which is
determined with reference to, a Specified Currency other than U.S. dollars
entails significant risks that are not associated with a similar investment in
a security denominated in United States dollars. Similarly, an investment in a
Currency Indexed Note entails significant risks that are not associated with an
investment in a non- Currency Indexed Note. Such risks include, without
limitation, the possibility of significant changes in rates of exchange between
the U.S. dollar and the Specified Currency (or, in the case of each Currency
Indexed Note, the rate of exchange between the Specified Currency and the
Indexed Currency for such Currency Indexed Note), including changes resulting
from official redenomination with respect to such Specified Currency (or in the
case of each Currency Indexed Note, with respect to the Specified Currency or
the Indexed Currency therefor) and the possibility of the imposition or
modification of foreign exchange controls by either the United States or
foreign governments. Such risks generally depend on economic and political
events over which the Company has no control. In recent years, rates of
exchange between the U.S. dollar and certain foreign currencies have been
highly volatile and such volatility may be expected in the future. Fluctuations
in any particular exchange rate that have occurred in the past are not
necessarily indicative, however, of fluctuations in the rate that may occur
during the term of any Note. Depreciation of the Specified Currency applicable
to a Foreign Currency Note against the U.S. dollar 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.
Similarly, depreciation of the Specified Currency with respect to a Currency
Indexed Note against the applicable Indexed Currency would result in the
principal amount payable with respect to such a Currency Indexed Note at the
Stated Maturity being less than the Face Amount of such a Currency Indexed Note
which, in turn, would decrease the effective yield of such Currency Indexed
Note below its applicable interest rate and could also result in a loss to the
investor. See "Currency Indexed Notes."
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED 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
COMPOSITE CURRENCY, AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE
PROSPECTIVE INVESTORS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR THE DATE OF THE APPLICABLE PRICING 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 SUCH NOTES. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR
INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
Foreign Currency Notes will not be sold in, or to residents of, the country
issuing the Specified Currency in which particular Notes are denominated. 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 and interest on the
Notes. Such persons should consult their own counsel with regard to such
matters.
The Pricing Supplement relating to Notes that are denominated in, or the
payment of which is determined with reference to, a Specified Currency other
than U.S. dollars or relating to Currency Indexed Notes will contain
information concerning historical exchange rates for such Specified Currency
against the U.S. dollar or other relevant currency (including, in the case of
Currency Indexed Notes, the applicable Indexed Currency), a description of such
currency or currencies and any exchange controls
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affecting such currency or currencies. Information concerning exchange rates is
furnished as a matter of information only and should not be regarded as
indicative of the range of or trend in fluctuations in currency exchange rates
that may occur in the future.
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, and
premium, if any, or interest on a Note. Even if there are no actual exchange
controls, it is possible that the specified currency or composite currency for
any particular Note would not be available at the time of any such payment. See
"Payment Currency."
PAYMENT CURRENCY
Except as set forth in the applicable Pricing Supplement, if payment on a
Note is required to be made in a Specified Currency other than United States
dollars and such currency is unavailable in the good faith judgment of the
Company due to the imposition of exchange controls or other circumstances
beyond the Company's control, or is no longer used by the government of the
country issuing such currency or for the settlement of transactions by public
institutions of or within the international banking community, then all
payments with respect to such Note shall be made in United States dollars until
such currency is again available or so used. The amount so payable on any date
in such foreign currency shall be converted into United States dollars at a
rate determined by the Exchange Rate Agent on the basis of the Market Exchange
Rate on the second Business Day prior to such payment, or, if the Market
Exchange Rate is not then available, the most recently available Market
Exchange Rate or as otherwise determined in good faith by the Company if the
foregoing is impracticable. Any payment in respect of such Note made under such
circumstances in United States dollars will not constitute an Event of Default
under the Indenture.
The Notes that are denominated in, or the payment of which is determined by
reference to, a Specified Currency other than U.S. dollars, will provide that,
in the event of an official redenomination of a foreign currency (including,
without limitation, an official redenomination of a foreign currency that is a
composite currency) the obligations of the Company with respect of payments on
Notes denominated in such currency shall, in all cases, be deemed immediately
following such redenomination to provide for the payment of that amount of
redenominated currency representing the amount of such obligations immediately
before such redenomination. Such Notes will not provide for any adjustment to
any amount payable under the Notes as a result of (a) any change in the value
of a foreign currency relative to any other currency due solely to fluctuations
in exchange rates or (b) any redenomination of any component currency of any
composite currency (unless such composite currency is itself officially
redenominated).
