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PROSPECTUS SUPPLEMENT RULE 424(B)(5)
(TO PROSPECTUS DATED JANUARY 22, 1997) FILE NO. 333-17985
$5,434,620,162
The Bear Stearns Companies Inc.
Medium-Term Notes, Series B With Minimum Maturity
of Nine Months From Date Of Issue
The Bear Stearns Companies Inc. (the "Company") may issue and
sell from time to time its Medium-Term Notes, Series B (the "Notes"),
at an aggregate initial public offering price of up to $5,434,620,162
(or the equivalent in foreign denominated currency or units based on
or relating to currencies), subject to reduction as a result of the
sale of other Securities (as defined in the accompanying Prospectus).
The Notes may be denominated in U.S. dollars or in such foreign
currencies or composite currencies as set forth in the applicable
Pricing Supplement. The principal amount payable at or prior to
maturity, the amount of interest payable and/or any premium payable
with respect to the Notes may be determined by the relationship
between a specified currency and another currency, by the difference
in price of a specified security or commodity on certain dates or by
some other index or indices. The specific currency or composite
currency or index, interest rate or rates (if any), issue price and
maturity date of any Note will be set forth in the related Pricing
Supplement to this Prospectus Supplement.
(continued on following page)
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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 SUPPLEMENT HERETO OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Agents' Discounts and Proceeds to
Public(1) Commissions(2) Company(2)(3)
<S> <C> <C> <C>
Per Note........... 100% .125%-.750% 99.250%-99.875%
Total(4)........... $5,434,620,162 $6,793,275 - $40,759,651 $5,393,860,511 - $5,427,826,887
</TABLE>
(1) The Notes will be issued at 100% of their principal amount unless
otherwise set forth in the applicable Pricing Supplement.
(2) The Company will pay a commission to each Agent, in the form of a
discount, ranging from .125% to .750% of the Price to Public of
any Note, depending upon maturity, when such Agent places such
Note. Any Agent may agree with the Company, in respect of the
sale of a Note, to accept a commission other than one based upon
maturity, in which case such commission shall range from .025% to
.750%. The Company may sell Notes to any Agent as principal at
negotiated discounts for resale to investors and other purchasers
at varying prices related to prevailing market prices at the time
of resale to be determined by such Agent. See "Supplemental Plan
of Distribution". The Company has agreed to indemnify each Agent
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(3) Before deduction of expenses payable by the Company, estimated at
$1,806,000.
(4) In U.S. dollars or the equivalent thereof in one or more foreign
or composite currencies or currency units.
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The Notes are being offered on a continuing basis by the Company
through Bear, Stearns & Co. Inc., and any other agent to be designated
by the Company (each, an "Agent" and collectively, the "Agents").
Each Agent has agreed to use its reasonable best efforts to solicit
purchases of the Notes. The Company has reserved the right to sell
Notes directly on its own behalf. The Notes will not be listed on any
securities exchange, and there can be no assurance that the Notes
offered by this Prospectus Supplement will be sold or that there will
be a secondary market for the Notes. The Company reserves the right
to withdraw, cancel or modify the offer made hereby without notice.
The Company may reject any offer in whole or in part. See
"Supplemental Plan of Distribution."
Bear, Stearns & Co. Inc.
The date of this Prospectus Supplement is January 22, 1997
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(continued from cover page)
This Prospectus Supplement may be used by each Agent in
connection with offers and sales associated with market-making
transactions in the Notes. Each Agent may act as principal or agent
in such transactions. Such offers and sales will be made at prices
related to prevailing prices at the time.
Interest on Notes which bear interest at a fixed rate ("Fixed
Rate Notes") will accrue from their dates of original issue and,
unless otherwise specified in the applicable Pricing Supplement, will
be payable semiannually on each April 15 and October 15 and at
maturity or, if applicable, upon redemption or optional repayment.
Interest on Notes which bear interest at a floating or variable rate
("Floating Rate Notes") will accrue from their dates of original issue
and will be payable monthly, quarterly, semiannually, annually or as
otherwise set forth in the applicable Pricing Supplement and at
maturity or, if applicable, upon redemption or optional repayment.
The interest rate on Floating Rate Notes will be determined by
reference to the "Commercial Paper Rate," "LIBOR," the "Federal Funds
Rate," the "Treasury Rate" or other interest rate formula, and may be
adjusted by a "Spread," all as defined herein or in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
each Note offered hereby will be represented by a global security (a
"Global Security") to be deposited with or on behalf of the Depository
Trust Company (the "Depositary") and registered in the name of the
Depositary's nominee (each such Note represented by a Global Security
being herein referred to as a "Book-Entry Note"). Beneficial
interests in Book-Entry Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depositary
and its participants. Book-Entry Notes will be issuable only in the
form of a Global Security, except under the circumstances described
herein.
On and after the Redemption Date (as hereinafter defined), if
any, fixed by the Company at the time of sale and set forth in the
applicable Pricing Supplement, a Note will be subject to redemption by
the Company, in whole or in part, at 100% of the principal amount to
be redeemed or as otherwise set forth in the applicable Pricing
Supplement, together with interest to the date of redemption. On the
Optional Repayment Date (as hereinafter defined), if any, fixed by the
Company at the time of sale and set forth in the applicable Pricing
Supplement, a Note will be subject to repayment at the option of the
holder thereof (a "Holder"), in whole or in part, at 100% of the
principal amount to be repaid, together with interest to the date of
repayment. See "Description of the Notes."
The Notes will be unsecured and will rank pari passu with all
---- -----
other unsecured and unsubordinated indebtedness of the company. Since
the Company is a holding company, the Notes will be effectively
subordinated to the claims of creditors of its subsidiaries with
respect to the assets of those subsidiaries. At September 27, 1996,
the Company had outstanding approximately $16.1 billion of
indebtedness, none of which was secured, and subsidiaries of the
Company had outstanding approximately $1.2 billion of indebtedness
(excluding approximately $34.2 billion relating to securities sold
under repurchase agreements).
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DESCRIPTION OF THE NOTES
General
The following description of the particular terms of the Notes
offered hereby supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of Debt
Securities (as defined in the accompanying Prospectus) set forth in
the Prospectus, to which description reference hereby is made. The
following description will apply to the Notes unless otherwise
specified in the applicable Pricing Supplement.
The Notes are part of a single series of Debt Securities of the
Company issuable under an Indenture, dated as of May 31, 1991 (the
"Indenture"), between the Company and The Chase Manhattan Bank
(formerly known as Chemical Bank and successor by merger to
Manufacturers Hanover Trust Company), as trustee (the "Trustee"). The
Notes are limited in amount as set forth on the cover page hereof,
less an amount equal to the aggregate initial public offering price of
any other Securities, including any other series of medium-term notes,
issued from time to time by the Company. The foregoing limit,
however, may be increased by the Company if in the future it
determines that it may wish to sell additional Notes. For a
description of the rights attaching to the Debt Securities under the
Indenture, see "Description of Debt Securities" in the Prospectus.
The Notes will be offered on a continuing basis and (unless
specified in the appropriate Pricing Supplement) will mature at par on
any Business Day (as hereinafter defined) at least nine months from
the date of issue, as selected by the purchaser and agreed to by the
Company, and may be subject to redemption at the option of the Company
or repayment at the option of the Holders thereof prior to maturity at
the price or prices and on or after the date or dates specified in the
applicable Pricing Supplement.
Each Note will be denominated in either U.S. dollars or in such
other currency or composite currency ("Specified Currency") as
specified on the face thereof and in the applicable Pricing
Supplement. Purchasers of the Notes are required to pay for such
Notes by delivery of the requisite amount of the Specified Currency to
an Agent unless other arrangements have been made. Unless otherwise
specified in the applicable Pricing Supplement, payments on the Notes
will be made in the applicable Specified Currency in the country
issuing the Specified Currency (or, in the case of European Currency
Units ("ECUs"), in Brussels, Belgium), provided that, at the election
of the Holder thereof and in certain circumstances at the option of
the Company, payments on Notes denominated in other than U.S. dollars
may be made in U.S. dollars. See "Payment of Principal and Interest"
below in this section and "Foreign Currency Risks."
Unless otherwise specified in the applicable Pricing Supplement,
each Note will be represented by a Global Security registered in the
name of a nominee of the Depositary. Book-Entry Notes will be
issuable only in the form of Global Securities, except as set forth
under "Book-Entry System" below. So long as the Depositary or its
nominee is the registered owner of any Global Security, the Depositary
or its nominee, as the case may be, will be considered the sole owner
or holder of the Book-Entry Note or Notes represented by such Global
Security for all purposes under the Indenture. See "Book-Entry
System" below.
Unless otherwise specified in the applicable Pricing Supplement,
(i) the authorized denominations of any Note denominated in U.S.
dollars will be $100,000 and integral multiples of $1,000 in excess
thereof, and (ii) the authorized denominations of any Note denominated
in other than U.S. dollars will be the amount of the Specified
Currency for such Note equivalent, at the noon buying rate in the City
of New York for cable transfers for such Specified Currency (the
"Exchange Rate"), on the first Business Day in the City of New York
and the country issuing such currency (or, in the case of ECUs,
Brussels, Belgium) next preceding the date on which the Company
accepts the offer to purchase such Note, to U.S. $100,000 (rounded
down to an integral multiple of 10,000 units of such Specified
Currency) and any greater amount that is an integral multiple of
10,000 units of such Specified Currency.
The Notes may be issued as Exchangeable Notes (as hereinafter
defined), that are exchangeable at the option of the holder for the
securities, or cash representing the value of securities, of an entity
unaffiliated with
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the Company, a basket of such securities, an index or indices of such
securities or into any combination of the foregoing, as may be set
forth in the applicable Pricing Supplement. Exchangeable Notes may or
may not bear interest or be issued with original issue discount or at
a premium, all as may be specified in the applicable Pricing
Supplement. See "Exchangeable Notes" below in this section.
The Notes may be issued as Currency Indexed Notes (as hereinafter
defined), the principal amount of which is payable at or prior to
maturity and the interest on which and/or any premium payable with
respect to which, unless otherwise specified in the applicable Pricing
Supplement, will be determined by the difference between the currency
in which such Notes are denominated and another currency or composite
currency or by reference to any other currency index or indices, in
each case as set forth in the applicable Pricing Supplement. See
"Currency Indexed Notes" below in this section. The Notes may also be
issued as indexed notes, the principal amount of which is payable at
or prior to maturity and the interest (if any) on which and/or any
premium (if any) payable with respect to which will be determined by
reference to the difference in the price of a specified security or
basket of securities, commodity or index on certain specified dates,
or by some other index, indices or formulas. See "Other Indexed
Notes" below in this section.
Under the terms of the Indenture, the Company is entitled to
defease the Notes. See "Description of Debt Securities - Defeasance"
in the accompanying Prospectus.
Interest Rate
The applicable Pricing Supplement relating to a Note will
designate, in the case of a Fixed Rate Note, a fixed rate of interest
per annum payable on such Fixed Rate Note, which may be zero in the
case of certain Fixed Rate Notes issued with original issue discount,
and, in the case of a Floating Rate Note, one of the following
interest rate formulas as applicable to such Floating Rate Note: (i)
the Commercial Paper Rate (as defined below), in which case such Note
will be a "Commercial Paper Rate Note;" (ii) LIBOR, in which case such
Note will be a "LIBOR Note;" (iii) the Federal Funds Rate (as defined
below), in which case such Note will be a "Federal Funds Rate Note;"
(iv) the Treasury Rate (as defined below), in which case such Note
will be a "Treasury Rate Note;" (v) the Prime Rate (as defined below),
in which case such Note will be a "Prime Rate Note;" (vi) the CMT Rate
(as defined below), in which case such note will be a "CMT Rate Note"
or (vii) such other interest rate formula as is set forth in such
Pricing Supplement. The rate of interest on each Floating Rate Note
will be reset daily, weekly, monthly, quarterly, semiannually or
annually (each an "Interest Reset Period") as set forth in each such
Floating Rate Note, or as may otherwise be specified in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
each Note will bear interest from its date of original issue at the
rate per annum (in the case of a Fixed Rate Note), or pursuant to the
interest rate formula (in the case of a Floating Rate Note), stated 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 ("Interest Payment Date") and at maturity or, if
applicable, upon redemption or optional repayment. Unless otherwise
provided in the applicable Pricing Supplement, the "Record Date" with
respect to any Interest Payment Date for a Fixed Rate Note shall be
the April 1 or October 1 preceding such Interest Payment Date, and
with respect to any Interest Payment Date for a Floating Rate Note
shall be the date fifteen calendar days immediately preceding such
Interest Payment Date, whether or not such date is a Business Day.
Interest will be payable to the person in whose name a Note is
registered (which in the case of Global Securities representing Book-
Entry Notes will be the Depositary or a nominee of the Depositary) at
the close of business on the Record Date next preceding each Interest
Payment Date; provided, however, that interest payable at maturity or,
if applicable, upon redemption or optional repayment will be payable
to the person to whom principal shall be payable (which in the case of
Global Securities representing Book-Entry Notes will be the Depositary
or a nominee of the Depositary). The first payment
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of interest on any Note issued between a Record Date and an Interest
Payment Date will be made on the Interest Payment Date following the
next succeeding Record Date to the registered owner on such next
succeeding Record Date.
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 percent, with five one-millionths of a percent being rounded
upward (e.g., 6.876545% (or .06876545) being rounded to 6.87655% (or
.0687655) and 6.876544% (or .06876544) being rounded to 6.87654% (or
.0687654)), and all U.S. dollar amounts used in or resulting from such
calculation on Floating Rate Notes will be rounded to the nearest cent
(with one-half cent being rounded upward).
If an Interest Payment Date with respect to any Note would
otherwise fall on a day that is not a Business Day with respect to
such Note, such Interest Payment Date will be the following day that
is a Business Day with respect to such Note, except that in the case
of a LIBOR Note, if such day falls in the next calendar month, such
Interest Payment Date will be the preceding day that is a Business Day
with respect to such LIBOR Note. "Business Day" means (i) with
respect to any Note, any day that is not a Saturday or Sunday and
that, in the City of New York, is neither a legal holiday nor a day on
which banking institutions or trust companies are authorized or
obligated by law to close, and (ii) with respect to LIBOR Notes only,
a London Banking Day. A "London Banking Day" means any day on which
dealings in deposits in U.S. dollars are transacted in the London
interbank market.
Fixed Rate Notes. Each Fixed Rate Note will bear interest from
its date of original issue at the rate per annum stated on the face
thereof, until the principal thereof is paid or made available for
payment. Unless otherwise specified in the applicable Pricing
Supplement, the Interest Payment Dates for Fixed Rate Notes will be on
April 15 and October 15 of each year and at maturity (or on the
Redemption Date, if a Fixed Rate Note is redeemed by the Company, or
the Optional Repayment Date, if repaid at the option of the Holder,
prior to maturity). Interest will be computed on the basis of a 360-
day year of twelve 30-day months. In the event that any Interest
Payment Date is not a Business Day, interest on Fixed Rate Notes will
be paid on the next succeeding Business Day and, unless otherwise
specified by the applicable Pricing Supplement, no interest shall
accrue for the period from and after such Interest Payment Date to
such next succeeding Business Day.
Floating Rate Notes. The interest rate on each Floating Rate
Note will be calculated by reference to the specified interest rate
formula, plus or minus a Spread, if any. The Spread is the number of
basis points specified in the applicable Pricing Supplement as being
applicable to the interest rate for such Floating Rate Note and may be
a fixed amount or an amount that increases or decreases over time. A
Floating Rate Note may also have either or both of the following: (i)
a maximum limitation, or ceiling, on the rate of interest which may
accrue during any interest period; and (ii) a minimum 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 pursuant to the above provisions,
the interest rate on the Floating Rate Notes will in no event be
higher than the maximum rate permitted by New York law, as the same
may be modified by United States law of general application.
The applicable Pricing Supplement will specify the interest rate
formula, the amount or amounts of the Spread, if any, and the maximum
or minimum interest rate limitation, if any, applicable to each
Floating Rate Note. In addition, such Pricing Supplement will define
or specify for each Floating Rate Note the following terms, if
applicable: Calculation Date, Initial Interest Rate, Interest Payment
Period, Interest Payment Dates, Record Date, Index Maturity, Interest
Determination Date, Interest Reset Period, Interest Reset Date and
Sinking Fund, if any. "Index Maturity" means, with respect to a
Floating Rate Note, the period to maturity of the instrument or
obligation on which the interest rate formula is based, as specified
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the date or dates on which interest will be reset (each an "Interest
Reset Date") will be, in the case of Floating Rate Notes which reset
daily,
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each Business Day; in the case of Floating Rate Notes which reset weekly,
the Wednesday of each week (with the exception of weekly reset Treasury
Rate Notes which will reset the Tuesday of each week, except as specified
below); in the case of Floating Rate Notes which reset monthly, the third
Wednesday of each month; in the case of Floating Rate Notes which reset
quarterly, the third Wednesday of March, June, September and December; in
the case of Floating Rate Notes which reset semiannually, the third
Wednesday of the two months specified in such Floating Rate Notes; and in
the case of Floating Rate Notes which reset annually, the third Wednesday
of the month as specified in such Floating Rate Note; provided, however,
that (i) the interest rate in effect from the date of original issue to the
first Interest Reset Date with respect to a Floating Rate Note (the
"Initial Interest Rate") will be as set forth in the applicable Pricing
Supplement and (ii) unless otherwise specified in the applicable Pricing
Supplement, the interest rate in effect for the ten days immediately prior
to maturity will be that in effect on the tenth day preceding such
maturity. If any Interest Reset Date for a Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date
shall be postponed to the next succeeding day that is a Business Day,
except that, in the case of a LIBOR Note, if such Business Day is in the
next succeeding calendar month, such Interest Reset Date shall be the next
preceding Business Day. In the case of weekly reset Treasury Rate Notes, if
an auction of Treasury bills (as hereinafter defined) falls on a day that
is an Interest Reset Date for Treasury Rate Notes, the Interest Reset Date
will be the following day that is a Business Day.
Unless otherwise specified in the applicable Pricing Supplement,
the "Interest Determination Date" pertaining to an Interest Reset Date
for a Commercial Paper Rate Note and for a Federal Funds Rate Note
will be the Business 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 will be the second London
Banking Day preceding such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date for a Treasury
Rate Note will be the day of the week in which such Interest Reset
Date falls on which Treasury bills (as hereinafter defined) would
normally be auctioned. Treasury bills are usually sold at auction on
Monday of each week, unless the day is a legal holiday, in which case
the auction is usually held on the following Tuesday, except that such
auction may be held on the preceding Friday. If, as the result of a
legal holiday, an auction is so held on the preceding Friday, such
Friday will be the Interest Determination Date pertaining to the
Interest Reset Date for a Treasury Rate Note occurring in the next
succeeding week. The Interest Determination Date pertaining to an
Interest Reset Date for a Prime Rate Note will be the same day as the
Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for a CMT Rate Note will be the tenth Business Day
prior to the Interest Reset Date.
