<PAGE> 1
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 29, 1994
JCPenney
U.S.$1,000,000,000
J. C. Penney Company, Inc.
Medium-Term Notes, Series A
Due Nine Months or More from Date of Issue
------------------
J. C. Penney Company, Inc. ("Company") may offer from time to time its
Medium-Term Notes, Series A ("Notes") in an aggregate principal amount not to
exceed $1,000,000,000 (or, if any Notes are to be Original Issue Discount
Notes, Foreign Currency Notes or Indexed Notes (as each such term is defined
under "Description of Notes"), such principal amount as shall result in an
initial aggregate offering price equivalent to no more than
$1,000,000,000), subject to reduction as a result of the sale of other
Debt Securities; provided, however, that the Company may increase the
foregoing maximum principal amount if in the future it determines that
it may wish to sell additional Notes. See "Description of Notes" and
"Plan of Distribution of Notes". See "Glossary" for definition of
certain terms used in this Prospectus Supplement. Each Note will
mature nine months or more from its date of original issuance
("Issue Date"), as selected by the initial purchaser and agreed to
by the Company. The Notes may be subject to optional redemption,
or obligate the Company to redeem or purchase the Notes pursuant
to sinking fund or analogous provisions or at the option of the
Holder thereof, in each case as indicated in the applicable
Pricing Supplement. The Notes may be issued as Original Issue
Discount Notes, Indexed Notes, Extendible Notes, Renewable Notes
or Amortizing Notes (as each such term is defined herein). Unless
otherwise indicated in the applicable Pricing Supplement, the
Notes will be issued in fully registered form in denominations
of $100,000 with integral multiples of $1,000 in excess
thereof or, in the case of Foreign Currency Notes, in such
minimum denominations not less than the equivalent of
$100,000 with such other denomination or denominations in
excess thereof as shall be set forth in the applicable
Pricing Supplement. See "SPECIAL PROVISIONS RELATING TO
FOREIGN CURRENCY NOTES".
The interest rate or interest rate formula, if any, currency or currency unit,
issue price, stated maturity and redemption provisions, if any, for each Note
will be established by the Company at the date of issuance of such Note and
will be indicated in a Pricing Supplement. Each interest-bearing Note will
bear interest at either (a) a fixed rate ("Fixed Rate Note") or (b) a
variable rate determined by reference to an interest rate formula
("Floating Rate Note"), which may be adjusted by adding or subtracting
the Spread or multiplying by the Spread Multiplier, unless otherwise
indicated in the applicable Pricing Supplement. Unless otherwise
indicated in the applicable Pricing Supplement, the interest rate
formula will be the Commercial Paper Rate, the Prime Rate, the CD
Rate, the Federal Funds Rate, LIBOR, the Treasury Rate, the J.J.
Kenny Rate, the 11th District Cost of Funds Rate or the CMT
Rate. Interest rates, or interest rate formulas, 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.
Notes may be issued in definitive form or may be represented by a permanent
global note or notes ("Global Note(s)"), as specified in the applicable Pricing
Supplement, registered in the name of The Depository Trust Company, as
Depository ("Depository"), or a nominee of the Depository (each such Note
represented by a Global Note being referred to herein as a "Book-Entry
Note"). Interests in Book-Entry Notes will only be evidenced by, and
transfers thereof will only be effected through, records maintained by
the Depository and its Participants. Except as described under
"Description of Notes -- Book-Entry Notes", owners of beneficial
interests in a Global Note will not be entitled to receive physical
delivery of Notes in definitive form and will not be considered
the Holders thereof.
Unless otherwise indicated in the applicable Pricing Supplement, a Foreign
Currency Note will not be sold in, or to a resident of, the country of the
Specified Currency in which such Note is denominated. See "SPECIAL
PROVISIONS RELATING TO FOREIGN CURRENCY NOTES".
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT, ANY PRICING SUPPLEMENT HERETO OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Agents' Discounts Proceeds to
Public(1) and Commissions(2) Company(2)(3)
------------------- --------------------------- ----------------------------------
<S> <C> <C> <C>
Per Note..................... 100% .125%-.750% 99.875%-99.250%
Total(4)..................... U.S.$1,000,000,000 U.S.$1,250,000-$7,500,000 U.S.$998,750,000-$992,500,000
</TABLE>
(1) Unless otherwise indicated in the applicable Pricing Supplement, each Note
will be issued at 100% of its principal amount.
(2) The Company will pay CS First Boston Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, J.P. Morgan Securities Inc. and Morgan Stanley
& Co. Incorporated, or such other agent or agents as may be designated by
the Company ("Agents"), as agents, a commission ranging from .125% to .750%
of the initial offering price of any Note, depending on its stated maturity,
sold through any such Agent; provided, however, that discounts or
commissions on Notes having a maturity in excess of 30 years will be
negotiated at the time of trade. The Company also may sell Notes to any
Agent, acting as principal, or to a group of underwriters for which such
Agent will act as representative, at a discount for resale to one or more
investors or other purchasers at varying prices related to prevailing market
prices at the time of resale, as determined by such Agent or to certain
securities dealers at the public offering price set forth on the cover page
of the applicable Pricing Supplement less the applicable concession,
expressed as a percentage of the principal amount of the Notes.
(3) Assuming Notes are issued at 100% and before deducting other expenses
payable by the Company estimated at U.S. $175,000.
(4) Or the equivalent thereof in other currencies or currency units.
------------------
The Notes may be offered on a continuing basis by the Company through the
Agents, each of which has agreed to use reasonable best efforts to solicit
offers to purchase the Notes. The Company also may sell Notes to any Agent,
acting as principal, or to a group of underwriters for which such Agent acts as
representative, for resale to one or more investors, or to certain securities
dealers. The Notes will not be listed on any securities exchange, unless
otherwise indicated in the applicable Pricing Supplement, 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. The Company reserves the
right to withdraw, cancel or modify the offer made hereby without notice. The
Company or any Agent may reject any offer to purchase Notes, in whole or in
part. See "PLAN OF DISTRIBUTION OF NOTES".
CS First Boston
Merrill Lynch & Co.
J.P. Morgan Securities Inc.
Morgan Stanley & Co.
Incorporated
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is July 1, 1994.
<PAGE> 2
IN CONNECTION WITH THE DISTRIBUTION OF THE NOTES, THE AGENTS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
RECENT DEVELOPMENTS
The following financial information should be read in conjunction with the
financial information contained in the Company's Annual Report on Form 10-K for
the 52 weeks ended January 29, 1994 and in the Company's Quarterly Report on
Form 10-Q for the 13 weeks ended April 30, 1994.
The Company's retail sales for the four week period ended May 28, 1994,
increased 6.8% to $1,328 million from $1,244 million in the comparable 1993
period. Sales of JCPenney stores for the four week period increased 5.6%, while
catalog sales increased 10.1% over the prior year's comparable period.
The Company's annual earnings depend to a significant extent on the results
of operations for the last quarter of its fiscal year. Accordingly, interim
results may not be indicative of the results for the entire fiscal year.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and conditions of Debt
Securities set forth under the heading "DESCRIPTION OF SECURITIES" in the
Prospectus, to which description reference is hereby made. The following
description of the Notes will apply unless otherwise specified in the applicable
Pricing Supplement to this Prospectus Supplement ("Pricing Supplement").
GENERAL
The Notes offered hereby will be issued under the Indenture referred to in
the accompanying Prospectus between the Company and Bank of America National
Trust and Savings Association, as Trustee ("Trustee"). The Notes constitute a
single series for purposes of the Indenture, limited to an aggregate principal
amount not to exceed $1,000,000,000 (or, if any Notes are to be Original Issue
Discount Notes or are to be denominated in one or more currencies or currency
units other than U.S. dollars ("Foreign Currency Notes") or with amounts payable
in respect of principal of or any premium or interest on the Notes to be
determined by reference to the value, rate or price of one or more specified
indices ("Indexed Notes"), such principal amount as shall result in an aggregate
initial offering price equivalent to no more than $1,000,000,000). The foregoing
limit may be increased by the Company if in the future it determines that it may
wish to sell additional Notes. The Notes offered hereby may be reduced by an
amount equal to the aggregate initial offering price of any other Debt
Securities (as defined in the accompanying Prospectus) sold by the Company
(including any other series of medium-term notes). See "PLAN OF DISTRIBUTION OF
NOTES". The Notes (including the Foreign Currency Notes) are referred to in the
accompanying Prospectus as the "Debt Securities". For a description of the
rights attaching to different series of Securities under the Indenture, see
"DESCRIPTION OF SECURITIES" in the Prospectus.
Each Note will mature nine months or more from its Issue Date, as selected
by the initial purchaser and agreed to by the Company.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issuable only in fully registered form in denominations of $100,000 with
integral multiples of $1,000 in excess thereof, or, in the
S-2
<PAGE> 3
case of Foreign Currency Notes, in such minimum denomination not less than the
equivalent of $100,000 with such other denomination or denominations in excess
thereof as shall be set forth in the applicable Pricing Supplement. Notes may be
represented by a permanent Global Note or Notes, as indicated in the applicable
Pricing Supplement, registered in the name of the Depository or its nominee. See
"Description of Notes -- Book-Entry Notes" below.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars and payments of principal of and any premium
and interest on the Notes will be made in U.S. dollars in the manner indicated
in the accompanying Prospectus and this Prospectus Supplement. If any of the
Notes are to be denominated in one or more currencies or currency units other
than U.S. dollars, additional information pertaining to the terms of such Notes
and other matters relevant to the Holders thereof will be described in the
applicable Pricing Supplement. See "SPECIAL PROVISIONS RELATING TO FOREIGN
CURRENCY NOTES" below.
The applicable Pricing Supplement will indicate either that a Note cannot
be redeemed prior to its Stated Maturity or that a Note will be redeemable at
the option of the Company on or after a specified date prior to its Stated
Maturity at a specified price or prices (which may include a premium), together
with accrued interest to the date of redemption. In addition, the applicable
Pricing Supplement will indicate either that the Company will not be obligated
to redeem a Note pursuant to any sinking fund or analogous provisions or at the
option of the Holder thereof or that the Company will be so obligated. If the
Company will be so obligated, the applicable Pricing Supplement will indicate
the period or periods within which and the price or prices at which the
applicable Notes will be redeemed, in whole or in part, pursuant to such
obligation and the other detailed terms and provisions of such obligation.
Unless otherwise indicated in the applicable Pricing Supplement, payments
of principal of and any premium and interest, other than with respect to
Book-Entry Notes and Foreign Currency Notes, will be made in immediately
available funds at the Corporate Trust Office of Chemical Bank, as paying agent
("Paying Agent"), in the Borough of Manhattan, The City of New York, provided
that the Note is presented to the Paying Agent in time for the Paying Agent to
make such payments in such funds in accordance with its normal procedures;
except that at the option of the Company payment of interest (other than
interest payable at maturity) may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
The Company may at any time designate additional paying agents or rescind the
designation of any paying agent or approve a change in the office through which
any paying agent acts. With respect to payments at maturity on Book-Entry Notes
and Foreign Currency Notes, see "DESCRIPTION OF NOTES -- Book-Entry Notes" and
"SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES", respectively.
The Notes, other than Book-Entry Notes, may be presented for registration
of transfer or exchange at the Corporate Trust Office of the Paying Agent in the
Borough of Manhattan, The City of New York. With respect to transfers of
Book-Entry Notes and exchanges of permanent Global Notes representing Book-Entry
Notes, see "DESCRIPTION OF NOTES -- Book-Entry Notes".
Interest rates, interest rate bases and various other variable terms of the
Notes described herein 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.
All moneys paid by the Company to a paying agent for the payment of the
principal of or any premium or interest on any Note of any series which remain
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will be repaid to the Company and the Holder
of such Note will thereafter look only to the Company for payment thereof.
APPLICABILITY OF DEFEASANCE PROVISIONS
The Indenture provisions relating to defeasance and discharge prior to
Maturity and the federal income tax consequences thereof, which are described in
the accompanying Prospectus under "DESCRIPTION OF SECURITIES -- Satisfaction and
Discharge Prior to Maturity", will apply to the Notes.
S-3
<PAGE> 4
INTEREST
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from and including its Issue Date or
from and including the most recent Interest Payment Date with respect to which
interest on such Note (or any predecessor 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, 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 generally to the person (which, in the case of a permanent
Global Note representing Book-Entry Notes, shall be the Depository or its
nominee) in whose name a Note (or any predecessor Note) is registered at the
close of business on the Regular Record Date next preceding each Interest
Payment Date; provided, however, that interest payable at Maturity will be
payable to the person (which, in the case of a permanent Global Note
representing Book-Entry Notes, shall be the Depository or its nominee) to whom
principal shall be payable. Unless otherwise indicated in the applicable Pricing
Supplement, 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 second
Interest Payment Date following the Issue Date of such Note to the registered
owner on the Regular Record Date immediately preceding such Interest Payment
Date. With respect to payments of interest on Book-Entry Notes, see "DESCRIPTION
OF NOTES -- Book-Entry Notes".
Interest rates, or interest rate formulas, are subject to change by the
Company from time to time, but no such change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
Fixed Rate Notes
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Note. Unless
otherwise indicated in the applicable Pricing Supplement, the Interest Payment
Dates with respect to Fixed Rate Notes other than Amortizing Notes shall be
March 15 and September 15 of each year and at Maturity, and the Regular Record
Dates for such Notes shall be the March 1 and September 1 next preceding the
March and September Interest Payment Dates. Interest payments for Fixed Rate
Notes shall be the amount of interest accrued to, but excluding, the relevant
Interest Payment Date, or Maturity, as the case may be, and interest on Fixed
Rate Notes will be computed on the basis of a 360-day year of twelve 30-day
months. If any Interest Payment Date or the Maturity of a Fixed Rate Note falls
on a day that is not a Market Day, the required payment of principal, premium,
if any, and/or interest will be made on the next succeeding Market Day as if
made on the date such payment was due, and no interest will accrue on such
payment for the period from and after such Interest Payment Date or the
Maturity, as the case may be, to the date of such payment on the next succeeding
Market Day.
