PROSPECTUS SUPPLEMENT Rule No. 424(b)(2)
(To Prospectus dated May 1, 1996) File No. 333-1655
U.S.$4,286,270,654
Morgan Stanley Group Inc.
GLOBAL MEDIUM-TERM NOTES, SERIES D
GLOBAL MEDIUM-TERM NOTES, SERIES E
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Due More Than Nine Months from Date of Issue
---------------------------
Morgan Stanley Group Inc. (the "Company") may offer from time to time
its Global Medium-Term Notes, which are issuable in one or more series and may
be offered and sold in the United States, outside the United States or both in
and outside the United States simultaneously. The Global Medium-Term Notes,
Series D (the "Series D Notes") and the Global Medium-Term Notes, Series E (the
"Series E Notes" and, together with the Series D Notes, the "Notes") offered
hereby are offered outside the United States at an aggregate initial offering
price of up to U.S.$4,286,270,654, or the equivalent thereof in other
currencies, including composite currencies such as the ECU (the "Specified
Currency"). See "Description of Notes -- Payment Currency." Such aggregate
offering price is subject to reduction as a result of the sale by the Company of
certain other Debt Securities, including the sale in the United States of the
Company's Global Medium-Term Notes, Series C, Warrants to purchase Debt
Securities, and Preferred Stock. See "Plan of Distribution." The Notes may be
issued as Senior Indebtedness or Subordinated Indebtedness. Subordinated
Indebtedness will be subordinate to all Senior Indebtedness. See "Description of
Debt Securities -- Subordinated Debt" in the accompanying Prospectus. The
interest rate on each Note will be either a fixed rate established by the
Company at the date of issue of such Note, which may be zero in the case of
certain Original Issue Discount Notes or a floating rate as set forth therein
and specified in the applicable Pricing Supplement. Such interest rates may be
determined by reference to the prices of certain securities or commodities. A
Fixed Rate Note may pay a level amount in respect of both interest and principal
amortized over the life of the Note (an "Amortizing Note").
The terms and conditions set forth in "Description of Notes" in this
Prospectus Supplement will apply to each Note unless otherwise specified in the
applicable Pricing Supplement and in such Note. Interest on each Note (and
principal on each Amortizing Note) is payable on the dates set forth herein
and/or in the applicable Pricing Supplement. Each Fixed Rate Note will mature on
any day more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. Each Floating Rate Note will mature on an
Interest Payment Date more than nine months from the date of issue, as set forth
in the applicable Pricing Supplement. The Notes may be redeemed by the Company
prior to the maturity (including upon the occurrence of certain events involving
United States taxation or information reporting requirements) and will be issued
in fully registered form, in bearer form, or in any combination of such
registered and bearer forms. See "Description of Notes." The Notes will be
issued only in denominations of U.S.$1,000 (or, in the case of Notes not
denominated in U.S. dollars, the equivalent thereof in the Specified Currency,
rounded to the nearest 1,000 units of the Specified Currency) or any amount in
excess thereof which is an integral multiple of U.S.$1,000 (or, in the case of
Notes not denominated in U.S. dollars, 1,000 units of the Specified Currency).
Any terms relating to Notes being denominated in a Specified Currency other than
U.S. dollars will be as set forth in the applicable Pricing Supplement.
Payments on the Notes will be increased by the amount of any deduction
for United States withholding taxes to the extent described under "Description
of Notes -- Payment of Additional Amounts."
Application has been made to the London Stock Exchange Limited (the
"London Stock Exchange") for Series D Notes offered hereby during the twelve
months after the date of this Prospectus Supplement to be admitted to the
Official List of the London Stock Exchange. Application will, in certain
circumstances as described herein, be made to list Series D Notes denominated in
French Francs or Series D Notes denominated in another currency but which
provide for payments that are linked directly or indirectly to French Francs
("French Franc Notes") on the Bourse de Paris (the "Paris Bourse"). For the sole
purpose of listing Series D Notes on the Paris Bourse, this Prospectus
Supplement and the accompanying Prospectus have been submitted to the clearance
procedures of the Commission des Operations de Bourse (the "COB") and have been
registered by the COB under no. P96-095 on April 30, 1996. The Series E Notes
will not be listed on any stock exchange.