If the official unit of any component currency 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 component
currencies are consolidated into a single currency, the amounts of those
currencies as components shall be replaced by an amount in such single
currency. If any component currency is divided into two or more currencies, the
amount of that original component currency as a component shall be replaced by
the amounts of such two or more currencies having an aggregate value on the
date of division equal to the amount of the former component currency
immediately before such division.
All determinations referred to above made by the Exchange Rate Agent shall be
at its sole discretion (except to the extent expressly provided herein that any
determination is subject to the approval of the Company). In the absence of
manifest error, such determinations shall be conclusive for all purposes and
binding on holders of the Notes and the Exchange Rate Agent shall have no
liability therefor.
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GOVERNING LAW AND JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. Courts in the United States have not customarily
rendered judgments for money damages denominated in any currency other than the
United States dollar. New York statutory law provides, however, that a court
shall render a judgment or decree in the foreign currency of the underlying
obligation and that the judgment or decree shall be converted into United
States dollars at the rate of exchange prevailing on the date of the entry of
the judgment or decree.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Orrick, Herrington & Sutcliffe, counsel for the Company,
the following summary correctly describes certain United States federal income
tax consequences of the ownership of Notes as of the date hereof. This summary
is based on the Internal Revenue Code of 1986 (the "Code") as well as final,
temporary and proposed Treasury regulations and administrative and judicial
decisions. Legislative, judicial and administrative changes may occur, possibly
with retroactive effect, affecting the accuracy of the statements set forth
herein. This summary does not purport to address all federal income tax matters
that may be relevant to particular purchasers of Notes. For example, it
generally is addressed only to original purchasers of the Notes, deals only
with Notes held as capital assets within the meaning of Section 1221 of the
Code, and does not address tax consequences of holding Notes that may be
relevant to investors in special tax situations, such as life insurance
companies, dealers in securities or currencies, notes held as a hedge or as
part of a hedging, straddle or conversion transaction or holders whose
"functional currency" (as defined in Code section 985) is not the United States
dollar (a "nonfunctional currency"). In the event the Company intends to issue
Currency Indexed Notes, Indexed Notes or Dual Currency Notes, the applicable
Pricing Supplement will describe relevant federal income tax consequences.
Persons considering the purchase of Notes should consult their own tax advisors
concerning the application of United States federal income tax laws, as well as
the laws of any state, local or foreign taxing jurisdictions, to their
particular situations. Additional United States federal income tax consequences
applicable to particular Notes may be set forth in the applicable Pricing
Supplement.
PAYMENT OF INTEREST
Except as set forth below, interest on a Note will 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 tax purposes. Special rules
governing the treatment of Notes issued at an original issue discount are
described under "Original Issue Discount" below. Additional United States
federal income tax consequences applicable to particular Notes issued at an
original issue discount may be set forth in the applicable Pricing Supplement.
ORIGINAL ISSUE DISCOUNT
The following is a summary of the principal federal income tax consequences
of the ownership of Notes issued at an original issue discount. It is based in
part upon the rules governing original issue discount that are set forth in
Code sections 1271 through 1275 and in Treasury regulations thereunder (the
"OID Regulations"). It is also based in part upon certain proposed Treasury
regulations relating to contingent payment debt instruments released by the
Internal Revenue Service in 1986 and modified in 1991 (the "Proposed
Regulations"). Proposed Treasury regulations are subject to modification
through the adoption of final regulations, and the Internal Revenue Service has
provided no assurance that any final regulations will be consistent with the
Proposed Regulations or that taxpayers may rely upon the Proposed Regulations
for guidance prior to the issuance of any final regulations. On January 19,
1993, the Internal Revenue Service released a form of proposed Treasury
regulations substantially
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revising the Proposed Regulations. However, on January 22, 1993, these revised
rules were suspended prior to their publication in the Federal Register. It is
uncertain when or if those suspended rules again will be formally proposed and
published in the Federal Register, and if formally proposed, whether they will
remain in substantially the same form. The following summary disregards those
suspended rules.