Floating Rate Notes
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate formula for such Floating Rate Note. Such formula may
be determined by reference to one or more of the following: (a) the Commercial
Paper Rate, in which case such Note will be a Commercial Paper Rate Note; (b)
the Prime Rate, in which case such Note will be a Prime Rate Note; (c) the CD
Rate, in which case such Note will be a CD Rate Note; (d) the Federal Funds
Rate, in which case such Note will be a Federal Funds 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; (g) the J.J. Kenny Rate, in which case
such Note will be a J.J. Kenny Rate Note; (h) the 11th District Cost of Funds
Rate, in which case such Note will be an 11th District Cost of Funds Rate Note;
(i) the CMT Rate, in which case such Note will be a CMT Rate Note; or (j) such
other interest rate basis or formula as is set forth in such Pricing Supplement.
The applicable Pricing Supplement for a Floating Rate Note also will specify the
Spread or Spread Multiplier, if any, and the maximum or minimum interest rate
limitation, if any, applicable to each Note. In addition, such Pricing
Supplement will define or particularize for each Floating Rate Note the
following terms, if applicable: Calculation Agent, Calculation Dates, Initial
Interest Rate, Interest Payment Dates, Regular Record Dates,
S-4
<PAGE> 5
Index Maturity, Interest Determination Dates and Interest Reset Dates with
respect to such Note. See "Glossary" for definitions of certain terms used in
this Prospectus Supplement.
The rate of interest on a Floating Rate Note in effect on any day will be
(a) if such day is an Interest Reset Date with respect to such Floating Rate
Note, the interest rate on such Floating Rate Note on such Interest Reset Date,
or (b) if such day is not an Interest Reset Date with respect to such Floating
Rate Note, the interest rate on such Floating Rate Note on the immediately
preceding Interest Reset Date with respect to such Floating Rate Note; provided,
however, that the interest rate in effect from the Issue Date of a Floating Rate
Note (or that of a predecessor Note) to but excluding the first Interest Reset
Date with respect to such Floating Rate Note will be the Initial Interest Rate
(as set forth in the applicable Pricing Supplement). Subject to applicable
provisions of law and except as described herein, the rate of interest on a
Floating Rate Note on any Interest Reset Date with respect thereto will be the
rate of interest determined with respect to the Interest Determination Date
pertaining to such Interest Reset Date as determined in accordance with the
applicable provisions described below.
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. The Interest Reset
Date will be, in the case of Floating Rate Notes which reset daily, each Market
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, except as provided in the following paragraph, the Tuesday
of each week; in the case of Floating Rate Notes which reset monthly, the third
Wednesday of each month (with the exception of the 11th District Cost of Funds
Rate Notes, which will reset on the first calendar date 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 indicated 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 indicated in
the applicable Pricing Supplement. If any Interest Reset Date for any Floating
Rate Note would otherwise be a day that is not a Market Day with respect to such
Note, such Interest Reset Date shall be postponed to the next succeeding Market
Day with respect to such Note, except that if such Note is a LIBOR Note and the
next succeeding Market Day falls in the next succeeding calendar month, such
Interest Reset Date shall be the immediately preceding Market Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note ("Commercial Paper Interest Determination Date"), a
Prime Rate Note ("Prime Rate Interest Determination Date"), a CD Rate Note ("CD
Interest Determination Date"), a Federal Funds Rate Note ("Federal Funds
Interest Determination Date"), a J.J. Kenny Rate Note ("J.J.Kenny Interest
Determination Date"), or an 11th District Cost of Funds Rate Note ("11th
District Cost of Funds Interest Determination Date") will be the second Market
Day preceding the Interest Reset Date with respect to such Note. The Interest
Determination Date pertaining to an Interest Reset Date for a LIBOR Note ("LIBOR
Interest Determination Date") will be the second London Market Day preceding
such Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for a Treasury Rate Note ("Treasury Interest Determination
Date") will be the day on which Treasury bills are auctioned for the week in
which such Interest Reset Date falls, or if no auction is held for such week,
the Monday of such week (or if Monday is a legal holiday, the next succeeding
Market Day) and the Interest Reset Date will be the Market Day immediately
following such Treasury Interest Determination Date. Treasury bills are usually
sold at auction on Monday of 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 an auction for such week is
held on Monday or the preceding Friday, such Monday or preceding Friday shall be
the Treasury Interest Determination Date for such week, and the Interest Reset
Date for such week shall be the Tuesday of such week (or, if such Tuesday is not
a Market Day, the next succeeding Market Day). If the auction for such week is
held on any day of such week other than Monday, then such day shall be the
Treasury Interest Determination Date and the Interest Reset Date for such week
shall be the next succeeding Market Day. The Interest Determination Date
pertaining to a CMT Rate Note ("CMT Interest Determination Date") will be the
second Market Day preceding such Interest Reset Date.
S-5
<PAGE> 6
A Floating Rate Note may 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. In addition to any maximum interest rate which may
be applicable to any Floating Rate Note, the interest rate on the Floating Rate
Notes will in no event be higher than the maximum rate permitted by New York
law, as the same may be modified by United States law of general application.
Under present New York law the maximum rate of interest is 25% per annum on a
simple interest basis. The limit does not apply to Notes in which $2,500,000 or
more has been invested.
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, pursuant to the preceding sentence, an Interest Payment
Date (other than at Maturity) with respect to any Floating Rate Note would
otherwise be a day that is not a Market Day with respect to such Note, such
Interest Payment Date shall be postponed to the next succeeding Market Day with
respect to such Note, except that if such Note is a LIBOR Note and the next
succeeding Market Day falls in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding Market Day. If the Maturity of a
Floating Rate Note falls on a day that is not a Market Day, the required payment
of principal, premium, if any, or interest will be made on the next succeeding
Market Day as if made on the date such payment was due, and no interest shall
accrue on such payment for the period from and after the Maturity to the date of
such payment on the next succeeding Market Day. Unless otherwise indicated in
the applicable Pricing Supplement, the Regular Record Date with respect to
Floating Rate Notes shall be the date 15 calendar days prior to each Interest
Payment Date, whether or not such date shall be a Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, interest
payments for a Floating Rate Note shall be the amount of interest accrued to,
but excluding, the Interest Payment Date or Maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the
interest accrued for any period 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 in such
period. Unless otherwise specified in the Note and the applicable Pricing
Supplement, the interest factor (expressed as a decimal rounded, if necessary,
as described below) for each such day is computed by dividing the interest rate
(expressed as a decimal rounded upwards, if necessary, as described below)
applicable to such date by 360, or by the actual number of days in the year, in
the case of Treasury Rate Notes and CMT Rate Notes.
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation on Floating Rate Notes will be
rounded, if necessary, to the nearest one-hundred thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655) and 9.876544%
(or .09876544) being rounded to 9.87654% (or .0987654)), and all dollar amounts
used in or resulting from such calculation on Floating Rate Notes will be
rounded to the nearest cent or, in the case of Foreign Currency Notes, the
nearest unit (with one-half cent or unit being rounded upwards).
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.
S-6
<PAGE> 7
Commercial Paper Rate Notes
Each Commercial Paper Rate Note will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates specified on the face of
such 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 in 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 in Composite Quotations under the heading
"Commercial Paper". If by 3:00 p.m., New York City time, on such Calculation
Date such rate is not yet published in either H.15(519) or Composite Quotations,
the Commercial Paper Rate for that Commercial Paper Interest Determination Date
shall be the Money Market Yield of the arithmetic mean, as calculated by the
Calculation Agent on such Calculation Date, of the offered rates, as of 11:00
a.m., New York City time, on that Commercial Paper Interest Determination Date,
of three leading dealers of commercial paper in The City of New York selected by
the Calculation Agent for commercial paper having 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
upwards, if necessary, to the next higher one-hundred thousandth of a percentage
point) calculated in accordance with the following formula:
Money Market Yield = D X 360 X 100
-----------
360-(D X M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
Prime Rate Notes
Each Prime Rate Note will bear interest at the interest rate (calculated
with reference to the Prime Rate and the Spread or Spread Multiplier, if any),
and will be payable on the dates specified on the face of such 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 on such 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 will be the arithmetic mean (rounded, if
necessary, to the next higher one-hundred thousandth of a percentage point) of
the rates of interest publicly announced by each bank that appears on the
Reuters Screen NYMF Page (or such other equivalent page appearing on another
service mutually agreed upon between the Calculation Agent and the Company)
("NYMF Page") 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 NYMF Page for that Prime Rate Interest
Determination Date, the Prime Rate will be the arithmetic mean (rounded, if
necessary, to the next higher one-hundred thousandth of a percentage point), as
calculated by the Calculation Agent on such Calculation Date, of the prime rates
quoted on the basis of the actual number of
S-7
<PAGE> 8
days in the year divided by a 360-day year as of the close of business on such
Prime Rate Interest Determination Date by four major money center banks in The
City of New York selected by the Calculation Agent. If fewer than two quotations
are provided, the Prime Rate shall be determined 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 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.
CD Rate Notes
Each CD Rate Note will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any), and will
be payable on the dates specified in 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 of the Index Maturity designated in the
applicable Pricing Supplement as published in Composite Quotations under the
heading "Certificates of Deposit". If such rate is not published by 3:00 p.m.,
New York City time, on such Calculation Date, then the CD Rate on such CD
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean (each as rounded to the nearest one-hundred thousandth of
a percentage point) 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 market banks of the highest credit standing (in the
market for negotiable certificates of deposit) with a remaining maturity closest
to the Index Maturity designated in the applicable Pricing Supplement in
denominations 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 with respect to such CD Interest Determination Date will
be the CD Rate in effect on such CD Interest Determination Date.
Federal Funds Rate Notes
Each Federal Funds Rate Note will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates specified in 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 that day 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 yet
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 to the nearest
one-hundred thousandth of a percentage point) 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
S-8
<PAGE> 9
sentence, the Federal Funds Rate with respect to such Federal Funds Interest
Determination Date will be the Federal Funds Rate in effect on such Federal
Funds Interest Determination Date.
LIBOR Notes
Each LIBOR Note will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any), and will be
payable on the dates specified on the face of such LIBOR Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR will
be determined by the Calculation Agent in accordance with the following
provisions:
With respect to any LIBOR Interest Determination Date, LIBOR will be
determined on the basis of the offered rate for deposits of not less than
$1,000,000 having the Index Maturity specified in the applicable Pricing
Supplement, commencing on the second London Market Day immediately
following such LIBOR Interest Determination Date, which appears on the
Telerate Page 3750 as of 11:00 a.m., London time, on that LIBOR Interest
Determination Date. If such rate does not so appear on the Telerate Page
3750, the rate in respect of such LIBOR Interest Determination Date 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
four major banks in the London interbank market selected by the Calculation
Agent commencing on the second London Market Day immediately following such
LIBOR Interest Determination Date and in a principal amount equal to an
amount of not less than $1,000,000 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, as calculated by the Calculation Agent on such Calculation
Date, of such quotations. If fewer than two quotations are provided, LIBOR
for such LIBOR Interest Determination Date will be the arithmetic mean, as
calculated by the Calculation Agent on such Calculation Date, 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 Market Day immediately following such LIBOR Interest Determination
Date and in a principal amount equal to an amount of not less than
$1,000,000 that in the Calculation Agent's judgment is representative for a
single transaction in such market at such time; provided, however, that if
the banks selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, LIBOR will be the LIBOR in effect on such LIBOR
Interest Determination Date.
Treasury Rate Notes
Each Treasury Rate Note will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if
any), and will be payable on the dates specified on the face of such Treasury
Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable 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, "U.S. Government
Securities -- auction average (investment)" or, if not so published by 3:00
p.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 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 specified in the applicable Pricing
Supplement are not published or reported as provided above by 3:00 p.m., New
York City time, on such date, or if no such auction is held in a particular
week, then
S-9
<PAGE> 10
the Treasury Rate shall be a yield to maturity (expressed as a bond equivalent
on the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) of the arithmetic mean, as calculated by the Calculation Agent on such
Calculation Date, 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.
J.J. Kenny Rate Notes
Each J.J. Kenny Rate Note will bear interest at the interest rate
(calculated with reference to the J.J. Kenny Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates specified in the J.J.
Kenny Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, the "J.J.
Kenny Rate" on the J.J. Kenny Interest Determination Date means the rate in the
high-grade weekly index (the "Weekly Index") on such date made available by
Kenny Information Systems ("Kenny") to the Calculation Agent. The Weekly Index
is, and shall be, based upon 30-day yield evaluations at par of bonds, the
interest of which is exempt from Federal income taxation under the Internal
Revenue Code of 1986, as amended ("Code"), of not less than five high-grade
component issuers selected by Kenny; which shall include, without limitation,
issuers of general obligation bonds. The specific issuers included among the
component issuers may be changed from time to time by Kenny in its discretion.
The bonds on which the Weekly Index is based shall not include any bonds on
which the interest is subject to a minimum tax or similar tax under the Code,
unless all tax-exempt bonds are subject to such tax. In the event Kenny ceases
to make available such Weekly Index, a successor indexing agent will be selected
by the Calculation Agent, such index to reflect the prevailing rate for bonds
rated in the highest short-term rating category by Moody's Investors Service,
Inc. and Standard & Poor's Corporation in respect of issuers most closely
resembling the high-grade component issuers selected by Kenny for its Weekly
Index, the interest on which is (A) variable on a weekly basis, (B) exempt from
Federal income taxation under the Code and (C) not subject to a minimum tax or
similar tax under the Code unless all tax-exempt bonds are subject to such tax.
If such successor indexing agent is not available, the rate for any J.J. Kenny
Interest Determination Date shall be 67% of the rate determined if the Treasury
Rate option had been originally selected. The Calculation Agent shall calculate
the J.J. Kenny Rate in accordance with the foregoing. At the request of a Holder
of a Floating Rate Note bearing interest at the J.J. Kenny Rate, the Calculation
Agent will provide such Holder with the interest rate that will become effective
as of the next Interest Reset Date.
11th District Cost of Funds Rate Notes
Each 11th District Cost of Funds Rate Note will bear interest at the
interest rate (calculated with reference to the 11th District Cost of Funds Rate
and the Spread or Spread Multiplier, if any), and will be payable on the dates
specified in the 11th District Cost of Funds Rate Note and in the applicable
Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "11th
District Cost of Funds Rate" means, with respect to any 11th District Cost of
Funds Interest Determination Date, the monthly 11th District Cost of Funds Index
("11th District Cost of Funds Index") normally made available and subsequently
published by the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco") during the month immediately preceding the Interest Reset Date to
which such 11th District Cost of Funds Interest Determination Date applies.