Unless otherwise specified in the applicable Pricing Supplement,
interest on each Floating Rate Note will be payable monthly,
quarterly, semiannually or annually (the "Interest Payment Period").
Except as provided below or in the applicable Pricing Supplement, the
date or dates on which interest will be payable (each an "Interest
Payment Date") will be, 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; 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 semiannually, on the
third Wednesday of the two months of each year specified in such
Floating Rate Notes; and in the case of Floating Rate Notes which
reset annually, on the third Wednesday of the month specified in such
Floating Rate Notes and in each case, at maturity or, if applicable,
upon redemption or optional repayment.
Unless otherwise specified in the applicable Pricing Supplement,
interest payments on each Floating Rate Note shall be the amount of
interest accrued from, and including, the next preceding Interest
Payment Date in respect of which interest has been paid (or from, and
including, the date of original issue if no interest has been paid
with respect to such Floating Rate Note) to, but excluding, the
Interest Payment Date. In the case of Floating Rate Notes on which the
interest rate is reset daily or weekly,
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however, the interest payments shall include interest accrued from, and
including, the next preceding Record Date in respect of which interest has
been paid (or from and including the date of original issue if no interest
has been paid with respect to such Floating Rate Note) to but excluding the
Record Date next preceding the applicable Interest Payment Date. Interest
paid on the maturity date of Notes will include interest accrued to but
excluding such date.
With respect to a Floating Rate Note, accrued interest from its date
of original issue or from the last date to which interest has been paid is
calculated by multiplying the face amount of such Floating Rate Note by an
accrued interest factor. Such accrued interest factor is computed by adding
the interest factors calculated for each day from the date of issue, or
from the last date to which interest has been paid, to the date for which
accrued interest is being calculated. The interest factor (expressed as a
decimal calculated to seven decimal places without rounding) for each such
day is computed by dividing the interest rate applicable to such day by
360, in the case of Commercial Paper Rate Notes, Federal Funds Rate Notes,
LIBOR Notes and Prime Rate Notes, or by the actual number of days in the
year, in the case of Treasury Rate Notes. With respect to CMT Rate Notes,
interest will be calculated on the basis of twelve 30-day months and a
360-day year.
The "Calculation Date," where applicable, pertaining to an
Interest Determination Date will be the tenth calendar day after such
Interest Determination Date or, if any such day is not a Business Day,
the next succeeding Business Day.
Unless otherwise specified in the applicable Pricing Supplement,
The Chase Manhattan Bank will be the calculation agent (the
"Calculation Agent") with respect to the Floating Rate Notes. 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 Reset Date with
respect to such Floating Rate Note.
Commercial Paper Rate Notes. Commercial Paper Rate Notes will
bear interest at the interest rates (calculated with reference to the
Commercial Paper Rate and the Spread, if any) specified in the
Commercial Paper Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest
Determination Date, the Money Market Yield (as defined below) on such
date of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical
Release H.15(519), Selected Interest Rates" ("H.15(519)"), or any
successor publication, under the heading "Commercial Paper." In the
event that such rate is not published on the Calculation Date
pertaining to such Interest Determination Date, then the Commercial
Paper Rate shall be the Money Market Yield on such Interest
Determination Date of the rate for commercial paper of the specified
Index Maturity as published by the Federal Reserve Bank of New York in
its daily statistical release, "Composite 3:30 P.M. Quotations for
U.S. Government Securities" ("Composite Quotations") under the heading
"Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date the rate for an Interest Determination Date is not
yet published in either H.15(519) or Composite Quotations, the rate
for that Interest Determination Date shall be calculated by the
Calculation Agent and shall be the Money Market Yield of the
arithmetic mean of the offered rates, as of 11:00 A.M., New York City
time, of three leading dealers of commercial paper in The City of New
York selected by the Calculation Agent on that Interest Determination
Date, for commercial paper of the specified Index Maturity placed for
an industrial issuer whose bond rating is "AA," or the equivalent,
from a nationally recognized 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 Interest Determination
Date.
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"Money Market Yield" shall be a yield calculated in accordance
with the following formula:
Money Market Yield = D x 360 x 100
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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.
LIBOR Notes. LIBOR Notes will bear interest at the interest
rates (calculated with reference to LIBOR and the Spread, if any)
specified in the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
LIBOR will be determined by the Calculation Agent in accordance with
the following provisions:
(i) With respect to an Interest Determination Date, LIBOR
will be, as specified in the applicable Pricing Supplement,
determined on the basis of either (a) the arithmetic mean, as
determined by the Calculation Agent, of the offered rates for
deposits in U.S. dollars having the Index Maturity specified in
the applicable Pricing Supplement, commencing on the second
London Banking Day immediately following such Interest
Determination Date, which appear on the Reuters Screen LIBO Page
(or such other page as may replace such Reuters Screen LIBO Page
for the purpose of displaying London interbank rates of major
banks), as of 11:00 A.M., London time, on such Interest
Determination Date, if at least two such offered rates appear on
the Reuters Screen LIBO Page (or such other page as may replace
such page) ("LIBOR Reuters"), or (b) the offered rate for
deposits in U.S. dollars having the Index Maturity specified in
the applicable Pricing Supplement, commencing on the second
London Banking Day immediately following such Interest
Determination Date, which appears on Telerate page 3750 (or such
other page as may replace such Telerate page 3750 for the purpose
of displaying London interbank rates of major banks), as of 11:00
A.M., London time, on such Interest Determination Date ("LIBOR
Telerate"). If neither LIBOR Reuters nor LIBOR Telerate is
specified in the applicable Pricing Supplement, LIBOR will be
determined as if LIBOR Telerate had been specified. If fewer than
two offered rates appear on Reuters Screen LIBO Page (or such
other page as may replace such page), or if no rate appears on
Telerate page 3750 (or such other page as may replace such page),
as applicable, LIBOR in respect of that Interest Determination
Date will be determined as if the parties had specified the rate
described in (ii) below.
(ii) With respect to an Interest Determination Date on
which fewer than two offered rates appear on the Reuters
Screen LIBO Page (or such other page) or on which no offered
rate appears on Telerate page 3750 (or such other page), as
applicable, as described in (i) above, LIBOR will be
determined on the basis of the rates at approximately 11:00
A.M., London time, on such 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 Banking
Day immediately following such Interest Determination Date
and in a principal amount equal to an amount of not less
than $1,000,000 that is representative of 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 Interest
Determination Date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided,
LIBOR for such Interest Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00
A.M., New York City time, on such 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 Banking Day immediately
following such Interest Determination Date and in a
principal amount equal to an amount of not less than
$1,000,000 that is
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representative of 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 LIBOR in effect on such Interest
Determination Date.
Federal Funds Rate Notes. Federal Funds Rate Notes will bear
interest at the interest rates (calculated with reference to the
Federal Funds Rate and the Spread, if any) specified in the Federal
Funds Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Federal Funds Rate" means, with respect to any Interest Determination
Date, 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 on
the Calculation Date pertaining to such Interest Determination Date, the
Federal Funds Rate will be the rate on such Interest Determination Date as
published in Composite Quotations under the heading "Federal
Funds/Effective Rate." If neither of such rates is published by 3:00 P.M.,
New York City time, on the Calculation Date pertaining to such Interest
Determination Date, the Federal Funds Rate for such Interest Determination
Date will be calculated by the Calculation Agent and will be the arithmetic
mean of the rates for the last transaction in overnight Federal Funds
arranged by three leading brokers of federal funds transactions in the City
of New York selected by the Calculation Agent as of 11:00 A.M., New York
City time, on such Interest Determination Date; provided, however, that if
the brokers selected as aforesaid by the Calculation Agent are not quoting
as mentioned in this sentence, the rate of interest in effect for the
applicable period will be the rate of interest in effect on such Interest
Determination Date.
Treasury Rate Notes. Treasury Rate Notes will bear interest at
the interest rates (calculated with reference to the Treasury Rate and
the Spread, if any) specified in the Treasury Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Treasury Rate" means, with respect to any Interest Determination
Date, 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), or any successor publication, under the heading, "U.S.
Government Securities - Treasury bills - auction average (investment)"
or, if not so published on the Calculation Date pertaining to such
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) as otherwise announced by
the United States Department of the Treasury. 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. In the event that the results are not published or
reported as provided above by 3:00 P.M., New York City time, on such
Calculation Date, or if no such auction is held in a particular week,
then the Treasury Rate shall be calculated by the Calculation Agent
and shall be a yield to maturity (expressed as a bond equivalent, on
the basis of a year of 365 or 366 days, as applicable, and applied on
a daily basis) of the arithmetic mean of the secondary market bid
rates as of approximately 3:30 P.M., New York City time, on such
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 Interest Determination Date.
Prime Rate Notes. Prime Rate Notes will bear interest at the
interest rate (calculated with reference to the Prime Rate and the
Spread, if any) specified in the Prime Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Prime Rate" means, with respect to any Interest Determination Date,
the rate set forth in H.15(519) for such date opposite the caption
"Bank Prime Loan." If such rate is not yet published by 9:00 a.m.,
New York City time, on the Calculation Date,
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the Prime Rate for such Interest Determination Date will be the arithmetic
mean of the rates of interest publicly announced by each bank named on the
Reuters Screen NYMF Page as such bank's prime rate or base lending rate as
in effect for such Interest Determination Date as quoted on the Reuters
Screen NYMF Page on such Interest Determination Date, or, if fewer than
four such rates appear on the Reuters Screen NYMF Page for such Interest
Determination Date, the rate shall be the arithmetic mean of the prime
rates quoted on the basis of the actual number of days in the year divided
by 360 as of the close of business on such Interest Determination Date by
at least two of the three major money center banks in The City of New York
selected by the Calculation Agent from which quotations are requested. If
fewer than two quotations are provided, the Prime Rate shall be calculated
by the Calculation Agent and shall be determined as the arithmetic mean on
the basis of the prime rates in The City of New York by the appropriate
number of substitute banks or trust companies organized and doing business
under the laws of the United States, or any State thereof, in each case
having total equity capital of at least U.S. $500 million and being subject
to supervision or examination by Federal or State authority, selected by
the Calculation Agent to quote such rate or rates. If in any month or two
consecutive months the Prime Rate is not published in H.15(519) and the
banks or trust companies selected as aforesaid are not quoting as mentioned
in the preceding paragraph, the "Prime Rate" for such Interest Reset Period
will be the same as the Prime Rate for the immediately preceding Interest
Reset Period (or, if there was no such Interest Reset Period, the rate of
interest payable on the Prime Rate Notes for which the Prime Rate is being
determined shall be the Initial Interest Rate). If this failure continues
over three or more consecutive months, the Prime Rate for each succeeding
Interest Determination Date until the maturity or redemption of such Prime
Rate Notes or, if earlier, until this failure ceases, shall be LIBOR
determined as if such Prime Rate Notes were LIBOR Notes, and the Spread, if
any, shall be the number of basis points specified in the applicable
Pricing Supplement as the "Alternate Rate Event Spread."
CMT Rate Notes. CMT Rate Notes will bear interest (calculated
with reference to the CMT Rate and the Spread, if any) specified in
the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing
Supplement, the CMT Rate for any CMT Rate Note will be determined by
the Calculation Agent on each Interest Determination Date in
accordance with the following provisions:
(i) the CMT Rate will be determined on the basis of the
latest rate displayed at the close of business on that Interest
Determination Date on (x) Telerate page 7055 for "Yields on
Treasury Constant Maturities -- Federal Reserve Board Statistical
Release H.15(519) -- Mondays approximately 3:45 pm EST" (or "EDT"
as the case may be) for U. S. Treasury Securities with a maturity
that is the same as the Index Maturity specified in the
applicable Pricing Supplement or (y) such other page as may
replace page 7055, as provided by the Telerate News Service, for
the purpose of displaying rates or prices that are comparable, as
determined by the Calculation Agent (after consultation with the
Company), to the Constant Maturity Treasury rates formerly
displayed on Telerate page 7055;
(ii) if the information specified in subparagraph (i) above
is not available at that Interest Determination Date, then the
CMT Rate for the applicable Interest Period shall be determined
on the basis of the Treasury Constant Maturity rate with a
maturity that is the same as the Index Maturity specified in the
applicable Pricing Supplement (or other United States Treasury
rate, with a maturity that is the same as the Index Maturity
specified in the applicable Pricing Supplement) published as of
that Interest Determination Date by either the Board of Governors
of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent (after consultation with
the Company) determines to be comparable to the rate formerly
displayed on Telerate page 7055 and published in the Federal
Reserve Board Statistical Release H.15 (519);
(iii) if the information specified in subparagraphs (i) and
(ii) is not available at that Interest Determination Date, then
the CMT Rate for the applicable Interest Period shall be the
yield to maturity of the then most recently issued direct non-
callable fixed rate United States Treasury Note
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with an original maturity that is the same as the Index Maturity
specified in the applicable Pricing Supplement (the "Reference
Treasury Note"), such yield to maturity to be calculated by the
Calculation Agent on the basis of the arithmetic mean of the secondary
market bid side prices for such Reference Treasury Note quoted as of
3:00 pm, New York City time (or the closing of the market, if
earlier), on that Interest Determination Date, by (and appearing in
the written records of) three leading primary United States government
securities dealers in New York City selected by the Calculation Agent;
(iv) if the information specified in subparagraphs (i) and
(ii) above is not available at that Interest Determination Date
and at least three price quotations for the Reference Treasury
Note are not available at that Interest Determination Date from
leading primary dealers in New York City as provided in
subparagraph (iii) above, then the CMT Rate for the applicable
Interest Period shall be the yield to maturity of the Reference
Treasury Note, as calculated by the Calculation Agent on the
basis of the arithmetic mean of the secondary market bid side
prices for such Reference Treasury Note quoted as of 3:00 pm, New
York City time (or the closing of the market, if earlier), on
that Interest Determination Date, by (and appearing in the
written records of) any three primary United States government
securities dealers selected by the Calculation Agent
(irrespective of where such dealers may be located);
(v) if the information specified in subparagraphs (i) and
(ii) above is not available at that Interest Determination Date
and the Calculation Agent is unable to obtain the requisite
quotations specified in either subparagraph (iii) above or
subparagraph (iv) above, then the interest rate on the
applicable CMT Rate Note for the applicable Interest Period shall
be the same as the interest rate on such CMT Rate Note in effect
at the opening of business on that Interest Determination Date.
Payment of Principal and Interest
Unless otherwise specified in the applicable Pricing Supplement,
payments of principal (and premium, if any) and interest on all Notes
will be made in the applicable Specified Currency, provided, however,
that payments of principal (and premium, if any) and any interest on
Notes denominated in a Specified Currency other than U.S. dollars will
nevertheless be made in U.S. dollars (i) at the option of the Holders
thereof under the procedures described in the two following paragraphs
and (ii) at the option of the Company in the case of imposition of
exchange controls or other circumstances beyond the control of the
Company as described in the last two paragraphs under this heading.
Unless otherwise specified in the applicable Pricing Supplement,
and except as provided in the next paragraph, payments of principal
(and premium, if any) and any interest with respect to any Note
denominated in a Specified Currency other than U.S. dollars will be
made in U.S. dollars if the registered Holder of such Note on the
relevant Record Date or at maturity, as the case may be, has
transmitted a written request for such payment in U.S. dollars to the
Trustee at its Corporate Trust Office in the City of New York on or
prior to such Record Date or the date 15 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.
Any such request made with respect to any Note by a registered Holder
will remain in effect with respect to any further payments of
principal (and premium, if any) and any interest with respect to such
Note payable to such Holder, unless such request is revoked on or
prior to the relevant Record Date or the date 15 days prior to
maturity, as the case may be. Holders of Notes denominated in a
Specified Currency other than U.S. dollars whose Notes are registered
in the name of a broker or nominee should contact such broker or
nominee to determine whether and how an election to receive payments
in U.S. dollars may be made.
Unless otherwise specified in the applicable Pricing Supplement,
the U.S. dollar amount to be received by a Holder of a Note
denominated in a Specified Currency other than U.S. dollars who elects
to receive payment in U.S. dollars will be based on the highest bid
quotation in the City of New York received
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by the Exchange Rate Agent (as defined below) as of 11:00 A.M., New York
City time, on the second Business Day next preceding the applicable payment
date from three recognized foreign exchange dealers (one of which may be
the Exchange Rate Agent) for the purchase by the quoting dealer of the
Specified Currency for U.S. dollars for settlement on such payment date in
the aggregate amount of the Specified Currency payable to all Holders of
Notes electing to receive U.S. dollar payments and at which the applicable
dealer commits to execute a contract. If three such bid quotations are not
available on the second Business Day preceding the date of payment of
principal (and premium, if any) or any interest with respect to any Note,
such payment will be made in the Specified Currency. All currency exchange
costs associated with any payment in U.S. dollars on any such Note will be
borne by the Holder thereof by deduction from such payment. Unless
otherwise specified in the applicable Pricing Supplement, Chemical Bank
will be the Exchange Rate Agent (the "Exchange Rate Agent") with respect to
the Notes.
Interest will be payable to the person in whose name a Note is
registered (which in the case of Global Securities representing Book-
Entry Notes will be the Depositary or a nominee of the Depositary) at
the close of business on the Record Date next preceding each Interest
Payment Date; provided, however, that interest payable at maturity
will be payable to the person to whom principal shall be payable
(which in the case of Global Securities representing Book-Entry Notes
will be the Depositary or a nominee of the Depositary).
The total amount of any principal (and premium, if any) and any
interest due on any Global Security representing one or more Book- Entry
Notes on any Interest Payment Date or at maturity will be made available to
the Trustee on such date. As soon as possible thereafter, the Trustee will
make such payments to the "Depositary." The Depositary will allocate such
payments to each Book-Entry Note represented by such Global Security and
make payments to the owners or holders thereof in accordance with its
existing operating procedures. Neither the Company nor the Trustee shall
have any responsibility or liability for such payments by the Depositary.
So long as the Depositary or its nominee is the registered owner of any
Global Security, the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the Book-Entry Note or Notes
represented by such Global Security for all purposes under the Indenture.
The Company understands, however, that under existing industry practice,
the Depositary will authorize the persons on whose behalf it holds a Global
Security to exercise certain rights of holders of Securities. See
"Book-Entry System" below in this section.
Unless otherwise specified in the applicable Pricing Supplement,
payments of principal (and premium, if any) and any interest with
respect to any Note to be made in a Specified Currency other than U.S.
dollars will be made by wire transfer to such account maintained by
the Holder with a bank located in the country issuing the Specified
Currency (or, with respect to Notes denominated in ECUs, in Brussels,
Belgium) or other jurisdiction acceptable to the Company and the
Trustee as shall have been designated in writing on or prior to the
relevant Record Date preceding the Interest Payment Date or 15 days
preceding the maturity, as the case may be, by the registered Holder
of such Note on the relevant Record Date or maturity, provided that,
in the case of payment of principal of (and premium, if any) and any
interest due at maturity, 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. Such designation shall be made
by filing the appropriate information with the Trustee at its
Corporate Trust Office in the Borough of Manhattan, the City of New
York, and, unless revoked in writing, any such designation made with
respect to any Note by a registered Holder will remain in effect with
respect to any further payments with respect to such Note payable to
such Holder. If a payment with respect to any such Note cannot be made
by wire transfer because the required designation has not been
received by the Trustee on or before the requisite date or for any
other reason, a notice will be mailed to the Holder at its registered
address requesting a designation pursuant to which such wire transfer
can be made and, upon the Trustee's receipt of such a designation,
such payment will be made within five Business Days of such receipt.
