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RULE NO. 424(b)(5)
REGISTRATION NO. 33-59267
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE 5, 1995
$2,000,000,000
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 $2,000,000,000 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.
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<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)... $2,000,000,000 $2,500,000-$15,000,000 $1,997,500,000-$1,985,000,000
</TABLE>
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(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 $1,110,000.
(4) Or the equivalent thereof in foreign currencies or composite currency
units.
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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 June 5, 1995.
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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 $2,000,000,000 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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Except as set forth in "Certain Restrictions--Restrictions on Liens and
Encumbrances" in the accompanying Prospectus, the Indenture does not contain
any provision which will restrict the Company from incurring, assuming or
becoming liable with respect to any indebtedness or other obligations. In
addition, although the Support Agreement between the Company and Caterpillar
does provide that Caterpillar will ensure that the Company will maintain a
tangible net worth of at least $20 million, the Indenture does not contain any
provision which would afford holders of the Notes other protection upon the
occurrence of a highly leveraged transaction involving the Company which may
adversely affect the creditworthiness of the Notes. See "Relationship with
Caterpillar--Support Agreement" in the accompanying Prospectus.
The occurrence of an Event of Default under the Indenture may give rise to a
cross-default under other series of Debt Securities issued under the Indenture
and other indebtedness of the Company which may be outstanding from time to
time. The Company currently has two syndicated revolving credit facilities
aggregating $1.8 billion which provide that an event of default with respect to
such facilities will occur if the Company fails to pay any principal of,
premium or interest on, or is required to prepay, any debt, or fails to observe
or perform any covenant or condition on its part to be observed or performed
under any agreement relating to any debt, which is outstanding in an aggregate
principal amount of at least $25,000,000. At May 31, 1995, there were no
borrowings under these facilities, which provide support for the Company's
outstanding commercial paper and commercial paper guarantees. See "Discussion
of Selected Financial Information--Capital Resources and Liquidity" in the
accompanying Prospectus.
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 BankAmerica National Trust Company (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,
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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 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 ajNote 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
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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, BankAmerica National Trust Company 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 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, BankAmerica National Trust Company 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, a specified dollar amount as specified in
the applicable Pricing Supplement. 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
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of ECU shall be Brussels) and (ii) a day on which banking institutions in such
financial 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 Lon-
don interbank market (a "London Business Day"). "Index Maturity" means, with
respect to a Floating Rate Note, the period to maturity of the instrument or
obligation on which the interest rate formula is based, as specified in the
applicable 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.
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
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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 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
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<PAGE>
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 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
S-8
<PAGE>
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:
Money Market Yield = X 100
D X 360
------------
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.
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
S-9
<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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.
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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.
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
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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 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.
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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 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
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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.
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
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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.
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
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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.
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
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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.
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,
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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 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
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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.
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, that could affect 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
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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 banks, insurance companies, tax-exempt organizations,
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.
This summary assumes that the Notes issued will be treated as debt because that
is what the Company intends; however, the Company will not seek any rulings to
that effect. 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 any state,
local, foreign or other tax laws, 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.
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"). On December 15, 1994, the Internal Revenue Service (the
"Service") issued proposed Treasury regulations relating to contingent payment
debt instruments, which also contained proposed amendments to the OID
Regulations with regard to variable rate debt instruments (the "Proposed
Regulations"). In general, the Proposed Regulations are proposed to be
effective for debt instruments issued on or after the date that is 60 days
after final regulations are published. The following summary does not discuss
the application of the Proposed Regulations to, or address the federal income
tax consequences of, an investment in contingent payment debt instruments. In
the event the Company issues contingent payment debt instruments, such as
certain Indexed Notes, the applicable Pricing Supplement will describe the
material federal income tax consequences thereof.
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." Qualified
stated interest will be taxable to a holder when accrued or received in
accordance with such holder's method of tax accounting. A Note generally 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 the de minimis
original issue discount in income as each payment of stated principal is made
as a payment received in retirement of the Note.
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Holders of Notes issued at an original issue discount that is not de minimis
original issue discount and that 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 generally 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 any 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 computed on the basis of a constant interest rate,
compounding at the end of each accrual period, taking 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 (respectively, a "call
option" or "put option"), such call option or put option is presumed exercised
if the yield on the Note 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 or defer the inclusion of original issue discount in the income of a
holder whose Note is subject to a put option 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 original issue discount. Purchasers of Notes
with such features should carefully review the applicable Pricing Supplement
and should consult their own tax advisors with respect to the consequences of a
Note having such an option.
Special considerations relate to the calculation of interest income and
original issue discount with respect to Floating Rate Notes. Such notes
generally will bear interest at a "qualified floating rate" and thus will be
treated as "variable rate debt instruments" under the OID Regulations. Such
Notes will be treated as described in the following paragraph. Floating Rate
Notes that are not treated as "variable rate debt instruments" or that have an
issue price that exceeds the total noncontingent principal payments by more
than a specified minimum amount will be treated as contingent payment debt
instruments. The Pricing Supplement applicable to any such debt instrument will
describe the material federal income tax consequences of the ownership of such
instrument.
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If a Note qualifies as a variable rate debt instrument, 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
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. The Proposed Regulations clarify that the qualified stated
interest allocable to an accrual period is increased (or decreased) if the
interest actually paid during an accrual period exceeds (or is less than) the
interest assumed to be paid during the accrual period; such clarification is
proposed to be effective for debt instruments issued on or after April 4, 1994.
If the Note bears interest at a rate that is not a single qualified floating
rate or objective rate, the amount of interest and accruals of original issue
discount generally are determined by (i) determining a fixed rate substitute
for each variable rate as described above, (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 paid 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.
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") is not
required to accrue original issue discount for federal income tax purposes
unless it 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 yield 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 yield 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. As described elsewhere
herein, certain of the Notes may be subject to special put, call, and renewal
options. These options may affect the determination of whether a Note has a
maturity of not more than one year and thus is a Short-term Note. Purchasers of
Notes with such options should carefully review the applicable Pricing
Supplement and should consult their own tax advisors with respect to such
features.
MARKET DISCOUNT AND PREMIUM
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 generally will be treated as "market discount" for federal income
tax purposes. A Note acquired at its original issue will not have market
discount unless the Note is purchased at less than its issue price. Market
discount generally will be de minimis and hence disregarded, however, if it is
less
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than the product of 0.25 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
stated 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 yield basis. A holder of a Note may elect to include
market discount in income currently as it accrues (on either a ratable or
constant yield 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 Service.
A holder who purchases a Note issued at an original issue discount for an
amount exceeding its adjusted issue price (as defined above) and less than or
equal to the sum of all amounts payable on the Note after the purchase date
other than payments of qualified stated interest 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 the sum of
all amounts payable on the Note after the purchase date other than payments of
qualified stated interest will be considered to have purchased such Note at a
premium, and will not be required to include any original issue discount in
income. A holder generally may elect to amortize such premium using a constant
yield method 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 Service. Special rules may apply if a Note is subject to
call prior to maturity at a price in excess of its stated redemption price at
maturity.