The 11th District Cost of Funds Index is normally made available by the
FHLB of San Francisco on the last day on which the FHLB of San Francisco is open
for business in each month and represents the monthly weighted average cost of
funds for savings institutions in the 11th District of the Federal Home Loan
Bank system for the month preceding the month in which the 11th District Cost of
Funds Index is made available.
S-10
<PAGE> 11
Currently, the 11th District Cost of Funds Index is computed by the FHLB of San
Francisco for each month by dividing the cost of funds (interest paid during the
month by 11th District savings institutions on savings, advances and other
borrowing) by the average of the total amount of those funds outstanding at the
end of that month and the prior month and annualizing and adjusting the result
to reflect the actual number of days in the particular month. If necessary,
before these calculations are made, the component figures are adjusted by the
FHLB of San Francisco to neutralize the effect of events such as member
institutions leaving the 11th District or acquiring institutions outside the
11th District. Receipt by mail of Information Bulletins announcing 11th District
Cost of Funds Index changes may be arranged by contacting the FHLB of San
Francisco.
If the FHLB of San Francisco shall fail in any month to make available the
11th District Cost of Funds Index (each such failure being referred to herein as
an "Alternate Rate Event"), then the 11th District Cost of Funds Rate for the
11th District Cost of Funds Interest Determination Date after the Alternate Rate
Event shall be calculated on the basis of the 11th District Cost of Funds Index
most recently made available prior to such 11th District Cost of Funds Interest
Determination Date. If an Alternate Rate Event occurs in the month immediately
following a month in which a prior Alternate Rate Event occurred, then the 11th
District Cost of Funds Rate for the 11th District Cost of Funds Interest
Determination Date immediately following the second Alternate Rate Event shall
be calculated on the basis of the 11th District Cost of Funds Index most
recently made available prior to such 11th District Cost of Funds Interest
Determination Date and, thereafter, the 11th District Cost of Funds Rate for
each succeeding 11th District Cost of Funds Interest Determination Date shall be
LIBOR, determined as though the interest rate basis were LIBOR, and the Spread
shall be plus or minus the number of basis points specified in the applicable
11th District Cost of Funds Rate Note as the "Alternate Rate Event Spread," if
any.
In determining that the FHLB of San Francisco has failed in any month to
make available the 11th District Cost of Funds Index, the Calculation Agent may
rely conclusively on any written advice from the FHLB of San Francisco to such
effect.
CMT Rate Notes
Each CMT Rate Note will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread or the Spread Multiplier, if any), and
will be payable on the dates specified in the CMT Rate Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means with respect to any CMT Interest Determination Date, the rate displayed on
the Designated CMT Telerate Page under the caption ". . . Treasury Constant
Maturities . . . Federal Reserve Board Release H.15 . . . Mondays Approximately
3:45 P.M.," under the column for the Designated CMT Maturity Index for (i) if
the Designated CMT Telerate Page is 7055, the rate on such CMT Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
week, or the month, as applicable, ending immediately preceding the week in
which the related CMT Interest Determination Date occurs. If such rate is no
longer displayed on the relevant page, or if not displayed by 3:00 P.M., New
York City time, on the related Calculation Date, then the CMT Rate for such CMT
Interest Determination Date will be such Treasury Constant Maturity rate for the
Designated CMT Maturity Index as published in the relevant H.15(519). If such
rate is no longer published, or if not published by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate for such CMT Interest
Determination Date will be such Treasury Constant Maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not provided by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate for the CMT
Interest Determination Date will be calculated by the Calculation Agent and will
be a yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 P.M., New York City time, on
the CMT Interest Determination Date reported, according to their written
records, by three leading primary United States government securities dealers
(each, a "Reference Dealer") in The City of New York selected
S-11
<PAGE> 12
by the Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an original
maturity of approximately the Designated CMT Maturity Index and a remaining term
to maturity of not less than such Designated CMT Maturity Index minus one year.
If the Calculation Agent cannot obtain three such Treasury Note quotations, the
CMT Rate for such CMT Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offer side prices as of approximately 3:30 P.M., New
York City time, on the CMT Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least $100 million. If three or four (and not five)
of such Reference Dealers are quoting, as described above, then the CMT Rate
will be based on the arithmetic mean of the offer prices obtained and neither
the highest nor the lowest of such quotes will be eliminated; provided, however,
that if fewer than three Reference Dealers selected by the Calculation Agent are
quoting as described herein, the CMT Rate will be the CMT Rate in effect on such
CMT Interest Determination Date. If two Treasury Notes with an original maturity
as described in the third preceding sentence have remaining terms to maturity
equally close to the Designated CMT Maturity Index, the quotes for the CMT Rate
Note with the shorter remaining term to maturity will be used.
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 of principal and interest on Amortizing Notes, which are securities for
which payments of principal and interest are made in equal installments over the
life of the security, will be made either quarterly on each March 1, June 1,
September 1 and December 1 or semi-annually on each March 1 and September 1, and
at Maturity, unless otherwise specified in the applicable Pricing Supplement.
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
to such Amortizing Notes. A table setting forth repayment information in respect
of each Amortizing Note will be set forth in the applicable Pricing Supplement
or in the Amortizing Notes.
RENEWABLE NOTES
The applicable Pricing Supplement (other than an Amortizing Note) will
indicate whether such Note will mature unless the term of all or any portion of
any such Note is renewed in accordance with the procedures described in the
applicable Pricing Supplement.
EXTENDIBLE NOTES
The applicable Pricing Supplement (other than an Amortizing Note) will
indicate whether the Company has the option to extend the Stated Maturity of
such Note for one or more periods up to but not beyond a date set forth in such
Pricing Supplement. If the Company has such option with respect to any such
Note, the procedures relating thereto will be as set forth in the applicable
Pricing Supplement.
ORIGINAL ISSUE DISCOUNT NOTES
The Notes may be issued as Original Issue Discount Notes. An "Original
Issue Discount Note" is a Note which is issued at a price lower than the
principal amount thereof and which provides that upon redemption or acceleration
of the Maturity thereof an amount less than the principal thereof shall become
due and payable. In the event of redemption or acceleration of the Maturity of
an Original Issue Discount Note, the amount
S-12
<PAGE> 13
payable to the Holder of such Note upon such redemption or acceleration will be
determined in accordance with the terms of the Note, but will be an amount less
than the amount payable at the Stated Maturity of such Note. In addition, a Note
issued at a discount may, for United States federal income tax purposes, be
considered an Original Issue Discount Note, regardless of the amount payable
upon redemption or acceleration of Maturity of such Note. See "UNITED STATES
TAXATION -- Original Issue Discount" below.
INDEXED NOTES
The Notes may be issued as Indexed Notes, of which the principal amount
payable at Maturity and/or on which the amount of interest payable on an
Interest Payment Date will be determined by reference to currencies, currency
units, commodity prices, financial or non-financial indices, or other factors as
indicated in the applicable Pricing Supplement. Holders of Indexed Notes may
receive a principal amount at Maturity that is greater than or less than the
face amount of such Notes depending upon the fluctuation of the relative value,
rate, or price of the specified index. Specific information pertaining to the
method for determining the principal amount payable at Maturity, a historical
comparison of the relative value, rate, or price of the specified index and the
face amount of the Indexed Note and certain additional tax considerations will
be described in the applicable Pricing Supplement.
OPTIONAL REDEMPTION
If one or more Redemption Dates (or range of Redemption Dates) is specified
in the applicable Pricing Supplement, the Notes described therein will be
subject to redemption, in whole or in part, as specified in such Pricing
Supplement, on any such date (or during any such range of dates) at the option
of the Company upon not less than 30 days' or more than 60 days' notice, at the
Redemption Price or Prices specified in the applicable Pricing Supplement,
together with interest accrued to the Redemption Date; provided, however, that
interest installments due prior to the date fixed for redemption will be payable
to the Holder of record at the close of business on the Regular Record Date. If
less than the entire principal amount of a Note is redeemed, the principal
amount of such Note that remains outstanding after such redemption shall not be
less than the minimum denomination of such Note.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes of like tenor and having the same Issue
Date will be represented by a single permanent Global Note. Each Global Note
representing Book-Entry Notes will be deposited with, or on behalf of, the
Depository located in the Borough of Manhattan, The City of New York, and will
be registered in the name of the Depository or a nominee of the Depository.
Ownership of beneficial interests in a Global Note representing Book-Entry
Notes will be limited to institutions that have accounts with the Depository or
its nominee ("Participants") or persons that may hold interests through
Participants. In addition, ownership of beneficial interests by Participants in
such a Global Note will only be evidenced by, and the transfer of that ownership
interest will only be effected through, records maintained by the Depository or
its nominee for such Global Note. Ownership of beneficial interests in such a
Global Note by persons that hold through Participants will only be evidenced by,
and the transfer of that ownership interest within such Participant will only be
effected through, records maintained by such Participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in such a Global Note.
The Company has been advised by the Depository that upon the issuance of a
Global Note representing Book-Entry Notes, and the deposit of such Global Note
with the Depository, the Depository will immediately credit, on its book-entry
registration and transfer system, the respective principal amounts of the
Book-Entry Notes represented by such Global Note to the accounts of
Participants. The accounts to be credited shall be designated by the presenting
Agent or, to the extent that the Book-Entry Notes are offered and sold directly,
by the Company.
S-13
<PAGE> 14
Payment of principal of and any premium and interest on Book-Entry Notes
represented by any Global Note registered in the name of or held by the
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered Holder of the Global Note representing such
Book-Entry Notes. None of the Company, the Trustee or any agent of the Company
or the Trustee will have any responsibility or liability for any aspect of the
Depository's records or any Participant's records relating to, or payments made
on account of, beneficial ownership interests in a Global Note representing such
Book-Entry Notes or for maintaining, supervising or reviewing any of the
Depository's records or any Participant's records relating to such beneficial
ownership interests.
The Company has been advised by the Depository that upon receipt of any
payment of principal of or any premium or interest in respect of a Global Note,
the Depository will immediately credit, on its book-entry registration and
transfer system, accounts of Participants with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such Global
Note as shown on the records of the Depository. Payments by Participants to
owners of beneficial interests in a Global Note held through such Participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in "street
name", and will be the sole responsibility of such Participants.
No Global Note described above may be transferred except by the Depository
for such Global Note to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository.
A Global Note representing Book-Entry Notes is exchangeable for Notes
registered in the name of a Holder other than the Depository only if the
Depository notifies the Company that it is unwilling or unable to continue as
Depository or the Depository ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or the Company in
its sole discretion instructs the Trustee that such Global Note shall be so
exchangeable or there shall have occurred and be continuing an Event of Default
with respect to the Notes evidenced by such Global Note. Any permanent Global
Note that is exchangeable pursuant to the preceding sentence shall be
exchangeable in whole for definitive Notes in registered form, of like tenor and
of an equal aggregate principal amount, in denominations of $100,000 with
integral multiples of $1,000 in excess thereof. Notes issued in exchange for a
Global Note shall be registered in the name or names of such person or persons
as the Depository shall instruct the Trustee. It is expected that such
instructions may be based upon directions received by the Depository from its
Participants with respect to ownership of beneficial interests in such Global
Note.
Except as provided above, owners of beneficial interests in such Global
Note will not be entitled to receive physical delivery of Notes in definitive
form and will not be considered the Holders thereof for any purpose under the
Indenture, and no Global Note representing Book-Entry Notes shall be
exchangeable, except for another Global Note of like denomination and tenor to
be registered in the name of the Depository or its nominee. Accordingly, each
person owning a beneficial interest in such Global Note must rely on the
procedures of the Depository and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest, to
exercise any rights of a Holder under the Indenture. The Indenture provides that
the Depository, as a Holder, may appoint agents and otherwise authorize
Participants to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action which a Holder is entitled to give or
take under the Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or an
owner of a beneficial interest in such Global Note desires to give or take any
action that a Holder is entitled to give or take under the Indenture, the
Depository would authorize the Participants holding the relevant beneficial
interests to give or take such action, and such Participants would authorize
beneficial owners owning through such Participants to give or take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
The Depository has advised the Company that the Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
S-14
<PAGE> 15
registered under the Exchange Act. The Depository was created to hold securities
of its Participants and to facilitate the clearance and settlement of securities
transactions among its Participants in such securities through electronic
book-entry changes in accounts of the Participants, thereby eliminating the need
for physical movement of securities certificates. The Depository's Participants
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Depository. Access to the Depository's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
The following provisions, which apply to Foreign Currency Notes, supplement
the description of general terms and conditions of (a) Debt Securities set forth
under the heading "DESCRIPTION OF SECURITIES" in the accompanying Prospectus and
(b) Notes set forth above under the heading "DESCRIPTION OF NOTES" in this
Prospectus Supplement. For a description of certain risks associated with
Foreign Currency Notes, see "Foreign Currency Risks" below.
THE ACCOMPANYING PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT DO NOT DESCRIBE
ALL RISKS OF AN INVESTMENT IN FOREIGN CURRENCY NOTES THAT RESULT FROM SUCH NOTES
BEING DENOMINATED IN A FOREIGN CURRENCY OR CURRENCY UNIT EITHER AS SUCH RISKS
EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM
TIME TO TIME. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND
LEGAL ADVISORS AS TO THE RISKS ENTAILED IN AN INVESTMENT IN FOREIGN CURRENCY
NOTES AND AS TO ANY MATTERS THAT MAY AFFECT THE PURCHASE OR HOLDING OF A FOREIGN
CURRENCY NOTE OR THE RECEIPT OF PAYMENTS OF PRINCIPAL OF AND ANY PREMIUM AND
INTEREST ON A FOREIGN CURRENCY NOTE IN A SPECIFIED CURRENCY. FOREIGN CURRENCY
NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED
WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
Unless otherwise indicated in the applicable Pricing Supplement, a Foreign
Currency Note will not be sold in, or to a resident of, the country of the
Specified Currency (as defined below under "Purchase") in which such Note is
denominated.
The authorized denominations of Foreign Currency Notes will be indicated in
the applicable Pricing Supplement.
Specific information pertaining to the foreign currency or currency unit in
which a particular Foreign Currency Note is denominated, including historical
exchange rates and a description of the currency and any exchange controls, will
be described in the applicable Pricing Supplement.