The Company will pay any administrative costs imposed by banks in
connection with making payments by wire transfer, but, except as
otherwise specified in the applicable Pricing Supplement, any tax,
assessment or governmental
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charge imposed upon payments will be borne by the Holders of the Notes in
respect of which payments are made.
Unless otherwise specified in the applicable Pricing Supplement,
if the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a
component shall be divided or multiplied in the same proportions. If
two or more component currencies are consolidated into a single
currency, the amounts of those currencies as components shall be
replaced by an amount in such single currency equal to the sum of the
amounts of the consolidated component currencies expressed in such
single currency. If any component currency is divided into two or
more currencies, the amount of that currency as a Component (as
hereinafter defined) shall be replaced by amounts of such two or more
currencies, each of which shall have a value on the date of division
equal to its proportionate share of the former component currency.
Unless otherwise specified in the applicable Pricing Supplement,
Notes denominated in a Specified Currency other than U.S. dollars will
provide that, in the event of an official redenomination of the
Specified Currency, the obligations of the Company with respect to
payments on such Notes shall, in all cases, be deemed immediately
following such redenomination to provide for payment of that amount of
the redenominated Specified Currency representing the amount of such
obligations immediately before such redenomination.
All determinations referred to above made by the Calculation
Agent and the Exchange Rate Agent (except to the extent expressly
provided herein or in the applicable Pricing Supplement) shall be, in
the absence of manifest error, conclusive for all purposes and binding
on holders of the Notes and the Company, and the Calculation Agent and
the Exchange Rate Agent shall have no liability therefor.
If the principal of (and premium, if any) or interest on any Note is
payable in a Specified Currency other than U.S. dollars and such Specified
Currency is not available due to the imposition of exchange controls or
other circumstances beyond the control of the Company, or is no longer used
by the government of the country issuing such currency or for settlement of
transactions by public institutions of or within the international banking
community, the Company will be entitled to satisfy its obligations to
Holders of such Notes by making such payment in U.S. dollars on the basis
of the noon buying rate in the City of New York for cable transfers in such
Specified Currency as certified for customs purposes by the Federal Reserve
Bank of New York (the "Exchange Rate") for such Specified Currency on the
second Business Day prior to the applicable payment date or, if the
Exchange Rate is then not available, on the basis of the most recently
available Exchange Rate.
If payment on a Note is required to be made in ECUs and on a
payment date with respect to such Note ECUs are unavailable due to the
imposition of exchange controls or other circumstances beyond the
Company's control, or are no longer used in the European Monetary
System, then all such payments due on such payment date shall be made
in U.S. dollars. The amount so payable on any payment date in ECUs
shall be converted into U.S. dollars at a rate determined by the
Exchange Rate Agent as of the second Business Day prior to the date on
which such payment is due on the following basis: The component
currencies of the ECU for this purpose (the "Components") shall be the
currency amounts that were components of the ECU as of the last date
on which the ECU was used in the European Monetary System. The
equivalent of the ECU in U.S. dollars shall be calculated by
aggregating the U.S. dollar equivalents of the Components. The U.S.
dollar equivalent of each of the Components shall be determined by the
Exchange Rate Agent on the basis of the Exchange Rates for the
Components as of the second Business Day prior to such payment date
or, if no Exchange Rates for one or more of the Components is
available for such date, as of the most recently available Exchange
Rates for the Components, or as otherwise indicated in the applicable
Pricing Supplement.
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Exchangeable Notes
The Company may from time to time offer Notes ("Exchangeable
Notes") that are exchangeable at the option of the holder for
securities, or cash representing the value of securities, of an entity
unaffiliated with the Company, into a basket of such securities, an
index or indices of such securities or any combination of the
foregoing, all as may be set forth in the applicable Pricing
Supplement. Exchangeable Notes may or may not bear interest or be
issued with original issue discount or at a premium, all as may be
specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
Exchangeable Notes will entitle the Holder thereof, during a period,
or at specific times, to exchange such Note for the underlying
security or securities constituting the underlying basket, index or
indices of such securities (or combination thereof) at a specified
rate of exchange. If so specified in the applicable Pricing
Supplement, Exchangeable Notes will be redeemable at the option of the
Company prior to maturity. If a Holder of an Exchangeable Note does
not elect to exchange such Note prior to maturity or any applicable
date for redemption therefor, such Holder will receive the principal
amount of such Note or applicable redemption price, in cash.
Upon exchange, at maturity or otherwise, the Holder of an
Exchangeable Note may receive, at the specified exchange rate, either
the underlying security or the securities constituting the relevant
basket, index or indices or the cash value of such underlying security
or securities, all as may be specified in the applicable Pricing
Supplement. The underlying security or securities constituting any
basket, index or indices may be the securities of either U.S. or
foreign entities, or both, and the Exchangeable Notes may or may not
provide for protection against fluctuations in the rate of exchange
between the currency in which such Note is denominated and the
currency or currencies in which the market prices of such underlying
security or securities are quoted, all as may be specified in the
applicable Pricing Supplement. Exchangeable Notes may have other
terms, which will be specified in the applicable Pricing Supplement.
Currency Indexed Notes
The Company may from time to time offer Notes ("Currency Indexed
Notes"), the principal amounts of which are payable at or prior to
maturity and the amounts of interest payable on which and/or any
premium payable with respect to which are determined by the rate of
exchange between the Specified Currency and the other currency or
composite currency or currencies specified as the Indexed Currency
(the "Indexed Currency") or by reference to some other currency index
or indices, in each case as set forth in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing
Supplement, Holders of Currency Indexed Notes will be entitled to
receive a principal amount or portion thereof in respect of such
Currency Indexed Notes exceeding the amount designated as the face
amount of such Currency Indexed Notes in the applicable Pricing
Supplement (the "Face Amount") if, at the stated maturity date, the
rate at which the Specified Currency can be exchanged for the Indexed
Currency is greater than the rate of such exchange designated as the
Base Exchange Rate, expressed in units of the Indexed Currency per one
unit of the Specified Currency, in the applicable Pricing Supplement
(the "Base Exchange Rate") and will only be entitled to receive a
principal amount in respect of such Currency Indexed Notes less than
the Face Amount of such Currency Indexed Notes, if, at the stated
maturity date, the rate at which the Specified Currency can be
exchanged for the Indexed Currency is less than such Base Exchange
Rate, in each case determined as described above in this section under
"Payment of Principal and Interest." Information as to the relative
historical value of the applicable Specified Currency against the
applicable Indexed Currency, any currency and/or exchange controls
applicable to such Specified Currency or Indexed Currency and any
additional tax consequences to holders will be set forth in the
applicable Pricing Supplement. See "Foreign Currency Risks."
Unless otherwise specified in the applicable Pricing Supplement,
interest and/or any premium will be payable by the Company in the
Specified Currency based on the Face Amount of the Currency Indexed
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Notes and at the rate and times and in the manner set forth herein and
in the applicable Pricing Supplement.
Other Indexed Notes
The Company may also from time to time offer Notes ("Other
Indexed Notes"), the principal amounts of which are payable at or
prior to maturity and the amounts of any interest payable on which
and/or any premium payment with respect to which are determined with
reference to a security, basket of securities, commodity or index
(e.g., the difference in price of a specified security, basket of
securities or commodity on certain dates, a securities or commodity
index or any other index or indices). The applicable Pricing
Supplement relating to such Other Indexed Notes will set forth the
method by and the terms on which the amount of principal (payable on
or prior to the maturity date), interest and/or any premium will be
determined, any additional tax consequences to the holders of such
Notes, a description of certain risks associated with investment in
such Note and other information relating to such Notes.
An investment in Currency Indexed Notes or Other Indexed Notes
entails significant risks not associated with similar investments in a
conventional debt security. If the interest rate on a Currency Indexed
Note or an Other Indexed Note is so indexed, it may result in payment
of interest at a rate that is less than that payable on a conventional
fixed rate debt security issued at the same time, including the
possibility that no interest will be payable. If the principal amount
is so indexed, the principal amount payable at maturity may be less
than the original purchase price of such Note (if permitted pursuant
to the terms of such Note), including the possibility that no
principal will be paid. The market prices for such Notes will be
affected by a number of factors independent of the creditworthiness of
the Company and the value of the applicable currency, security, basket
of securities, commodity or index, including the volatility of the
Indexed Currency, security, basket of securities, commodity or index,
the time remaining until the maturity of the Notes, the outstanding
principal amount of the Notes and prevailing market interest rates.
The value of the Indexed Currency, security, basket of securities,
commodity or index will depend on a number of interrelated factors,
including economic, financial and political events, over which the
Company has no control. Additionally, if the formula used to
determine the principal amount, premium, if any, or rate of interest,
if any, payable with respect to such Notes contains a multiple or
leverage factor, the effect of any change in the Indexed Currency,
security, basket of securities, commodity or index may be increased.
The historical experience of the relevant currencies, securities,
baskets of securities, commodities or indices should not be taken as
an indication of future performance of such currencies, securities,
baskets of securities, commodities or indices during the term of any
Note.
Extension of Maturity Date
The Pricing Supplement relating to each Note will indicate
whether the Company has the option to extend the maturity date of such
Note for one or more periods (each an "Extension Period") up to but
not beyond the date (the "Final Maturity Date") set forth in such
Pricing Supplement.
The Company may exercise such an option with respect to a Note by
notifying the Trustee of such exercise at least 60 but not more than
75 days prior to the maturity date of such Note in effect prior to the
exercise of such option (any such maturity date an "Original Maturity
Date"). Not later than 55 days prior to the Original Maturity Date,
the Trustee will mail to the Holder of such Note a notice (the
"Extension Notice"), first class, postage prepaid setting forth (i)
the election of the Company to extend the maturity date of such Note,
(ii) the new maturity date, (iii) in the case of a Fixed Rate Note,
the interest rate applicable to the Extension Period or, in the case
of a Floating Rate Note, the Spread, the new Interest Reset Date(s),
if any, and the new Interest Payment Date(s), if any, applicable to
the Extension Period, and (iv) the provisions, if any, for redemption
and/or repayment during the Extension Period, including the date on
which or the period or periods during which and the price at which
such redemption and/or repayment may occur during the Extension
Period. Upon the mailing by the Trustee of an Extension Notice to the
Holder of a Note, the maturity date of such Note shall be extended
automatically, and,
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except as modified by the Extension Notice and as described in the next
paragraph, such Note will have the same terms as prior to the mailing of
such Extension Notice.
Notwithstanding the foregoing, not later than 20 days prior to an
Original Maturity Date for a Note, the Company may, at its option,
revoke the interest rate, in the case of a Fixed Rate Note, or the
Spread, in the case of a Floating Rate Note, provided for in the
Extension Notice and establish a higher interest rate, in the case of
a Fixed Rate Note, or a higher Spread, in the case of a Floating Rate
Note, for the Extension Period by causing the Trustee to mail notice
of such higher interest rate or higher Spread, as the case may be,
first class, postage prepaid, to the holder of such Note. Such notice
shall be irrevocable. All Notes with respect to which the maturity
date is extended will bear such higher interest rate, in the case of a
Fixed Rate Note, or higher Spread, in the case of a Floating Rate
Note, for the Extension Period, whether or not tendered for repayment.
If the Company extends the maturity date of a Note, the Holder of
such Note may have the option to elect repayment of such Note by the
Company on the Original Maturity Date at a price equal to the
principal amount thereof plus any accrued interest to such date. In
order for a Note to be so repaid on the Original Maturity Date, the
Holder thereof must follow the procedures set forth below in this
section under "Repayment and Repurchase" for optional repayment,
except that the period for delivery of such Note or notification to
the Trustee shall be at least 25 but not more than 35 days prior to
the Original Maturity Date and except that a Holder who has tendered a
Note for repayment pursuant to an Extension Notice may, by written
notice to the Trustee, revoke any such tender for repayment until the
close of business on the tenth day prior to the Original Maturity
Date.
Redemption
Unless otherwise specified in the applicable Pricing Supplement,
the Notes will not have a sinking fund. Redemption Dates, if any,
will be fixed at the time of sale and set forth in the applicable
Pricing Supplement and on the applicable Note. If no Redemption Date
is indicated with respect to a Note, such Note will not be redeemable
prior to maturity. On and after the Redemption Date, the related
Fixed Rate Note or Floating Rate Note will be redeemable in whole, or
in part in increments of $1,000, at the option of the Company at a
redemption price equal to 100% of the principal amount to be redeemed,
together with interest thereon payable to the Redemption Date (the
"Redemption Price"), on notice given not more than 60 nor less than 30
days prior to the Redemption Date.
Repayment and Repurchase
Notes may be subject to repayment at the option of the Holders thereof
on their respective Optional Repayment Dates, if any. Optional Repayment
Dates, if any, will be fixed at the time of sale and set forth in the
applicable Pricing Supplement and on the applicable Note. Except as
provided above in this section under "Extension of Maturity Date," if no
Optional Repayment Date is indicated with respect to a Note, such Note will
not be repayable at the option of the Holder prior to maturity. On the
Optional Repayment Date, the related Fixed Rate Note or Floating Rate Note
will be repayable in whole, or in part in increments of $1,000 (provided
that any remaining principal amount of such Note shall be at least
$100,000), at the option of the Holder thereof at a price equal to 100% of
the principal amount to be repaid, together with interest thereon payable
to the Optional Repayment Date (the "Optional Repayment Price"). Unless
otherwise specified in the applicable Pricing Supplement, for any Note to
be repaid in whole or in part at the option of the Holder thereof, the
Trustee must receive not less than 30 nor more than 60 days prior to the
Optional Repayment Date (or such shorter period as is set forth above in
this section under "Extension of Maturity Date") (i) the Note to be repaid
with the form entitled "Option to Elect Repayment" set forth on the reverse
of such Note duly completed or (ii) a telegram, telex, facsimile
transaction or a letter from a member of a national securities exchange or
the NASD or a commercial bank or a trust company in the U.S. setting forth
the name of the Holder of the Note, the principal amount of the Note, the
certificate number of the Note or a description of the Note's tenor or
terms, the principal
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amount of the Note to be repaid, a statement that the option to elect
repayment is being exercised thereby and a guarantee that the Note to be
repaid with the form entitled "Option to Elect Repayment" set forth on the
reverse of the Note duly completed will be received by such Trustee no
later than five Business Days after the date of such telegram, telex,
facsimile transmission or letter and such Note and form duly completed are
received by the Trustee by such fifth Business Day. Exercise of the
repayment option shall be irrevocable (except as set forth above under
"Extension of Maturity Date").
If a Note is represented by a Global Security, the Depositary's
nominee will be the Holder of such Note and therefore will be the only
entity that can exercise a right to repayment. In order to ensure
that the Depositary's nominee will timely exercise a right to
repayment with respect to a particular Note, the beneficial owner of
such Note must instruct the broker or other direct or indirect
participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment.
Different firms have different deadlines for accepting instructions
from their customers and, accordingly, each beneficial owner should
consult the broker or other direct or indirect participant through
which it holds an interest in a Note in order to ascertain the time by
which such an instruction must be given in order for timely notice to
be delivered to the Depositary.
The applicable Pricing Supplement may provide that the maturity
of a Floating Rate Note will be automatically extended for a specified
period or periods, unless the Holder thereof elects during a
designated period to terminate the automatic extension of the maturity
of such Floating Rate Note by following the procedures set forth in
the applicable Pricing Supplement and in such Floating Rate Note.
The Company may at any time purchase Notes at any price in the
open market or otherwise. Notes so purchased by the Company may be
held or resold or, at the discretion of the Company, may be
surrendered to the Trustee for cancellation.
Book-Entry System
Book-Entry Notes may be issued in whole or in part in the form of
one or more fully-registered Global Securities which will be deposited
with, or on behalf of, the Depositary and registered in the name of
its nominee. Except as set forth below, a Global Security may not be
transferred except as a whole by the Depositary to its nominee or by
its nominee to such Depositary or another nominee of the Depositary or
by the Depositary or its nominee to a successor of the Depositary or a
nominee of such successor.
The Depositary has advised the Company and the Underwriters as
follows: the Depositary is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. The Depositary was created to hold securities of its participating
organizations ("participants") and to facilitate the clearance and
settlement of securities transactions, such as transfers and pledges, among
its participants in such securities through electronic computerized
book-entry changes in accounts of the participants, thereby eliminating the
need for physical movement of securities certificates. Participants include
securities brokers and dealers (including the Agents), banks, trust
companies, clearing companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own the
Depositary. Access to the Depositary's book- entry system is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly. Persons who are not participants may beneficially
own securities held by the Depositary only through participants.
Upon issuance of any Notes by the Company that will be
represented by a Global Security, the Depositary will credit on its
book-entry system the respective principal amounts of the Notes
represented by such Global Security to the accounts of participants.
The accounts to be credited shall be designated by the Agents, or by
the Company if such Notes are offered and sold directly by the
Company. Ownership of
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beneficial interest in a Global Security will be limited to participants or
persons that may hold interests through participants. Ownership of
beneficial interest in a Global Security will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
Depositary's participants or persons that may hold interests through
participants. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Such limits and such laws may impair the ability to transfer beneficial
interest in a Global Security.
So long as the Depositary for a Global Security, or its nominee,
is the registered owner of a Global Security, such Depositary or
nominee, as the case may be, will be considered the sole owner or
Holder of the Note represented by such Global Security for all
purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have
Notes represented by Global Securities registered in their names, will
not receive or be entitled to receive physical delivery of Notes in
definitive form and will not be considered the owners or Holders
thereof under the Indenture.
Principal and interest payments on the Notes registered in the
name of the Depositary or its nominee will be made by the Company to
the Depositary or its nominee, as the case may be, as the registered
owner of a Global Security. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership
interests of a Global Security, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests
and each of them may act or refrain from acting without liability on
any information provided by the Depositary. The Company expects that
the Depositary, upon receipt of any payment of principal or interest
in respect of a Global Security, will credit immediately the accounts
of the participants with payment in amounts proportionate to their
respective holdings in principal amount of beneficial interest in a
Global Security as shown on the records of the Depositary. The
Company also expects that payments by participants to owners of
beneficial interests in a Global Security will be governed by standing
customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
Unless otherwise specified in the applicable Pricing Supplement,
a Note will be issued initially as a Book-Entry Note. Except as set
forth in this paragraph, Book-Entry Notes will only be issued in the
form of Global Securities. If the Depositary is at any time unwilling
or unable or ineligible to continue as depositary and a successor
depositary is not appointed by the Company within 90 calendar days,
the Company will issue Notes in definitive form in exchange for all
outstanding Global Securities. In addition, the Company (but not a
Holder) may at any time determine not to have Notes represented by a
Global Security and, in such event, will issue Notes in definitive
form in exchange for all such Global Securities. In any such
instance, an owner of a beneficial interest in the one or more Global
Securities to be exchanged will be entitled to physical delivery in
definitive form of Notes equal in principal amount to such beneficial
interest and to have such Notes registered in its name. Notes so
issued in definitive form will be issued in denominations of $25,000
and integral multiples of $1,000 in excess thereof, except as
otherwise specified in the applicable Pricing Supplement, and will be
issued in registered form only, without coupons.