CONSTANT YIELD ELECTION
A holder of a Note may elect to include in income all interest, discount and
premium with respect to such Note based on a constant yield method, as
described above. The election is made for the taxable year in which the holder
acquires the Note, and it may not be revoked without the consent of the
Service. If such election is made with respect to a Note having market
discount, such holder will be deemed to have elected to include market discount
in gross income currently on a constant yield 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 all debt instruments having amortizable bond premium
held by the taxpayer during the year of election or thereafter.
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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 (less any accrued qualified stated interest
which will be taxable as such) 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 "Market Discount and Premium" above), and
such capital gain or loss will generally be long term capital gain or loss if
the Note has been held for more than one year. A holder's adjusted tax basis in
a Note will equal the cost of the Note, increased by any original issue
discount or market discount previously includible 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).
The Code provides preferential treatment under certain circumstances for net
long-term capital gains realized by individual investors. The ability of United
States holders to offset capital losses against ordinary income is limited.
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 (such currency being herein referred to as
"nonfunctional currency" and such Notes being referred to as "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 (or
determined by reference to the value of) nonfunctional currency, the amount
includable in the income of the holder will be, in the case of a cash basis
holder, 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 (or determined by reference to the value of) 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, described below as the "spot accrual
convention."
A holder will have a tax basis in any nonfunctional currency received as
payment of interest on, or 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 payment, or the disposition
of the Nonfunctional Currency Note. 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.
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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 using the spot rate on the date of such purchase or adjustment and
increased by the amount of any original issue discount included in the holder's
income (and accrued market discount, in the case of a holder who has elected to
currently include market discount, as described above) with respect to the
Nonfunctional Currency Note and reduced by the amount of any 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 value of the nonfunctional currency on
the date of purchase.
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 (or that was payable, in
the case the payment was made in United States dollars), determined using the
spot rate on the date of 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 of 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 by using the constant yield method described above and then
translating the nonfunctional currency amount so determined into United States
dollars 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 Service. Because exchange rates may fluctuate, a United States
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holder of a Note with original issue discount denominated in a foreign currency
may recognize a different amount of original issue discount income in each
accrual period than would the holder of a similar Note with original issue
discount denominated in United States dollars. Also, as described above,
exchange gain or loss will be recognized when the original issue discount is
paid or the holder disposes of the Note.
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. No part of such accrued market discount is
treated as exchange gain or loss. 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. Such an
electing holder will recognize exchange gain or loss with respect to accrued
market discount under the same rules that apply to the accrual of interest
payments on a Nonfunctional Currency Note by a holder on the accrual basis.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A 31 percent "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 its Taxpayer Identification Number ("TIN")
to the payor, (ii) the Service notifies the payor that the holder has furnished
an incorrect TIN, (iii) the Service notifies the payor that the holder has
failed to report properly payments of interest and dividends or (iv) under
certain circumstances, the holder fails to certify, under penalty of perjury,
that it has both furnished a correct TIN and not been notified by the Service
that it 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 advisors 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 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 of interest on Notes,
provided that (1) such holder does not actually or constructively own 10
percent 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). The
applicable Pricing Supplement will indicate if a Note is described in section
871(h)(4). In certain circumstances, the above-described certification can be
provided by a bank or other financial institution.
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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 and certain other conditions
are met. 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 withholding tax if appropriate certification has
been provided, but will generally be subject to regular United States income
tax on such income 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 by a non-United States holder 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 percent 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 Government 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
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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").
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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CATERPILLAR FINANCIAL SERVICES CORPORATION
DEBT SECURITIES
----------------
The Company from time to time may offer its Debt Securities consisting of
debentures, notes and/or other unsecured evidences of indebtedness in one or
more series at an aggregate initial offering price not to exceed
$2,000,000,000. The terms of the Debt Securities, including, where applicable,
the specific designation, aggregate principal amount, denominations, which may
include securities denominated in U.S. dollars, in any other currency or in
composite currencies such as the European Currency Unit, date or dates on which
principal is payable, interest rate or rates (which may be fixed or variable)
and time of payment of interest, if any, terms for redemption at the option of
the Company, terms for any repayment of principal amount at the option of the
holder (which option may be conditional), terms for any sinking fund payments,
the initial public offering price, the names of any underwriters or agents, the
principal amounts, if any, to be purchased by underwriters and the compensation
of such underwriters or agents and the other terms in connection with the
offering and sale of the Debt Securities in respect of which this Prospectus is
being delivered, are set forth in the accompanying Prospectus Supplement. The
Debt Securities are solely the obligations of the Company and are not
guaranteed by Caterpillar Inc. This Prospectus may not be used to consummate
the sale of Debt Securities unless accompanied by a Prospectus Supplement.
The Company may sell Debt Securities to or through one or more underwriters
for public offering and sale by them or may sell Debt Securities to investors
directly or through agents. See "Plan of Distribution." Such underwriters or
agents may include one or more of Goldman, Sachs & Co., Lehman Brothers Inc.,
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, or
a group represented by one or more of such firms or by one or more other firms.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this Prospectus is June 5, 1995
<PAGE>
AVAILABLE INFORMATION
Caterpillar Financial Services Corporation (the "Company") and Caterpillar
Inc. ("Caterpillar"), which owns 100% of the outstanding common stock of the
Company, are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
file reports, proxy material (Caterpillar only) and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
material and other information can be inspected and copied at the offices of
the Commission at 450 Fifth Street, N.W., Washington, D.C., as well as 500 West
Madison Street, Suite 1400, Chicago, Illinois, and 7 World Trade Center, New
York, New York, and copies can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Reports, proxy material and other information concerning
Caterpillar can also be inspected at the offices of the New York, Chicago and
Pacific Stock Exchanges.
The Company is not required to deliver an annual report to its security
holders pursuant to Section 14 of the 1934 Act, nor does it currently intend to
deliver to holders of its debt securities any other report that contains
financial information relating to the Company that has been examined and
reported upon, with an opinion expressed by, an independent accountant. Such
information, however, is contained in the Company's Annual Report on Form 10-K
that the Company will provide without charge (without exhibits), upon request,
to any such security holder.
This Prospectus does not contain all information set forth in the
Registration Statement and Exhibits thereto which the Company has filed with
the Commission and to which reference is hereby made.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31, 1994
and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, filed with the Commission pursuant to the 1934 Act, are hereby
incorporated in this Prospectus by reference.
All other documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the 1934 Act after the date of this Prospectus and prior to the
termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference in this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any or all of the documents referred to above
which have been or may be incorporated in this Prospectus by reference, other
than exhibits to such documents. Requests for such copies should be directed to
Goldman, Sachs & Co., 85 Broad Street, New York, New York, 10004, Attn: Donald
T. Hansen; telephone: (212) 902-1000.
THE COMPANY
The Company is a wholly owned finance subsidiary of Caterpillar. The Company
and its wholly owned subsidiaries in North America, Australia, and Europe are
principally engaged in the business of financing sales and leases of
Caterpillar products and non-competitive related equipment through Caterpillar
dealers and are also engaged in extending loans to Caterpillar customers and
dealers.