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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 OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
<TABLE>
<CAPTION>
Price to Agent's Proceeds to
Public (1) Commission (2) Company (2)(3)
---------------------- ------------------------------ -------------------------------------
<S> <C> <C> <C>
Per Note........................... 100.000% .125%-.750% 99.875%-99.250%
Total(4)........................... U.S.$4,286,270,654 U.S.$5,357,838-U.S.$32,147,030 U.S.$4,280,912,816-U.S.$4,254,123,624
<FN>
----------
(1) Unless otherwise specified in the applicable Pricing
Supplement, Notes will be sold at 100% of their principal
amount. If the Company issues any Note at a discount from or
at a premium over its principal amount, the Price to Public of
any Note issued at a discount or premium will be set forth in
the applicable Pricing Supplement.
(2) Unless otherwise specified in the applicable Pricing
Supplement, the commission payable to an Agent for each Note
sold through such Agent will range from .125% to .750% of the
principal amount of such Note; provided, however, that
commissions with respect to Notes having a maturity of 30
years or greater will be negotiated. The Company may also sell
Notes to an Agent, as principal, at negotiated discounts, for
resale to investors and other purchasers.
(3) Before deducting expenses payable by the Company estimated at
U.S.$2,453,890.
(4) Or the equivalent thereof in other currencies, including
composite currencies.
</FN>
</TABLE>
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Offers to purchase the Notes are being solicited from time to time by
Morgan Stanley & Co. International Limited, Bank Morgan Stanley AG, Morgan
Stanley S.A. (the French Franc arranger) and Morgan Stanley Bank AG (the
Deutsche Mark arranger), each of which is an affiliate of the Company (each an
"Agent" and, together, the "Agents"). The Agents have agreed to use reasonable
efforts to solicit purchases of such Notes. The Company may also sell Notes to
an Agent acting as principal for its own account or otherwise as determined by
such Agent. No termination date for the offering of the Notes has been
established. The Company or the Agents may reject any order in whole or in part.
There can be no assurance that the Notes offered hereby will be sold or that
there will be a secondary market for the Notes. See "Plan of Distribution."
This Prospectus Supplement and the accompanying Prospectus may be used
by the Agents in connection with offers and sales of the Notes in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale or otherwise. The Agents may act as principal or agent in such
transactions.
---------------------------
MORGAN STANLEY & CO.
International
May 2, 1996
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement, any Pricing Supplement and the accompanying Prospectus in
connection with the offer contained in this Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by the Agents. This Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus do 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.
References herein to "U.S. dollars" or "U.S.$" or "$" are to the
currency of the United States of America.
A copy of this Prospectus Supplement and the accompanying Prospectus
dated May 1, 1996, which together comprise listing particulars with regard to
the issuance by the Company of the Series D Notes in compliance with the rules
of the London Stock Exchange and in accordance with Part IV of the Financial
Services Act 1986, will be delivered for registration to the Registrar of
Companies in England and Wales as required by Section 149 of such Act. The
issuance of French Franc Notes will comply with the rules and regulations
relating to the marche de l'eurofranc from time to time of the Comite des
Emissions ("French EuroFranc Regulations") and any French Franc Notes must be
admitted to the Paris Bourse if (i) such Notes are, or are intended to be,
listed on any other stock exchange, or (ii) such Notes are, or are intended to
be, distributed as a public offer (within the meaning of the French EuroFranc
Regulations). The minimum aggregate principal amount of French Franc Notes
listed on the Paris Bourse and distributed in a public offer shall be
300,000,000 French Francs. Under current applicable French regulations, "private
placements" shall be construed as issuances of Notes placed on a firm basis with
a small number of predetermined nonresident investors. So long as any Notes are
listed on the Paris Bourse, copies of this Prospectus Supplement and the
accompanying Prospectus (and all publicly available documents incorporated by
reference herein) will be available from the principal office of Morgan Stanley
S.A. as the listing agent for Notes listed on the Paris Bourse. The Company
accepts responsibility for the information contained in this Prospectus
Supplement and the accompanying Prospectus. To the best of the knowledge and
belief of the Company (which has taken all reasonable care to ensure that such
is the case), the information contained in this Prospectus Supplement and the
accompanying Prospectus (including the existing publicly available documents
incorporated by reference therein) is in accordance with the facts and does not
omit anything likely to affect the import of such information.