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FOREIGN CURRENCY RISKS
An investment in Notes that are denominated in a Specified
Currency other than U.S. dollars, or the principal, premium and/or any
interest of which are determined by reference to a currency or
currency index or indices, entails significant risks that are not
associated with a similar investment in a security denominated in U.S.
dollars. Such risks include, without limitation, the possibility of
significant changes in rates of exchange between the U.S. dollar and
the various foreign currencies or composite currencies and the
possibility of the imposition or modification of foreign exchange
controls by either the United States or foreign governments. Such
risks generally depend on factors over which the Company has no
control, such as economic and political events and/or the supply of
and demand for the relevant currencies. In recent years, rates of
exchange between the U.S. dollar and certain foreign currencies have
been highly volatile and such volatility may be expected in the
future. Fluctuations in any particular exchange rate that have
occurred in the past are not necessarily indicative, however, of
fluctuations in the rate that may occur during the term of any Note.
Depreciation of a Specified Currency other than U.S. dollars against
the U.S. dollar could result in a decrease in the effective yield of
such Note below its coupon rate, and in certain circumstances could
result in a loss to the investor on a U.S. dollar basis.
Governments have imposed from time to time, and may in the future
impose, exchange controls which could affect exchange rates as well as
the availability of a specified foreign currency for making payments
with respect to a Note. There can be no assurance that exchange
controls will not restrict or prohibit payments in any such currency
or currency unit. Even if there are no actual exchange controls, it
is possible that the Specified Currency for any particular Note would
not be available to make payments when due. In that event, the
Company will repay in U.S. dollars on the basis of the most recently
available Exchange Rate. See "Description of the Notes-Payment of
Principal and Interest."
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS AND
PRICING SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN
NOTES DENOMINATED IN A SPECIFIED CURRENCY OTHER THAN UNITED STATES
DOLLARS, OR THE PRINCIPAL OF OR THE PREMIUM AND/OR ANY INTEREST ON
WHICH ARE DETERMINED BY REFERENCE TO A CURRENCY OR CURRENCY INDEX OR
INDICES. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND
LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES
DENOMINATED IN A SPECIFIED CURRENCY OTHER THAN UNITED STATES DOLLARS,
OR AS TO WHICH THE PRINCIPAL, PREMIUM AND/OR ANY INTEREST IS
DETERMINED BY REFERENCE TO A CURRENCY OR CURRENCY INDEX OR INDICES.
SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
Currently, there are limited facilities in the United States for
conversion of U.S. dollars into foreign currencies, and vice versa.
In addition, banks do not offer non-U.S. dollar denominated checking
or savings account facilities in the United States. Accordingly,
payments on Notes made in a Specified Currency other than U.S. dollars
will be made from an account with a bank located in the country
issuing the Specified Currency (or, with respect to Notes denominated
in ECUs, in Brussels, Belgium). See "Description of the Notes--
Payment of Principal and Interest."
Unless otherwise specified in the applicable Pricing Supplement,
Notes denominated in a Specified Currency other than U.S. dollars or
ECUs will not be sold in, or to residents of, the country issuing the
Specified Currency in which particular Notes are denominated. Except
as set forth under "Certain United States Federal Tax Consequences,"
the information set forth in this Prospectus Supplement is directed to
prospective purchasers who are U.S. residents, and the Company
disclaims any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to
any matters that may affect the purchase, holding or receipt of
payments of principal (and premium, if any) and any interest with
respect to the Notes. Such persons should consult their own financial
and legal advisors with regard to such matters.
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The Notes will be governed by and construed in accordance with the
laws of the State of New York. If an action based on the Notes were
commenced in a court in the United States, it is likely that such court
would grant judgment relating to the Notes only in U.S. dollars. 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. New York
statutory law provides, however, that a court shall render a judgment or
decree in the foreign currency of the underlying obligation and that the
judgment or decree shall be converted into U.S. dollars at the exchange
rate prevailing on the date of entry of the judgment.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain material
federal income tax aspects of the acquisition, ownership and
disposition of the Notes. This discussion is a summary for general
information only and does not consider all aspects of federal income
taxation that may be relevant to the purchase, ownership and
disposition of the Notes by a prospective investor in light of his or
her personal circumstances. In particular, not discussed are the
federal income tax consequences of ownership of Notes by persons that
do not hold the Notes as capital assets within the meaning of Section
1221 of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), or by investors subject to special treatment under the
federal income tax laws, such as dealers in securities or foreign
currency, tax-exempt entities, banks, thrifts, insurance companies,
persons that hold the Notes as part of a "straddle," a "hedge" against
currency risk, or a "conversion transaction," persons that have a
"functional currency" other than the U.S. dollar, and investors in
pass-through entities. In addition, the discussion is generally
limited to the tax consequences to initial holders. It also does not
describe any tax consequences arising out of the tax laws of any
state, local or foreign jurisdiction nor, except to a limited extent
under "Non-U.S. Holders", any U.S. federal estate or gift tax
consequences.
This discussion is based upon the Code, existing and proposed
regulations thereunder, and current administrative rulings and court
decisions. All of the foregoing are subject to change, possibly on a
retroactive basis; accordingly, any such change could affect the
continuing validity of this discussion.
Persons considering the purchase of Notes should consult their
own tax advisors concerning the application of federal income tax
laws, as well as the laws of any state, local or foreign taxing
jurisdiction, to their particular situations. Additional federal
income tax consequences applicable to particular Notes may be set
forth in the applicable Pricing Supplement.
Special considerations relevant to the federal income taxation of
payments on Notes denominated in a Specified Currency other than the
U.S. dollar or indexed to changes in exchange rates ("Foreign Currency
Notes") are discussed separately below under the heading "Foreign
Currency Notes." Those relevant to the federal income taxation of
payments on any Note with respect to which the interest and/or
principal is indexed to property other than foreign currency and which
is not a "variable rate debt instrument" (discussed below under the
heading "Stated Interest; Original Issue Discount") are discussed
generally below under the headings "Indexed Notes" and "Exchangeable
Notes". The discussion below assumes that the Notes will be treated
as debt for federal income tax purposes and will be issued in
registered form. However, it is possible that some contingent payment
arrangements would not be treated as debt for federal income tax
purposes. Holders should consult their own tax advisors with respect
to whether any contingent payment obligations, including Indexed Notes
or Exchangeable Notes, are debt.
U.S. Holders
The following discussion is limited to the federal income tax
consequences relevant to a holder of a note that is (i) a citizen or
resident (as defined in Section 7701(b)(1) of the Code) of the United
States, (ii) a corporation organized under the laws of the United
States or any political subdivision thereof or therein, or (iii) an
estate or trust, the income of which is subject to federal income tax
regardless of the source (a "U.S. Holder"). Certain federal income
tax consequences relevant to a holder other than a U.S. Holder (a
"Non-U.S. Holder") are discussed separately below.
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Stated Interest; Original Issue Discount
Except as set forth below, interest on a Note will be taxable to
a U.S. Holder as ordinary interest income at the time it accrues or is
received in accordance with such holder's method of accounting for tax
purposes. U.S. Holders of Notes that bear original issue discount
("OID") and that mature more than one year from the date of issuance
will generally be required to include OID in income as it accrues in
advance of the receipt of cash attributable to such income, whether
such Holder uses the cash or accrual method of accounting.
Regulations (the "OID Regulations") concerning the federal income
tax treatment of debt instruments issued with OID contain an anti-
abuse rule that provides that, if a principal purpose in structuring a
debt instrument or engaging in a transaction is to achieve a result
that is unreasonable in light of the purposes of the applicable
statutes, the Commissioner of Internal Revenue can apply or depart
from the regulations as necessary or appropriate to achieve a
reasonable result. Whether a result is unreasonable is determined
based on all the facts and circumstances. Although the Company does
not believe that any of the Notes will be structured with such a
principal purpose, there can be no assurance that the Internal Revenue
Service (the "Service") will agree with such position.
The amount of OID, if any, on a Note is the excess of its "stated
redemption price at maturity" over its "issue price," subject to a
statutory de minimis exception. For this purpose, de minimis OID is
OID that is less than 1/4 of 1 percent of the stated redemption
price at maturity multiplied by the number of complete years to its
maturity from the issue date. If the amount of OID is de minimis, it
is deemed to be zero.
Generally, the issue price of a Note will be the initial offering
price to the public. The issue price may be reduced in certain
circumstances by an amount equal to the portion of the initial
purchase price of the Note equal to pre-issuance accrued interest. A
U.S. Holder may elect, in certain circumstances, to decrease the issue
price and the stated redemption price at maturity by the amount of
pre-issuance accrued interest and offset such pre-issuance accrued
interest by an equal amount of stated interest payable on the first
interest payment date.
A Note's stated redemption price at maturity includes all
payments required to be made over the term of the Note other than the
payment of "qualified stated interest," which is defined as interest
that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate
or, in the circumstances described below, a qualified floating rate or
objective rate on a variable rate note. If a debt instrument provides
for alternate payment schedules upon the occurrence of one or more
contingencies the yield and maturity of the debt instrument are
computed based on a single payment schedule if, based on all the facts
and circumstances, that schedule is significantly more likely than not
to occur. This rule only applies if the timing and amounts of the
payments that comprise each payment schedule are known as of the issue
date. If no one payment schedule is significantly more likely than
not to occur, the rules for contingent payment debt obligations
described below under the heading "Indexed Notes" will apply.
However, if a debt instrument provides for one or more alternative
payment schedules, but all possible payment schedules under the terms
of the instrument result in the same fixed yield, that yield is the
yield of the instrument.
Interest is considered unconditionally payable only if reasonable
legal remedies exist to compel timely payment or the debt instrument
otherwise provides terms and conditions that make the likelihood of
late payment (other than a late payment within a reasonable grace
period) or non-payment a remote contingency. Interest is payable at a
single fixed rate only if the rate appropriately takes into account
the length of the interval between stated interest payments. Thus, if
the interval between payments varies during the term of the
instrument, the value of the fixed rate on which payment is based
generally must be adjusted to reflect a compounding assumption
consistent with the length of the interval preceding the payment.
A U.S. Holder (whether on the cash or accrual method of
accounting) of a Note with an original maturity of more than one year
must include in income for the taxable year the sum of the daily
portions of OID for each day of the taxable year on which the U.S.
Holder held the Note. The daily portions of OID
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are determined by determining the OID attributable to each accrual period
and allocating a ratable portion of such amount to each day in the accrual
period. The accrual period may be of any length and may vary in length over
the term of the Note, provided that each accrual period is no longer than
one year and each scheduled payment of principal and interest occurs on the
final day of an accrual period or on the first day of an accrual period. In
general, OID allocable to an accrual period equals the product of the (i)
adjusted issue price at the beginning of the accrual period (i.e., the
original issue price plus previously-accrued OID minus previous payments
other than payments of qualified stated interest) multiplied by the
original yield to maturity of the Note (determined on the basis of
compounding at the end of each accrual period) minus (ii) the amount of
qualified stated interest allocable to the accrual period.
The OID Regulations provide special rules for determining the
amount of OID allocable to a period when there is unpaid qualified
stated interest, for short initial and final accrual periods, and for
determining the yield to maturity of debt instruments subject to
certain contingencies as to the timing of payments, including debt
instruments that provide for options to accelerate or defer any
payments, and debt instruments with indefinite maturities. For
example, the maturity date and yield of a debt instrument with put or
call options are determined under special rules. In general, an
issuer is deemed to exercise or not exercise an option in a manner
that minimizes the yield on the debt instrument and a holder is deemed
to exercise or not exercise an option in a manner that maximizes the
yield on the debt instrument. Under the OID Regulations, options to
convert debt into stock of the issuer or into stock or debt of certain
related parties or into cash or other property in an amount equal to
the approximate value of such stock or debt are disregarded in
determining OID. Under the Code and the OID Regulations, U.S. Holders
generally will have to include in income increasingly greater amounts
of OID in successive accrual periods.
Variable Rate Notes
The OID Regulations contain special rules for determining the
accrual of OID and the amount of qualified stated interest on a
"variable rate debt instrument." For purposes of these regulations, a
variable rate debt instrument is a debt instrument that: (1) has an
issue price that does not exceed total noncontingent principal
payments by more than a specified amount; (2) provides for stated
interest (compounded or paid at least annually) at (a) one or more
"qualified floating rates", (b) a single fixed rate and one or more
qualified floating rates, (c) a single "objective rate," or (d) a
single fixed rate and a single objective rate that is a "qualified
inverse floating rate"; (3) provides that a qualified floating rate or
objective rate in effect at any time during the term of the instrument
is set at a current value of that rate; and (4) except as permitted in
clause (1), does not provide for any principal payments that are
contingent.
For purposes of determining if a Note is a variable rate debt
instrument, a floating rate is a "qualified floating rate" if
variation 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 debt instrument is denominated. A
multiple of a qualified floating rate is generally not a qualified
floating rate, unless it is either (a) a product of a qualified rate
times a fixed multiple greater than .65 but not more than 1.35 or (b)
a multiple of the type described in (a) increased or decreased by a
fixed rate. If a debt instrument provides for two or more qualified
floating rates that can reasonably be expected to have approximately
the same value throughout the term of the instrument, the qualified
rates will be considered a single qualified rate. Two or more
qualified floating rates will be considered to have approximately the
same value throughout the term of the instrument if the values of the
rates on the date of issuance are within 25 basis points of each
other.
An objective rate is a rate (other than a qualified floating
rate) that is determined using a single fixed formula and is based on
objective financial or economic information, including, for example, a
rate based on one or more qualified floating rates or a rate based on
the yield of actively-traded personal property (within the meaning of
section 1092(d)(1) of the Code). The rate, however, must not be based
on information that is within the control of the issuer (or a related
party) or that is, in general, unique to the circumstances of the
issuer (or a related party), such as dividends, profits or the value
of the issuer's stock. In addition, the Service may designate other
variable rates as objective rates. Restrictions on a minimum
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interest rate ("floor") or maximum interest rate ("cap"), or the amount of
increase or decrease in the stated interest rate ("governor"), generally
will not result in the rate failing to be treated as a qualified floating
rate or an objective rate, if the restriction is fixed throughout the term
of the instrument or the cap, floor, or governor is not reasonably expected
to affect the yield significantly as of the date of issuance. However, a
rate is not an objective rate if it is reasonably expected to result in an
average value of a rate of interest over the first half of the instrument's
term that is significantly less or more than the average value of the rate
during the final half of the instrument's term, i.e., if there is a
significant front loading or back loading of interest. A "qualified inverse
floating rate" is a rate that is equal to a fixed rate minus a qualified
floating rate if variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the qualified floating rate
(disregarding any cap, floor or governor).
Under the OID Regulations, for purposes of determining the amount
and accrual of OID and qualified stated interest, a debt instrument
providing for a qualified floating rate or qualified inverse floating
rate is generally converted to an equivalent fixed rate debt
instrument by assuming that each qualified floating rate or qualified
inverse floating rate, respectively, will remain at its value as of
the issue date. A debt instrument providing for an objective rate
(other than a qualified inverse floating rate) is converted to an
equivalent fixed rate debt instrument by assuming that the objective
rate will equal a fixed rate that reflects the yield that is
reasonably expected for the instrument. The rules applicable to fixed
rate debt instruments are then applied to determine the OID accruals
and the qualified stated interest payments on the equivalent fixed
rate debt instruments. Appropriate adjustments are made to the extent
the interest or OID actually accrued or paid differs from that assumed
on the equivalent fixed rate debt instrument.
Elections to Treat all Interest as OID
Under the OID Regulations, a U.S. Holder may elect in the year of
acquisition of a Note (which election is irrevocable without the
consent of the Commissioner) to account for all interest on the Note
in the same manner as OID. For this purpose "interest" includes
stated interest, OID, de minimis OID, market discount, de minimis
market discount, amortizable bond premium, acquisition premium or
acquisition discount. If this election is made, the U.S. Holder may
be subject to the conformity requirements of sections 171(c) and
1278(b) of the Code, which may require the amortization of bond
premium and the accrual of market discount on other debt instruments
held by the same U.S. Holder.
Short-Term Notes
In general, an individual or other cash method U.S. Holder of a
Note that has an original maturity of not more than one year from the
date of issuance (a "short-term Note") is not required to accrue OID
unless he or she elects to do so. Such an election applies to all
short-term Notes acquired by the U.S. Holder during the first taxable
year for which the election is made and all subsequent taxable years
of the U.S. Holder, unless the Service consents to a revocation. U.S.
Holders who report income for federal income tax purposes on the
accrual method, as well as certain other U.S. Holders and electing
cash method U.S. Holders, are required to include OID on such short-
term Notes in income on a straight-line basis, unless an irrevocable
election with respect to any short-term Note is made to accrue the OID
according to a constant interest rate based on daily compounding. In
the case of a U.S. Holder who is not required, and does not elect, to
include OID in income currently, any gain realized on the sale,
exchange or retirement of the short-term Note will be ordinary income
to the extent of the OID accrued on a straight-line basis (or, if
elected, according to the constant yield method based on daily
compounding) through the date of sale, exchange or retirement. In
addition, such non-electing U.S. Holders who are not subject to the
current inclusion requirement described above will be required to
defer deductions for any interest paid on indebtedness allocable to
such short-term Notes in an amount not exceeding the deferred income
until such income is realized.
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Market Discount
If a Note (other than a short-term Note described above) is
acquired at a "market discount," some or all of any gain realized upon
a sale or other disposition or payment at maturity, or some or all of
a partial principal payment, of such Note may be treated as ordinary
income, as described below. For this purpose, "market discount" is
the excess (if any) of the stated redemption price at maturity over
the purchase price, subject to a statutory de minimis exception. In
the case of a Note issued with OID, in lieu of using stated redemption
price, revised issue price (i.e., the sum of the issue price and the
aggregate amount of OID includible for all holders before the
acquisition and presumably less payments made on the Note other than
qualified stated interest) is used. Unless a U.S. Holder has elected
to include the market discount in income as it accrues, any gain
realized on any subsequent disposition of such Note (other than in
connection with certain nonrecognition transactions) or payment at
maturity, or some or all of any partial principal payment on such
Note, will be treated as ordinary income to the extent of the market
discount that is treated as having accrued during the period such Note
was held.
The amount of market discount treated as having accrued will be
determined either (i) on a ratable basis by multiplying the market
discount times a fraction, the numerator of which is the number of
days the Note was held by the U.S. Holder and the denominator of which
is the total number of days after the date such U.S. Holder acquired
the Note up to and including the date of its maturity, or (ii) if the
U.S. Holder so elects, on a constant interest rate method. A U.S.