The Company's business is largely dependent upon the ability of Caterpillar
dealers to generate sales and leasing activity, the willingness of the
customers and the dealers to enter into financing
2
<PAGE>
transactions with the Company, and the availability of funds to the Company to
finance such transactions. See "Relationship with Caterpillar" for information
as to certain operational and financial support provided to the Company by
Caterpillar. Additionally, the Company's business is affected by changes in
market interest rates, which, in turn, are related to general economic
conditions, demand for credit, inflation, governmental policies and other
factors.
The Company currently offers the following types of retail financing plans:
(1) installment sale contracts; (2) non-tax (financing) leases; (3) tax-
oriented leases; (4) customer loans; (5) dealer loans; and (6) governmental
lease-purchase contracts. The Company also provides wholesale financing of
Caterpillar dealer inventory and rental fleets. At March 31, 1995, the
percentages of total value of the Company's portfolio represented by these
financing plans were as follows: installment sale contracts, 25%; non-tax
(financing) leases, 21%; tax-oriented leases, 19%; customer loans, 18%;
wholesale finance, 8%; dealer loans, 6%; and governmental lease-purchase
contracts, 3%.
The Company is a Delaware corporation which was incorporated in 1981 and is
the successor to a company formed in 1954. The Company has wholly owned finance
subsidiaries in Canada, Australia, Germany, Sweden, France, the United Kingdom,
Spain and the United States. Unless the context otherwise requires, the term
"Company" includes its predecessor and subsidiary companies. The principal
executive office of the Company is located at 3322 West End Avenue, Nashville,
Tennessee 37203-0983 and its telephone number is: (615) 386-5800.
CATERPILLAR
Caterpillar together with its consolidated subsidiary companies operates in
three principal business segments: (a) Machinery--design, manufacture, and
marketing of earthmoving, construction, mining and agricultural machinery, (b)
Engines--design, manufacture, and marketing of engines, and(c) Financial
Products--providing through the Company financing alternatives for Caterpillar
and non-competitive related equipment sold through Caterpillar dealers,
extending loans to Caterpillar customers and dealers, and providing various
forms of insurance for Caterpillar dealers, suppliers, and end-users.
Caterpillar reported profits (losses) before extraordinary items and effects of
accounting changes of $(218) million, $681 million, and $955 million for 1992,
1993, and 1994, respectively, on sales and revenues of $10.19 billion, $11.62
billion, and $14.33 billion, respectively. Caterpillar reported profits of $300
million on sales and revenues of $3.91 billion for the first three months of
1995 as compared with profits of $192 million on sales and revenues of $3.29
billion for the first three months of 1994. The principal executive office of
Caterpillar is located at 100 NE Adams Street, Peoria, Illinois 61629. As used
herein, the term "Caterpillar" means Caterpillar Inc. and its consolidated
subsidiary companies, unless the context otherwise requires.
RELATIONSHIP WITH CATERPILLAR
Caterpillar provides the Company with certain operational and financial
support which is integral to the conduct of the Company's business. The
following description summarizes these arrangements.
EMPLOYEE BENEFITS AND INTERCOMPANY SERVICES
The employees of the Company are covered by various benefit plans, including
pension/post-retirement plans, administered by Caterpillar. The amount of such
charges was $1.9 million, $2.1 million, and $2.2 million for the years ended
December 31, 1992, 1993, and 1994, respectively. The Company also reimburses
Caterpillar for certain corporate services which amounted to $2.0 million, $2.1
million and $1.7 million for the years ended December 31, 1992, 1993 and 1994,
respectively.
3
<PAGE>
SPECIAL MERCHANDISING PROGRAMS
The Company, in conjunction with Caterpillar and its subsidiaries,
periodically offers below-market-rate financing to customers under
merchandising programs. Caterpillar and its subsidiaries, at the outset of the
transaction, remit to the Company an amount equal to the interest differential
which is recognized as income over the term of the contract. During 1994, the
Company recorded receivables of $37.2 million from Caterpillar and its
subsidiaries relative to such programs, compared with $7.9 million in 1993 and
$5.7 million in 1992.
PURCHASE OF RECEIVABLES
The Company has agreements with a subsidiary of Caterpillar to purchase, at a
discount, some or all of this subsidiary's receivables generated by sales of
products to Caterpillar dealers in Germany, Austria, and the Czech Republic.
These purchases (dealer floor planning) in 1994, 1993 and 1992 totaled $190.9
million, $210.2 million and $201.7 million, respectively. At December 31, 1994,
1993, and 1992, wholesale notes receivable balances related to floor planning
were $160.1 million, $124.1 million, and $49.3 million, respectively.
SUPPORT AGREEMENT
Through April 30, 1995, Caterpillar has provided the Company with equity
contributions totaling $325.0 million. The Company and Caterpillar have also
entered into an agreement (the "Support Agreement") which provides, among other
things, that Caterpillar will (i) remain, directly or indirectly, the sole
owner of the Company, (ii) ensure that the Company will maintain a tangible net
worth of at least $20 million, and (iii) permit the Company to use (and the
Company is required to use) the name "Caterpillar" in the conduct of its
business. The Support Agreement provides that it may be modified, amended or
terminated by either party; provided, however, that no such modification or
amendment which adversely affects the holders of any debt outstanding at the
execution thereof and no such termination shall be binding on or in any manner
become effective with respect to (i) any then outstanding commercial paper, or
(ii) any other debt then outstanding unless approved in writing by the holders
of 66 2/3% of the aggregate principal amount of such other debt. See
"Description of Debt Securities--Certain Restrictions" for a description of the
Indenture covenant relating to the Support Agreement.
The obligations of Caterpillar under the Support Agreement are to the Company
only and are not directly enforceable by any creditor of the Company, nor do
they constitute a guarantee by Caterpillar of the payment of any debt or
obligation of the Company.
BORROWING ARRANGEMENTS
The Company currently relies primarily on external sources for its debt
financing needs. See "Discussion of Selected Financial Information--Capital
Resources and Liquidity." To supplement external debt financing sources, the
Company has variable amount lending agreements with Caterpillar (including one
of its subsidiaries). Under these agreements, which may be amended from time to
time, the Company may borrow up to $86.4 million from Caterpillar and its
subsidiaries, and Caterpillar and its subsidiaries may borrow up to $86.4
million from the Company. All of the variable amount lending agreements are
effective for indefinite terms and may be terminated by either party upon 30
days' notice. At March 31, 1995, December 31, 1994, and March 31, 1994, the
Company had no outstanding borrowings or loans receivable under these
agreements.