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls. An investment in Foreign Currency
Notes entails significant risks that are not associated with a similar
investment in a security denominated in U.S. dollars. Such risks include,
without limitation, the possibility of significant changes in the rate of
exchange between the U.S. dollar and the Specified Currency (as defined below
under "Purchase") 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 and the supply of
and demand for the relevant currencies 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 Foreign Currency Note. Depreciation of the
S-15
<PAGE> 16
Specified Currency applicable to a Foreign Currency Note against the U.S. dollar
would result in a decrease in the U.S. dollar-equivalent yield of such Note, in
the U.S. dollar-equivalent value of the principal repayable at Maturity of such
Note and, generally, in the U.S. dollar-equivalent market value of such Note.
Governments have imposed from time to time exchange controls and may in the
future impose or revise exchange controls at or prior to a Foreign Currency
Note's maturity. Even if there are no exchange controls, it is possible that the
Specified Currency for any particular Foreign Currency Note would not be
available at such Note's Maturity due to other circumstances beyond the control
of the Company.
Judgments. In the event an action based on Foreign Currency Notes were
commenced in a court of the United States, it is likely that such court would
grant judgment relating to such Notes only in U.S. dollars. It is not clear,
however, whether, in granting such judgment, the rate of conversion into U.S.
dollars would be determined with reference to the date of default, the date
judgment is rendered or some other date. Holders of Foreign Currency Notes would
bear the risk of exchange rate fluctuations between the time the amount of the
judgment is calculated and the time the Trustee converts U.S. dollars to the
Specified Currency for payment of the judgment.
PURCHASE
Unless otherwise indicated in the applicable Pricing Supplement, purchasers
are required to pay for Foreign Currency Notes in the currency or currency unit
specified in the applicable Pricing Supplement ("Specified Currency"). At the
present time there are limited facilities in the United States for the
conversion of U.S. dollars into foreign currencies or currency units and vice
versa, and banks do not generally offer non-U.S. dollar checking or savings
account facilities in the United States. If requested to do so on or prior to
the fifth Market Day preceding the date of delivery of the Notes, or by such
other day as determined by the Agent who presented such offer to purchase Notes
to the Company, such Agent is prepared to arrange for the conversion of U.S.
dollars into the Specified Currency to enable the purchasers to pay for the
Notes. Each such conversion will be made by such Agent on such terms and subject
to such conditions, limitations and charges as such 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 Foreign Currency Notes.
PAYMENT OF PRINCIPAL AND ANY PREMIUM AND INTEREST
The Company is obligated to make payments of principal of and any premium
and interest on Foreign Currency Notes in the Specified Currency (or, if such
Specified Currency is not at the time of such payment legal tender for the
payment of public and private debts, in such other coin or currency of the
country which issued such Specified Currency as at the time of such payment is
legal tender for the payment of such debts). Any such amounts paid by the
Company will, unless otherwise specified in the applicable Pricing Supplement,
be converted by the Exchange Rate Agent to U.S. dollars for payment to Holders.
However, unless otherwise indicated in the applicable Pricing Supplement, the
Holder of a Foreign Currency Note may elect to receive such payments in the
Specified Currency as described below.
Any U.S. dollar amount to be received by a Holder of a Foreign Currency
Note will be based on the highest bid quotation in The City of New York received
by the Exchange Rate Agent at approximately 11:00 a.m., New York City time, on
the second Market Day preceding the applicable payment date from three
recognized foreign exchange dealers (one of which may be the Exchange Rate
Agent) selected by the Exchange Rate Agent and approved by the Company for the
purchase by the quoting dealer of the Specified Currency for U.S. dollars for
settlement on such payment date in the aggregate amount of the Specified
Currency payable to all Holders of Foreign Currency Notes scheduled to receive
U.S. dollar payments and at which the applicable dealer commits to execute a
contract. If such bid quotations are not available, payments will be made in the
Specified Currency. All currency exchange costs will be borne by the Holder of
the Foreign Currency Note by deductions from such payments.
Unless otherwise specified in the applicable Pricing Supplement, a Holder
of a Foreign Currency Note may elect to receive payment of the principal of and
any premium and interest on such Note in the Specified
S-16
<PAGE> 17
Currency by transmitting a written request for such payment to the Trustee at
its Corporate Trust Office in the Borough of Manhattan, The City of New York on
or prior to the Regular Record Date or at least sixteen days prior to Maturity,
as the case may be. Such request 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 may elect to receive payment in the Specified Currency for all
principal and any premium and interest payments and need not file a separate
election for each payment. Such election will remain in effect until revoked by
written notice to the Trustee, but written notice of any such revocation must be
received by the Trustee on or prior to the relevant Regular Record Date or at
least sixteen days prior to Maturity, as the case may be. Holders of Foreign
Currency Notes whose Notes are to be held in the name of a broker or nominee
should contact such broker or nominee to determine whether and how an election
to receive payments in the Specified Currency may be made.
Unless otherwise specified in the applicable Pricing Supplement, a
beneficial owner of Book-Entry Notes denominated in a Specified Currency
electing to receive payments of principal or any premium or interest in the
Specified Currency must notify the Participant through which its interest is
held on or prior to the applicable Regular Record Date, in the case of a payment
of interest, and on or prior to the sixteenth day prior to Maturity, in the case
of a payment of principal or premium, of such beneficial owner's election to
receive all or a portion of such payment in a Specified Currency. Such
Participant must notify the Depository of such election on or prior to the third
Business Day after such Regular Record Date. The Depository will notify the
Paying Agent of such election on or prior to the fifth Market Day after such
Regular Record Date. If complete instructions are received by the Participant
and forwarded by the Participant to the Depository, and by the Depository to the
Paying Agent, on or prior to such dates, the beneficial owner will receive
payments in the Specified Currency.
Principal of, and any premium and interest on, a Foreign Currency Note paid
in U.S. dollars will be paid in the manner specified in the accompanying
Prospectus and this Prospectus Supplement for interest on Notes denominated in
U.S. dollars. Interest on a Foreign Currency Note paid in the Specified Currency
will be paid by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register. All checks payable in a
Specified Currency will be drawn on a bank office located outside the United
States. Payments of principal of and any premium and interest on Foreign
Currency Notes paid in the Specified Currency at Maturity will be made by wire
transfer to an account with a bank located in the country of the Specified
Currency, as shall have been designated at least sixteen days prior to Maturity
by the Holder, provided that the Note is presented at the Corporate Trust Office
of the Paying Agent in time for such Paying Agent to make such payments in such
funds in accordance with its normal procedures.
PAYMENT CURRENCY
If a Specified Currency is not available for the payment of principal or
any premium or interest with respect to a Foreign Currency Note due to the
imposition of exchange controls or other circumstances beyond the control of the
Company, the Company will be entitled to satisfy its obligations to Holders of
Foreign Currency Notes by making such payment in U.S. dollars on the basis of
the Market Exchange Rate on the second Market Day prior to such payment, or if
such Market Exchange Rate is not then available, on the basis of the most
recently available Market Exchange Rate or as otherwise indicated in the
applicable Pricing Supplement. See "Foreign Currency Risks -- Exchange Rates and
Exchange Controls" above.
S-17
<PAGE> 18
UNITED STATES TAXATION
The following summary of the principal United States federal income tax
consequences of the ownership of Notes deals only with Notes held as capital
assets by initial purchasers, and not with special classes of holders, such as
dealers in securities or currencies, banks, tax-exempt organizations, life
insurance companies, persons that hold Notes that are a hedge or that are hedged
against currency risks or that are part of a straddle or conversion transaction,
or persons whose functional currency is not the U.S. dollar. Moreover, the
summary deals only with Notes that are due to mature 30 years or less from the
date on which they are issued. The United States federal income tax consequences
of ownership of Notes that are due to mature more than 30 years from their date
of issue will be discussed in an applicable Pricing Supplement. Whether Notes
with a maturity of more than 30 years will be debt for United States federal
income tax purposes must be determined on a case-by-case basis. The summary is
based on the Code, its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change at any time, perhaps with retroactive effect.
Prospective purchasers of Notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of ownership of Notes.
UNITED STATES HOLDERS
Payments of Interest
Interest on a Note, whether payable in U.S. dollars or a currency,
composite currency or basket of currencies other than U.S. dollars ("Specified
Currency", for purposes of the discussion under the heading "UNITED STATES
TAXATION" only), other than interest on a "Discount Note" that is not "qualified
stated interest" (each as defined below under "Original Issue
Discount -- General"), will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A United States Holder is a beneficial owner who
or that is (i) a citizen or resident of the United States, (ii) a domestic
corporation or (iii) otherwise subject to United States federal income taxation
on a net income basis in respect of the Note.
If an interest payment is denominated in, or determined by reference to, a
Specified Currency, the amount of income recognized by a cash basis United
States Holder will be the U.S. dollar value of the interest payment, based on
the exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a Specified Currency in accordance with either of two methods.
Under the first method, the amount of income accrued will be 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 part of the
period within the taxable year). Upon receipt of the interest payment (including
a payment attributable to accrued but unpaid interest upon the sale or
retirement of a Note) denominated in, or determined by reference to, a Specified
Currency, the United States Holder will recognize ordinary income or loss
measured by the difference between the average exchange rate used to accrue
interest income and the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars.
Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. 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 United States Holder at the beginning of the first
S-18
<PAGE> 19
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service ("Service").
ORIGINAL ISSUE DISCOUNT
General. A Note, other than a Note with a term of one year or less (a
"short-term Note"), will be treated as issued at an original issue discount
("Discount Note") if the excess of the Note's "stated redemption price at
maturity" over its issue price is more than a "de minimis amount" (as defined
below). Generally, the issue price of a Note will be the first price at which a
substantial amount of Notes included in the issue of which the Note is a part is
sold to other than bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers. The
stated redemption price at maturity of a Note is the total of all payments
provided by the Note that are not payments of "qualified stated interest". A
qualified stated interest payment is generally any one of a series of stated
interest payments on a Note that are unconditionally payable at least annually
at a single fixed rate (with certain exceptions for lower rates paid during some
periods) applied to the outstanding principal amount of the Note. Special rules
for "Variable Rate Notes" (as defined below under "Original Issue
Discount -- Variable Rate Notes") are described below under "Original Issue
Discount -- Variable Rate Notes".
In general, if the excess of a Note's stated redemption price at maturity
over its issue price is less than 1/4 of 1 percent of the Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity ("de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount Note. Unless the
election described below under "Election to Treat All Interest as Original Issue
Discount" is made, a United States Holder of a Note with de minimis original
issue discount must include such de minimis original issue discount in income as
stated principal payments on the Note are made. The includible amount with
respect to each such payment will equal the product of the total amount of the
Note's de minimis original issue discount and a fraction, the numerator of which
is the amount of the principal payment made and the denominator of which is the
stated principal amount of the Note.
United States Holders of Discount Notes having a maturity of more than one
year from their date of issue must include original issue discount ("OID") in
income calculated on a constant-yield method before the receipt of cash
attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Note. The amount of OID
includible in income by a United States Holder of a Discount Note is the sum of
the daily portions of OID with respect to the Discount Note for each day during
the taxable year or portion of the taxable year on which the United States
Holder holds such Discount Note ("accrued OID"). The daily portion is determined
by allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Note may be
of any length selected by the United States Holder and may vary in length over
the term of the Note as long as (i) no accrual period is longer than one year
and (ii) each scheduled payment of interest or principal on the Note occurs on
either the final or first day of an accrual period. The amount of OID allocable
to an accrual period equals the excess of (a) the product of the Discount Note's
adjusted issue price at the beginning of the accrual period and such Note's
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of the payments of qualified stated interest on the Note allocable
to the accrual period. The "adjusted issue price" of a Discount Note at the
beginning of any accrual period is the issue price of the Note increased by (x)
the amount of accrued OID for each prior accrual period and decreased by (y) the
amount of any payments previously made on the Note that were not qualified
stated interest payments. For purposes of determining the amount of OID
allocable to an accrual period, if an interval between payments of qualified
stated interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual period
immediately following the interval) is allocated pro rata on the basis of
relative lengths to each accrual period in the interval, and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but that is not payable until the end of the
interval. The amount of OID allocable to an initial short accrual period
S-19
<PAGE> 20
may be computed using any reasonable method if all other accrual periods other
than a final short accrual period are of equal length. The amount of OID
allocable to the final accrual period is the difference between (x) the amount
payable at the maturity of the Note (other than any payment of qualified stated
interest) and (y) the Note's adjusted issue price as of the beginning of the
final accrual period.
Acquisition Premium. A United States Holder that purchases a Note for an
amount less than or equal to the sum of all amounts payable on the Note after
the purchase date other than payments of qualified stated interest but in excess
of its adjusted issue price (any such excess being "acquisition premium") and
that does not make the election described below under "Election to Treat All
Interest as Original Issue Discount" is permitted to reduce the daily portions
of OID by a fraction, the numerator of which is the excess of the United States
Holder's adjusted basis in the Note immediately after its purchase over the
adjusted issue price of the Note, and the denominator of which is the excess of
the sum of all amounts payable on the Note after the purchase date, other than
payments of qualified stated interest, over the Note's adjusted issue price.
Market Discount. A Note, other than a short-term Note, will be treated as
purchased at a market discount ("Market Discount Note") if (i) the amount for
which a United States Holder purchased the Note is less than the Note's issue
price (as determined above under "Original Issue Discount -- General") and (ii)
the Note's stated redemption price at maturity or, in the case of a Discount
Note, the Note's "revised issue price", exceeds the amount for which the United
States Holder purchased the Note by at least 1/4 of 1 percent of such Note's
stated redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the Note's maturity. If such
excess is not sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount". The Code provides that,
for these purposes, the "revised issue price" of a Note generally equals its
issue price, increased by the amount of any OID that has accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a United States
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such an election shall apply to all debt
instruments with market discount acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked without the consent of the
Service. A United States Holder of a Market Discount Note that does not elect to
include market discount in income currently generally will be required to defer
deductions for interest on borrowings allocable to such Note in an amount not
exceeding the accrued market discount on such Note until the maturity or
disposition of such Note.
Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year of the Note's
issue date and (iii) the payment will equal or exceed the amount of pre-issuance
accrued interest, then the United States Holder may elect to decrease the issue
price of the Note by the amount of pre-issuance accrued interest. In that event,
a portion of the first stated interest payment will be treated as a return of
the excluded pre-issuance accrued interest and not as an amount payable on the
Note.
Notes Subject to Contingencies Including Optional Redemption. In general,
if a Note provides for an alternative payment schedule or schedules applicable
upon the occurrence of a contingency or contingencies and the timing and amounts
of the payments that comprise each payment schedule are known as of the issue
date, the yield and maturity of the Note are determined by assuming that the
payments will be made according to the Note's stated payment schedule. If,
however, based on all the facts and circumstances as of the issue date, it is
more likely than not that the Note's stated payment schedule will not occur,
then, in general, the yield and maturity of the Note are computed based on the
payment schedule most likely to occur.
S-20
<PAGE> 21
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Company has an unconditional
option or options to redeem a Note, or the Holder has an unconditional option or
options to cause a Note to be repurchased, prior to the Note's stated maturity,
then (i) in the case of an option or options of the Company, the Company will be
deemed to exercise or not exercise an option or combination of options in the
manner that minimizes the yield on the Note and (ii) in the case of an option or
options of the Holder, the Holder will be deemed to exercise or not exercise an
option or combination of options in the manner that maximizes the yield on the
Note. For purposes of those calculations, the yield on the Note is determined by
using any date on which the Note may be redeemed or repurchased as the maturity
date and the amount payable on such date in accordance with the terms of the
Note as the principal amount payable at maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules
("change in circumstances") then, except to the extent that a portion of the
Note is repaid as a result of a change in circumstances and solely for purposes
of the accrual of OID, the yield and maturity of the Note are redetermined by
treating the Note as reissued on the date of the change in circumstances for an
amount equal to the Note's adjusted issue price on that date.
Election to Treat All Interest as Original Issue Discount. A United States
Holder may elect to include in gross income all interest that accrues on a Note
using the constant-yield method described above under the heading "Original
Issue Discount -- General", with the modifications described below. For purposes
of this election, interest includes stated interest, OID, de minimis original
issue discount, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium (described below under
"Notes Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the electing
United States Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing United States Holder, and no payments on the Note will be treated
as payments of qualified stated interest. This election will generally apply
only to the Note with respect to which it is made and may not be revoked without
the consent of the Service. If this election is made with respect to a Note with
amortizable bond premium, then the electing United States Holder will be deemed
to have elected to apply amortizable bond premium against interest with respect
to all debt instruments with amortizable bond premium (other than debt
instruments the interest on which is excludible from gross income) held by the
electing United States Holder as of the beginning of the taxable year in which
the Note with respect to which the election is made is acquired or thereafter
acquired. The deemed election with respect to amortizable bond premium may not
be revoked without the consent of the Service.
If the election to apply the constant-yield method to all interest on a
Note is made with respect to a Market Discount Note, the electing United States
Holder will be treated as having made the election discussed above under
"Original Issue Discount -- Market Discount" to include market discount in
income currently over the life of all debt instruments held or thereafter
acquired by such United States Holder.
Variable Rate Notes. A "Variable Rate Note" is a Note that: (i) has an
issue price that does not exceed the total noncontingent principal payments by
more than the lesser of (1) the product of (x) the total noncontingent principal
payments, (y) the number of complete years to maturity from the issue date and
(z) .015, or (2) 15 percent of the total noncontingent principal payments, and
(ii) provides for stated interest compounded or paid at least annually at (1)
one or more "qualified floating rates", (2) a single fixed rate and one or more
qualified floating rates, (3) a single "objective rate" or (4) a single fixed
rate and a single objective rate that is a "qualified inverse floating rate".
A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day.
S-21
<PAGE> 22
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the Note
is denominated or (ii) it is equal to the product of such a rate and either (a)
a fixed multiple that is greater than zero but not more than 1.35, or (b) a
fixed multiple greater than zero but not more than 1.35, increased or decreased
by a fixed rate. A rate is not a qualified floating rate, however, if the rate
is subject to certain restrictions (including caps, floors, governors, or other
similar restrictions) unless such restrictions are fixed throughout the term of
the Note or are not reasonably expected to significantly affect the yield on the
Note.
An "objective rate" is a rate, other than a qualified floating rate, that
is determined using a single, fixed formula and that is based on (i) one or more
qualified floating rates, (ii) one or more rates each of which would be a
qualified floating rate for a debt instrument denominated in a currency other
than the currency in which the debt instrument is denominated, (iii) the yield
or changes in the price of one or more actively traded items of personal
property other than stock or debt of the issuer or a related party, or (iv) a
combination of objective rates. A variable rate is not an objective rate,
however, if it is reasonably expected that the average value of the rate during
the first half of the Note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Note's term. An objective rate is a "qualified inverse floating rate" if
(i) the rate is equal to a fixed rate minus a qualified floating rate, and (ii)
the variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds. Under these
rules, Commercial Paper Rate Notes, Prime Rate Notes, LIBOR Notes, Treasury Rate
Notes, CD Rate Notes, Federal Funds Rate Notes, J.J. Kenny Rate Notes, 11th
District Cost of Funds Rate Notes and CMT Rate Notes will generally be treated
as Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a
single qualified floating rate or objective rate, all stated interest on the
Note is qualified stated interest and the amount of OID, if any, is determined
by using, in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or qualified
inverse floating rate, or, in the case of any other objective rate, a fixed rate
that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or objective rate, or at a single fixed rate (other than
at a single fixed rate for an initial period), the amount of interest and OID
accruals on the Note are generally determined by (i) determining a fixed rate
substitute for each variable rate provided under the Variable Rate Note
(generally, the value of each variable rate as of the issue date or, in the case
of an objective rate that is not a qualified inverse floating rate, a rate that
reflects the reasonably expected yield on the Note), (ii) constructing the
equivalent fixed rate debt instrument (using the fixed rate substitute described
above), (iii) determining the amount of qualified stated interest and OID with
respect to the equivalent fixed rate debt instrument, and (iv) making the
appropriate adjustments for actual variable rates during the applicable accrual
period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provided for a qualified floating
rate (or a qualified inverse floating rate, as the case may be) rather than the
fixed rate. The qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value of the Variable
Rate Note as of the issue date would be approximately the same as the fair
market value of an otherwise identical debt instrument that provides for the
qualified floating rate (or qualified inverse floating rate) rather than the
fixed rate.
Short-Term Notes. In general, an individual or other cash basis United
States Holder of a short-term Note is not required to accrue OID (as specially
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis United
States Holders and certain other United States
S-22
<PAGE> 23
Holders, including banks, regulated investment companies, dealers in securities,
common trust funds, United States Holders who hold Notes as part of certain
identified hedging transactions, certain pass-thru entities and cash basis
United States Holders who so elect, are required to accrue OID on short-term
Notes on either a straight-line basis or under the constant-yield method (based
on daily compounding), at the election of the United States Holder. In the case
of a United States Holder not required and not electing to include OID in income
currently, any gain realized on the sale or retirement of the short-term Note
will be ordinary income to the extent of the OID accrued on a straight-line
basis (unless an election is made to accrue the OID under the constant-yield
method) through the date of sale or retirement. United States Holders who are
not required and do not elect to accrue OID on short-term Notes will be required
to defer deductions for interest on borrowings allocable to short-term Notes in
an amount not exceeding the deferred income until the deferred income is
realized.
For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Note, including stated interest, are included
in the short-term Note's stated redemption price at maturity.
Foreign Currency Discount Notes. OID for any accrual period on a Discount
Note that is a Foreign Currency Note will be determined in the Specified
Currency and then translated into U.S. dollars in the same manner as stated
interest accrued by an accrual basis United States Holder, as described under
"Payments of Interest". Upon receipt of an amount attributable to OID (whether
in connection with a payment of interest or the sale or retirement of a Note), a
United States Holder may recognize ordinary income or loss.
NOTES PURCHASED AT A PREMIUM
A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium",
in which case the amount required to be included in the United States Holder's
income each year with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's yield to
maturity) to such year. In the case of a Foreign Currency Note, bond premium
will be computed in units of Specified Currency and amortizable bond premium
will reduce interest income in units of the Specified Currency. At the time
amortized bond premium offsets interest income, exchange gain or loss (taxable
as ordinary income or loss) is realized measured by the difference between
exchange rates at that time and at the time of the acquisition of the Notes. Any
election to amortize bond premium shall apply to all bonds (other than bonds the
interest on which is excludible from gross income) held by the United States
Holder at the beginning of the first taxable year to which the election applies
or thereafter acquired by the United States Holder, and is irrevocable without
the consent of the Service. See also "Original Issue Discount -- Election to
Treat All Interest as Original Issue Discount".
PURCHASE, SALE AND RETIREMENT OF THE NOTES
A United States Holder's tax basis in a Note will generally be its U.S.
dollar cost (as defined below), increased by the amount of any OID or market
discount included in the United States Holder's income with respect to the Note
and the amount, if any, of income attributable to de minimis original issue
discount and de minimis market discount included in the United States Holder's
income with respect to the Note, and reduced by (i) the amount of any payments
that are not qualified stated interest payments, and (ii) the amount of any
amortizable bond premium applied to reduce interest on the Note. The U.S. dollar
cost of a Note purchased with a Specified Currency will generally be the U.S.
dollar value of the purchase price on the date of purchase or, in the case of
Notes traded on an established securities market, as defined in the applicable
Treasury Regulations, that are purchased by a cash basis United States Holder
(or an accrual basis United States Holder that so elects), on the settlement
date for the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. The amount realized on a sale
or retirement for an amount in Specified Currency will be the U.S. dollar value
of such amount on the date of sale or retirement or, in the case of Notes traded
on an established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis United States Holder (or an
S-23
<PAGE> 24
accrual basis United States Holder that so elects), on the settlement date for
the sale. Except to the extent described above under "Original Issue
Discount -- Short-Term Notes" or "Original Issue Discount -- Market Discount" or
described in the next succeeding paragraph or attributable to accrued but unpaid
interest, gain or loss recognized on the sale or retirement of a Note will be
capital gain or loss and will be long-term capital gain or loss if the Note was
held for more than one year.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Note that is attributable to changes in exchange rates will be treated as
ordinary income or loss. However, exchange gain or loss is taken into account
only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Specified Currency received as interest on a Note or on the sale or
retirement of a Note will have a tax basis equal to its U.S. dollar value at the
time such interest is received or at the time of such sale or retirement.
Specified Currency that is purchased will generally have a tax basis equal to
the U.S. dollar value of the Specified Currency on the date of purchase. Any
gain or loss recognized on a sale or other disposition of a Specified Currency
(including its use to purchase Notes or upon exchange for U.S. dollars) will be
ordinary income or loss.
INDEXED NOTES, AMORTIZING NOTES, RENEWABLE NOTES AND EXTENDIBLE NOTES
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Notes that are not
subject to the rules governing Variable Rate Notes payments on which are
determined by reference to any index and with respect to any Amortizing Notes,
Renewable Notes or Extendible Notes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder who or that is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership or estate or trust, in either case not subject to
United States Federal income tax on a net income basis in respect of a Note.
Under present United States federal income and estate tax law and subject
to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest (including
OID) by the Company or any of its paying agents to any holder of a Note who
or which is a United States Alien Holder will not be subject to United
States federal withholding tax if, in the case of interest or OID, (a) the
beneficial owner of the Note does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote, (b) the beneficial owner of the Note is not a
controlled foreign corporation that is related to the Company through stock
ownership, and (c) either (A) the beneficial owner of the Note certifies to
the Company or its agent, under penalties of perjury, that it is not a
United States Holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business
("financial institution") and holds the Note certifies to the Company or
its agent under penalties of perjury that such statement has been received
from the beneficial owner by it or by a financial institution between it
and the beneficial owner and furnishes the payor with a copy thereof;
(ii) a United States Alien Holder of a Note will not be subject to
United States federal withholding tax on any gain realized on the sale or
exchange of a Note; and
(iii) a Note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's
gross estate for purposes of the United States federal estate tax as a
result of the individual's death if the individual did not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and the income on the Note
would not have been effectively connected with a United States trade or
business of the individual at the individual's death.
S-24
<PAGE> 25
BACKUP WITHHOLDING AND INFORMATION REPORTING
United States Holders
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of a
Note before maturity within the United States to, and to the accrual of OID on a
Discount Note with respect to, noncorporate United States Holders, and "backup
withholding" at a rate of 31% will apply to such payments and to payments of OID
if the United States Holder fails to provide an accurate taxpayer identification
number or to report all interest and dividends required to be shown on its
federal income tax returns.
United States Alien Holders
Information reporting and backup withholding will not apply to payments of
principal, premium (if any) and interest (including OID) made by the Company or
a paying agent to a United States Alien Holder on a Note if the certification
described in clause (i)(c) under "United States Alien Holders" above is
received, provided that the payor does not have actual knowledge that the holder
is a United States person.
Payments of the proceeds from the sale by a United States Alien Holder of a
Note made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Note to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
PLAN OF DISTRIBUTION OF NOTES
Under the terms of an Agency Agreement, dated July 1, 1994 ("Agency
Agreement"), the Notes may be offered on a continuing basis by the Company
through the Agents, each of which has agreed to use reasonable best efforts to
solicit purchases of the Notes. Unless otherwise agreed, the Company will pay
each Agent a commission of from .125% to .750% of the principal amount of each
Note, depending on its Stated Maturity, sold through such Agent. The commission
payable by the Company to the Agents with respect to Notes with maturities
greater than thirty years will be negotiated at the time the Company issues such
Notes. The Company will have the sole right to accept offers to purchase Notes
and may reject any such offer, in whole or in part. Each Agent shall have the
right, in its discretion reasonably exercised, without notice to the Company, to
reject any offer to purchase Notes received by it, in whole or in part. The
Company also may sell Notes to any Agent, acting as principal, or to a group of
underwriters named in the applicable Pricing Supplement for whom such Agent will
act as representative, at a discount to be agreed upon at the time of sale, for
resale to one or more investors at varying prices related to prevailing market
prices at the time of such resale, as determined by such Agent, or to certain
securities dealers at the public offering price set forth on the cover page of
the applicable Pricing Supplement less the applicable concession, expressed as a
percentage of the principal amount of the Notes. The offering price and other
selling terms for such resales may from time to time be varied by such Agent.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of Notes, other than Foreign Currency Notes, will be required
to be made in funds immediately available in The City of New York. With respect
to payment of the purchase price of Foreign Currency Notes, see "SPECIAL
PROVISIONS RELATING TO FOREIGN CURRENCY NOTES -- Purchase" above.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended ("Act"). The Company has agreed to indemnify
the Agents against certain liabilities, including civil liabilities under the
Act, or contribute to payments which the Agents may be required to make in
respect thereof. The Company has agreed to reimburse the Agents for certain
expenses.