Holder may make that election with respect to any Note but, once made,
such election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary
income to the extent of accrued market discount at the time of
disposition, a U.S. Holder of a Note acquired at a market discount may
elect to include market discount in income currently, through the use
of either the ratable inclusion method or the elective constant
interest method. Once made, the election to include market discount
in income currently applies to all Notes and other obligations of the
U.S. Holder that are purchased at a market discount during the taxable
year for which the election is made and all subsequent taxable years
of the U.S. Holder, unless the Service consents to a revocation of the
election. If an election is made to include market discount in income
currently, the basis of the Note in the hands of the U.S. Holder will
be increased by the market discount thereon as it is included in
income.
If the U.S. Holder makes the election to treat as OID all
interest on a debt instrument that has market discount, the U.S.
Holder is deemed to have made the election to accrue currently market
discount on all other debt instruments with market discount. In
addition, if the U.S. Holder has previously made the election to
accrue market discount currently, the conformity requirements of that
election are met for debt instruments with respect to which the U.S.
Holder elects to treat all interest as OID.
Unless a U.S. Holder who acquires a Note at a market discount
elects to include market discount in income currently, such U.S.
Holder may be required to defer deductions for any interest paid on
indebtedness allocable to such Notes in an amount not exceeding the
deferred income until such income is realized.
Premium
If a subsequent U.S. Holder purchases a Note issued with OID at
an "acquisition premium," the U.S. Holder reduces the amount of OID
includible in income in each taxable year by that portion of the
acquisition premium allocable to that year. A Note is purchased at an
acquisition premium if, immediately after the purchase, the
purchaser's adjusted basis in the Note is greater than the adjusted
issue price -- but not greater than all amounts payable on the
instrument after the purchase date (other than qualified stated
interest) (i.e., the Note is not purchased at a "bond premium"). In
general, the reduction in OID allocable to acquisition premium is
determined by multiplying the daily portion of OID by a fraction, the
numerator of which is the excess of the U.S. Holder's adjusted basis
in the Note immediately after the acquisition 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
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Note's adjusted issue price. Rather than apply the above fraction, the U.S.
Holder who, as discussed above, elects to treat all interest as OID would
treat the purchase at an acquisition premium as a purchase at original
issuance and calculate OID accruals on a constant yield to maturity basis.
If a U.S. Holder purchases a Note and immediately after the
purchase the adjusted basis of the Note exceeds the sum of all amounts
payable on the instrument after the purchase date, other than
qualified stated interest, the Note has "bond premium." Proposed
regulations generally proposed to be effective 60 days after the final
regulations are published, contain special rules for determining
adjusted basis for this purpose. For example, under the proposed
regulations, a U.S. Holder's basis in a convertible bond is reduced by
the value of the conversion privilege. A U.S. Holder that purchases a
Note at a bond premium is not required to include any OID in income.
In addition, a U.S. Holder may elect to amortize such bond premium
over the remaining term of such Note (or, in certain circumstances,
until an earlier call date). Under the proposed regulations, that
election must be made with a timely-filed federal income tax return
for the first taxable year to which the U.S. Holder wishes the
election to apply.
If bond premium is amortized, the amount of interest that must be
included in the U.S. Holder's income for each period ending on an
interest payment date or at stated maturity, as the case may be, will
be reduced by the portion of premium allocable to such period based on
the Note's yield to maturity. Under the proposed regulations, if such
bond premium allocable to an accrual period is in excess of qualified
stated interest allocable to that period, such premium is carried to
the next accrual period and offsets qualified stated interest in such
period. The proposed regulations also contain rules for determining
bond premiums on variable rate debt instruments and for bonds with
alternative payment schedules that are not treated as contingent
payment obligations. If such an election to amortize bond premium is
not made, a U.S. Holder must include the full amount of each interest
payment in income in accordance with its regular method of accounting
and will receive a tax benefit from the premium only in computing its
gain or loss upon the sale or other disposition or payment of the
principal amount of the Note.
An election to amortize premium will apply to amortizable bond
premium on all Notes and other bonds, the interest on which is
includible in the U.S. Holder's gross income, held at the beginning of
the U.S. Holder's first taxable year to which the election applies or
thereafter acquired, and may be revoked only with the consent of the
Service. The election to treat all interest, including for this
purpose amortizable premium, as OID is deemed to be an election to
amortize premium under section 171(c) of the Code for purposes of the
conformity requirements of that section. In addition, if the U.S.
Holder has already made an election to amortize premium, the
conformity requirements will be deemed satisfied with respect to any
Notes for which the U.S. Holder makes an election to treat all
interest as OID.
Sale, Exchange, Redemption or Repayment of the Notes
Upon the disposition of a Note by sale, exchange, redemption, or
repayment, the U.S. Holder will generally recognize gain or loss equal
to the difference between (i) the amount realized on the disposition
(other than amounts attributable to accrued interest) and (ii) the
U.S. Holder's tax basis in the Note. A U.S. Holder's tax basis in a
Note generally will equal the cost of the Note (net of accrued
interest) to the U.S. Holder, increased by amounts includible in
income as OID or market discount (if the holder elects to include
market discount in income on a current basis) and reduced by any
amortized bond premium and any payments (other than payments of
qualified stated interest) made on such Note.
Because the Note is held as a capital asset, such gain or loss
(except to the extent that the market discount rules or rules relating
to short-term Notes otherwise provide) will generally constitute
capital gain or loss and will be long-term capital gain or loss if the
U.S. Holder has held such Note for longer than one year. In certain
circumstances, if an issuer were found to have had an intention, at
the time its debt obligations were issued, to call such obligations
before maturity, gain would be ordinary income to the extent of any
unamortized OID. The OID Regulations clarify that this rule will not
apply to publicly-offered debt instruments.
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Foreign Currency Notes
The following discussion applies to Foreign Currency Notes that
are not denominated in or indexed to a currency that is considered a
"hyperinflationary" currency, that are not contingent payment debt
instruments and that are not "dual currency notes". Special U.S. tax
considerations applicable to obligations denominated in or indexed to
a hyperinflationary currency or to dual currency Notes will be
discussed in the applicable Pricing Supplement.
In general, a U.S. Holder that uses the cash method of accounting
and holds a Foreign Currency Note will be required to include in
income the U.S. dollar value of the amount of interest income
received, whether or not the payment is received in U.S. dollars or
converted into U.S. dollars. The U.S. dollar value of the amount of
interest received is the amount of foreign currency interest paid,
translated into U.S. dollars at the spot rate on the date of receipt.
The U.S. Holder will not have exchange gain or loss on the interest
payment itself, but may have exchange gain or loss when it disposes of
any foreign currency received.
A U.S. Holder on the accrual method of accounting is generally
required to include in income the dollar value of interest accrued
during the accrual period. Accrual basis U.S. Holders may determine
the amount of income recognized with respect to such interest in
accordance with either of two methods. Under the first method, the
dollar value of accrued interest is translated at the average rate for
the interest accrual period (or, with respect to an accrual period
that spans two taxable years, the partial period within the taxable
year). For this purpose, the average rate is the simple average of
spot rates of exchange for each business day of such period or other
average exchange rate for the period reasonably derived and
consistently applied by the U.S. Holder. Under the second method, a
U.S. Holder can elect to accrue interest at the spot rate on the last
day of the interest accrual period (in the case of a partial accrual
period, the last day of the taxable year) or, if the last day of an
interest accrual period is within five business days of the receipt,
the spot rate on the date of receipt. Any such election will apply to
all debt instruments held by the U.S. Holder at the beginning of the
first taxable year to which the election applies or thereafter
acquired and will be irrevocable without the consent of the Service.
An accrual basis U.S. Holder will recognize exchange gain or loss, as
the case may be, on the receipt of a foreign currency interest payment
if the exchange rate on the date payment is received differs from the
rate applicable to the previous accrual of that interest income. The
foreign currency gain or loss will generally be treated as U.S. source
ordinary income or loss.
OID on a Foreign Currency Note is determined in the foreign
currency and is translated into U.S. dollars in the same manner that
an accrual basis U.S. Holder accrues stated interest. Exchange gain
or loss will be determined when OID is considered paid to the extent
the exchange rate on the date of payment differs from the exchange
rate at which the OID was accrued.
The amount of market discount on a Foreign Currency Note
includible in income will generally be determined by computing the
market discount in the foreign currency and translating that amount
into dollars on the spot rate on the date the Foreign Currency Note is
retired or otherwise disposed of. If the U.S. Holder accrues market
discount currently, the amount of market discount which accrues during
any accrual period is determined in the foreign currency and
translated into U.S. dollars on the basis of the average exchange rate
in effect during the accrual period. Exchange gain or loss may be
recognized to the extent that the rate of exchange on the date of the
retirement or disposition of the Note differs from the exchange rate
at which the market discount was accrued.
Amortizable bond premium on a Foreign Currency Note is also
computed in units of foreign currency and, if the U.S. Holder elects,
will reduce interest income in units of foreign currency. At the time
amortized bond premium offsets interest income (i.e., the last day of
the tax year in which the election is made and the last day of each
subsequent tax year), exchange gain or loss with respect to amortized
bond premium is recognized and is measured by the difference between
exchange rates at that time and at the time of the acquisition of the
Note.
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With respect to the sale, exchange, retirement or repayment of a
Note denominated in a foreign currency, the foreign currency amount
realized will be considered to be first, the payment of accrued but
unpaid interest (on which exchange gain or loss is recognized as
described above), second, accrued but unpaid original issue discount
(on which exchange gain or loss is recognized as described above), and
finally, as a payment of principal. With respect to such payment of
principal, (i) gain or loss is computed in foreign currency and
translated on the date of retirement or disposition and (ii) exchange
gain or loss is separately computed on the foreign currency amount of
principal that is repaid to the extent that the rate of exchange on
the date of retirement or disposition differs from the rate of
exchange on the date the Note was acquired, or deemed acquired.
Exchange gain or loss computed on accrued interest, OID, market
discount and principal is recognized, however, only to the extent of
total gain or loss on the transaction. For purposes of determining
the total gain or loss on the transaction, a U.S. Holder's tax basis
in the Note generally will equal the U.S. dollar cost of the Note (as
determined below), increased by the U.S. dollar amounts includible in
income as accrued interest, OID, or market discount (if the Holder
elects to include such market discount in income on a current basis)
and reduced by the U.S. dollar amount of amortized bond premium and of
any payments other than payments of qualified stated interest. A U.S.
Holder will have a tax basis in any foreign currency received on the
sale, exchange or retirement of a Note equal to the U.S. dollar value
of such currency on the date of receipt.
In the case of a Note denominated in foreign currency, the cost
of the Note to the U.S. Holder will be the U.S. dollar value of the
foreign currency purchase price translated at the spot rate on the
date of purchase (or, in some cases, the settlement date). The
conversion of U.S. dollars into a foreign currency and the immediate
use of that currency to purchase a Foreign Currency Note generally
will not result in a taxable gain or loss for a U.S. Holder.
Exchangeable Notes
As described below under the heading "Indexed Notes", certain
debt instruments calling for contingent payments are subject to the
rules that generally call for the current accrual of OID based upon a
projected yield and payment schedule, and adjustments are made to the
extent that the actual amount that a U.S. Holder receives differs from
the amount that such Holder has taken into account under the projected
payment schedule. To the extent Notes are physically settled in stock
or other property rather than in cash, a U.S. Holder will have income
as described above and under the heading "Indexed Notes", and such
Holder's basis in any stock or other property received on the payment
of the Exchangeable Note should equal the fair market value of the
stock or other property at the time of receipt. Prospective
purchasers of Exchangeable Notes should consult their own tax advisors
concerning whether Exchangeable Notes will be subject to the rules for
contingent debt obligations. In particular, if a U.S. Holder's right
to the return of principal is substantially contingent, such Holder
should consult its advisors as to whether such obligations will be
treated as debt for federal income tax purposes. Any additional
considerations relevant to the federal income tax treatment of Holders
of an Exchangeable Note will be discussed in the applicable Pricing
Supplement.
Indexed Notes
Under final regulations ("the Contingent Debt Regulations")
generally effective for debt instruments issued on or after August 13,
1996, certain debt instruments calling for one or more contingent
payments are subject to special rules.
In general, under the Contingent Debt Regulations, the amount of
interest on a contingent debt instrument issued for money that is
taken into account for each accrual period is computed by determining
a yield for the debt instrument as described below, then constructing
a projected payment schedule for the debt instrument that produces
that yield, and finally applying rules similar to those for accruing
OID on a non-contingent debt instrument. The issuer's projected
payment schedule must be used to determine the U.S. Holder's interest
accruals and adjustments, unless the issuer does not create a payment
schedule or
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the U.S. Holder determines that the issuer's projected payment schedule is
unreasonable, in which case the U.S. Holder must disclose its own
schedule in connection with its federal income tax return and the
reason(s) why it is not using the issuer's projected payment schedule.
In general, the yield on a contingent bond is determined by
reference to the comparable yield at which the issuer would issue a
fixed-rate debt instrument with terms and conditions similar to those
of the contingent debt instrument, including the level of
subordination, term, timing of payments, and general market
conditions. If a hedge is available and the combined cash flows of
the hedge and the contingent payment debt instrument would permit the
calculation of a yield to maturity such that the debt instrument and
the hedge could be integrated into a synthetic fixed-rate instrument,
the comparable yield is the yield that the synthetic fixed-rate
instrument would have. However, if a substantial part of the issue is
being marketed to persons for whom the inclusion of interest is not
expected to have a substantial effect on their federal income tax
liability and the instrument provides for one or more non-market based
contingent payments, the yield of the contingent payment debt
instruments is presumed to be the applicable federal rate ("AFR").
Under the Contingent Debt Regulations, if the actual contingent
payments made on a debt instrument in a taxable year differs from the
projected contingent payments, adjustments must be made for such
differences. A positive adjustment i.e. the amount by which an actual
payment exceeds a projected payment, is treated as additional
interest. A negative adjustment first reduces the amount of interest
required to be accrued in the current year. Any excess is treated as
an ordinary loss to the U.S. Holder to the extent cumulative prior
interest accruals exceeded any negative adjustments in prior years.
Any negative adjustment in excess of those amounts is carried over to
a subsequent year and reduces the amount that would otherwise accrue
in such subsequent year or the amount realized on disposition of the
debt instrument.
A U.S. Holder's basis in a contingent debt obligation is
increased by the portion of the projected contingent payment accrued
by the holder under the projected payment schedule (determined without
regard to adjustments made to reflect differences between actual and
projected payments) and reduced by the amount of any non-contingent
payments and the projected amount of any contingent payments
previously made. Gain on the sale, exchange, or retirement of a
contingent payment debt obligation generally would be treated as
ordinary income. Losses, on the other hand, would be treated as
ordinary only to the extent of the U.S. Holder's prior net interest
inclusions (reduced by the total net negative adjustments previously
allowed to the U.S. Holder as an ordinary loss) and capital to the
extent in excess thereof.
The Contingent Debt Regulations do not apply to variable rate
debt instruments, certain debt instruments that provide for
alternative payment schedules, REMIC interests and certain other debt
instruments that are subject to prepayment, or debt instruments that
provide for payments denominated in, or determined by reference to, a
nonfunctional currency that is subject to section 988 of the Code.
Special rules are provided in the Contingent Debt Regulations for
accounting for market discount and premium on contingent Notes.
Extendible Notes
A Note may provide the Company with the option to extend its
maturity and, in connection therewith, to reset the interest rate or
spread and establish new interest reset dates, new interest payment
dates and new provisions for redemption or optional repayment.
Although there is no specific authority on this issue dealing
with instruments substantially similar to the Notes, the extension of
the maturity date of an outstanding Note, for federal income tax
purposes, may be considered to be an exchange on the maturity date of
the original Note (the "Original Note") for a new Note (the "New
Note"), in what generally would be treated as a taxable sale, exchange
or redemption, as described above.
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The consequences to a U.S. Holder of treating the extension of a
maturity date or a change in the terms of the Notes as a sale or exchange
of the Original Note for a New Note will depend upon the facts and
circumstances, including, for example, whether the Original Note is a
"security" for federal income tax purposes, whether either Note is publicly
traded, whether section 368(a)(1)(E) of the Code applies to the exchange,
and whether the U.S. Holder's basis in the Original Note differs from the
issue price of the New Note.
The Service has issued final regulations that are intended to be
effective with respect to modifications of debt instruments that are
made on or after September 24, 1996. Under these regulations, a
significant modification of a debt instrument generally is considered
to result in a deemed exchange. Under the final regulations, a
"modification" is any alteration of a legal right of the issuer or a
holder of a debt instrument that does not occur by operation of the
original terms of the instrument. In addition, certain alterations
are modifications even if they occur by operation of such original
terms. For example, any substitution of an obligor, addition or
deletion of a co-obligor or a change (in whole or in part) in the
recourse nature of the instrument is a modification. In addition, any
alteration that results in an instrument or property right that is not
debt is a modification, unless it occurs pursuant to a Holder's option
under the terms of the instrument to convert the debt into issuer
equity. Furthermore, an alteration that results from the exercise of
an option provided to an issuer or holder is a modification, unless
the option is unilateral and, in the case of a holder, the exercise of
the option does not result (or, in the case of a variable or
contingent payment, is not reasonably expected to result) in a
deferral or a reduction in any scheduled payment of interest or
principal. An option is not unilateral if it requires the consent of
the other party. Since the holder of a Note may have the option to
elect repayment on the Original Maturity Date if the issuer extends,
the option to extend may not be unilateral.
The regulations also provide rules for purposes of determining
when a modification is significant. In general, a modification is
significant if, based on all facts and circumstances, the legal rights
and obligations changed, and/or the degree to which they are being
changed, are economically significant. The regulations provide that a
change in the yield of a fixed-rate instrument is a significant
modification if the yield varies from the annual yield by more than
1/4 of one percent or 5 percent of the original annual yield. In the
case of variable rate instruments, the above rule applies by deeming
the annual yield of the variable rate instrument to equal the annual
yield of an equivalent fixed-rate instrument. Whether the change in
the yield of a contingent payment debt obligation is significant is
determined under the general rules. An extension of final maturity is
not a significant modification if it does not extend the maturity
longer than the lesser of five years or 50 percent of the original
term of the instrument.
Under the OID Regulations, the Company's right to extend the
maturity of a Note may impact the Note's yield to maturity for
purposes of calculating the amount of OID on a Note. For example, if
the Note's yield to maturity (taking into account the extension) would
be less than such yield (absent the extension), OID would be accrued
assuming that the Note were extended.
Backup Withholding
A U.S. Holder of a Note may be subject to U.S. backup withholding
at the rate of 31% with respect to interest and principal paid on the
Note, unless such U.S. Holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates that
status or (ii) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and
otherwise complies with the applicable requirements of the backup
withholding rules. U.S. Holders of Notes should consult their tax
advisors as to their qualification for exemption from U.S. backup
withholding and the procedure for obtaining such an exemption. Any
amount paid as backup withholding would be creditable against the U.S.
Holder's federal income tax liability, provided the requisite
information were provided to the Service.