A Note which has an issue price of less than its "stated redemption price at
maturity" generally will be issued at an original issue discount for federal
income tax purposes. The issue price of a Note generally is the first price at
which a substantial amount of the issue of Notes is sold to the public
(excluding bond houses, brokers, or similar persons acting in the capacity of
underwriters or wholesalers). The "stated redemption price at maturity" is the
total amount of all payments provided by the Note other than "qualified stated
interest" payments; qualified stated interest generally is stated interest
that is unconditionally payable at least annually either at a single fixed
rate, or, to the extent described below, at a "qualifying variable rate". A
Note will be considered to have de minimis original issue discount if the
excess of its stated redemption price at maturity over its issue price is less
than the product of 0.25 percent of the stated redemption price at maturity
and the number of complete years to maturity (or the "weighted average
maturity" in the case of a Note that provides for payment of an amount other
than qualified stated interest before maturity). Holders of Notes having de
minimis original issue discount generally must include a proportionate amount
of each payment of stated principal in income as a payment received in
retirement of the Note.
Holders of Notes issued at an original issue discount that is not de minimis
original issue discount mature more than one year from the date of issuance
will be required to include such original issue discount in gross income for
federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income. Original issue discount accrues based on a
compounded, constant yield to maturity; accordingly, holders of Notes issued
at an original issue discount will be required to include in income
increasingly greater amounts of original issue discount in successive accrual
periods. The annual amount of original issue discount includable in income by
the initial holder of a Note issued at an original issue discount will equal
the sum of the daily portions of the original issue discount with respect to
the Note for each day on which such holder held the Note during the taxable
year. Generally, the daily portions of the original issue discount are
determined by allocating to each day in an accrual period the ratable portion
of the original issue discount allocable to such accrual period. The term
"accrual period" means an interval of time with respect to which the accrual
of original issue discount is measured, and which may vary in length over the
term of the Note provided that each accrual period is no longer than one year
and each scheduled payment of principal or interest occurs at the beginning or
end of an accrual period. The amount of original issue discount allocable to
an accrual period will be the excess of (a) the product of the "adjusted issue
price" of the Note at the commencement of such accrual period and its "yield
to maturity" over (b) the amount of any qualified stated interest payments
allocable to the accrual period. The "adjusted issue price" of the Note at the
beginning of the first accrual period is its issue price, and, on any day
thereafter, it is the sum of the issue price and the amount of the original
issue discount previously includable in the gross income of any holder
(without regard to any acquisition premium), reduced by the amount of any
payment other than a payment of qualified stated interest previously made with
respect to the Note; the OID Regulations provide a special rule for
determining the original issue discount allocable to an accrual period if an
interval between payments of qualified stated interest contains more than one
accrual period. The "yield to maturity" of the Note is the yield to maturity
computed on the basis of a constant interest rate, compounding at the end of
each accrual period; such constant yield, however, must take into account the
length of the particular accrual period. If all accrual periods are of equal
length except for an initial or an initial and final shorter accrual
period(s), the amount of original issue discount allocable to the initial
period may be computed using any reasonable method; the original issue
discount allocable to the final accrual period is in any event the difference
between the amount payable at maturity (other than a payment of qualified
stated interest) and the adjusted issue price at the beginning of the final
accrual period.
For purposes of calculating the yield and maturity of a Note subject to an
issuer or holder right to accelerate principal repayment, such call or put
option is presumed exercised if the yield on the Note
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would be less or more, respectively, than it would be if the option were not
exercised. The effect of this rule generally may be to accelerate the
inclusion of original issue discount in the income of a holder whose Note is
subject to a put or a call option, as compared to a Note that does not have
such an option. If any such option presumed to be exercised is not in fact
exercised, the Note is treated as reissued on the date of presumed exercise
for an amount equal to its adjusted issue price on that date for purposes of
redetermining such Note's yield and maturity and any related subsequent
accruals of OID.