The Company also has forward exchange contracts with a subsidiary of
Caterpillar to hedge its U.S. dollar denominated borrowings in Australia
against currency fluctuations. These contracts generally have maturities not
exceeding 90 days. At March 31, 1995, the Company had forward exchange
contracts with such subsidiary totaling $173.5 million.
4
<PAGE>
TAX SHARING AGREEMENTS
The Company has a tax sharing agreement with Caterpillar in which Caterpillar
collects from or pays to the Company its allocated share of any consolidated
U.S. income tax liability or credit applicable to any period for which the
Company is included as a member of the consolidated group. A similar agreement
exists between Caterpillar Financial Australia Limited and Caterpillar of
Australia Ltd. with respect to taxes payable in Australia.
USE OF PROCEEDS
The net proceeds from the sale of the Debt Securities offered hereby will be
used by the Company for the financing of future sales and leasing transactions,
for customer and dealer loans and for other corporate purposes. The Company
expects to incur additional indebtedness in connection with its financing
operations. However, the amount, timing, and precise nature of such
indebtedness have not yet been determined and will depend upon the volume of
the Company's business, the availability of credit, and general market
conditions.
5
<PAGE>
SELECTED FINANCIAL INFORMATION OF THE COMPANY
The following selected financial information of the Company for the years
ended December 31, 1992, 1993, and 1994, and the three months ended March 31,
1994 and March 31, 1995, with the exception of the ratios of profit to fixed
charges, was derived from the Company's consolidated financial statements
contained in its Annual Report on Form 10-K for the year ended December 31,
1994 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
and is qualified in its entirety by such documents. See "Documents Incorporated
by Reference." The selected financial information of the Company for the years
ended December 31, 1990 and 1991, with the exception of the ratios of profit to
fixed charges, was derived from the consolidated financial statements of the
Company for such periods which have not been incorporated herein by reference.
Results for the three-month periods ended March 31, 1994 and March 31, 1995 are
unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results
have been reflected therein. The results for the three-month period ended March
31, 1995 are not necessarily indicative of results to be expected for the
entire year 1995.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN MILLIONS
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
-------------------------------------------- -----------------------
MARCH 31, MARCH 31,
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Wholesale finance in-
come.................. $ -- $ -- $ 4.1 $ 5.8 $ 25.3 $ 2.4 $ 10.7
Retail finance income.. 200.0 227.7 235.2 246.4 275.2 66.1 82.5
Rental income.......... 64.1 78.0 88.7 95.7 124.2 29.0 35.0
Other income........... 7.2 10.7 15.5 16.7 22.3 4.7 14.9
-------- -------- -------- -------- -------- -------- --------
Total Revenues....... 271.3 316.4 343.5 364.6 447.0 102.2 143.1
-------- -------- -------- -------- -------- -------- --------
Expenses:
Interest............... 153.2 176.3 174.4 173.1 212.1 45.9 66.3
Depreciation........... 44.9 54.4 63.1 69.6 94.4 21.9 26.7
General, operating,
and administrative.... 21.6 29.6 32.9 41.7 47.2 10.7 13.9
Provision for credit
losses................ 13.4 13.2 20.4 20.8 23.2 5.0 6.1
Other expense.......... -- -- 1.1 1.0 19.3 9.0 1.2
-------- -------- -------- -------- -------- -------- --------
Total Expenses....... 233.1 273.5 291.9 306.2 396.2 92.5 114.2
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes, minority
interest, and
cumulative effect of
change in accounting
for income taxes 38.2 42.9 51.6 58.4 50.8 9.7 28.9
Provision for income
taxes.................. 12.0 14.4 17.6 21.3 19.3 3.5 11.1
Minority interest in
losses of subsidiary... -- -- -- 0.7 0.7 0.2 --
-------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of change in
accounting for income
taxes 26.2 28.5 34.0 37.8 32.2 6.4 17.8
Cumulative effect of
change in accounting
for income taxes....... -- -- 2.6 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 26.2 $ 28.5 $ 36.6 $ 37.8 $ 32.2 $ 6.4 $ 17.8
======== ======== ======== ======== ======== ======== ========
Ratio of profit to fixed
charges*............... 1.24 1.23 1.28 1.33 1.23 1.21 1.43
Total assets (end of
period)................ $2,173.2 $2,489.0 $2,843.3 $3,564.7 $4,511.2 $3,737.0 $4,682.2
Long-term debt (end of
period)................ 773.7 876.3 995.9 1,410.4 1,675.7 1,489.3 1,764.7
Total stockholder's
equity (end of period). 274.1 312.9 354.0 418.0 503.1 426.2 556.4
</TABLE>
- --------
* For the purpose of calculating this ratio, profit consists of income before
cumulative effect of change in accounting for income taxes plus provision
for income taxes and fixed charges. Profit is reduced by the Company's
equity in profit of certain partnerships in which the Company participates.
Fixed charges consist of interest on borrowed funds (including any
amortization of debt discount, premium and issuance expense) and a portion
of rentals representing interest.
6
<PAGE>
DISCUSSION OF SELECTED FINANCIAL INFORMATION
1994 RESULTS
Total revenues for 1994 were $447.0 million, a 23% increase over 1993
revenues of $364.6 million. The increase in revenues was primarily the result
of earnings from the larger portfolio which increased to $4,437.6 million at
December 31, 1994 from $3,522.1 million at December 31, 1993.
New retail financing during 1994 totaled $2,183.4 million, a 14% increase
over the $1,916.9 million financed in 1993 and a 43% increase over the 1992 new
business of $1,531.8 million. These increases were due primarily to increased
dealer deliveries of Caterpillar construction machines in the markets served by
the Company. The Company had wholesale financing during 1994 of $821.5 million
compared with $228.2 million for 1993. The increase was due to the introduction
of a new financing program supporting Caterpillar dealer rental fleets in North
America.
Revenues from operations in the United States were more than 75% of total
revenues in 1994. Net income from operations in the United States was more than
90% of total net income in 1994. For more geographic segment information, see
Note 12 of the Notes to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
incorporated by reference herein.
The annualized interest rate on finance receivables (computed by dividing
finance income by the average monthly finance receivable balances) was 8.6% for
1994 compared with 9.1% for 1993. Tax benefits associated with governmental
lease-purchase contracts and a portion of tax benefits associated with long-
term tax-oriented leases are not reflected in such annualized interest rates.
Other income of $22.3 million for 1994 included fees, gains on sales of
equipment returned from lease, income from and gain on sale of receivables, and
other miscellaneous income. The increase of $5.6 million for 1994 was primarily
due to servicing fees and other income related to receivables sold in the
second quarter of 1994 and the gain on sale of these receivables, and a higher
amount of fees related to guarantees of securities of certain Caterpillar
dealers.
Interest expense for 1994 was $212.1 million, $39.0 million higher than 1993
due to increased borrowings to support the larger portfolio. This increase was
partially offset by lower borrowing rates as the average cost of borrowed funds
was 6.2% in 1994 compared with 6.5% in 1993.