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Non-U.S. Holders
United States Income and Estate Tax Consequences
The following is a brief summary of the U.S. federal income and estate
tax consequences that may be applicable to Non-U.S. Holders of the Notes.
This discussion does not deal with all aspects of United States taxation
that may be relevant to the purchase, ownership or disposition of the Notes
by any particular Non-U.S. Holder in light of his or her personal
circumstances. For example, persons who are partners in foreign
partnerships and beneficiaries of foreign trusts or estates who are subject
to U.S. federal income tax because of their own status, such as United
States residents or foreign persons engaged in a trade or business in the
United States, may be subject to U.S. federal income tax even though the
entity is not itself subject to U.S. federal income tax on the disposition
of its Note.
For purposes of the following discussion, interest (including
OID) and gain on the sale, exchange or other disposition of a Note
will be considered "U.S. trade or business income" if such income or
gain is (i) effectively connected with the conduct of a U.S. trade or
business or (ii) in the case of a treaty resident, attributable to a
permanent establishment (or to a fixed base) in the United States.
Interest and Original Issue Discount
Subject to the discussion below concerning backup withholding,
generally any interest or OID paid to a Non-U.S. Holder of a Note that
is not "U.S. trade or business income" will not be subject to U.S.
federal income tax if the interest (or OID) qualifies as "portfolio
interest." Generally (and except as described below under the heading
"Indexed Notes"), interest on registered Notes with a maturity of more
than 183 days will qualify as portfolio interest if (i) the Non-U.S.
Holder does not actually or constructively own 10% or more of the
total voting power of all voting stock of the Company and is not a
controlled foreign corporation with respect to which the Company is a
"related person" within the meaning of the Code, (ii) the beneficial
owner, under penalty of perjury, certifies that the beneficial owner
is not a U.S. person and such certificate provides the beneficial
owner's name and address, and (iii) the Non-U.S. Holder is not a bank
that is receiving the interest (or OID) on a loan made in the ordinary
course of its business.
The gross amount of payments on a note with a maturity of more
than 183 days to a Non-U.S. Holder of interest or OID that do not
qualify for the portfolio interest exception and that are not U.S.
trade or business income will be subject to U.S. federal income tax
and withholding at the rate of 30%, unless a U.S. income tax treaty
applies to reduce or eliminate withholding. U.S. trade or business
income will be taxed at regular U.S. federal income tax rates rather
than the 30% gross rate. To claim the benefit of a tax treaty or to
claim exemption from withholding because the income is U.S. trade or
business income, the Non-U.S. Holder must provide a properly-executed
Form 1001 or Form 4224 (or such successor form as the Service
designates), as applicable, prior to the payment of interest or OID.
These forms must be periodically updated. Under proposed regulations,
the Forms 1001 and 4224 will be replaced by Form W-8. Also under
proposed regulations, a Non-U.S. Holder who is claiming the benefits
of a treaty may be required to obtain a U.S. taxpayer identification
number and to provide certain documentary evidence issued by foreign
governmental authorities to prove residence in the foreign country.
Certain special procedures are provided in the proposed regulations
for payments through qualified intermediaries. The proposed
regulations generally are proposed to be effective for payments made
after December 31, 1997.
Indexed Notes and Exchangeable Notes
The Service has stated that it is considering various issues
relating to the treatment of Non-U.S. Holders of contingent payment
debt obligations, including the possibility of tax avoidance that may
arise when a contingent payment debt obligation is structured with
payments that approximate the yield on an equity security (including
coordination with the rules for taxation of foreign investments in
U.S. real property). Subject to certain exceptions, the portfolio
interest exception from withholding tax does not
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apply to certain payments of contingent interest if: (1) the amount of
interest is determined by reference to (i) receipts, sales or other cash
flows of the Company or a related person, (ii) any income or profits of the
Company or a related person, (iii) any change in the value of any property
of the Company or a related person, or (iv) any dividend, partnership
distributions, or similar payments made by the Company or a related person;
or (2) the interest is identified in regulations not yet issued as
contingent interest for which the portfolio interest exception should be
denied. As discussed above, gain from the sale of certain contingent
payment debt obligations is also treated as interest under the Contingent
Debt Regulations and, accordingly, could be subject to U.S. federal income
tax withholding at the 30% rate if on an Indexed Note that was not eligible
for the portfolio interest exception.
Sale of Notes
Except as described below and subject to the above discussion
concerning backup withholding and Indexed Notes, any gain realized by
a Non-U.S. Holder on the sale, exchange, redemption, or repayment of a
Note generally will not be subject to U.S. federal income tax, unless
(i) such gain is U.S. trade or business income, (ii) subject to
certain exceptions, the Non-U.S. Holder is an individual who holds the
Note as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition, or (iii) the Non-
U.S. Holder is subject to tax pursuant to the provisions of the Code
applicable to certain U.S. expatriates.
United States Federal Estate Tax
Except with respect to Notes that bear contingent interest that
is not eligible for the portfolio interest exception, to Notes with a
maturity of 183 days or less, and to Notes that bear interest that is
deemed to be U.S. trade or business income, Notes held (or treated as
held) by an individual who is a Non-U.S. Holder at the time of his
death will not be subject to United States federal estate tax,
provided that the individual does not actually or constructively own
10% or more of the total voting power of all voting stock of the
Company.
Information Reporting and Backup Withholding
The Company must report annually to the Service and to each Non-
U.S. Holder any interest and OID that is subject to withholding or
that is exempt from U.S. withholding tax pursuant to a tax treaty or
the portfolio interest exception. Copies of these information returns
may also be made available under the provisions of a specific treaty
or agreement to the tax authorities of the country in which the Non-
U.S. Holder resides.
In the case of payments of principal on the Notes by the Company
to a Non-U.S. Holder, the regulations provide that 31% backup
withholding and information reporting will not apply to payments if
the Holder certifies to its non-U.S. status under penalties of perjury
or otherwise establishes an exemption (provided that neither the
Company nor its paying agent has actual knowledge that (i) the holder
is a U.S. person or (ii) the conditions of any other exemption are
not, in fact, satisfied).
The payment of the proceeds from the disposition of Notes to or
through the U.S. office of any broker, U.S. or foreign, will be
subject to information reporting and possible backup withholding,
unless the owner certifies its non-U.S. status under penalty of
perjury or otherwise establishes an exemption (provided that the
broker does not have actual knowledge that (i) the Holder is a U.S.
person or (ii) that the conditions of any other exemption are not, in
fact, satisfied). The payment of the proceeds from the disposition of
a Note to or through a non-U.S. office of a non-U.S. broker will not
be subject to information reporting or backup withholding if the
broker is not a "U.S. related person." For this purpose, a "U.S.
related person" is (i) a "controlled foreign corporation" for U.S.
federal income tax purposes, or (ii) a foreign person 50% or more of
whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment (or for such
part of the period that the broker has
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been in existence) is derived from activities that are effectively
connected with the conduct of a U.S. trade or business.
In the case of the payment of proceeds from the disposition of
Notes through a non-U.S. office of a broker that is either a U.S.
person or a "U.S. related person," information reporting is required
as to the payment, unless the broker has documentary evidence in its
files that the owner is a Non-U.S. Holder and the broker has no
knowledge to the contrary. Backup withholding, however, will not
apply to payments made through foreign offices of a broker that is a
U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. person).
Any amounts withheld under the backup withholding rules from a
payment to a Non-U.S. Holder will be allowed as a refund or a credit
against such Non-U.S. Holder's U.S. federal income tax liability,
provided that the requisite information is furnished to the Service.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company
through the Agents, each of which has agreed to use its reasonable
best efforts to solicit purchases of the Notes. The Company also may
sell Notes to any Agent as principal, either at a discount from their
principal amount to be agreed upon at the time of sale or at 100% of
their principal amount, for resale to one or more investors and other
purchasers at varying prices to be determined by such Agent at the
time of resale, which may be greater or less than the purchase price
for such Notes paid by the Agent. The Company reserves the right to
sell Notes directly on its own behalf. The Company will have the sole
right to accept offers to purchase Notes and may reject any proposed
purchase of Notes in whole or in part. Each Agent will have the
right, in its discretion reasonably exercised, to reject any offer to
purchase Notes received by it in whole or in part. The Company will
pay each Agent a commission, in the form of a discount, ranging from
.125% to .750% of the Price to Public of Notes, depending upon
maturity, sold through such Agent. Any Agent may agree with the
Company, in respect of the sale of a Note, to accept a commission
other than one based upon maturity, in which case such commission will
be set forth in the Pricing Supplement applicable to such Note;
provided, however, that such commission shall range from .025% to
.750%. The Company also may pay fees and other amounts to an Agent or
an affiliate of an Agent in connection with certain transactions
entered into by the Company in connection with certain issuances of
the Notes. Such amount might exceed the Agent's discount referred to
above.
Unless otherwise indicated in the applicable Pricing Supplement,
payment of the purchase price of Notes will be required to be made in
funds immediately available in the City of New York.
The Agents may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). The
Company has agreed to indemnify the Agents against or to make
contributions relating to certain civil liabilities, including
liabilities under the Securities Act. The Company has agreed to
reimburse the Agents for certain expenses.
As Bear, Stearns & Co. Inc. is a wholly-owned subsidiary of the
Company, each distribution of Notes will conform to the requirements
set forth in Rule 2720 of the NASD Conduct Rules.
VALIDITY OF THE NOTES
The validity of the Notes will be passed upon for the Company by
Weil, Gotshal & Manges LLP (a limited liability partnership including
professional corporations), New York, New York, and for the Agents by
Kramer, Levin, Naftalis & Frankel, New York, New York.
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PROSPECTUS
$5,434,620,162
THE BEAR STEARNS COMPANIES INC.
DEBT SECURITIES AND WARRANTS
The Company may issue and sell from time to time, in one or more
series with an aggregate initial public offering price of up to
$5,434,620,162 (or the equivalent in foreign denominated currency or
units based on or relating to such currencies), debt securities ("Debt
Securities"), consisting of debentures, notes and/or other unsecured
evidences of indebtedness, and warrants ("Warrants") to purchase Debt
Securities or to buy and sell government debt securities, currencies,
currency units, currency indices or currency baskets, stock indices,
stock baskets, commodities, commodity indices or other indices or
references. The Debt Securities and Warrants are herein collectively
referred to as the "Securities." The Debt Securities and Warrants may
be offered independently or together for sale directly to purchasers
or through dealers, underwriters or agents. The Company will offer
the Securities to the public on terms determined by market conditions.
The Securities may be sold for, and principal of and interest on Debt
Securities and the cash settlement value of the Warrants may be
payable in, United States dollars, foreign denominated currency or
currency units, in each case, as the Company specifically designates.
The accompanying Prospectus Supplement sets forth the specific
designation, aggregate principal amount, purchase price, maturity,
interest rate (or manner of calculation thereof), time of payment of
interest (if any), currency or currency units in which payments will
be made (if other than United States dollars), terms for any
conversion or exchange (including any provisions for adjustment of
such terms), listing (if any) on a securities exchange and any other
specific terms of the Debt Securities, the purchase price, exercise
price, exercise period, detachability and any other specific terms of
any Warrants and the name of and compensation to each dealer,
underwriter or agent (if any) involved in the sale of the Securities.
The managing underwriters with respect to each series sold to or
through underwriters will be named in the accompanying Prospectus
Supplement. Such underwriters (and any representative thereof),
dealers or agents may include Bear, Stearns & Co. Inc., a wholly owned
subsidiary of the Company.
There are no restrictions in the Indenture (as defined in the
Prospectus) on the ability of the Company or its subsidiaries to incur
additional unsecured indebtedness or on the ability of the Company to
incur additional secured indebtedness except that the Indenture
restricts the Company from incurring any indebtedness for borrowed
money that is secured by a pledge of the Voting Stock of any
Restricted Subsidiary (each as defined in the Prospectus) without
effectively providing that the Notes and other indebtedness of the
Company under the Indenture will be secured equally and ratably with
such secured indebtedness.
-------------------------------------------------------
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 OR ANY SUPPLEMENT
HERETO. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------------
The Securities may be offered through dealers, through
underwriters or through agents designated from time to time, as set
forth in the accompanying Prospectus Supplement. The net proceeds to
the Company will be, in the case of a dealer, the sales price to such
dealer, in the case of an underwriter, the public offering price less
the applicable underwriting discount or commission, and, in the case
of an agent, the public offering price less the applicable agency
commission, in each case, less other expenses attributable to issuance
and distribution. See "Plan of Distribution" for possible
indemnification arrangements for dealers, underwriters and agents.
This Prospectus and the accompanying Prospectus Supplement may be
used by Bear, Stearns & Co. Inc. in connection with offers and sales
of Debt Securities and Warrants in market-making transactions at
negotiated prices related to prevailing market prices at the time of
sale or otherwise. Bear, Stearns & Co. Inc. may act as a principal or
agent in such transactions.
----------------------------------------
BEAR, STEARNS & CO. INC.
January 22, 1997
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IN CONNECTION WITH THE OFFERING OF CERTAIN SECURITIES HEREUNDER,
THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE
OR MAINTAIN THE MARKET PRICES OF THOSE SECURITIES, OR OTHER SECURITIES
OF THE COMPANY, AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
--------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY SECURITIES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED
TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed
by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional
Offices located at the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th
Floor, New York, New York 10048, and copies of such material can be
obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
information may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
Reports, proxy statements and other information concerning the Company
can also be inspected at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement
filed by the Company with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). This Prospectus omits
certain of the information contained in the Registration Statement in
accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Company and the
Securities. Statements contained herein concerning the provisions of
any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to Section 13 of the Exchange Act (File No. 1-8989), are
incorporated herein by reference: (i) the Annual Report on Form 10-K
(including the portions of the Company's Annual Report to Stockholders
and Proxy Statement incorporated by reference therein) for the fiscal
year ended June 30, 1996 (the "1996 Form 10-K"), (ii) the Quarterly Report
on Form 10-Q for the quarter ended September 27, 1996, and (iii) the
Current Reports on Form 8-K, dated, July 30, 1996, October 16, 1996,
October 29, 1996 and November 12, 1996. All documents filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents.
Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
copy of this Prospectus is delivered, upon the written or oral request
of such person, a copy of any or all documents incorporated by
reference into this Prospectus except the exhibits to such documents
(unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to
Corporate Communications Department, The Bear Stearns Companies Inc.,
245 Park Avenue, New York, New York 10167; telephone number (212) 272-
2000.
___________________
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THE COMPANY
The Company is a holding company that, through its principal
subsidiaries, Bear, Stearns & Co. Inc. ("Bear Stearns") and Bear,
Stearns Securities Corp. ("BSSC"), is a leading United States
investment banking, securities trading and brokerage firm serving
corporations, governments, institutional and individual investors
worldwide. The business of the Company includes market-making and
trading in corporate, United States Government, government-agency,
mortgage-related, asset-backed and municipal securities; trading in
options, futures, foreign currencies, interest-rate swaps and other
derivative products; securities and commodities arbitrage; securities,
options and commodities brokerage; underwriting and distributing
securities; providing securities clearance services; financing
customer activities; securities lending; arranging for the private
placement of securities; assisting in mergers, acquisitions,
restructurings and leveraged transactions; providing other financial
advisory services; making principal investments in leveraged
acquisitions; acting as specialist on the floor of the New York Stock
Exchange ("NYSE"); providing fiduciary and other services, such as
real estate brokerage, investment management and investment advisory
and securities research.
The Company's business is conducted from its principal offices in
New York City; from domestic regional offices in Atlanta, Boston,
Chicago, Dallas, Los Angeles and San Francisco; from representative
offices in Beijing, Geneva, Hong Kong, Lugano and Shanghai; through
international subsidiaries in Buenos Aires, Dublin, Hong Kong, London,
Paris, Sao Paulo, Singapore and Tokyo; and through joint ventures with
other firms in Madrid and Paris. The Company's foreign offices provide
services and engage in investment activities involving foreign clients
and international transactions. The Company provides trust-company
services through its subsidiary, Custodial Trust Company.
Bear Stearns and BSSC are broker-dealers registered with the
Commission. They also are members of the NYSE, all other principal
United States securities and commodities exchanges, the National
Association of Securities Dealers, Inc. (the "NASD") and the National
Futures Association. Bear Stearns is a "primary dealer" in United
States government securities, as designated by the Federal Reserve
Bank of New York.
The Company is incorporated in Delaware. The principal executive
office of the Company is located at 245 Park Avenue, New York, New
York 10167; its telephone number is (212) 272-2000.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus
Supplement, the Company intends to use the net proceeds from the sale
of the Securities for general corporate purposes, which may include
additions to working capital, the repayment of short-term indebtedness
and investments in, or extensions of credit to, subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was 1.3 for the three
months ended September 27, 1996 and 1.4, 1.2, 1.6, 1.8 and 1.6 for the
fiscal years ended June 30, 1996, 1995, 1994, 1993 and 1992,
respectively. These ratios were calculated by dividing the sum of
fixed charges into the sum of earnings before taxes and fixed charges.
Fixed charges for these purposes consist of all interest expense and
certain other immaterial expenses.
4
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DESCRIPTION OF DEBT SECURITIES
GENERAL
The following description sets forth certain general terms and
provisions of the Debt Securities to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities offered by
any Prospectus Supplement and the extent, if any, to which such
general terms and provisions will not apply to the Debt Securities so
offered will be described in the Prospectus Supplement relating to
those Debt Securities.
The Debt Securities will be issued under an Indenture, dated as
of May 31, 1991 (the "Indenture"), between the Company and The Chase
Manhattan Bank (formerly known as Chemical Bank and successor by
merger to Manufacturers Hanover Trust Company), as trustee (the
"Trustee"). A copy of the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part (the
"Registration Statement"). The following summaries of certain
provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all
provisions of the Indenture, including the definitions therein of
certain terms.
The Indenture does not limit the principal amount of Debt
Securities that may be issued thereunder, and provides that Debt
Securities may be issued thereunder in one or more series up to the
aggregate principal amount that may be authorized from time to time by
the Company. The Company from time to time may, without the consent
of the Holders of outstanding Debt Securities, provide for the
issuance of other debt securities under the Indenture in addition to
the Debt Securities authorized on the date of this Prospectus. The
Indenture provides the Company with the ability, in addition to the
ability to issue Debt Securities with terms different than those of
Debt Securities previously issued, to "reopen" a previous issue of a
series of Debt Securities and issue additional Debt Securities of such
series. Debt Securities in an aggregate principal amount of up to
$5,434,620,162 may be offered pursuant to this Prospectus. As of the
date of this Prospectus, $10,688,599,725 aggregate principal amount of
Debt Securities have been issued under the Indenture and are outstand-
ing.