The OID Regulations describe certain categories of variable rate debt
instruments which bear interest at a "qualifying variable rate." As a
threshold matter, the issue price of the variable rate debt instrument may not
exceed the total noncontingent principal payments by more than the product of
such noncontingent principal payments and the lesser of (i) 15 percent or (ii)
the product of 1.5 percent and the number of complete years in the debt
instrument's term (or its weighted average maturity in the case of an
installment obligation). The debt instrument further must provide for stated
interest paid or compounded at least annually at (i) one or more "qualified
floating rates," (ii) a single fixed rate and one or more "qualified floating
rates," (iii) a single "objective rate," or (iv) a single fixed rate and a
single objective rate that is a "qualified inverse floating rate." A qualified
floating rate or objective rate must be set at a "current value" of that rate;
a "current value" is the value of the variable rate on any day that is no
earlier than three months prior to the first day on which that value is in
effect and no later than one year following that day. A "qualified floating
rate" is a variable rate whose variations can reasonably be expected to
measure contemporaneous variations in the cost of newly borrowed funds in the
currency in which the debt instrument is denominated. A qualified variable
rate may be multiplied by a fixed, positive multiple not exceeding 1.35,
increased or decreased by a fixed rate, or both. Certain combinations of rates
constitute a single qualified floating rate, including (i) interest stated at
a fixed rate for an initial period of less than one year followed by a
qualified floating rate if the value of the floating rate at the issue date is
intended to approximate the fixed rate, and (ii) two or more qualified
floating rates that can reasonably be expected to have approximately the same
values throughout the term of the debt instrument. A combination of such rates
is conclusively presumed to be a single qualified floating rate if the values
of all rates on the issue date are within 0.25 percentage points of each
other. A variable rate that is subject to an interest rate cap, floor,
"governor" or similar restriction on rate adjustment may be a qualified
floating rate only if such restriction is fixed throughout the term of the
debt instrument, or is not reasonably expected as of the issue date to cause
the yield on the debt instrument to differ significantly from its expected
yield absent the restriction. An "objective rate" is a rate (other than a
qualified floating rate) determined using a single formula fixed for the life
of the debt instrument, which is based on (i) one or more qualified floating
rates (including a multiple or inverse of a qualified floating rate), (ii) one
or more rates each of which would be a qualified floating rate for a debt
instrument denominated in a foreign currency, (iii) the yield or changes in
price of one or more items of "actively traded" personal property, (iv) a
combination of the foregoing objective rates, or (v) a rate designated by the
Internal Revenue Service. However, a variable rate is not an objective rate if
it is reasonably expected that the average value of the rate during the first
half of the debt instrument's term will differ significantly from the average
value of such rate during the final half of its term. A combination of
interest stated at a fixed rate for an initial period of less than one year
followed by an objective rate is treated as a single objective rate if the
value of the objective rate at the issue date is intended to approximate the
fixed rate; such a combination of rates is conclusively presumed to be a
single objective rate if the objective rate on the issue date does not differ
from the fixed rate by more than 0.25 percentage points. An objective rate is
a qualified inverse floating rate if it is equal to a fixed rate reduced by a
qualified floating rate, the variations in which can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds (disregarding permissible rate caps, floors, governors and similar
restrictions such as are discussed above).
If a Note bears interest at a "qualifying variable rate," the OID
Regulations specify rules for determining the amount of qualified stated
interest and the amount and accrual of any original issue discount. If the
Note bears interest that is unconditionally payable at least annually at a
single qualified
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floating rate or objective rate, all stated interest is treated as qualified
stated interest. The accrual of any original issue discount is determined by
assuming the Note bears interest at a fixed interest rate equal to the issue
date value of the qualified floating rate or qualified inverse floating rate,
or equal to the reasonably expected yield for the Note in the case of any other
objective rate. If the Note bears interest at a qualifying variable rate other
than a single qualified floating rate, the amount and accrual of original issue
discount generally are determined by (i) determining a fixed rate substitute
for each variable rate as described in the preceding sentence, (ii) determining
the amount of qualified stated interest and original issue discount by assuming
the Note bears interest at such substitute fixed rates, and (iii) making
appropriate adjustments to the qualified stated interest and original issue
discount so determined for actual interest rates under the Note. However, if
such qualifying variable rate includes a fixed rate, the Note first is treated
for purposes of applying clause (i) of the preceding sentence as if it provided
for an assumed qualified floating rate (or qualified inverse floating rate if
the actual variable rate is such) in lieu of the fixed rate; the assumed
variable rate would be a rate that would cause the Note to have approximately
the same fair market value.
Variable rate debt instruments that do not bear interest at a "qualifying
variable rate" will be treated as contingent payment debt instruments. Interest
on such instruments could be includable in income as it becomes fixed under the
Proposed Regulations, or according to rules similar to those described above
for variable rate debt instruments, or according to some other method.
Additionally, under the Proposed Regulations, debt instruments that provide for
one or more contingent payments determined in any part by reference to the
value of publicly traded property may in certain circumstances be bifurcated
into a noncontingent debt instrument and a separate instrument characterized in
accordance with its economic substance. These rules may require allocation of
the issue price of such a Note among the instruments, with the result that the
issue price of the portion of the Note treated as a debt instrument may be less
than its stated redemption price at maturity, which in turn could require
annual accruals of original issue discount with respect to such portion. It is
unclear whether and the extent to which any aspect of these bifurcation rules
might apply to the Notes. Persons purchasing Floating Rate Notes should consult
their tax advisors concerning the applicability of the Proposed Regulations to
such Notes.