Depreciation expense increased from $69.6 million in 1993 to $94.4 million in
1994 due to the increase in equipment on operating leases which, computed as a
monthly average balance, increased 23%.
General, operating, and administrative expenses increased $5.5 million over
1993 primarily due to staff-related and other expenses required for expansion
into Europe and to service the larger portfolio. The Company's full-time
employment increased from 361 at the end of 1993 to 414 at December 31, 1994.
Provision for credit losses increased from $20.8 million in 1993 to $23.2
million in 1994. This increase reflected increased levels of new retail
business for 1994. Receivables, net of recoveries, of $13.2 million were
written off against the allowance for credit losses during 1994 compared with
$18.8 million during 1993. Receivables past due over 30 days increased slightly
to 2.2% of total receivables at December 31, 1994 compared with 1.9% at
December 31, 1993. The allowance for credit losses is monitored to provide for
an amount which, in management's judgment, will be adequate to
7
<PAGE>
cover uncollectible receivables. At December 31, 1994, the allowance for credit
losses was $49.5 million which was 1.2% of finance receivables, net of unearned
income (1.4% excluding wholesale receivables), compared with $41.5 million and
1.3% (1.4% excluding wholesale receivables) at December 31, 1993, respectively.
Other expense of $19.3 million for 1994 primarily resulted from recording
$18.0 million of unrealized losses on interest rate caps and swaptions written
by the Company. The Company has marked to market the written cap agreements.
The Company is continuing to manage the written caps on an economic basis. This
will lead to future mark-to-market gains or losses.
The effective income tax rate for 1994 was 38% compared with 36% for 1993.
For information on this change, see Note 8 of the Notes to the Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
Net income in 1994 was $32.2 million, compared with $37.8 million in 1993.
The decrease in net income resulted primarily from an $11.5 million mark-to-
market after-tax unrealized charge for interest rate caps and swaptions written
by the Company. This decrease was partially offset by increased earnings from a
larger portfolio.
THREE MONTHS 1995 RESULTS
Total revenues for the first quarter of 1995 were $143.1 million, a 40%
increase over 1994 first quarter revenues of $102.2 million. The increase in
revenues was primarily the result of earnings from the larger portfolio which
increased to $4,569.5 million at March 31, 1995 from $3,688.0 million at
March 31, 1994 and from recording unrealized gains of $6.5 million on interest
rate caps written by the Company.
The Company financed new retail business transactions totaling $609.5 million
during the first quarter of 1995 compared with $441.2 million during the first
quarter of 1994. New retail financing in the first quarter of 1995 was higher
than the first quarter of 1994 levels primarily due to financing increased
dealer deliveries of Caterpillar construction machines in the United States.
The Company had wholesale financing during the first quarter of 1995 of $423.3
million, compared with $82.3 million for the first quarter of 1994. The
increase was primarily due to expansion of the Caterpillar dealer rental fleet
financing program in North America.
The annualized interest rate on finance receivables (computed by dividing
annualized finance income by the average monthly finance receivable balances)
was 9.0% for the first quarter of 1995 compared with 8.7% for the first quarter
of 1994. Tax benefits associated with governmental lease-purchase contracts and
a portion of tax benefits associated with long-term tax-oriented leases are not
reflected in such annualized interest rates.
Other income of $14.9 million for the first quarter of 1995 included
unrealized gains on interest rate caps written by the Company, fees, gains on
sales of equipment returned from lease, gain on sale of receivables (see
"Capital Resources and Liquidity" below), and other miscellaneous income. The
increase of $10.2 million during the first quarter of 1995, as compared with
the same period in 1994, was primarily due to recording unrealized gains on
interest rate caps written by the Company and due to the gain on receivables
sold.
First quarter interest expense of $66.3 million was $20.4 million higher than
1994 first quarter interest expense due to increased borrowings to support the
larger portfolio and higher borrowing rates, as the average cost of borrowed
funds was 6.7% for the first quarter of 1995 compared with 6.0% for the first
quarter of 1994.
Depreciation expense for the first quarter of 1995 was $26.7 million, $4.8
million higher than the same period in 1994. This increase resulted from
additional equipment on operating leases which, computed as a monthly average
balance, increased 21.8%.
8
<PAGE>
General, operating, and administrative expenses increased $3.2 million during
the first quarter of 1995 compared with the same period last year. This
increase resulted primarily from staff-related and other expenses required to
service the larger portfolio and for expansion into Europe. The Company's full-
time employment increased from 369 at March 31, 1994 to 414 at March 31, 1995.
Provision for credit losses during the first quarter of 1995 was $6.1
million, compared with $5.0 million during the first quarter last year,
reflecting the increased levels of new retail business. Receivables, net of
recoveries, of $1.9 million were written off against the allowance for credit
losses during the first quarter of 1995 compared with $3.3 million during the
first quarter of 1994. Receivables past due over 30 days were 2.0% of total
receivables at March 31, 1995, compared with 2.1% at March 31, 1994. The
allowance for credit losses is monitored to provide for an amount which, in
management's judgment, will be adequate to cover uncollectible receivables. At
March 31, 1995, the allowance for credit losses was $54.5 million which was
1.3% of finance receivables, net of unearned income (1.4% excluding wholesale
receivables), compared with $43.6 million and 1.3% (1.4% excluding wholesale
receivables) at March 31, 1994, respectively.
Other expense for the first quarter of 1995 was $1.2 million compared with
$9.0 million for the first quarter of 1994. The decrease resulted primarily
from recording $8.8 million of unrealized losses in the first quarter of 1994
on interest rate caps and swaptions written by the Company. Unrealized gains on
these written caps were recorded in the first quarter of 1995 and are reflected
in Other income.
The effective income tax rate for the first quarter of 1995 was 38% compared
with 36% for the first quarter of 1994. The increase was primarily due to a
decrease in the percentage of total income generated from tax-exempt municipal
leases.
Net income for the first quarter of 1995 was $17.8 million, $11.4 million
above 1994 first quarter net income of $6.4 million. The increase in net income
resulted primarily from recording unrealized gains, net of tax, of $4.2 million
on interest rate caps written by the Company, compared with a $5.4 million
unrealized loss for the first quarter of 1994, and from a $1.6 million after-
tax gain on receivables sold.
CAPITAL RESOURCES AND LIQUIDITY
The Company's operations were primarily funded with a combination of medium-
term notes, commercial paper, bank borrowings, proceeds from sale of
receivables, retained earnings, and additional equity capital of $30.0 million
invested by Caterpillar during the quarter. The ratio of debt to equity at
March 31, 1995 was 7.1 to 1 compared with 7.7 to 1 at December 31, 1994.
Total debt outstanding as of March 31, 1995 was $3,958.6 million, an increase
of $92.2 million over that at December 31, 1994, and was primarily comprised of
$2,424.8 million of medium-term notes, $819.8 million of commercial paper, and
$618.0 million of notes payable to banks. The increase in debt and the funds
provided by operations and by Caterpillar were used to finance the increase in
the portfolio.