Reference is hereby made to the Prospectus Supplement relating to
the particular series of Debt Securities offered thereby for the terms
of those Debt Securities, including, where applicable (1) the title of
the Debt Securities and the series of which those Debt Securities are
a part; (2) the aggregate principal amount of, or any limit on the
aggregate principal amount of, those Debt Securities; (3) the date or
dates on which those Debt Securities will mature; (4) the rate or
rates per annum (which may be fixed or variable) at which those Debt
Securities will bear interest, if any; (5) the date or dates on which
such interest, if any, will be payable and the record date or dates
relating thereto; (6) the provisions, if any, for redemption of those
Debt Securities and the redemption price thereof; (7) the sinking fund
requirements, if any, with respect to those Debt Securities; (8)
whether those Debt Securities provide for payment in United States
dollars, a foreign currency or a composite currency; (9) the terms, if
any, on which such Debt Securities may be converted into or exchanged
for stock or other securities of the Company or other entities,
including the period during which such Debt Securities may be so
converted or exchanged and any specific provisions for adjustment of
such terms; (10) the form (registered or bearer or both) in which
those Debt Securities may be issued and any restrictions applicable to
the exchange of one form for another and to the offer, sale and
delivery of the Debt Securities in either form; (11) whether those
Debt Securities will be issued in book-entry form (a "Global
Security") or in certificated form; (12) whether and under what
circumstances the Company will pay additional amounts ("Additional
Amounts") relating to specified taxes, assessments or other
governmental charges in respect of those Debt Securities and whether
the Company has the option to redeem those Debt Securities rather than
pay such Additional Amounts, and the terms of any such redemption;
(13) if the amount of payments of principal of (and premium, if any)
or interest, if any, on, and Additional Amounts in respect of those
Debt Securities may be determined with reference to an index, formula
or other method based on a coin or currency other than that in which
the Debt Securities are stated to be payable, the manner in which
those amounts will be determined; (14) the
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provisions, if any, for the defeasance of those Debt Securities; and (15)
any other terms of those Debt Securities not inconsistent with the
provisions of the Indenture.
From time to time Debt Securities may be issued that provide for
determination of the amount of payments of principal (and premium, if
any), or interest, if any, by reference to an index, exchange rate,
formula, currency, commodity, individual security, basket of
securities or other method. Holders of such Debt Securities may
receive a payment of principal (and premium, if any) or interest, if
any, that is greater or less than the amount of principal (and
premium, if any) or interest, if any, that otherwise would be payable
on the dates of payment thereof but for such reference, depending on
the value on such dates of the applicable index, exchange rate,
formula, currency, commodity, individual security, basket of
securities or other method. Information as to the methods for
determining the amount of principal (and premium, if any), and
interest, if any, payable on any date, the index, exchange rate,
formula, currency, commodity, individual security, basket of
securities or other method to which the amount payable on such date is
linked and certain additional tax considerations (if material) will be
set forth in the applicable Prospectus Supplement.
Unless otherwise provided in the applicable Prospectus
Supplement, Debt Securities will be issued only in registered form
without coupons ("Registered Securities") in denominations of $1,000
and integral multiples thereof, and in bearer form with or without
coupons ("Bearer Securities") in the denomination of $5,000. If
Bearer Securities of a series are issued, the federal income tax
consequences and other special considerations applicable to those
Bearer Securities will be described in the Prospectus Supplement
relating to that series.
Unless otherwise provided in the applicable Prospectus
Supplement, Registered Securities may be transferred or exchanged at
the corporate trust office or agency of the Trustee in the City and
State of New York, subject to the limitations provided in the
Indenture, without the payment of any service charge, other than any
tax or other governmental charge that may be imposed in connection
therewith. Bearer Securities will be transferable by delivery.
Provisions with respect to the exchange of Bearer Securities of any
series will be described in the Prospectus Supplement relating
thereto.
If the principal of (and premium, if any) or any interest on Debt
Securities of any series are payable in a foreign or composite
currency, the restrictions, elections, federal income tax
consequences, specific terms and other information with respect to
those Debt Securities and such currency will be described in the
Prospectus Supplement relating to that series.
One or more series of Debt Securities may be sold at a
substantial discount below its or their stated principal amount,
bearing no interest or interest at a rate that at the time of issuance
is below market rate. One or more series of Debt Securities may be
variable rate debt securities that may be exchangeable for fixed rate
debt securities. Federal income tax consequences and other special
considerations applicable to any such series will be described in the
Prospectus Supplement relating thereto.
The Debt Securities will be unsecured and will rank pari passu
---- -----
with all other unsecured and unsubordinated indebtedness of the
Company. The Company extends credit to its subsidiaries from time to
time. Extensions of credit to subsidiaries may be subordinated to the
claims of unaffiliated creditors of those subsidiaries. In addition,
since the Company is a holding company, the right of the Company and
hence the right of creditors of the Company (including the Holders of
the Debt Securities) to participate in any distribution of the assets
of any subsidiary upon its liquidation or reorganization, or
otherwise, is necessarily subject to the prior claims of creditors of
the subsidiary, except to the extent that claims of the Company itself
as a creditor of the subsidiary may be recognized. Furthermore,
dividends, loans and advances to the Company from certain of its
subsidiaries, including Bear Stearns and BSSC, are restricted by net
capital requirements under the Exchange Act and under rules of certain
exchanges and other regulatory bodies and by covenants governing
certain indebtedness of those subsidiaries.
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Unless otherwise provided in the applicable Prospectus Supplement, the
principal of (and premium, if any) and any interest on Debt Securities will
be payable (in the case of Registered Securities) at the corporate trust
office or agency of the Trustee in the City and State of New York or (in
the case of Bearer Securities) at the office of the Trustee located outside
the United States maintained for such purpose; provided, however, that
payment of interest other than interest payable at maturity (or on the date
of redemption, if any, if the Debt Securities are redeemable by the Company
prior to maturity, or on the date of repayment, if the Debt Securities are
repayable at the option of the Holder thereof prior to maturity) on
Registered Securities may be made at the option of the Company by check
mailed to the address of the person entitled thereto or, at the option of a
Holder of at least $10,000,000 in principal amount of Registered
Securities, by wire transfer to an account designated by such Holder in
writing at least 16 days prior to the date on which such payment is due.
Unless otherwise provided in the applicable Prospectus Supplement, no
payment on a Bearer Security will be made by mail to an address in the
United States or by wire transfer to an account maintained by the Holder
thereof in the United States or will otherwise be made inside the United
States.
NOTICES
Unless otherwise provided in the applicable Prospectus
Supplement, any notice required to be given to a Holder of a Debt
Security of any series that is a Registered Security will be mailed to
the last address of such Holder set forth in the applicable Security
Register. Any notice required to be given to a Holder of a Debt
Security that is a Bearer Security will be published in a daily
newspaper of general circulation in the city or cities specified in
the Prospectus Supplement relating to such Bearer Security.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part
in the form of one or more Global Securities that will be deposited
with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either
temporary or definitive form. Unless and until it is exchanged in
whole or in part for the individual Debt Securities represented
thereby, a Global Security may not be transferred except as a whole by
the Depositary for such Global Security to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee
of the Depositary or by the Depositary or any nominee to a successor
of the Depositary or a nominee of the successor.
The specific terms of the depositary arrangement with respect to
any Debt Securities of a series will be described in the Prospectus
Supplement relating to such series. The Company anticipates that the
following provisions will apply to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary will
credit on its book-entry system the respective principal amounts of
the individual Debt Securities represented by such Global Security to
the accounts of institutions that have accounts with the Depositary
("participants"). The accounts to be credited shall be designated by
the underwriters of the Debt Securities, or if the Debt Securities are
offered and sold directly by the Company or through agents, by the
Company or those agents. Ownership of beneficial interest in a Global
Security will be limited to participants or persons that may hold
beneficial interests through participants. Ownership of beneficial
interest in a Global Security will be shown on, and the transfer of
that ownership will be effected only through, records maintained by
the Depositary's participants or persons that hold through
participants. The laws of some states require that certain purchasers
of securities take physical delivery of securities. Such limits and
such laws may limit the market for beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its nominee,
is the registered owner of a Global Security, the Depositary or
nominee, as the case may be, will be considered the sole owner or
Holder of the Debt Securities represented by the Global Security for
all purposes under the Indenture. Except as
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provided below, owners of beneficial interests in a Global Security will
not be entitled to have Debt Securities represented by Global Securities
registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities in definitive form and will not be
considered the owners or Holders thereof under the Indenture.
Subject to the restrictions discussed under "Limitations on Issuance
of Bearer Securities and Bearer Warrants" below, payments of principal of
(and premium, if any) and any interest on the individual Debt Securities
registered in the name of the Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the Holder of such Global
Security. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of a Global Security, or for
maintaining, supervising or reviewing any records relating to beneficial
ownership interests and each of them may act or refrain from acting without
liability on any information provided by the Depositary. The Company
expects that the Depositary, upon receipt of any payment of principal,
premium or interest in respect of a Global Security, will credit
immediately the accounts of the participants with payment in amounts
proportionate to their respective holdings in principal amount of
beneficial interest in a Global Security as shown on the records of the
Depositary. The Company also expects that payments by participants to
owners of beneficial interests in a Global Security will be governed by
standing customer instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants. Receipt by owners of beneficial interests in a temporary
Global Security of payments of principal, premium or interest in respect
thereof will be subject to the restrictions discussed under "Limitations on
Issuance of Bearer Securities and Bearer Warrants" below.
If interest is paid on a bearer Global Security, or if no
interest has been paid but the bearer Global Security remains
outstanding beyond a reasonable period of time after the restricted
period (as defined in applicable U.S. Treasury regulations) has ended,
the Depositary must provide the Company with a certificate to the
effect that the owners of the beneficial interests in the Global
Security are non-U.S. persons or U.S. persons that are permitted to
hold bearer securities under applicable U.S. Treasury regulations. In
general, U.S. persons that are permitted to hold bearer securities are
U.S. persons who acquire the securities through the foreign branch of
certain U.S. financial institutions and certain U.S. financial
institutions that hold the securities for resale to non-U.S. persons
or who hold the securities on their own account through a foreign
branch. The certificate must be provided within a reasonable period
of time after the end of the restricted period, but in no event later
than the date when interest is paid. The certificate must be based on
statements provided to the Depositary by the owners of the beneficial
interests.
If the Depositary is at any time unwilling or unable or
ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 calendar days, then the Company
will issue Debt Securities in certificated form in exchange for all
outstanding Global Securities. In addition, the Company (but not a
Holder) may at any time determine not to have Debt Securities
represented by a Global Security and, in that event, will issue Debt
Securities in definitive form in exchange for all Global Securities.
In any such instance, an owner of a beneficial interest in the Global
Securities to be exchanged will be entitled to delivery in definitive
form of Debt Securities equal in principal amount to such beneficial
interest and to have such Debt Securities registered in its name.
Individual Debt Securities of the series so issued will be issued (a)
as Registered Securities in denominations, unless otherwise specified
by the Company, of $1,000 and integral multiples thereof if the Debt
Securities of that series are issuable as Registered Securities, (b)
as Bearer Securities in the denomination or denominations specified by
the Company if the Debt Securities of that series are issuable as
Bearer Securities or (c) as either Registered or Bearer Securities, if
the Debt Securities of that series are issuable in either form. See,
however, "Limitations on Issuance of Bearer Securities and Bearer
Warrants" below for a description of certain restrictions on the
issuance of individual Bearer Securities in exchange for beneficial
interests in a Global Security.
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LIMITATION ON LIENS
The Indenture provides that the Company may not, and may not
permit any Restricted Subsidiary to, issue, incur, assume, guarantee
or suffer to exist any indebtedness for borrowed money secured by a
pledge of, lien on or security interest in any shares of Voting Stock
of any Restricted Subsidiary without effectively providing that the
securities issued under the Indenture, including the Debt Securities,
will be secured equally and ratably with such secured indebtedness.
The term "Restricted Subsidiary" as defined in the Indenture means
Bear Stearns, Custodial Trust Company, BSSC and any other subsidiary
of the Company owning, directly or indirectly, any of the common stock
of, or succeeding to a significant portion of the business, property
or assets of a Restricted Subsidiary, or with which a Restricted
Subsidiary is merged or consolidated.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge
with or into any other corporation, and the Company may sell, lease or
convey all or substantially all of its assets to any corporation,
organized and existing under the laws of the United States of America
or any state thereof, provided that (a) the corporation (if other than
the Company) formed by or resulting from any such consolidation or
merger or that shall have received such assets shall expressly assume
payment of the principal of, and premium, if any, and interest on,
(and any Additional Amounts payable in respect of) the Debt Securities
and the performance and observance of all of the covenants and
conditions of the Indenture to be performed or observed by the
Company, and (b) the Company or such successor corporation shall not
immediately thereafter be in default under the Indenture.
Unless otherwise provided in the applicable Prospectus
Supplement, the Indenture does not restrict (i) a consolidation,
merger, sale of assets or other similar transaction that may adversely
affect the creditworthiness of the Company or a successor or combined
entity, (ii) a change in control of the Company or (iii) a highly
leveraged transaction involving the Company, whether or not involving
a change in control, and the Indenture therefore will not protect
holders of the Debt Securities from the substantial impact that any of
the foregoing transactions may have on the value of the Debt
Securities.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by
the Company and the Trustee with the consent of the Holders of 66 2/3%
in principal amount of the outstanding Debt Securities of each series
affected thereby, provided that no such modification or amendment may,
without the consent of the Holder of each outstanding Debt Security
affected thereby (a) change the Stated Maturity or the date of any
installment of principal of, or interest on, any Debt Security or
change the Redemption Price or the Optional Redemption Price thereof;
(b) reduce the principal amount of, or the rate of interest on, or the
amount of any Additional Amount payable in respect of, any Debt
Security or reduce the amount of principal that could be declared due
and payable prior to the Stated Maturity of that Debt Security, or
change the obligation of the Company to pay any Additional Amounts
(except as contemplated or permitted under the Indenture), or reduce
the amount of the principal of a Discount Security that would be due
and payable upon a declaration of acceleration of the maturity of that
Debt Security pursuant to the Indenture; (c) change the place or
currency of any payment of principal, premium, if any, or interest on
any Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security;
(e) reduce the percentage in principal amount of the outstanding Debt
Securities of any series, the consent of whose Holders is required to
modify or amend the Indenture; or (f) modify the foregoing
requirements or reduce the percentage of outstanding Debt Securities
necessary to waive any past default to less than a majority. Except
with respect to certain fundamental provisions, the Holders of at
least a majority in principal amount of outstanding Debt Securities of
any series may, with respect to that series, waive past defaults under
the Indenture and waive compliance by the Company with certain
provisions of the Indenture.
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EVENTS OF DEFAULT
Under the Indenture, the following will be Events of Default with
respect to any series of Debt Securities: (a) default in the payment
of interest on, or any Additional Amounts payable in respect of, any
Debt Securities of that series when due, which default has continued
for 30 days; (b) default in the payment of the principal of, and
premium, if any, on, any Debt Security of that series when due; (c)
default in the deposit of any sinking fund payment, when due, in
respect of any Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the
Indenture or in the Debt Securities of that series, which default has
continued for 60 days after written notice as provided in the
Indenture; (e) default for 10 days after notice as provided in the
Indenture, in respect of any other indebtedness for borrowed money of
the Company or any Restricted Subsidiary in excess of $10,000,000 that
has been declared due and payable prior to maturity; (f) certain
events of bankruptcy, insolvency or reorganization; and (g) any other
Event of Default with respect to Debt Securities of that series.
Within 90 days after the occurrence of any default, the Trustee shall
notify all holders of Debt Securities of such default, unless such default
shallhave been cured or waived; provided, however, that, except in the case
-------- -------
of a default in the payment of the principal of (and premium, if any)
or interest on, or any additional amounts with respect to, any Debt
Security or in the payment of any sinking fund installment with
respect to any Debt Security, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or
responsible officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the holders of the
Debt Securities; and provided further, that in the case of any default
-------- -------
of the character specified in clause (d) above, no such notice shall
be given until at least 30 days after the occurrence thereof. The
Trustee or the Holders of 25% in principal amount (or any lesser
amount that may be provided for in the Debt Securities of that series)
of the outstanding Debt Securities of that series may declare the
principal amount of all outstanding Debt Securities of that series due
and payable immediately if an Event of Default with respect to the
Debt Securities of that series shall occur and be continuing at the
time of declaration. At any time after a declaration of acceleration
has been made with respect to the Debt Securities of any series, but
before a judgment or decree for payment of money due has been obtained
by the Trustee, the Holders of a majority in principal amount of the
outstanding Debt Securities of that series may rescind any declaration
of acceleration and its consequences, if all payments due (other than
those due solely as a result of acceleration) have been made and all
Events of Default have been remedied or waived. Any Event of Default
with respect to Debt Securities of any series may be waived by the
Holders of a majority in principal amount of all outstanding Debt
Securities of that series, except in a case of failure to pay the
principal of, and premium, if any, or interest on, or any Additional
Amounts payable in respect of, any Debt Security of that series for
which payment had not been subsequently made or in respect of a
covenant or provision that cannot be modified or amended without the
consent of the Holder of each outstanding Debt Security of that
series.
The Holders of a majority in principal amount of the outstanding
Debt Securities of a series may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to
Debt Securities of that series, provided that this direction shall not
be in conflict with any rule of law or the Indenture. Before
proceeding to exercise any right or power under the Indenture at the
direction of those Holders, the Trustee shall be entitled to receive
from those Holders reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in complying
with any such direction.
The Company will be required to furnish to the Trustee annually a
statement as to the fulfillment by the Company of all of its
obligations under the Indenture.
DEFEASANCE
If so established by the Company under the terms of the Indenture
with respect to Debt Securities of any series that are Registered
Securities denominated and payable only in United States dollars
(except as
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otherwise provided under the Indenture), the Company, at its option, (a)
will be discharged from any and all obligations in respect of the Debt
Securities of that series under the Indenture (except for certain
obligations to register the transfer or exchange of Debt Securities of that
series, replace stolen, lost or mutilated Debt Securities of that series,
maintain paying agents and hold moneys for payment in trust) on the 91st
day after the applicable conditions described in this paragraph have been
satisfied or (b) will not be subject to provisions of the Indenture
described above under "Limitation on Liens" and "Merger and Consolidation"
with respect to the Debt Securities of that series, in each case if the
Company deposits with the Trustee, in trust, money or U.S. Government
Obligations that, through the payment of interest thereon and principal
thereof in accordance with their terms, will provide money in an amount
sufficient to pay all the principal (including any mandatory sinking fund
payments) of, and premium, if any, and any interest on, the Debt Securities
of that series on the dates such payments are due in accordance with the
terms of those Debt Securities. To exercise either option, the Company is
required to deliver to the Trustee an opinion of counsel to the effect that
(a) the deposit and related defeasance would not cause the Holders of the
Debt Securities of the series being defeased to recognize income, gain or
loss for United States Federal income tax purposes and (b) if the Debt
Securities of that series are then listed on the NYSE, the
exercise of the option would not result in delisting. Defeasance
provisions, if any, with respect to any series of Debt Securities may
be specified by the Company under the terms of the Indenture.
DESCRIPTION OF WARRANTS
The following description sets forth certain general terms and
provisions of the Warrants to which any Prospectus Supplement may
relate. The particular terms of the Warrants offered by any
Prospectus Supplement and the extent, if any, to which such general
terms and provisions will not apply to the Warrants so offered will be
described in the Prospectus Supplement relating to those Warrants.