In general, an individual or other cash method holder of a Note that matures
one year or less from the date of its issuance (a "Short-term Note") issued at
an original issue discount is not required to accrue original issue discount
for federal income tax purposes unless he elects to do so. Holders who report
income for federal income tax purposes on the accrual method and certain other
holders, including banks, regulated investment companies and dealers in
securities, are required to include original issue discount on such Notes on a
straight-line basis, unless an election is made to accrue the original issue
discount according to a constant interest method based on daily compounding. In
the case of a holder who is not required and does not elect to include original
issue discount in income currently, any gain realized on the sale, exchange or
retirement of such a Note will be ordinary income to the extent of the original
issue discount accrued on a straight-line basis (or, if elected, according to a
constant interest method based on daily compounding) through the date of sale,
exchange or retirement. In addition, such non-electing holders who are not
subject to the current inclusion requirement described in this paragraph will
be required to defer deductions for any interest paid on indebtedness incurred
or continued to purchase or carry such Notes in an amount not exceeding the
deferred interest income, until such deferred interest income is realized.
PREMIUM AND MARKET DISCOUNT
If a holder purchases a Note (other than a Short-term Note) for an amount
that is less than the Note's stated redemption price at maturity, or, in the
case of a Note issued at an original issue discount, less than its adjusted
issue price (as defined above) as of the date of purchase, the amount of the
difference will be treated as "market discount" for federal income tax
purposes. Market discount generally will be de minimis and hence disregarded,
however, if it is less than the product of 0.25
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percent of the stated redemption price at maturity of the Note and the number
of remaining complete years to maturity (or weighted average maturity in the
case of Notes paying any amount other than qualified state interest prior to
maturity). Under the market discount rules, a holder is required to treat any
principal payment on, or any gain on the sale, exchange, retirement or other
disposition of, a Note as ordinary income to the extent of any accrued market
discount which has not previously been included in income. If such Note is
disposed of in a nontaxable transaction (other than certain specified
nonrecognition transactions), accrued market discount will be includable as
ordinary income to the holder as if such holder had sold the Note at its then
fair market value. In addition, the holder may be required to defer, until the
maturity of the Note or its earlier disposition in a taxable transaction, the
deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry such Note.
Market discount is considered to accrue ratably during the period from the
date of acquisition to the maturity of a Note, unless the holder elects to
accrue on a constant interest basis. A holder of a Note may elect to include
market discount in income currently as it accrues (on either a ratable or
constant interest basis), in which case the rule described above regarding
deferral of interest deductions will not apply. This election to include market
discount currently applies to all market discount obligations acquired during
or after the first taxable year to which the election applies, and may not be
revoked without the consent of the Internal Revenue Service.
A holder who purchases a Note issued at an original issue discount for an
amount exceeding its adjusted issue price (as defined above) will be considered
to have purchased such Note with "acquisition premium." The amount of original
issue discount which such holder must include in gross income with respect to
such Note will be reduced in the proportion that such excess bears to the
original issue discount remaining to be accrued as of the Note's acquisition.
A holder who acquires a Note for an amount that is greater than its stated
redemption price at maturity will be considered to have purchased such Note at
a premium, and may elect to amortize such premium using a constant interest
method, generally over the remaining term of the Note. Any such election shall
apply to all debt instruments (other than debt instruments the interest on
which is excludable from gross income) held at the beginning of the first
taxable year to which the election applies or thereafter acquired, and is
irrevocable without consent of the Internal Revenue Service.
CONSTANT YIELD ELECTION
A holder of a Note may elect to include in income all interest, discount and
premium based on a constant yield method determined with respect to such
holder's basis. If such election is made with respect to a Note having market
discount, such holder will be deemed to have elected currently to include
market discount on a constant interest basis with respect to all debt
instruments having market discount acquired during the year of election or
thereafter. If made with respect to a Note having amortizable bond premium,
such holder will be deemed to have made an election to amortize premium
generally with respect to debt instruments having amortizable bond premium held
by the taxpayer during the year of election or thereafter.