IN CONNECTION WITH THIS OFFERING, THE AGENT WHO IS SPECIFIED IN THE
RELEVANT PRICING SUPPLEMENT MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH
STABILISE OR MAINTAIN THE MARKET PRICE OF THE NOTES, OR ANY SECURITIES THE
PRICES OF WHICH MAY BE USED TO DETERMINE PAYMENTS ON SUCH NOTES, AT LEVELS WHICH
MIGHT NOT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILISING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME. SUCH TRANSACTIONS WILL BE CARRIED OUT IN
ACCORDANCE WITH ALL RELEVANT LAWS AND REGULATIONS.
-------------------
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and provisions of the
Debt Securities set forth in the Prospectus, to which reference is hereby made.
In particular, as used under this caption, the term "Company" means Morgan
Stanley Group Inc. The particular terms of the Notes sold pursuant to any
pricing supplement (a "Pricing Supplement") will be described therein. The terms
and conditions set forth in "Description of Notes" will apply to each Note
unless otherwise specified in the applicable Pricing Supplement and in such
Note.
If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit (the "ECU"), in which
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<PAGE>
the principal, premium, if any, and interest, if any, with respect to such Note
are to be paid, along with any other terms relating to the non-U.S. dollar
denomination. See "Foreign Currency Risks."
General
The Notes may be issued under the Senior Debt Indenture ("Senior
Notes") or the Subordinated Debt Indenture ("Subordinated Notes"). The Notes
issued under each Indenture, together with the Company's Global Medium-Term
Notes, Series C, referred to below under "Plan of Distribution," will constitute
a single series under such Indenture, together with any medium-term notes of the
Company issued in the future under such Indenture which are designated by the
Company as constituting a single series of securities with the Notes and the
Global Medium-Term Notes, Series C, for purposes of such Indenture. Neither
Indenture limits the amount of additional indebtedness that the Company may
incur. At February 29, 1996, the Company had approximately U.S.$9.7 billion
aggregate principal amount of medium-term notes outstanding under the Senior
Debt Indenture and approximately U.S.$94.4 million aggregate principal amount of
medium-term notes outstanding under the Subordinated Debt Indenture. Such
aggregate principal amounts may be increased from time to time as authorized by,
or pursuant to authority delegated by, the Board of Directors of the Company.
For the purpose of this paragraph, (i) the principal amount of any Original
Issue Discount Note (as defined below) means the Issue Price (as defined below)
of such Note and (ii) the principal amount of any Note issued in a foreign
currency or composite currency means the U.S. dollar equivalent on the date of
issue of the Issue Price of such Note.
Notes issued under the Senior Debt Indenture will rank pari passu with
all other Senior Indebtedness of the Company and with all other unsecured and
unsubordinated indebtedness of the Company. Notes issued under the Subordinated
Debt Indenture will rank pari passu with all other subordinated indebtedness of
the Company and, together with such other subordinated indebtedness, will be
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness of the Company. See "Description of Debt Securities -- Subordinated
Debt" in the Prospectus. At February 29, 1996, there was outstanding
approximately U.S.$21.5 billion of Senior Indebtedness, approximately U.S.$1.3
billion of subordinated indebtedness and approximately U.S.$865.3 million of
Capital Units. Each Capital Unit consists of a subordinated debenture of Morgan
Stanley Finance plc, a subsidiary of the Company, guaranteed by the Company on a
subordinated basis and a related purchase contract issued by the Company
requiring the holder to purchase one depositary share representing ownership of
a 1/8 interest in a share of the Company's preferred stock.