S-25
<PAGE> 26
CS First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, J.P. Morgan Securities Inc., and Morgan Stanley & Co. Incorporated
and certain of their affiliates engage in transactions with and perform
services, including banking services, for the Company in the ordinary course of
business.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company by C. R.
Lotter, Executive Vice President, Secretary and General Counsel of the Company,
and for the Agents by Sullivan & Cromwell, New York, New York. The opinions of
Mr. Lotter and Sullivan & Cromwell will be conditioned upon, and subject to
certain assumptions regarding future action required to be taken by the Company
and the Trustee in connection with the issuance and sale of any particular Note,
the specific terms of the Notes and other matters which may affect the validity
of Notes but which cannot be ascertained on the date of such opinions. As of
April 30, 1994, Mr. Lotter owned 29,260 shares of Common Stock and Common Stock
voting equivalents of the Company, including shares credited to his account
under the Company's Savings and Profit-Sharing Retirement Plan and the Savings,
Profit-Sharing and Stock Ownership Plan as of March 31, 1994. As of April 30,
1994, Mr. Lotter had outstanding options to purchase 49,540 shares of Common
Stock.
GLOSSARY
Set forth below are definitions, or the locations elsewhere of definitions,
of some of the terms used in this Prospectus Supplement.
"Amortizing Notes" shall have the meaning set forth under the heading
"DESCRIPTION OF NOTES -- Interest".
"Calculation Agent" means the agent appointed by the Company to calculate
interest rates for Floating Rate Notes. Unless otherwise provided in a Pricing
Supplement, the Calculation Agent will be Chemical Bank.
"Calculation Date" means the date on which the Calculation Agent is to
calculate an interest rate for a Floating Rate Note, which is the applicable
date set forth below, unless otherwise indicated in the applicable Pricing
Supplement:
CD Rate -- The earlier of (i) the tenth day after the related CD
Interest Determination Date or, if such day is not a Market Day, the next
succeeding Market Day and (ii) the Market Day next preceding the relevant
Interest Payment Date or Maturity, as the case may be.
CMT Rate -- The earlier of (i) the tenth day after the related CMT
Interest Determination Date or, if such day is not a Market Day, the next
succeeding Market Day and (ii) the Market Day next preceding the relevant
Interest Payment Date or Maturity, as the case may be.
Commercial Paper Rate -- The earlier of (i) the tenth day after the
related Commercial Paper Interest Determination Date or, if such day is not
a Market Day, the next succeeding Market Day and (ii) the Market Day next
preceding the relevant Interest Payment Date or Maturity, as the case may
be.
11th District Cost of Funds Rate -- The earlier of (i) the tenth day
after the related 11th District Cost of Funds Interest Determination Date
or, if such day is not a Market Day, the next succeeding Market Day; and
(ii) the Market Day next preceding the relevant Interest Payment Date or
Maturity, as the case may be.
Federal Funds Rate -- The earlier of (i) the tenth day after the
related Federal Funds Interest Determination Date or, if such day is not a
Market Day, the next succeeding Market Day and (ii) the Market Day next
preceding the relevant Interest Payment Date or Maturity, as the case may
be.
S-26
<PAGE> 27
J.J. Kenny Rate -- The earlier of (i) the tenth day after the related
J.J. Kenny Interest Determination Date or, if such day is not a Market Day,
the next succeeding Market Day; and (ii) the Market Day next preceding the
relevant Interest Payment Date or Maturity, as the case may be.
LIBOR -- The LIBOR Interest Determination Date.
Prime Rate -- The earlier of (i) the tenth day after the related Prime
Rate Interest Determination Date or, if such day is not a Market Day, the
next succeeding Market Day and (ii) the Market Day next preceding the
relevant Interest Payment Date or Maturity, as the case may be.
Treasury Rate -- The earlier of (i) the tenth day after the related
Treasury Interest Determination Date or, if such day is not a Market Day,
the next succeeding Market Day and (ii) the Market Day next preceding the
relevant Interest Payment Date or Maturity, as the case may be.
"CD Rate" means the rate calculated as set forth under the heading
"DESCRIPTION OF NOTES -- Floating Rate Notes -- CD Rate Notes," unless otherwise
indicated in the applicable Pricing Supplement and the Book-Entry Note
representing a CD Rate Note.
"CMT Rate" means the rate calculated as set forth under the heading
"DESCRIPTION OF NOTES -- Floating Rate Notes -- CMT Rate Notes," unless
otherwise indicated in the applicable Pricing Supplement and the Book-Entry Note
representing a CMT Rate Note.
"Commercial Paper Rate" means the rate calculated as set forth under the
heading "DESCRIPTION OF NOTES -- Floating Rate Notes -- Commercial Paper Rate
Notes", unless otherwise indicated in the applicable Pricing Supplement and the
Book-Entry Note representing a Commercial Paper Rate Note.
"Composite Quotations" means the daily statistical release entitled
"Composite 3:30 p.m. Quotations for U.S. Government Securities", or any
successor publication, published by the Federal Reserve Bank of New York.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in the applicable Pricing Supplement for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519) (or
any other page as may replace such page on that service). If no such page is
specified in the applicable Pricing Supplement, the Designated CMT Telerate Page
shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either one, two, three, five, 10, or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
"11th District Cost of Funds Rate" means the rate calculated as set forth
under the heading "DESCRIPTION OF NOTES -- Floating Rate Notes -- 11th District
Cost of Funds Rate Notes," unless otherwise indicated in the applicable Pricing
Supplement and the Book-Entry Note representing an 11th District Cost of Funds
Rate Note.
"Exchange Rate Agent" means the agent appointed by the Company to convert
principal and any premium and interest payments in respect of Foreign Currency
Notes into U.S. dollars. Unless otherwise provided in a Pricing Supplement, the
Exchange Rate Agent will be Chemical Bank.
"CMT Rate Note" shall have the meaning set forth under the heading
"DESCRIPTION OF NOTES -- Interest."
"11th District Costs of Funds Rate Notes" shall have the meaning set forth
under the heading "DESCRIPTION OF NOTES -- Interest".
"Federal Funds Rate Note" shall have the meaning set forth under the
heading "DESCRIPTION OF NOTES -- Interest".
S-27
<PAGE> 28
"Fixed Rate Note" shall have the meaning set forth under the heading
"DESCRIPTION OF NOTES -- Interest".
"Floating Rate Notes" shall have the meaning set forth under the heading
"DESCRIPTION OF NOTES -- Interest".
"H.15(519)" means the weekly statistical release entitled "Statistical
Release H.15(519), Selected Interest Rates", or any successor publication,
published by the Board of Governors of the Federal Reserve System.
"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 indicated in the applicable Pricing Supplement.
"Initial Interest Rate" means the rate at which a Floating Rate Note will
bear interest from and including its Issue Date (or that of a predecessor Note)
to but excluding the first Reset Date, as indicated in the applicable Pricing
Supplement.
"Interest Determination Date" means the date as of which the interest rate
for a Floating Rate Note is to be calculated, to be effective as of the
following Reset Date and calculated on the related Calculation Date (except in
the case of LIBOR, which is calculated on the related LIBOR Interest
Determination Date). See the fourth paragraph under the heading "DESCRIPTION OF
NOTES -- Floating Rate Notes" for the Interest Determination Dates for Floating
Rate Notes. The Interest Determination Dates for any Floating Rate Note will
also be indicated in the applicable Pricing Supplement.
"Interest Reset Date" means the date on which a Floating Rate Note will
begin to bear interest at the variable interest rate determined as of any
Interest Determination Date. See the third paragraph under the heading "Floating
Rate Notes" for the applicable Reset Dates for such Notes. The Reset Dates with
respect to any Floating Rate Note will also be set forth in the applicable
Pricing Supplement and in such Note.
"Indexed Notes" shall have the meaning set forth under the heading
"DESCRIPTION OF NOTES -- Interest".
"J.J. Kenny Rate" means the rate calculated as set forth under the heading
"DESCRIPTION OF NOTES -- Floating Rate Notes -- J.J. Kenny Rate Notes," unless
otherwise indicated in the applicable Pricing Supplement and the Book-Entry Note
representing a J.J. Kenny Rate Note.
"LIBOR" means the rate calculated as set forth under the heading
"DESCRIPTION OF NOTES -- Floating Rate Notes -- LIBOR Notes", unless otherwise
indicated in the applicable Pricing Supplement.
"London Market Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
"Market Day" means (a) with respect to any Note (unless otherwise provided
in this definition), any day that is a Business Day in The City of New York, (b)
with respect to LIBOR Notes only, any Business Day in The City of New York that
is also a London Market Day, (c) with respect to Foreign Currency Notes (other
than Foreign Currency Notes denominated in European Currency Units ("ECUs"))
only, any day that is a Business Day both in The City of New York and in the
principal financial center in the country of the Specified Currency and (d) with
respect to Foreign Currency Notes denominated in ECU, any date that is a
Business Day in The City of New York that is designated as an ECU Settlement day
by the ECU Banking Association in Paris or otherwise generally regarded in the
ECU interbank market as a day on which payments in ECU are made.
"Market Exchange Rate" for any Specified Currency means the noon buying
rate in The City of New York for cable transfers for such Specified Currency as
certified for customs purposes by the Federal Reserve Bank of New York.
"Original Issue Discount Notes" shall have the meaning set forth under the
heading "DESCRIPTION OF NOTES -- Interest".
S-28
<PAGE> 29
"Prime Rate" means the rate calculated as set forth under the heading
"DESCRIPTION OF NOTES -- Floating Rate Notes -- Prime Rate Notes", unless
otherwise indicated in the applicable Pricing Supplement.
"Regular Record Date" means the fifteenth calendar day next preceding an
Interest Payment Date, whether or not a Market Day.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on
the Reuters Monitor Money Rates Service (or such other page as may replace the
NYMF page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
"Specified Currency" shall have the meanings set forth under the headings
"SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES -- Purchase" and "UNITED
STATES TAXATION", as the case may be.
"Spread" means the number of basis points specified in the applicable
Pricing Supplement as being applicable to the interest rate basis for a
particular Floating Rate Note.
"Spread Multiplier" means the percentage specified in the applicable
Pricing Supplement as being applicable to the interest rate basis for a
particular Floating Rate Note.
"Telerate Page 3750" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service,
or such other service as may be nominated as the information vendor, for the
purpose of displaying London interbank offered rates).
"Treasury Rate" means the interest rate calculated as set forth under the
heading "DESCRIPTION OF NOTES -- Floating Rate Notes -- Treasury Rate Notes",
unless otherwise indicated in the applicable Pricing Supplement.
S-29
<PAGE> 30
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
JCPenney
J. C. PENNEY COMPANY, INC.
DEBT SECURITIES
AND
WARRANTS TO PURCHASE DEBT SECURITIES
------------------------
J. C. Penney Company, Inc. ("Company") may offer from time to time in one
or more series up to $1,500,000,000 (or the equivalent thereof denominated in
foreign currency or composite currencies such as the European Currency Unit
("ECU")) aggregate principal amount of its senior debt securities consisting of
unsecured debentures, notes and/or other evidences of indebtedness ("Debt
Securities"), each series of which will be offered on terms to be determined at
the time of sale. The Company from time to time may also offer Debt Securities
with warrants ("Warrants") to purchase Debt Securities (Debt Securities and
Warrants being hereinafter collectively called "Securities"). A Supplement to
this Prospectus ("Prospectus Supplement") will be delivered together with this
Prospectus in respect of any Debt Securities, including any related Warrants,
then being offered and will set forth certain specific terms with respect to
such Securities, which may include, among other items:
- title;
- authorized denominations;
- aggregate principal amount;
- initial public offering price;
- maturity;
- currency or currency unit in which the Debt Securities will be
denominated;
- rate or rates or formula to determine such rate or rates, and time
or times of payment of interest, if any;
- redemption and sinking fund terms, if any;
- exercise prices and expiration dates of any Warrants;
- listing, if any, on a securities exchange;
- underwriter or underwriters, if any, respective amounts to be
purchased by them, their compensation and the resulting net
proceeds to the Company.
Securities may be sold to underwriters for public offering pursuant to
terms of offering fixed at the time of sale. In addition, Securities may be sold
by the Company directly or through agents. See "Plan of Distribution".
------------------------
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 AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS APRIL 29, 1994
<PAGE> 31
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT IN
CONNECTION WITH ANY OFFERING MADE THEREBY, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS AND THE
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED THEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE THEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 ("1934 Act") and in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission ("Commission"). Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N. W., Room 1024, Washington, D. C. 20549; and
at the Commission's Regional Offices in Chicago (Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661) and New York (Seven
World Trade Center, 13th Floor, New York, N.Y. 10048). Copies of such material
can also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N. W., Washington, D. C. 20549 at prescribed rates. Reports, proxy
statements and other information concerning the Company can also be inspected at
the office of The New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
Securities offered pursuant hereto. Any statements contained herein concerning
the provisions of any document are not necessarily complete, and in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference its Annual Report on Form 10-K
for the fiscal year ended January 29, 1994, which incorporates by reference the
J. C. Penney Funding Corporation ("Funding Corporation") Annual Report on Form
10-K for such fiscal year. The aforesaid Report has heretofore been filed by the
Company with the Commission (File No. 1-777) pursuant to applicable provisions
of the 1934 Act.
All reports and any definitive proxy or information statements filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act,
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Securities, shall be deemed to be incorporated in this
Prospectus by reference and to be a part hereof from the date of the filing of
such documents.
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS WHICH HAVE BEEN OR MAY BE INCORPORATED
HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS). WRITTEN REQUESTS
SHOULD BE DIRECTED TO: J. C. PENNEY COMPANY, INC., PUBLIC INFORMATION, P. O. BOX
10001, DALLAS, TEXAS 75301-2304. TELEPHONE REQUESTS SHOULD BE DIRECTED TO (214)
431-1488.