SALE AND 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 from
the sale, exchange or retirement and the holder's adjusted tax basis in the
Note. Such gain or loss generally will be capital gain or loss, except to the
extent of any accrued market discount (see "Premium and Market Discount"
above), such capital gain or loss will be long term capital gain or loss if the
Note has been held for more than one year. A holder's
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adjusted tax basis in a Note will equal the cost of the Note, increased by any
original issue discount or market discount includable in taxable income by the
holder with respect to such Note, and reduced by any amortizable bond premium
applied to reduce interest on a Note, any principal payments received by the
holder, and in the case of Notes issued at an original issue discount, any
other payments not constituting qualified stated interest (as defined above).
Special rules regarding the treatment of gain realized with respect to Short-
term Notes issued at an original issue discount are described under "Original
Issue Discount" above.
NONFUNCTIONAL CURRENCY NOTES
The following is a summary of the principal federal income tax consequences
to a holder of the ownership of a Note denominated in a Specified Currency
other than the United States dollar ("Nonfunctional Currency Notes"). Persons
considering the purchase of Nonfunctional Currency Notes should consult their
own tax advisors with regard to the application of the United States federal
income tax laws to their particular situations, as well as any consequences
arising under the laws of any other taxing jurisdictions.
In general, if a payment of interest with respect to a Note is made in a
nonfunctional currency, the amount includable in the income of the holder will
be the United States dollar value of the nonfunctional currency payment based
on the exchange rate in effect on the date of receipt or, in the case of an
accrual basis holder, based on the average exchange rate in effect during the
interest accrual period (or, with respect to an accrual period that spans two
taxable years, the partial period within the taxable year), in either case
regardless of whether the payment is in fact converted into United States
dollars. Upon receipt of an interest payment (including a payment attributable
to accrued but unpaid interest upon the sale or retirement of the Nonfunctional
Currency Note) in a nonfunctional currency, an accrual basis holder will
recognize ordinary income or loss measured by the difference between such
average exchange rate and the exchange rate in effect on the date of receipt.
Accrual basis holders may determine the United States dollar value of any
interest income accrued in a nonfunctional currency under an alternative
method, as described below as the "spot accrual convention."
A holder will have a tax basis in any nonfunctional currency received on the
sale, exchange or retirement of the Nonfunctional Currency Note equal to the
United States dollar value of such nonfunctional currency, determined at the
time of such sale, exchange or retirement. Any gain or loss realized by a
holder on a sale or other disposition of nonfunctional currency (including its
exchange for United States dollars or its use to purchase Nonfunctional
Currency Notes) will be ordinary income or loss.
A holder's tax basis in a Nonfunctional Currency Note, and the amount of any
subsequent adjustments to such holder's tax basis, will be the United States
dollar value of the nonfunctional currency amount paid for such Nonfunctional
Currency Note, or the nonfunctional currency amount of the adjustment,
determined on the date of such purchase or adjustment increased by the amount
of any original issue discount included in the holder's income with respect to
the Nonfunctional Currency Note and reduced by the amount of any interest
payments on the Nonfunctional Currency Note that are not qualified stated
interest payments and by the amount of any amortizable bond premium applied to
reduce interest on the Nonfunctional Currency Note. A holder who converts
United States dollars to a nonfunctional currency and immediately uses that
currency to purchase a Nonfunctional Currency Note denominated in the same
currency normally will not recognize gain or loss in connection with such
conversion and purchase. However, a holder who purchases a Nonfunctional
Currency Note with previously owned nonfunctional currency will recognize gain
or loss in an amount equal to the difference, if any, between such holder's tax
basis in the nonfunctional currency and the United States dollar fair market
value of the Nonfunctional Currency Note on the date of purchase.
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For purposes of determining the amount of any gain or loss recognized by a
holder on the sale, exchange or retirement of a Nonfunctional Currency Note
(as described above in the section "Sale and Retirement of the Notes"), the
amount realized upon such sale, exchange or retirement will be the United
States dollar value of the nonfunctional currency received, determined on the
sale, exchange or retirement.
Gain or loss realized upon the sale, exchange or retirement of a
Nonfunctional Currency Note which is attributable to fluctuations in currency
exchange rates will be treated as ordinary income or loss. Gain or loss
attributable to fluctuations in exchange rates will be calculated by
multiplying the original purchase price paid by the holder (expressed in the
relevant nonfunctional currency) by the change in the relevant exchange rate
(expressed in dollars per unit or relevant nonfunctional currency) between the
date on which the holder acquired the Nonfunctional Currency Note and the date
on which the holder received payment in respect of the sale, exchange or
retirement of the Nonfunctional Currency Note. Such nonfunctional 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 Nonfunctional
Currency Note.