On March 30, 1995, the Company entered into its first private-placement,
revolving, asset-backed securitization whereby it agreed to sell on an ongoing
basis up to $300.0 million of wholesale (rental fleet financing) receivables.
The $300.0 million of proceeds from the sale were used to reduce existing debt.
The Company recognized a $2.4 million gain on this transaction and will receive
fees on a monthly basis for servicing the participating interests sold.
The net amount of sold receivables serviced by the Company was $442.0 million
at March 31, 1995 which consisted of $300.0 million of wholesale receivables
and $142.0 million of retail receivables.
9
<PAGE>
During the first quarter of 1995, the Company had an early extinguishment of
two of its medium-term notes with a principal amount of $50.0 million each and
two related interest rate swaps with a notional amount of $50.0 million each.
There were no material gains or losses from these transactions.
At March 31, 1995, the Company had available a total of $1,096.1 million of
short-term credit lines which expire at various dates through the first quarter
1996, and a $28.6 million long-term credit line which expires in May 1997.
These credit lines are with a number of banks and are considered support for
the Company's outstanding commercial paper, commercial paper guarantees, the
discounting of bank and trade bills, and bank borrowings at various interest
rates. At March 31, 1995, there were $600.5 million of these lines utilized for
bank borrowings in Australia and Europe.
The Company also participates with Caterpillar in two syndicated revolving
credit facilities aggregating $1.8 billion, consisting of a $1.2 billion five-
year facility and a $600.0 million 364-day revolving facility. Effective May 1,
1995, the Company's allocation is $1,290.0 million, consisting of a $860.0
million five-year revolving credit and a $430.0 million 364-day revolving
credit. The Company has the ability to request a change in its allocation and
will do so to maintain the required amount of support for the Company's
outstanding commercial paper and commercial paper guarantees. These facilities
provide for borrowings at interest rates which vary according to LIBOR or money
market rates. At March 31, 1995, there were no borrowings under these
facilities.
In connection with its match funding objectives, the Company utilizes a
variety of interest rate contracts including swap, cap, and forward rate
agreements. All of these interest rate agreements are held or issued for
purposes other than trading. The agreements are entered into with major
financial institutions and are utilized for two principal reasons: 1) To modify
the Company's debt structure in order to match fund its receivable portfolio
which reduces the risk of deteriorating margins between its interest-earning
assets and interest-bearing liabilities, and 2) To gain an economic/competitive
advantage through lowering the cost of borrowed funds by either changing the
characteristics of existing debt instruments or entering into agreements in
combination with the issuance of debt.
In addition to meeting the Company's funding objectives, it also has two
currency swaps to reduce its currency risk exposure on two yen financing
agreements. These currency swaps exchange the yen cash flows on the financing
agreements with a fixed U.S. dollar cash flow.
As of March 31, 1995, the Company had outstanding interest rate swap
contracts with notional amounts totaling $1,579.9 million that are either
designated as hedges of specific debt issuances or of commercial paper. These
swap agreements have terms generally ranging up to five years, which
effectively change $951.9 million of floating rate debt to fixed rate debt,
$306.0 million of fixed rate debt to floating rate debt, and $322.0 million of
floating rate debt to floating rate debt having different characteristics. The
interest rate swaps designated to commercial paper provide the ability to
obtain fixed rate term debt utilizing short-term debt markets. The Company also
had swaps having future effective dates with a total notional amount of $33.0
million, which will effectively change fixed rate debt to floating rate debt.
The effective dates of the future dated swaps range from 1995 through 1998 with
terms of these swaps ranging up to two years.
As of March 31, 1995, the Company had outstanding sold (written) interest
rate cap agreements with notional amounts totaling $235.7 million. To the
extent that rates decrease, the notional amount may decrease and/or the term of
the written cap agreements may shorten based on the index amortizing feature of
the caps. These cap agreements have remaining maturities through October 1997.
The Company has marked to market the written cap agreements and is continuing
to manage these agreements on an economic basis, which will lead to the future
mark-to-market gains or losses.
The Company's outstanding forward rate agreements totaled $21.9 million at
the end of the first quarter of 1995. These agreements have terms generally
ranging up to six months.
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<PAGE>
The Company has forward exchange contracts to hedge its U.S. dollar
denominated obligations in Australia against currency fluctuations. These
contracts have terms generally ranging up to three months and do not subject
the Company to risk due to exchange rate movements, because the gains and
losses on the contracts offset the losses and gains on the liabilities being
hedged. At March 31, 1995, the Company had forward exchange contracts totaling
$173.5 million, all with Caterpillar.
Additional short-term funding is available from Caterpillar. See
"Relationship with Caterpillar--Borrowing Arrangements." No intercompany
borrowings were outstanding at March 31, 1995.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement
and the extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating
to such Debt Securities.
Offered Debt Securities (as defined below) are to be issued under an
Indenture (the "Indenture") dated as of April 15, 1985, as supplemented,
between the Company and BankAmerica National Trust Company, as successor
Trustee. The statements under this caption relating to the Debt Securities and
the Indenture are summaries and do not purport to be complete. Such summaries
make use of terms defined in the Indenture and are qualified in their entirety
by express reference to the Indenture and the cited provisions thereof, a copy
of which is filed as an exhibit to the Registration Statement.
GENERAL
The Debt Securities will be unsecured obligations of the Company. The
Indenture does not limit the aggregate principal amount of Debt Securities
which may be issued thereunder and provides that Debt Securities may be issued
thereunder from time to time in one or more series.
Reference is made to the Prospectus Supplement relating to the particular
Debt Securities offered thereby (the "Offered Debt Securities") for the
following terms of the Offered Debt Securities: (1) the title of the Offered
Debt Securities; (2) any limit on the aggregate principal amount of the Offered
Debt Securities; (3) the date or dates on which the principal of the Offered
Debt Securities will be payable; (4) the rate or rates per annum at which the
Offered Debt Securities will bear interest, if any, or the formula pursuant to
which such rate or rates shall be determined, and the date or dates from which
such interest will accrue; (5) the dates on which such interest, if any, will
be payable and the regular record dates for such interest payment dates; (6)
the place or places where principal of (and premium, if any) and interest on
Offered Debt Securities shall be payable; (7) any mandatory or optional sinking
fund or analogous provisions; (8) if applicable, the price at which, the
periods within which, and the terms and conditions upon which the Offered Debt
Securities may, pursuant to any optional or mandatory redemption provisions, be
redeemed at the option of the Company; (9) if applicable, the terms and
conditions upon which the Offered Debt Securities may be repayable prior to
final maturity at the option of the holder thereof (which option may be
conditional); (10) the portion of the principal amount of the Offered Debt
Securities, if other than the principal amount thereof, payable upon
acceleration of maturity thereof; (11) the currency or currencies, including
composite currencies, in which principal of (and premium, if any) and interest
may be payable (which may be other than those in which the Offered Debt
Securities are stated to be payable); (12) any index pursuant to which the
amount of payments of principal of (and premium, if any) or interest may be
determined; (13) whether all or any part of the Offered Debt Securities will be
issued in the form of a Global Security or Securities and, if so, the
Depositary for, and other terms relating to, such Global Security or
Securities; and(14) any other terms of the Offered Debt Securities. (Section
301)
11
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Unless otherwise indicated in the Prospectus Supplement relating thereto, the
Offered Debt Securities are to be issued as registered securities without
coupons in denominations of $1,000 or any integral multiple of $1,000. (Section
302) No service charge will be made for any transfer or exchange of such
Offered Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
The applicable Prospectus Supplement will describe any special United States
federal tax consequences and any other special considerations with respect to
the Offered Debt Securities.