The Company may issue Warrants for the purchase of Debt
Securities, Warrants to buy or sell debt securities of or guaranteed
by the United States or other sovereign states ("Government Debt
Securities"), Warrants to buy or sell currencies, currency units or
units of a currency index or currency basket, Warrants to buy or sell
units of a stock index or stock basket and Warrants to buy and sell a
commodity or units of a commodity index or basket. Warrants may be
offered independently of or together with any series of Debt
Securities and may be attached to or separate from those Debt
Securities. The Warrants will be settled either through physical
delivery or through payment of a cash settlement value as set forth
herein and in any applicable Prospectus Supplement. Each series of
Warrants will be issued under a separate warrant agreement (a "Warrant
Agreement") to be entered into between the Company and a bank or a
trust company, as warrant agent (the "Warrant Agent"), all as
described in the Prospectus Supplement relating to that series of
Warrants. The Warrant Agent will act solely as the agent of the
Company under the applicable Warrant Agreement and in connection with
the certificates for the Warrants (the "Warrant Certificates"), if
any, of that series, and will not assume any obligation or
relationship of agency or trust for or with any holders of those
Warrant Certificates or beneficial owners of those Warrants. The
following summaries of certain provisions of the forms of Warrant
Agreements and Warrant Certificates do not purport to be complete and
are subject to, and are qualified in their entirety by reference to,
all the provisions of the Warrant Agreements and the Warrant
Certificates, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
Reference is hereby made to the Prospectus Supplement relating to
the particular series of Warrants, if any, offered thereby for the
terms of those Warrants, including, where applicable: (1) whether the
Warrant is for Debt Securities, Government Debt Securities,
currencies, currency units, currency indices or currency baskets,
stock indices, stock baskets, commodities, commodity indices or any
other index or reference as therein described; (2) the offering price;
(3) the currency, currency unit, currency index or currency basket
based on or relating to currencies for which those Warrants may be
purchased; (4) the date
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on which the right to exercise those Warrants will commence and the date
(the "Expiration Date") on which that right will expire; (5) whether those
Warrants are to be issuable in registered form ("Registered Warrants") or
bearer form ("Bearer Warrants"); (6) whether those Warrants are extendable
and the period or periods of such extendibility; (7) the terms upon which
Bearer Warrants, if any, of any series may be exchanged for Registered
Warrants of that series; (8) whether those Warrants will be issued in
book-entry form (a "Global Warrant Certificate") or in certificated Form;
(9) United States federal income tax consequences applicable to those
Warrants; and (10) any other terms of those Warrants not inconsistent with
the applicable Warrant Agreement.
If the offered Warrants are to purchase Debt Securities, the
Prospectus Supplement will also describe (1) the designation, aggregate
principal amount, currency, currency unit or currency basket and other
terms of the Debt Securities purchasable upon exercise of those Warrants;
(2) the designation and terms of the Debt Securities with which those
Warrants are issued and the number of those Warrants issued with each such
Debt Security; (3) the date or dates on and after which those Warrants and
the related Debt Securities will be separately transferable; and (4) the
principal amount of Debt Securities purchasable upon exercise of one
offered Warrant and the price at which and currency, currency unit or
currency basket in which such principal amount of Debt Securities may be
purchased upon such exercise. Prior to exercising their Warrants, holders
of those Warrants will not have any of the rights of Holders of the Debt
Securities of the series purchasable upon such exercise, including the
right to receive payments of principal of, or premium, if any, or interest,
if any, on, those Debt Securities, or to enforce any of the covenants in
the Indenture.
If the offered Warrants are to buy or sell Government Debt
Securities or a currency, currency unit, currency index or currency
basket, the Prospectus Supplement will describe the amount and
designation of the Government Debt Securities or currency, currency
unit, currency index or currency basket, as the case may be, subject
to each Warrant, whether those Warrants provide for cash settlement or
delivery of the Government Debt Securities or currency, currency unit,
currency index or currency basket upon exercise.
If the offered Warrants are Warrants on a stock index or a stock
basket, those Warrants will provide for payment of an amount in cash
determined by reference to increases or decreases in such stock index
or stock basket, and the Prospectus Supplement will describe the terms
of those Warrants, the stock index or stock basket covered by those
Warrants and the market to which the stock index or stock basket
relates.
If the offered Warrants are Warrants on a commodity or commodity
index, those Warrants will provide for cash settlement or delivery of
the particular commodity or commodity index. The Prospectus
Supplement will describe the terms of those Warrants, the commodity or
commodity index covered by those Warrants and the market, if any, to
which the commodity or commodity index relates.
Registered Warrants of any series will be exchangeable for
Registered Warrants of the same series representing in the aggregate
the number of Warrants surrendered for exchange. Warrant
Certificates, to the extent exchangeable, may be presented for
exchange, and Registered Warrants may be presented for transfer, at
the corporate trust office of the Warrant Agent for that series of
Warrants (or any other office indicated in the Prospectus Supplement
relating to that series of Warrants). Warrants to buy or sell
Government Debt Securities or a currency, currency unit, currency
index or currency basket, and Warrants on stock indices or stock
baskets or on commodities or commodity indices, may be issued in the
form of a single Global Warrant Certificate, registered in the name of
the nominee of the depository of the Warrants, or may initially be
issued in the form of definitive certificates that may be exchanged,
on a fixed date, or on a date or dates selected by the Company, for
interests in a Global Warrant Certificate, as set forth in the
applicable Prospectus Supplement. Bearer Warrants will be
transferable by delivery. The Prospectus Supplement will describe the
terms of exchange applicable to any Bearer Warrants.
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EXERCISE OF WARRANTS
Each Warrant will entitle the Holder to purchase such principal
amount of the Debt Securities or buy or sell such amount of Government
Debt Securities or of a currency, currency unit, currency index or
currency basket, commodity or commodities at the exercise price, or
receive a settlement value in respect of such amount of Government
Debt Securities or of a currency, currency unit, currency index or
currency basket, stock index or stock basket, commodity or commodity
index, as shall in each case be set forth in or calculable from, the
Prospectus Supplement relating to that series of Warrants or as
otherwise set forth in the Prospectus Supplement. Warrants may be
exercised at the corporate trust office of the Warrant Agent (or any
other office indicated in the Prospectus Supplement relating to those
Warrants) at any time up to 5:00 p.m. New York time on the date set
forth in the Prospectus Supplement relating to those Warrants or as
may be otherwise set forth in the Prospectus Supplement. After such
time on that date (or such later date to which such date may be
extended by the Company), unexercised Warrants will become void.
Subject to any restrictions and additional requirements that may be
set forth in the Prospectus Supplement relating thereto, Warrants may be
exercised by delivery to the Warrant Agent of the Warrant Certificate
evidencing such Warrants properly completed and duly executed and of
payment as provided in the Prospectus Supplement of the amount required to
purchase the Debt Securities, or (except in the case in the case of
Warrants providing for cash settlement) payment for or delivery of the
Government Debt Securities or currency, currency unit, currency basket,
stock index, stock basket, commodity or commodity index, as the case may
be, purchased or sold upon such exercise. Only Registered Securities will
be issued and delivered upon exercise of Registered Warrants. Warrants will
be deemed to have been exercised upon receipt of such Warrant Certificate
and any payment, if applicable, at the corporate trust office of the
Warrant Agent or any other office indicated in the Prospectus Supplement
and the Company will, as soon as practicable thereafter, issue and deliver
the Debt Securities purchasable upon such exercise, or buy or sell such
Government Debt Securities or currency, currency unit, currency basket,
commodity or commodities or pay the settlement value in respect of the
Warrants. If fewer than all of the Warrants represented by such Warrant
Certificate are exercised, a new Warrant Certificate will be issued for the
remaining amount of the Warrants. Special provisions relating to the
exercise of any Bearer Warrants or automatic exercise of Warrants will be
described in the related Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES AND BEARER WARRANTS
In compliance with United States federal income tax laws and
regulations, the Company and any underwriter, agent or dealer
participating in the offering of any Bearer Security will agree that,
in connection with the original issuance of such Bearer Security or
during the restricted period (as defined in applicable U.S. Treasury
regulations) of such Bearer Security, they will not offer, sell or
deliver such Bearer Security, directly or indirectly, to a U.S. Person
or to any person within the United States, except to the extent
permitted under U.S. Treasury regulations.
Each Bearer Security, including Bearer Global Securities that
will not be exchanged for definitive individual Securities prior to
the stated maturity, will bear on the face of the Security and on any
interest coupons that may be detachable therefrom a legend to the
following effect: "Any United States Person who holds this obligation
will be subject to limitations under the United States income tax
laws, including the limitations provided in Sections 165(j) and
1287(a) of the Internal Revenue Code." The sections referred to in
the legend provide that, with certain exceptions, a United States
taxpayer who holds Bearer Securities will not be allowed to deduct any
loss, and will not be eligible for capital gain treatment with respect
to any gain, realized on a sale, exchange, redemption or other
disposition of those Bearer Securities. The legend described above
will also be evidenced on any book-entry system maintained with
respect to the Bearer Securities.
As used herein, "United States" means the United States of
America and its possessions, and "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership or other
entity created
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or organized in or under the laws of the United States, or an estate or
trust the income of which is subject to United States federal income
taxation regardless of its source.
Pending the availability of a definitive Global Security or
individual Bearer Securities, as the case may be, Debt Securities that
are issuable as Bearer Securities may initially be represented by a
single temporary Global Security. Following the availability of a
definitive Global Security in bearer form, or individual Bearer
Securities, and subject to any further limitations described in the
applicable Prospectus Supplement, the temporary Global Security will
be exchangeable for interests in such definitive Global Security or
for such individual Bearer Securities, respectively, only upon receipt
of a "Certificate of Non-U.S. Beneficial Ownership" unless such a
certificate has already been provided by the Depositary because
interest has been paid on the Global Security or because a reasonable
period of time after the end of the restricted period has passed.
Limitations on the offer, sale, delivery and exercise of Bearer
Warrants (including a requirement that a Certificate of Non-U.S.
Beneficial Ownership be delivered upon exercise of a Bearer Warrant)
will be described in the Prospectus Supplement relating to those
Bearer Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Securities in any of three ways: (i)
to underwriters (including Bear Stearns) or dealers, who may act
directly or through a syndicate represented by one or more managing
underwriters (including Bear Stearns); (ii) through broker-dealers
(including Bear Stearns) designated by the Company to act on its
behalf as agents; or (iii) directly to one or more purchasers. Each
Prospectus Supplement will set forth the manner and terms of the
offering of the Securities covered thereby, including (i) whether that
offering is being made to underwriters or through agents; (ii) any
underwriting discounts, dealer concessions, agency commissions
and any other items that may be deemed to constitute underwriters',
dealers' or agents' compensation, and (iii) the purchase price or
initial public offering price of the Securities and the anticipated
proceeds to the Company from the sale of the Securities.
When Securities are to be sold to underwriters, unless otherwise
set forth in the applicable Prospectus Supplement, the obligations of
the underwriters to purchase those Securities will be subject to
certain conditions precedent but the underwriters will be obligated to
purchase all of the Securities if any are purchased. The Securities
will be acquired by the underwriters for their own account and may be
resold by the underwriters, either directly to the public or to
securities dealers, from time to time in one or more transactions,
including negotiated transactions, either at fixed public offering
price or at varying prices determined at the time of sale. The
initial public offering price, if any, and any concessions allowed or
reallowed to dealers, may be changed from time to time.
To the extent that any Securities underwritten by Bear Stearns
are not resold by Bear Stearns for an amount at least equal to the
public offering price thereof, the proceeds from the offering of those
Securities will be reduced. Bear Stearns intends to resell any of
those Securities from time to time following termination of the
offering at varying prices related to prevailing market prices at the
time of sale, subject to applicable prospectus delivery requirements.
Unless otherwise indicated in the applicable Prospectus
Supplement, when Securities are sold through an agent, the designated
agent will agree, for the period of its appointment as agent, to use
its best efforts to sell the Securities for the Company's account and
will receive commissions from the Company as set forth in the
applicable Prospectus Supplement.
Securities purchased in accordance with a redemption or repayment
pursuant to their terms may also be offered and sold, if so indicated
in the applicable Prospectus Supplement, in connection with a
remarketing by one or more firms ("remarketing firms") acting as
principals for their own accounts or as agents for the Company. Any
remarketing firm will be identified and the terms of its agreement, if
any,
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with the Company and its compensation will be described in the Prospectus
Supplement. Remarketing firms may be deemed to be underwriters in
connection with the Securities remarketed by them.
If so indicated in the applicable Prospectus Supplement, the
Company will authorize agents, underwriters or dealers to solicit
offers by certain specified institutions to purchase Securities at the
public offering price set forth in the Prospectus Supplement pursuant
to delayed delivery contracts providing for payment and delivery on a
future date specified in the Prospectus Supplement. These contracts
will be subject only to those conditions set forth in the applicable
Prospectus Supplement and the Prospectus Supplement will set forth the
commissions payable for solicitation of these contracts.
Underwriters and agents participating in any distribution of
Securities may be deemed "underwriters" within the meaning of the
Securities Act and any discounts or commissions they receive in
connection therewith may be deemed to be underwriting compensation for
the purposes of the Securities Act. Those underwriters and agents may
be entitled, under their agreements with the Company, to
indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution by
the Company to payments that they may be required to make in respect
of those civil liabilities. Various of those underwriters or agents
may be customers of, engage in transactions with or perform services
for the Company or its affiliates in the ordinary course of business.
Following the initial distribution of any series of Securities,
Bear Stearns may offer and sell previously issued Securities of that
series from time to time in the course of its business as a broker-
dealer. Bear Stearns may act as principal or agent in those
transactions. This Prospectus and the Prospectus Supplement
applicable to those Securities will be used by Bear Stearns in
connection with those transactions. Sales will be made at prices
related to prevailing prices at the time of sale.
As Bear Stearns is a wholly owned subsidiary of the Company, each
distribution of Securities will conform to the requirements set forth
in Rule 2720 of the NASD Conduct Rules.
ERISA CONSIDERATIONS
Section 4975 of the Internal Revenue Code of 1986, as amended
(the "Code"), prohibits the borrowing of money, the sale of property
and certain other transactions involving the assets of plans that are
qualified under the Code ("Qualified Plans") or individual retirement
accounts ("IRAs") and persons who have certain specified relationships
to them. Section 406 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), prohibits similar transactions
involving employee benefit plans that are subject to ERISA ("ERISA
Plans"). Qualified Plans, IRAs and ERISA Plans are hereinafter
collectively referred to as "Plans."
Persons who have such specified relationships are referred to as
"parties in interest" under ERISA and as "disqualified persons" under
the Code. "Parties in interest" and "disqualified persons" encompass
a wide range of persons, including any fiduciary (e.g., investment
----
manager, trustee or custodian), any person providing services (e.g., a
----
broker), the Plan sponsor, an employee organization any of whose
members are covered by the Plan, and certain persons related to or
affiliated with any of the foregoing.
The Company, Bear Stearns and/or BSSC each is considered a "party
in interest" or "disqualified person" with respect to many Plans,
including IRAs established with any of them. The purchase and/or
holding of Securities by a Plan with respect to which the Company,
Bear Stearns and/or BSSC is a fiduciary and/or a service provider (or
otherwise is a "party in interest" or "disqualified person") would
constitute or result in a prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code, unless such Securities are acquired
or held pursuant to and in accordance with an applicable statutory or
administrative exemption. An IRA that engages in a non-exempt
prohibited transaction could forfeit its tax-exempt status under
Section 408 of the Code.
Applicable exemptions may include the exemption for services
under Section 408(b)(2) of ERISA and certain prohibited transaction
class exemptions (e.g., Prohibited Transaction Class Exemption 84-14
----
15
<PAGE>
<PAGE>
relating to qualified professional asset managers, Prohibited
Transaction Class Exemption 96-23 relating to certain in-house asset
managers and Prohibited Transaction Class Exemptions 75-1 and 86-128
relating to securities transactions involving employee benefit plans
and broker-dealers).
In accordance with ERISA's general fiduciary requirement, a
fiduciary with respect to any ERISA Plan who is considering the
purchase of Securities on behalf of such plan should determine whether
such purchase is permitted under the governing plan document and is
prudent and appropriate for the ERISA Plan in view of its overall
investment policy and the composition and diversification of its
portfolio. No IRA established with, or for which services are
provided by, the Company, Bear Stearns, and/or BSSC should acquire any
Securities and other Plans established with, or for which services are
provided by, the Company, Bear Stearns and/or BSSC should consult with
counsel prior to making any such acquisition.
EXPERTS
The consolidated financial statements and the related financial
statement schedules incorporated in this prospectus by reference from
the Company's 1996 Annual Report on Form 10-K have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
VALIDITY OF THE SECURITIES
The validity of the Debt Securities and the Warrants will be
passed upon for the Company by Weil, Gotshal & Manges LLP (a limited
liability partnership including professional corporations), New York,
New York.
16
NYFS04...:\25\22625\0122\1773\SUPD066N.04E
<PAGE>
<PAGE>
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No dealer, salesperson or any
other person has been authorized $5,434,620,162
to give any information or to
make any representations other
than those contained in this
Prospectus Supplement, any The Bear Stearns
Pricing Supplement or the Companies Inc.
Prospectus in connection with
the offer made by this
Prospectus Supplement, any
Pricing Supplement and the
Prospectus and, if given or Medium-Term Notes, Series B
made, such other information or
representations must not be
relied upon as having been
authorized. Neither the
delivery of this Prospectus
Supplement, any Pricing
Supplement and the Prospectus
nor any sale made hereunder and
thereunder shall, under any
circumstances, create any
implication that there has been
no change in the affairs of the
Company since the date hereof or
thereof. This Prospectus
Supplement, any Pricing
Supplement and the Prospectus do
not constitute an offer or
solicitation by anyone in any
jurisdiction in which such offer
or solicitation is not
authorized or in which the
person making such offer or
solicitation is not qualified to
do so or to any person to whom
it is unlawful to make such
offer or solicitation.
------------------
TABLE OF CONTENTS
Prospectus Supplement -------------------------
Page PROSPECTUS SUPPLEMENT
---- -------------------------
Description of the Notes . S-3
Foreign Currency Risks . . S-19
Certain United States
Federal Income Tax
Considerations . . . . . S-20
Supplemental Plan of
Distribution . . . . . . . S-32 Bear, Stearns & Co. Inc.
Validity of the Notes . . . S-32
Prospectus
Available Information . . . 2
Incorporation of Certain
Documents by Reference . . 3
The Company . . . . . . . . 4
Use of Proceeds . . . . . . 4 January 22, 1997
Ratio of Earnings to
Fixed Charges . . . . . . 4
Description of Debt Securities 5
Description of Warrants . . 11
Limitations on Issuance of
Bearer Securities and
Bearer Warrants. . . . . . 13
Plan of Distribution . . . 14
ERISA Considerations . . . 15
Experts . . . . . . . . . . 16
Validity of the Securities. 16
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