Original issue discount on a Note which is also a Nonfunctional Currency
Note is to be determined for any accrual period in the relevant nonfunctional
currency and then translated into the holder's functional currency on the
basis of the average exchange rate in effect during such accrual period. If
the interest accrual period spans two taxable years, the original issue
discount accruing within each year's portion of the accrual period is to be
translated into United States dollars on the basis of the average exchange
rate for the partial period within the taxable year. A holder may elect to
translate original issue discount (and, in the case of an accrual basis
holder, accrued interest) into United States dollars at the exchange rate in
effect on the last day of an accrual period for the original issue discount or
interest, or in the case of an accrual period that spans two taxable years, at
the exchange rate in effect on the last day of the partial period within the
taxable year (the "spot accrual convention"). Additionally if a payment of
original issue discount or interest is actually received within five business
days of the last day of the accrual period or taxable year, an electing holder
may instead translate such original issue discount or accrued interest into
United States dollars at the exchange rate in effect on the day of actual
receipt. Any such election will apply to all debt instruments held by the
holder at the beginning of the first taxable year to which the election
applies or thereafter acquired by the holder, and will be irrevocable without
the consent of the Internal Revenue Service.
If the holder of a Nonfunctional Currency Note has not elected to include
market discount in income currently as it accrues, the amount of accrued
market discount must be determined in the nonfunctional currency and
translated into United States dollars using the spot exchange rate in effect
on the date principal is paid or the Nonfunctional Currency Note is sold,
exchanged, retired or otherwise disposed of. If the holder has elected to
include market discount in income currently as it accrues, the amount of
market discount which accrues during any accrual period will be required to be
determined in units of nonfunctional currency and translated into United
States dollars on the basis of the average exchange rate in effect during such
accrual period.
The Internal Revenue Service may treat, or the holder meeting certain
requirements may elect to treat, a Nonfunctional Currency Note and a spot
contract, futures contract, forward contract, series of futures or forward
contracts, a currency swap contract, or similar financial instrument entered
into by the purchaser of the Nonfunctional Currency Note, that permits the
calculation of a yield to maturity in the currency which the holder will
receive under such contract (a "hedge"), as a single transaction that creates
a "synthetic debt instrument" subject to the original issue discount
provisions described above. If a hedge is entered into after the date the
Nonfunctional Currency Note is acquired, exchange gain or loss shall be
realized on the Nonfunctional Currency Note determined solely by reference to
changes in the exchange rates between the date the Nonfunctional Currency Note
was acquired and the hedge was entered into and recognized on the date that
the Nonfunctional Currency Note matures or is
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otherwise disposed of. Disposition or termination of the hedge will generally
result in the Nonfunctional Currency Note being treated as sold for its fair
market value on the date the hedge is disposed of or terminated, and
disposition or termination of the Nonfunctional Currency Note will generally
result in the hedge being treated as sold for its fair market value on the date
the Nonfunctional Currency Note is disposed of or terminated. Any gain or loss
(including gain or loss resulting from factors other than movements in exchange
rates) from the identification date of the synthetic debt instrument to such
deemed sale is realized and recognized on the date of such deemed sale.
Alternatively, the offsetting positions may be subject to the straddle rules of
section 1092 of the Code. Holders should consult their tax advisors concerning
the tax effect of holding Nonfunctional Currency Notes and any offsetting
positions.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A 31% "backup" withholding tax and certain information reporting requirements
may apply to payments of principal, premium and interest (including any
original issue discount) made to, and the proceeds of disposition of a Note by,
certain holders. Backup withholding will apply only if (i) the holder fails to
furnish his Taxpayer Identification Number ("TIN") to the payor, (ii) the
Internal Revenue Service notifies the payor that the holder has furnished an
incorrect TIN, (iii) the Internal Revenue Service notifies the payor that the
holder has failed to report properly payments of interest and dividends or (iv)
under certain circumstances, the taxpayer fails to certify, under penalty of
perjury, that he has both furnished a correct TIN and not been notified by the
Internal Revenue Service that he is subject to backup withholding for failure
to report interest and dividend payments. Backup withholding will not apply
with respect to payments made to certain exempt recipients, such as
corporations and financial institutions. Holders should consult their tax
advisers regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption.
The amount of any backup withholding from a payment to a holder will be
allowed as a credit against such holder's federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the Internal Revenue Service.