CERTAIN RESTRICTIONS
Support Agreement. The Indenture provides that the Company (1) will observe
and perform in all material respects all covenants or agreements of the Company
contained in the Support Agreement; (2) to the extent possible, will cause
Caterpillar to observe and perform in all material respects all covenants or
agreements of Caterpillar contained in the Support Agreement; and (3) will not
waive compliance under, amend in any material respect, or terminate the Support
Agreement; provided, however, that the Support Agreement may be amended if such
amendments would not have a material adverse effect on the Holders of any
outstanding Debt Securities of any series or if the Holders of at least 66 2/3%
in principal amount of the Outstanding Debt Securities of each series so
affected (excluding from the amount so outstanding and from such Holders, the
Holders of such series who are not so affected) shall waive compliance with the
provisions of this Section insofar as it relates to such amendment. (Section
1004)
Restrictions on Liens and Encumbrances. The Company will not create, assume
or guarantee any Secured Debt (as defined below) without making effective
provision for securing the Debt Securities (and, if the Company shall so
determine, any other indebtedness of or guaranteed by the Company), equally and
ratably with such Secured Debt. The term "Secured Debt" shall mean indebtedness
for money borrowed which is secured by a mortgage, pledge, lien, security
interest or encumbrance on any property of any character of the Company. This
covenant does not apply to debt secured by(i) certain mortgages, pledges,
liens, security interests or encumbrances in connection with the acquisition,
construction or improvement of any fixed asset or other physical or real
property by the Company, (ii) mortgages, pledges, liens, security interests or
encumbrances on property existing at the time of acquisition thereof, whether
or not assumed by the Company, (iii) mortgages, pledges, liens, security
interests or encumbrances on property of a corporation existing at the time
such corporation is merged into or consolidated with the Company or at the time
of a sale, lease or other disposition of the properties of a corporation or
firm as an entirety or substantially as an entirety to the Company,(iv)
mortgages, including mortgages, pledges, liens, security interests or
encumbrances, on property of the Company in favor of the United States of
America, any state thereof, or any other country, or any agency,
instrumentality or political subdivision thereof, to secure certain payments
pursuant to any contract or statute or to secure indebtedness incurred for the
purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the property subject to such mortgages, (v) any
extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any mortgage, pledge, lien or
encumbrance referred to in the foregoing clauses(i) to (iv), inclusive or (vi)
any mortgage, pledge, lien, security interest, or encumbrance securing
indebtedness owing by the Company to one or more wholly owned Subsidiaries.
Notwithstanding the above, the Company may, without securing the Debt
Securities, create, assume or guarantee Secured Debt which would otherwise be
subject to the foregoing restrictions, provided that, after giving effect
thereto, the aggregate amount of all Secured Debt then outstanding (not
including Secured Debt permitted under the foregoing exceptions) at such time
does not exceed 5% of the Consolidated Net Tangible Assets. (Sections 101 and
1005)
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<PAGE>
The Indenture provides that no consolidation or merger of the Company and no
conveyance, transfer or lease of the property of the Company, substantially as
an entirety, shall be made with or to another corporation if as a result
thereof any properties or assets of the Company would become subject to a lien
or mortgage not permitted by the terms of the Indenture unless effective
provision shall be made to secure the Debt Securities equally and ratably with
(or prior to) all indebtedness thereby secured. (Section 801)
The term "Consolidated Net Tangible Assets" shall mean as of any particular
time the aggregate amount of assets after deducting therefrom (a) all current
liabilities (excluding any such liability that by its terms is extendable or
renewable at the option of the obligor thereon to a time more than 12 months
after the time as of which the amount thereof is being computed) and (b) all
goodwill, excess of cost over assets acquired, patents, copyrights, trademarks,
tradenames, unamortized debt discount and expense and other like intangibles,
all as shown in the most recent consolidated financial statements of the
Company and its Subsidiaries prepared in accordance with generally accepted
accounting principles. The term "Subsidiary" means any corporation of which
more than 50% of the outstanding stock having ordinary voting power to elect
directors is owned directly or indirectly by the Company or by one or more
other corporations more than 50% of such stock of which is similarly owned or
controlled. (Section 101)
THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee, as a
creditor of the Company, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security
or otherwise. (Section 613) In addition, the Trustee may be deemed to have a
conflicting interest and may be required to resign as Trustee if at the time of
a default under the Indenture it is a creditor of the Company.
Bank of America National Trust and Savings Association, the parent company of
BankAmerica National Trust Company, the successor Trustee under the Indenture,
maintains a banking relationship with the Company and Caterpillar.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following events are defined in the Indenture as "Events of Default" with
respect to Debt Securities of any series: (a) failure to pay principal of or
premium, if any, on any Debt Security of that series when due; (b) failure to
pay any interest on any Debt Security of that series when due, continued for 60
days; (c) failure to deposit any sinking fund payment, when due, in respect of
any Debt Security of that series; (d) default in the performance, or breach, of
any term or provision of the covenant described under "Certain Restrictions--
Support Agreement;" (e) failure to perform any other covenant of the Company in
the Indenture (other than a covenant included in the Indenture solely for the
benefit of a series of Debt Securities other than that series), continued for
60 days after written notice given to the Company by the Trustee or the holders
of at least 25% in principal amount of the Debt Securities outstanding and
affected thereby; (f) Caterpillar or one of its wholly owned subsidiaries shall
at any time fail to own all of the issued and outstanding shares of the capital
stock of the Company; (g) default in payment of principal in excess of
$10,000,000 or acceleration of any indebtedness for money borrowed in excess of
$10,000,000 by the Company (including a default with respect to Debt Securities
of any series other than that series), if such indebtedness has not been
discharged or become no longer due and payable or such acceleration has not
been rescinded or annulled, within 10 days after written notice given to the
Company by the Trustee or the holders of at least 10% in principal amount of
the outstanding Debt Securities of such series; (h) certain events in
bankruptcy, insolvency or reorganization of the Company; (i) certain events in
bankruptcy, insolvency or reorganization of Caterpillar or one of its
subsidiaries if such event affects any significant part of the assets of the
Company or any of its subsidiaries; and (j) any other Event of Default provided
with respect to Debt Securities of such series. (Section 501)
13
<PAGE>
If an Event of Default with respect to Debt Securities of any series at the
time outstanding shall occur and be continuing, either the Trustee or the
holders of at least 25% in principal amount of the outstanding Debt Securities
of that series may declare the principal amount (or, if the Debt Securities of
that series are Original Issue Discount Securities (as defined in the
Indenture), such portion of the principal amount as may be specified in the
terms of that series) of all Debt Securities of that series to be due and
payable immediately; provided, however, that under certain circumstances the
holders of a majority in aggregate principal amount of outstanding Debt
Securities of that series may rescind and annul such declaration and its
consequences. (Section 502)
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to the principal amount of such Original Issue
Discount Securities due on acceleration upon the occurrence of an Event of
Default and the continuation thereof.