2
<PAGE> 32
THE COMPANY
The Company is a major retailer, with department stores in all 50 states
and Puerto Rico. The dominant portion of the Company's business consists of
providing merchandise and services to consumers through department stores that
include catalog departments. The Company markets predominantly family apparel,
shoes, jewelry, accessories and home furnishings. The Company finances a portion
of its operations through Funding Corporation, a wholly-owned consolidated
subsidiary.
The Company was founded by James Cash Penney in 1902 and incorporated in
Delaware in 1924. Its principal executive offices are located at 6501 Legacy
Drive, Plano, Texas 75024-3698, and its telephone number is (214) 431-1000. As
used in this Prospectus, except as otherwise indicated by the context, the term
"Company" means J. C. Penney Company, Inc. and its consolidated subsidiaries.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Securities will be used for general corporate purposes, which may include
working capital, capital expenditures, repayment of borrowings and investments.
Unless otherwise specified in the Prospectus Supplement accompanying this
Prospectus, specific allocations of the proceeds will not have been made at the
date of the Prospectus Supplement. Pending any specific application, the net
proceeds may be initially invested in short term marketable securities or
applied to the reduction of short term indebtedness.
The Company or its subsidiaries may from time to time borrow additional
funds or issue additional equity securities, as appropriate. The amounts, terms
and timing of any such financings or issuances will depend upon a number of
factors, including the operations of the Company and the condition of the
financial markets.
RATIOS OF AVAILABLE INCOME TO FIXED CHARGES
FOR THE COMPANY AND ALL SUBSIDIARIES
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
-------------- -------------- -------------------------------
JAN. 29 JAN. 30 JAN. 25 JAN. 26 JAN. 27
1994 1993 1992 1991 1990
-------------- -------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Ratios of available income to
fixed charges............... 4.9 3.8 2.1 2.9 3.6
Ratios of available income to
combined fixed charges and
preferred stock dividend
requirement................. 4.3 3.4 1.8 2.6 3.2
</TABLE>
For purposes of computing the ratios of available income to fixed charges,
available income is determined by adding fixed charges to income from continuing
operations before income taxes and before capitalized interest. Fixed charges
are interest expense and a portion of rental expense representative of interest.
For purposes of computing the ratios of available income to combined fixed
charges and preferred dividend requirement, fixed charges are further increased
by the preferred stock dividend requirement. The interest cost of the LESOP
notes guaranteed by the Company is not included in fixed charges.
The Company believes that due to the seasonal nature of its business,
ratios for a period other than a 52 or 53 week period are inappropriate.
DESCRIPTION OF SECURITIES
DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of April
1, 1994 (said Indenture being herein called the "Indenture"), between the
Company and Bank of America National Trust and Savings Association, as Trustee
("Trustee"). A copy of the Indenture substantially in the form in which it is to
be
3
<PAGE> 33
executed is included as an exhibit to the Registration Statement of which this
Prospectus forms a part. The following statements are subject to the detailed
provisions of the Indenture, including the definitions therein of certain terms
used herein without definition. Wherever particular provisions of the Indenture
are referred to below, such provisions are incorporated by reference as a part
of the statement made, and the statement is qualified in its entirety by such
reference.
GENERAL
The Indenture does not limit the amount of Debt Securities which can be
issued thereunder. Under the Indenture, Debt Securities may be issued in one or
more series, each in an aggregate principal amount (in U.S. dollars or the
equivalent thereof denominated in foreign currency or composite currencies such
as the ECU) authorized by the Company prior to issuance.
Reference is made to the Prospectus Supplement for certain specified terms
with respect to the Debt Securities being offered hereby, including, but not
limited to (1) the terms set forth on the cover page of this Prospectus; (2) the
obligation, if any, of the Company to redeem or purchase the Debt Securities
pursuant to any sinking fund or analogous provisions or at the option of the
holder thereof and the period or periods within and the price or prices at which
the Debt Securities will be redeemed or purchased, in whole or in part, pursuant
to such obligation, and the other detailed terms and provisions of such
obligation; (3) if the amount of payments of principal of or any premium or
interest on any of the Debt Securities may be determined with reference to an
index, the manner in which such amounts shall be determined; and (4) whether any
of the Debt Securities shall be issuable in whole or in part in the form of one
or more Global Securities (as described below) and, if so, the Depository for
such Global Security or Securities, and the circumstances under which any such
Global Security or Securities may be exchanged for Debt Securities registered in
the name of, and any transfer of such Global Security or Securities may be
registered to, a person other than such Depository or its nominee.
The Debt Securities offered hereby will be unsecured and will rank pari
passu with all other unsecured and unsubordinated indebtedness of the Company.
Unless otherwise provided in the Prospectus Supplement, the Debt Securities
will be issued only in registered form without coupons and may be issued (in the
case of dollar denominated Debt Securities) in denominations of $1,000 and any
integral multiple thereof. The Debt Securities of a series may be represented,
in whole or in part, by one or more permanent Global Securities in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities of the series to be represented
by such Global Security or Securities. Any such Global Security deposited with a
Depository or its nominee and bearing the legend required by the Indenture may
not be surrendered for transfer or exchange except by the Depository for such
Global Security or any nominee of such Depository, except if the Depository
notifies the Company that it is unwilling or unable to continue as Depository,
or the Depository ceases to be qualified as required by the Indenture, or the
Company instructs the Trustee in accordance with the Indenture that such Global
Security shall be so registrable and exchangeable, or there shall exist such
other circumstances, if any, as may be specified in the applicable Prospectus
Supplement.
The specific terms of the depository arrangement with respect to any
portion of a series of Debt Securities to be represented by one or more Global
Securities will be described in the applicable Prospectus Supplement. Beneficial
interests in Global Securities will only be evidenced by, and transfers thereof
will only be effected through, records maintained by the Depository and the
institutions that are participants in the Depository.
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities, Debt Securities of any series will
be exchangeable for other Debt Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. The Debt
Securities may be transferred or exchanged without payment of any service
charge, other than any tax or other governmental charge payable in connection
therewith. (Article Two)
The principal of (and premium, if any) and interest, if any, on the Debt
Securities will be payable, and the transfer of the Debt Securities will be
registrable, at the agency or agencies maintained by the Company;
4
<PAGE> 34
provided, however, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as it appears
in the Security Register. (Sections 2.07 and 2.10)
Some of the Debt Securities may be issued as discounted Debt Securities
(bearing no interest or bearing interest at a rate which at the time of issuance
is below market rate) to be sold at a substantial discount below their stated
principal amount. Federal income tax consequences and other special
considerations applicable to any such discounted Debt Securities will be
described in the Prospectus Supplement relating thereto. Debt Securities may
also be issued under the Indenture upon the exercise of Warrants. See "Warrants"
below.
RESTRICTIVE COVENANTS
Limitations on Liens. The Indenture provides that the Company may not, nor
may it permit any Restricted Subsidiary to, issue, assume or guarantee evidences
of indebtedness for money borrowed which are secured by any mortgage, security
interest, pledge or lien ("mortgage") of or upon any Principal Property or of or
upon any shares of stock or evidences of indebtedness for borrowed money issued
by any Restricted Subsidiary and owned by the Company or any Restricted
Subsidiary, whether owned at the date of the Indenture or thereafter acquired,
without effectively providing that the Principal Amount of the Debt Securities
from time to time Outstanding shall be secured equally and ratably by such
mortgage, except that this restriction will not apply to (1) mortgages on any
property existing at the time of its acquisition; (2) mortgages on property of a
corporation existing at the time such corporation is merged into or consolidated
with, or disposes of substantially all its properties (or those of a division)
to, the Company or a Restricted Subsidiary; (3) mortgages on property of a
corporation existing at the time such corporation first becomes a Restricted
Subsidiary; (4) mortgages securing indebtedness of a Restricted Subsidiary to
the Company or to another Restricted Subsidiary; (5) mortgages to secure the
cost of acquisition, construction, development or substantial repair, alteration
or improvement of property if the commitment to extend the credit secured by any
such mortgage is obtained within 12 months after the later of the completion or
the placing in operation of the acquired, constructed, developed or
substantially repaired, altered or improved property; (6) mortgages securing
current indebtedness (as defined); or (7) any extension, renewal or replacement
(or successive extensions, renewals or replacements), in whole or in part, of
any mortgage referred to in clauses (1) through (6) provided, however, that the
principal amount of indebtedness secured thereby and not otherwise authorized by
said clauses (1) to (6), inclusive, shall not exceed the principal amount of
indebtedness, plus any premium or fee payable in connection with any such
extension, renewal or replacement, so secured at the time of such extension,
renewal or replacement. However, the Company or any Restricted Subsidiary may
issue, assume or guarantee indebtedness secured by mortgages which would
otherwise be subject to the foregoing restriction in any aggregate amount which,
together with all other such indebtedness outstanding, all attributable debt
outstanding under the provisions described in the last sentence under
Limitations on Sale and Lease-Back Transactions below and all Senior Funded
Indebtedness issued, assumed or guaranteed by any Restricted Subsidiary, does
not exceed 5% of Stockholders' Equity. (Section 5.08)
Limitations on Sale and Lease-Back Transactions. The Indenture provides
that neither the Company nor any Restricted Subsidiary may enter into any Sale
and Lease-Back Transaction with respect to any Principal Property (except for
transactions involving leases for a term, including renewals, of not more than
three years and except for transactions between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries), if the purchaser's commitment is
obtained more than 12 months after the later of the acquisition or completion or
the placing in operation of such Principal Property or of such Principal
Property as constructed or developed or substantially repaired, altered or
improved. This restriction will not apply if either (a) the Company or such
Restricted Subsidiary would be entitled pursuant to the provision described in
the first sentence under Limitations on Liens above to issue, assume or
guarantee debt secured by a mortgage on such Principal Property without equally
and ratably securing the Debt Securities from time to time outstanding or (b)
the Company applies within 180 days an amount equal to, in the case of a sale or
transfer for cash, the net proceeds (not exceeding the net book value) and,
otherwise, an amount equal to the fair value (as determined by its Board of
Directors) of the Principal Property so leased to the retirement of Debt
Securities or other Senior Funded Indebtedness of the Company or a Restricted
Subsidiary, subject to
5
<PAGE> 35
reduction as set forth in the Indenture in respect of Debt Securities and other
Senior Funded Indebtedness retired during such 180-day period otherwise than
pursuant to mandatory sinking fund or prepayment provisions and payments at
maturity. The Company or any Restricted Subsidiary, however, may enter into a
Sale and Lease-Back Transaction which would otherwise be subject to the
foregoing restriction so as to create an aggregate amount of attributable debt
(as defined) which, together with all other such attributable debt outstanding,
all indebtedness outstanding under the provision described in the last sentence
under Limitations on Liens above and all Senior Funded Indebtedness issued,
assumed or guaranteed by any Restricted Subsidiary, does not exceed 5% of
Stockholders' Equity. (Section 5.09)
Waiver of Covenants. The Indenture provides that the Holders of a majority
(unless a greater requirement with respect to any series of Debt Securities is
specified for this purpose, in which case the requirement specified) in
Principal Amount of the Outstanding Debt Securities of a particular series may
waive compliance as to such series with certain covenants or conditions set
forth in the Indenture, including those described above. (Section 5.10)
Consolidation, Merger or Sale of Assets of the Company. The Indenture
provides that the Company may not consolidate with or merge into any other
corporation or sell its assets substantially as an entirety, unless (1) the
corporation formed by such consolidation or into which the Company is merged or
the Person which acquires its assets is a corporation organized in the United
States and expressly assumes the due and punctual payment of the principal of
(and premium, if any) and interest, if any, on all the Debt Securities and the
performance of every covenant of the Indenture on the part of the Company, and
(2) immediately after giving effect to such transaction, no Event of Default,
and no event which, after notice or lapse of time, or both, would become an
Event of Default, shall have happened and be continuing. Upon any such
consolidation, merger or sale, the successor corporation formed by such
consolidation or into which the Company is merged or to which such sale is made
will succeed to, and be substituted for, the Company under the Indenture, and
the predecessor corporation shall be released from all obligations and covenants
under the Indenture and the Debt Securities. (Article Eleven)
Unless otherwise provided in the Prospectus Supplement, the covenants
contained in the Indenture and the Debt Securities would not necessarily afford
Holders of the Debt Securities protection in the event of a highly leveraged or
other transaction involving the Company that may adversely affect such Holders.
DEFINITIONS
"Principal Amount" means, when used with respect to any Debt Security, the
amount of principal thereof that could then be declared due and payable as a
result of an Event of Default with respect to such Debt Security. "Principal
Property" means all real and tangible property owned by the Company or a
Restricted Subsidiary constituting a part of any store, warehouse or
distribution center located within the United States, exclusive of motor
vehicles, mobile materials-handling equipment and other rolling stock, cash
registers and other point of sale recording devices and related equipment, and
data processing and other office equipment, provided the net book value of all
real property (including leasehold improvements) and store fixtures constituting
a part of such store, warehouse or distribution center exceeds 0.25% of
Stockholders' Equity. "Restricted Subsidiary" means any Subsidiary (as defined)
of the Company or of a Restricted Subsidiary which the Company designates as a
Restricted Subsidiary, which designation shall not have been canceled. However,
no subsidiary for which the designation of Restricted Subsidiary has been
canceled may be redesignated as such if during any period following cancellation
of its previous designation as a Restricted Subsidiary, such Subsidiary shall
have entered into a Sale and Lease-Back Transaction which would have been
prohibited had it been a Restricted Subsidiary at the time of such Transaction.
"Senior Funded Indebtedness" of the Company means any Funded Indebtedness of the
Company unless in any instruments evidencing or securing such Funded
Indebtedness it is provided that such Funded Indebtedness is subordinate in
right of payment to the Debt Securities to the extent provided in the Indenture.