NON-UNITED STATES HOLDERS
A "non-United States Holder" is any person other than (i) a citizen or
resident of the United States, (ii) a corporation or partnership organized in
or under the laws of the United States, any state thereof or the District of
Columbia, or (iii) an estate or trust the income of which is includible in
gross income for United States federal income tax purposes regardless of its
source. A non-United States Holder generally will not be subject to United
States federal withholding tax with respect to payments on Notes, provided that
(1) such holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (2) such holder is not for United States federal income tax purposes a
controlled foreign corporation related to the Company through stock ownership,
(3) the beneficial owner of the Note certifies under penalties of perjury as to
its status as a non-United States holder and complies with applicable
identification procedures, and (4) such payment is not a payment of "contingent
interest" described in Code section 871(h)(4). In certain circumstances, the
above-described certification can be provided by a bank or other financial
institution. In addition, a non-United States holder of a Note generally will
not be subject to United States federal income tax on any gain realized upon
the sale, retirement or other disposition of a Note, unless such holder is an
individual who is present in the United States for 183 days or more during the
taxable year of such sale, retirement or other disposition. If a non-United
States holder of a Note is engaged in a trade or business in the United States
and income or gain from the Note is effectively connected with the conduct of
such trade or business, the non-United States holder will be exempt from the
withholding tax discussed above, but will generally be subject to regular
United States income tax on such income
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and gain in the same manner as if it were a United States holder. In addition,
if such non-United States holder is a foreign corporation, it may be subject to
a branch profits tax equal to 30 percent of its effectively connected earnings
and profits for the taxable year, subject to adjustments.
Backup withholding will not apply to payments of principal, premium, if any,
and interest made to a non-United States holder by the Company on a Note with
respect to which the holder has provided the required certification under
penalties of perjury of its non-United States holder status or has otherwise
established an exemption, provided in each case that the Company or its Paying
Agent, as the case may be, does not have actual knowledge that the payee is a
United States person. Payments on the sale, exchange or other disposition of a
Note to or through a foreign office of a broker will not be subject to backup
withholding. However, if such broker is a United States person, a controlled
foreign corporation for United States tax purposes or a foreign person 50% or
more of whose gross income is derived from its conduct of a United States trade
or business for a specified three-year period, information reporting will be
required unless the broker has in its records documentary evidence that the
beneficial owner is not a United States person and certain other conditions are
met or the beneficial owner otherwise establishes an exemption. Payments to or
through the United States office of a broker will be subject to backup
withholding and information reporting unless the holder certifies under
penalties of perjury to its non-United States holder status or otherwise
establishes an exemption.
Non-United States holders should consult their tax advisors regarding the
application of United States federal income tax laws, including information
reporting and backup withholding, to their particular situations.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are being offered from time to time by the Company through Goldman,
Sachs & Co., Lehman Brothers, Lehman Brothers Inc. (including its affiliate
Lehman Special Securities Inc.) and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Agents, who have severally agreed to use their
best efforts to solicit offers to purchase the Notes. The Company may also sell
Notes to any Agent, as principal, and such Agent may resell such Notes as
further set forth below. The Company will have the sole right to accept offers
to purchase Notes and may reject any proposed purchase of Notes as a whole or
in part. The Agents shall have the right, in their discretion reasonably
exercised, to reject any proposed purchase of Notes as a whole or in part. The
Company will pay each Agent a commission (or grant a discount) ranging from
.125% to .750%, depending upon the maturity, of the principal amount of Notes
sold through such Agent. Commissions and discounts with respect to Notes with
maturities in excess of 30 years will be negotiated between the Company and
such Agent at the time of sale.
Unless otherwise indicated in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage equal to the
commission applicable to any agency sale of a Note of identical maturity. Such
Notes may be resold by the Agent to investors and other purchasers from time to
time in one or more transactions, including negotiated transactions, or at
varying prices relating to prevailing market prices determined at the time of
sale or, if so agreed, at a fixed public offering price. 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), and any concession or discount, may be changed. In addition,
the Agents may resell Notes they have purchased as principal to other dealers.
Such resales may be at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not
exceed the discount to be received by such Agent from the Company. Such dealers
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Act").
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The Agents have informed the Company that they intend to establish a trading
market for the Notes. However, the Agents are not obligated to make such a
market and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any Notes.
The Agents, as agents or principals, may be deemed to be "underwriters"
within the meaning of the Act. The Company has agreed to indemnify the Agents
against certain liabilities, including liabilities under the Act.
The Company reserves the right to sell Notes directly to investors on its own
behalf, in which case no discount will be allowed or commission paid.
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