Fixed Rate Notes, Amortizing Notes and Original Issue Discount Notes
will mature on any day more than nine months from the date of issue, as set
forth in the applicable Pricing Supplement. Floating Rate Notes will mature on
an Interest Payment Date (as defined below) more than nine months from the date
of issue, as set forth in the applicable Pricing Supplement. Notes denominated
or payable in Deutsche Marks will mature at least two years after the date of
issue and Notes denominated or payable in pounds sterling will mature at least
one year, but not more than five years, after the date of issue. French Franc
Notes or Notes denominated in Japanese yen will mature at least one year after
the date of issue. The Notes will be offered on a continuing basis, and any Note
purchased on original issuance by or on behalf of a United States person must,
subject to certain exceptions, be a Registered Note (as defined below). Bearer
Notes (as defined below) purchased on original issuance by any other purchaser
initially will be represented by a temporary global Bearer Note to be deposited
with a common depositary for Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System (the "Euroclear Operator"), Cedel
Bank, societe anonyme ("Cedel") and/or any other relevant clearing system
(including Societe Interprofessionelle pour la Compensation des Valeurs
Mobilieres and the Intermediaires financiers habilites authorized to maintain
accounts therein ("SICOVAM")). Interests in each temporary global Bearer Note
will be exchangeable for interests in permanent global Bearer Notes or for
definitive Registered or Bearer Notes in the manner and upon compliance with the
procedures described under "Description of Notes -- Forms, Denominations,
Exchange and Transfer."
The applicable Pricing Supplement will specify the price (the "Issue
Price") of each Note to be sold pursuant thereto (unless such Note is to be sold
at 100% of its principal amount), the interest rate or interest rate
S-3
<PAGE>
formula, ranking, maturity, currency or composite currency, principal amount and
any other terms on which each such Note will be issued.
As used herein, the following terms shall have the meanings set forth
below:
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law or regulation to close in The City of New York or in The City
of London and (i) with respect to LIBOR Notes (as defined below), that is also a
London Banking Day, (ii) with respect to Notes denominated in a Specified
Currency other than U.S. dollars, Australian dollars or ECUs, in the principal
financial center of the country of the Specified Currency, (iii) with respect to
Notes denominated in Australian dollars, in Sydney and (iv) with respect to
Notes denominated in ECUs, that is not a non-ECU clearing day, as determined by
the ECU Banking Association in Paris.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
"London Banking Day" means any day on which dealings in deposits in the
relevant Index Currency (as defined below) are transacted in the London
interbank market.
"Original Issue Discount Note" means any Note that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the relevant
Indenture.
The "Record Date" with respect to any Interest Payment Date for a
Registered Note shall be the date 15 calendar days prior to such Interest
Payment Date, whether or not such date shall be a Business Day.
Payment Currency
If the applicable Pricing Supplement provides for all or a portion of
payments of interest and principal on a non-U.S. dollar denominated Note to be
made, at the option of the holder of such Note, in U.S. dollars, conversion of
the Specified Currency into U.S. dollars will be based on the highest bid
quotation in The City of New York received by the Exchange Rate Agent (as
defined below) at approximately 11:00 A.M., New York City time, on the second
Business Day preceding the applicable payment date from three recognized foreign
exchange dealers (one of which may be the Exchange Rate Agent unless the
Exchange Rate Agent is an affiliate of the Company) for the purchase by the
quoting dealer of the Specified Currency for U.S. dollars for settlement on such
payment date in the aggregate amount of the Specified Currency payable to the
holders of Notes and at which the applicable dealer commits to execute a
contract. If such bid quotations are not available, payments will be made in the
Specified Currency. All currency exchange costs will be borne by the holders of
Notes by deductions from such payments. Unless otherwise indicated in the
applicable Pricing Supplement, the Exchange Rate Agent will be Morgan Stanley &
Co. International Limited.