"Senior Funded Indebtedness" of a Restricted Subsidiary means Funded
Indebtedness of the Restricted Subsidiary and the aggregate preference on
involuntary liquidation of preferred stock of such Subsidiary. "Funded
Indebtedness" of a corporation means the principal of (a) indebtedness for money
borrowed or evidenced by an instrument given in connection with an acquisition
which is not payable on demand and which matures, or which such
6
<PAGE> 36
corporation has the right to renew or extend to a date, more than one year after
the date of determination, (b) any indebtedness of others of the kinds described
in the preceding clause (a) for the payment of which such corporation is
responsible or liable as a guarantor or otherwise, and (c) amendments, renewals
and refundings of any such indebtedness. For the purposes of the definition of
"Funded Indebtedness", the term "principal" when used at any date with respect
to any indebtedness means the amount of principal of such indebtedness that
could be declared to be due and payable on that date pursuant to the terms of
such indebtedness. "Stockholders' Equity" means the aggregate of (a) capital and
reinvested earnings, after deducting the cost of shares of capital stock of the
Company held in its treasury, of the Company and consolidated Subsidiaries plus
(b) deferred tax effects. (Section 1.01)
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that if an Event of Default shall have occurred and
be continuing with respect to any series of Debt Securities at the time
Outstanding, either the Trustee or the Holders of not less than 25% (unless a
different percentage with respect to any series of Debt Securities is specified
for this purpose, in which case the percentage specified) in Outstanding
Principal Amount of such series may declare to be due and payable immediately
the Principal Amount (or specified portion thereof) of such series, together
with interest, if any, accrued thereon. (Section 7.02)
The Indenture defines an Event of Default with respect to any series of
Debt Securities as any one of the following events: (a) default for 30 days in
payment of any interest due with respect to any Debt Security of such series;
(b) default for 30 days in making any sinking fund payment due with respect to
any Debt Security of such series; (c) default in payment of principal of (or
premium, if any, on) any Debt Security of such series when due; (d) default for
90 days after notice to the Company by the Trustee or by Holders of not less
than 25% in Principal Amount of the Debt Securities then Outstanding of such
series in the performance of any other covenant for the benefit of such series;
(e) certain events of bankruptcy, insolvency and reorganization; and (f) any
additional event specified as an "Event of Default" for the benefit of such
series. (Section 7.01) No Event of Default with respect to a particular series
of Debt Securities issued under the Indenture necessarily constitutes an Event
of Default with respect to any other series of Debt Securities issued
thereunder.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default, give to the Holders of the Debt Securities of each
series as to which such default has occurred notice of such default known to it,
unless cured or waived; provided that, except in the case of default in the
payment of principal of (or premium, if any) or interest, if any, or in the
payment of any sinking fund installment in respect of any of the Debt
Securities, the Trustee will be protected in withholding such notice if it in
good faith determines that the withholding of such notice is in the interests of
the Holders of the series as to which such default has occurred. The term
"default" for the purpose of this provision means any event which is, or after
notice or lapse of time, or both, would become, an Event of Default. (Section
8.02)
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during the continuance of an Event of Default to act with
the required standard of care, to be indemnified by the Holders of Debt
Securities before proceeding to exercise any right or power under the Indenture
at the request of such Holders. (Section 8.03) The Indenture provides that the
Holders of a majority (unless a greater requirement with respect to any series
of Debt Securities is specified for this purpose, in which case the requirement
specified) in Outstanding Principal Amount of a series of Debt Securities may,
subject to certain exceptions, on behalf of the Holders of the Debt Securities
of such series direct the time, method and place of conducting proceedings for
remedies available to the Trustee, or exercising any trust or power conferred on
the Trustee. (Section 7.12)
The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate of no default, or specifying any default that exists.
(Section 5.06)
In certain cases, the Holders of a majority (unless a greater requirement
with respect to any series of Debt Securities is specified for this purpose, in
which case the requirement specified) in Outstanding Principal Amount of a
series of Debt Securities may on behalf of the Holders of the Debt Securities of
such series
7
<PAGE> 37
rescind, as to such series, a declaration of acceleration or waive, as to such
series, any past default or Event of Default relating to the Debt Securities of
such series, except a default not theretofore cured in payment of the principal
of (or premium, if any) or interest, if any, on any of such Debt Securities or
in respect of a provision which under the Indenture cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security of
such series. (Sections 7.02 and 7.13)
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of 66 2/3% (unless a different percentage with
respect to any series of Debt Securities is specified for this purpose, in which
case the percentage specified) in Principal Amount of the Outstanding Debt
Securities of each series affected by such modification, to execute supplemental
indentures adding any provisions to or changing or eliminating any provisions of
the Indenture or modifying the rights of the Holders of such Debt Securities,
except that no such supplemental indenture may, without the consent of all
Holders of affected Debt Securities, (i) change the Stated Maturity of any Debt
Security or reduce the principal payable at Stated Maturity or which could be
declared due and payable prior thereto or change any redemption price thereof,
(ii) reduce the rate of interest payable on any Debt Security, (iii) adversely
affect the terms and provisions, if any, applicable to the conversion or
exchange of any Debt Securities, (iv) reduce the aforesaid percentage of Debt
Securities of any series or the percentage of Debt Securities of any series
specified in Section 5.10 or 7.13, (v) change any place or the currency of
payment of principal of (or premium, if any) or interest, if any, on any Debt
Security, or (vi) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security. (Section 10.02)
SATISFACTION AND DISCHARGE PRIOR TO MATURITY
The Company may elect to provide with respect to any series of Debt
Securities that the Company may satisfy its obligations with respect to any
payment of principal (and premium, if any) or interest due on such series of
Debt Securities by depositing in trust with the Trustee money or U.S. Government
Obligations or a combination thereof sufficient to make such payment when due.
If such deposit is sufficient to make all payments of (1) interest on such
series of Debt Securities prior to their redemption or maturity, as the case may
be, and (2) principal of (and premium, if any) and interest on such series of
Debt Securities when due upon redemption or at maturity, as the case may be, all
the obligations of the Company under such series of Debt Securities and the
Indenture as it relates to such series of Debt Securities will be discharged and
terminated except as otherwise provided in the Indenture. "U.S. Government
Obligations" are defined to mean (i) securities backed by the full faith and
credit of the United States and (ii) depository receipts issued by a bank or
trust company as custodian and evidencing ownership by the holders of such
depository receipts of future payments of interest or principal, or both, on
such securities backed by the full faith and credit of the United States held by
such custodian.
For United States income tax purposes, it is likely that any such deposit
and discharge with respect to any Debt Securities will be treated as a taxable
exchange of such Debt Securities for interests in the trust. In that event, a
Holder will recognize gain or loss equal to the difference between the Holder's
cost or other tax basis for the Debt Securities and the value of the Holder's
interest in such trust; and thereafter will be required to include in income a
share of the income, gain and loss of the trust. Purchasers of the Debt
Securities should consult their own advisers with respect to the tax
consequences to them of such deposit and discharge, including the applicability
and effect of tax laws other than the United States income tax law.
In addition, the Company may elect to provide with respect to any series of
Debt Securities that the Company may be released from certain of its covenants
upon the satisfaction of certain conditions applicable to the securities of such
series.
8
<PAGE> 38
CONCERNING THE TRUSTEE
The Company and Funding Corporation maintain substantial lines of credit
and have other customary banking relationships with Bank of America National
Trust and Savings Association, the Trustee under the Indenture.
WARRANTS
The Company may issue with any Debt Securities being offered by it Warrants
for the purchase of other Debt Securities. Each issue of Warrants will be issued
under, and will be governed by, a Warrant Agreement ("Warrant Agreement"), to be
entered into between the Company and a warrant agent ("Warrant Agent"), to be
described in the Prospectus Supplement relating to the Debt Securities with
which the Warrants are to be issued. A copy of the proposed Warrant Agreement,
including the form of proposed Warrant Certificate representing the Warrants,
substantially in the form in which it is to be executed, is included as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summaries of certain provisions of the Warrant Agreement and Warrant
Certificates do not purport to be complete and are subject to and qualified in
their entirety by reference to all the provisions set forth in the Warrant
Agreement and Warrant Certificates, respectively, including the definitions
thereof of certain terms.
Reference is made to the Prospectus Supplement relating to the Securities,
the Warrant Agreement relating to the Warrants and the Warrant Certificates
representing the Warrants for certain specific terms of the Warrants, which may
include: (1) designation, aggregate principal amount and terms of the Debt
Securities purchasable upon exercise of the Warrants; (2) designation and terms
of any related Debt Securities with which the Warrants are issued and the number
of Warrants issued with each such Debt Security; (3) date, if any, on and after
which the Warrants and the related Debt Securities will be separately
transferable; (4) principal amount of Debt Securities purchasable upon exercise
of one Warrant and the price at which such principal amount of Debt Securities
may be purchased upon such exercise; (5) date on which the right to exercise the
Warrants shall commence ("Commencement Date") and date on which such right shall
expire ("Expiration Date"); and (6) whether the Warrants represented by the
Warrant Certificates will be issued in registered or bearer form.
Warrant Certificates will be exchangeable for new Warrant Certificates of
different denominations, and Warrants may be exercised, at the agency or
agencies maintained for such purposes. Prior to the exercise of their Warrants,
holders of Warrants will not have any of the rights of Holders of the Debt
Securities purchasable upon such exercise and will not be entitled to payments
of principal of (or premium, if any) or interest, if any, on the Debt Securities
purchasable upon such exercise.
Each Warrant will entitle the holder to purchase for cash such principal
amount of Debt Securities at such exercise price as shall in each case be set
forth, or be determinable as set forth, in the Prospectus Supplement relating to
the Securities. Each Warrant may be exercised in whole but not in part at any
time on and after the Commencement Date and up to the close of business on the
Expiration Date set forth in the Prospectus Supplement relating to the
Securities. After the close of business on the Expiration Date, unexercised
Warrants will become void.
The exercise price of the Warrants will be that price applicable on the
date of receipt of payment therefor determined as set forth in the Prospectus
Supplement relating to the Securities. Upon receipt of payment of the exercise
price and the Warrant Certificate properly completed and duly executed at the
agency or agencies maintained by the Company for such purpose, the Company will,
as soon as practicable, forward the Debt Securities purchasable upon such
exercise. If less than all of the Warrants represented by such Warrant
Certificate are exercised, a new Warrant Certificate will be issued for the
Warrants remaining unexercised.
9
<PAGE> 39
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Company by C. R.
Lotter, Executive Vice President, Secretary and General Counsel of the Company,
and for any underwriters, agents or purchasers by Sullivan & Cromwell, New York,
New York. As of March 31, 1994, Mr. Lotter owned 31,241 shares of Common Stock
and Common Stock voting equivalents of the Company, including shares credited to
his accounts under the Company's Savings and Profit-Sharing Retirement Plan and
Savings, Profit-Sharing and Stock Ownership Plan as of March 31, 1994. As of
March 31, 1994, he had outstanding options to purchase 49,540 shares of Common
Stock.
EXPERTS
The financial statements and schedules as of January 29, 1994, January 30,
1993 and January 25, 1992, and for each of the years then ended contained or
incorporated by reference in (a) the Company's Annual Report on Form 10-K for
the fiscal year ended January 29, 1994 and (b) Funding Corporation's Annual
Report on Form 10-K for the fiscal year ended January 29, 1994 have been
incorporated herein by reference in reliance upon the reports of KPMG Peat
Marwick, independent certified public accountants (which reports each dated
February 24, 1994 are incorporated herein by reference to the aforementioned
Annual Reports on Form 10-K), and upon the authority of said firm as experts in
accounting and auditing. The Independent Auditors' Reports of KPMG Peat Marwick
covering the aforementioned consolidated financial statements and schedules of
the Company refer to the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, adopted by the
Company in 1991, and to the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, adopted by the Company in 1993. To the extent that KPMG Peat
Marwick audits and reports on financial statements of the Company and Funding
Corporation issued at future dates, and consents to the use of their reports
thereon, such financial statements also will be incorporated by reference herein
in reliance upon their reports and said authority.
PLAN OF DISTRIBUTION
The Company may offer the Securities from time to time (i) through
underwriters or dealers, (ii) directly to one or more institutional purchasers,
or (iii) through agents.
Sales of Securities through underwriters may be through underwriting
syndicates led by one or more managing underwriters. The specific managing
underwriter or underwriters which may act with respect to the offer and sale of
any series of Securities are set forth on the cover of the Prospectus Supplement
in respect of such series and the members of the underwriting syndicate, if any,
are named in such Prospectus Supplement.
Underwriters may offer and sell the 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 Securities, underwriters 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 Securities for whom they may act as agents. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agents.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, are set forth in
the Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the 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 Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933.
10
<PAGE> 40
If so indicated in an applicable Prospectus Supplement, the Company will
authorize underwriters, dealers or agents to solicit offers by certain
institutions to purchase Securities from the Company pursuant to delayed
delivery contracts. The Prospectus Supplement relating thereto will also set
forth the price to be paid for Securities pursuant to such contracts, the
commissions payable for solicitation of such contracts, the date or dates in the
future for delivery of Securities pursuant to such contracts and any conditions
to which such contracts will be subject.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Company, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act of
1933.
Underwriters and agents may engage in transactions with, or perform
services for, the Company in the ordinary course of business.
11
<PAGE> 41
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, AGENT, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, PROSPECTUS SUPPLEMENT AND ANY PRICING SUPPLEMENT IN CONNECTION
WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY ANY AGENT. THIS PROSPECTUS, PROSPECTUS SUPPLEMENT AND ANY PRICING
SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS,
PROSPECTUS SUPPLEMENT OR ANY PRICING SUPPLEMENT OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS, PROSPECTUS SUPPLEMENT OR ANY PRICING SUPPLEMENT 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 SUBSEQUENT TO THEIR RESPECTIVE DATES.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Recent Developments................... S-2
Description of Notes.................. S-2
Special Provisions Relating to Foreign
Currency Notes...................... S-15
United States Taxation................ S-18
Plan of Distribution of Notes......... S-25
Validity of Notes..................... S-26
Glossary.............................. S-26
BASIC PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Use of Proceeds....................... 3
Ratios of Earnings to Fixed Charges... 3
Description of Securities............. 3
Validity of Securities................ 10
Experts............................... 10
Plan of Distribution.................. 10
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
JCPENNY
U.S. $1,000,000,000
Medium-Term Notes,
Series A
----------------------
PROSPECTUS SUPPLEMENT
----------------------
CS First Boston
Merrill Lynch & Co.
J.P. Morgan Securities Inc.
Morgan Stanley & Co.
Incorporated
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