The Indenture provides that the Trustee, within 90 days after the occurrence
of a default with respect to any series of Debt Securities, shall give to the
holders of Debt Securities of that series notice of all uncured defaults known
to it (the term default to mean the events specified above without grace
periods), provided that, except in the case of default in the payment of
principal of (or premium, if any) or interest, if any, on any Debt Security,
the Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interest of the
holders of Debt Securities. (Section 602)
The Company will be required to furnish to the Trustee annually a statement
by certain officers of the Company to the effect that to the best of their
knowledge the Company is not in default in the fulfillment of any of its
obligations under the Indenture or, if there has been a default in the
fulfillment of any such obligation, specifying each such default. (Section
1006)
The holders of a majority in principal amount of the outstanding Debt
Securities of any series affected will have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, exercising any trust or power
conferred on the Trustee with respect to the Debt Securities of such series,
and to waive certain defaults. (Sections 512 and 513)
Under the Indenture, record dates may be set for Acts of the holders with
respect to Events of Default, declaring an acceleration, or rescission and
annulment thereof, the direction of the time, method and place of conducting
any proceeding for any remedy available to the Trustee, exercising any trust or
power conferred on the Trustee, or waiving any default. (Sections 501, 502, 512
and 513)
The Indenture provides that in determining whether the holders of the
requisite principal amount of the Outstanding Debt Securities have given any
request, demand, authorization, direction, notice, consent or waiver thereunder
(i) the principal amount of an Original Issue Discount Security that shall be
deemed to be Outstanding shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon acceleration
of the maturity thereof, and (ii) the principal amount of a Debt Security
denominated in a foreign currency or a composite currency shall be the U.S.
dollar equivalent, determined on the basis of the rate of exchange on the
business day immediately preceding the date of original issuance of such Debt
Security by the Company in good faith, of the principal amount of such Debt
Security (or, in the case of an Original Issue Discount Security, the U.S.
dollar equivalent, determined based on the rate of exchange prevailing on the
Business Day immediately preceding the date of original issuance of such Debt
Security, of the amount determined as provided in (i) above). (Section 101)
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<PAGE>
The Indenture provides that in case an Event of Default shall occur and be
continuing, the Trustee shall exercise such of its rights and powers under the
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. (Section 601) Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of Debt Securities unless they shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request.(Section 603)
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made by the Company and
the Trustee, with the consent of the holders of not less than 66 2/3% in
aggregate principal amount of each series of the outstanding Debt Securities
issued under the Indenture which are affected by the modification or amendment,
provided that no such modification or amendment may, without a consent of each
holder of such Debt Securities affected thereby: (1) change the stated maturity
date of the principal of (or premium, if any) or any installment of interest,
if any, on any such Debt Security; (2) reduce the principal amount of (or
premium, if any) or the interest, if any, on any such Debt Security or the
principal amount due upon acceleration of an Original Issue Discount Security;
(3) change the place or currency of payment of principal of (or premium, if
any) or interest, if any, on any such Debt Security; (4) impair the right to
institute suit for the enforcement of any such payment on or with respect to
any such Debt Security; (5) reduce the above-stated percentage of holders of
Debt Securities necessary to modify or amend the Indenture; or (6) modify the
foregoing requirements or reduce the percentage of outstanding Debt Securities
necessary to waive compliance with certain provisions of the Indenture or for
waiver of certain defaults. A record date may be set for any Act of the holders
with respect to consenting to any amendment. (Section 902)
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through one or more underwriters
or dealers and also may sell Debt Securities to other investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Debt Securities will be named in the Prospectus Supplement. The
underwriters or agents may include one or more of Goldman, Sachs & Co., Lehman
Brothers Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated or a
group of underwriters represented by one or more of such firms or may be one or
more other firms.
Underwriters or agents may offer and sell the Debt Securities at a fixed
price or prices, which may be changed, or from time to time at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. In connection with the sale of the Debt
Securities, underwriters or agents may be deemed to have received compensation
from the Company in the form of underwriting discounts or commissions and may
also receive commissions from purchasers of the Debt Securities for whom they
may act as agent. Underwriters or agents may sell the Debt Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for whom they may act as agent.
The Debt Securities, when first issued, will have no established trading
market. Any underwriters or agents to or through whom Debt Securities are sold
by the Company for public offering and sale may make a market in such Debt
Securities, but such underwriters or agents will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for any Debt Securities.
15
<PAGE>
Any underwriters or agents participating in the distribution of the Debt
Securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Debt
Securities may be deemed to be underwriting discounts and commissions, under
the Securities Act of 1933, as amended. Underwriters or agents may be entitled,
under agreements entered into with the Company, to indemnification against or
contribution toward certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for, the Company in the
ordinary course of business.
VALIDITY OF DEBT SECURITIES
The validity of the Debt Securities will be passed upon by Orrick, Herrington
& Sutcliffe,400 Sansome Street, San Francisco, California 94111, counsel for
the Company, and, unless otherwise indicated in a Prospectus Supplement
relating to Offered Debt Securities, by Sullivan & Cromwell,125 Broad Street,
New York, New York 10004, counsel for the underwriters or agents.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1994, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT, ANY PRICING
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS
SUPPLEMENT, ANY PRICING SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OF-
FER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Notes....................................................... S-2
Important Currency Information............................................. S-20
Foreign Currency Risks..................................................... S-20
Certain United States Federal Income Tax Consequences...................... S-22
Supplemental Plan of Distribution.......................................... S-30
PROSPECTUS
Available Information...................................................... 2
Documents Incorporated by Reference........................................ 2
The Company................................................................ 2
Caterpillar................................................................ 3
Relationship with Caterpillar.............................................. 3
Use of Proceeds............................................................ 5
Selected Financial Information of the Company.............................. 6
Discussion of Selected Financial Information............................... 7
Description of Debt Securities............................................. 11
Plan of Distribution....................................................... 15
Validity of Debt Securities................................................ 16
Experts.................................................................... 16
</TABLE>
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$2,000,000,000
CATERPILLAR
FINANCIAL
SERVICES
CORPORATION
MEDIUM-TERM NOTES,
SERIES E
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PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
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