Except as set forth below, if the principal of, premium, if any, or
interest on, any Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances beyond
the control of the Company or is no longer used by the government of the country
issuing such currency or for the settlement of transactions by public
institutions within the international banking community, then the Company will
be entitled to satisfy its obligations to holders of the Notes by making such
payments in U.S. dollars on the basis of the Market Exchange Rate (as defined
below) on the date of such payment or, if the Market Exchange Rate is not
available on such date, as of the most recent practicable date; provided,
however, that if such Specified Currency is replaced by a single European
currency (expected to be named the Euro), the payment of principal of, premium,
if any, or interest on any Note denominated in such currency shall be effected
in the new single European currency in conformity with legally applicable
measures taken pursuant to, or by virtue of, the treaty establishing the
European Community (the "EC"), as amended by the treaty on European Union (as so
amended, the "Treaty"). Any payment
S-4
<PAGE>
made under such circumstances in U.S. dollars (or, if applicable, such new
single European currency) where the required payment is in a Specified Currency
other than U.S. dollars will not constitute an Event of Default. "Market
Exchange Rate" means the noon U.S. dollar buying rate in The City of New York
for wire transfers of the relevant currency or composite currency as certified
for customs purposes by the Federal Reserve Bank of New York.
Special Provisions Relating to Notes Denominated in ECU
Valuation of the ECU
Subject to the provisions under "Payment in a Component Currency"
below, the value of the ECU, in which the Notes may be denominated or may be
payable, is equal to the value of the ECU that is from time to time used as the
unit of account of the EC and which is at the date hereof valued on the basis of
specified amounts of the currencies of 12 of the 15 member states of the EC.
Under Article 109G of the Treaty, the currency composition of the ECU may not be
changed. Other changes to the ECU may be made by the EC in conformity with EC
law, in which event the ECU will change accordingly and references to ECU in the
Notes shall thereafter be construed as references to the ECU as so changed. From
the start of the third stage of European monetary union, the value of the ECU as
against the currencies of member states participating in the third stage will be
irrevocably fixed and the ECU will become a currency in its own right, replacing
all or some of the currencies of the 15 member states of the EC (as of the date
of this Prospectus Supplement, such currencies include the Austrian shilling,
Belgian franc, Danish krone, Dutch guilder, Finnish markka, French franc, German
mark, Greek drachma, Irish pound, Italian lira, Luxembourg franc, Portuguese
escudo, Spanish peseta, Swedish krona and pound sterling). Such new single
European currency is expected to be named the Euro. Once the ECU becomes a
currency in its own right in accordance with the Treaty, all references to ECU
in the Notes shall be construed as references to such currency.
Payment in a Component Currency
With respect to each due date for the payment of principal of, or
interest on, the Notes on or after the first business day in Brussels on which
the ECU ceases to be used as the unit of account of the EC and has not become a
currency in its own right replacing all or some of the currencies of the member
states of the EC, the Company shall choose a substitute currency (the "Chosen
Currency"), which may be any currency which was, on the last day on which the
ECU was used as the unit of account of the EC, a component currency of the ECU
or U.S. dollars, in which all payments due on or after that date with respect to
the Notes and coupons shall be made. Notice of the Chosen Currency so selected
shall, where practicable, be published in the manner described in "Notices"
below. The amount of each payment in such Chosen Currency shall be computed on
the basis of the equivalent of the ECU in that currency, determined as described
below, as of the fourth business day in Brussels prior to the date on which such
payment is due.
On the first business day in Brussels on which the ECU ceases to be
used as the unit of account of the EC and has not become a currency in its own
right replacing all or some of the currencies of the member states of the EC,
the Company shall select a Chosen Currency in which all payments with respect to
Notes and coupons having a due date prior thereto but not yet presented for
payment are to be made. Notice of the Chosen Currency so selected shall, where
practicable, be published in the manner described in "Notices" below. The amount
of each payment in such Chosen Currency shall be computed on the basis of the
equivalent of the ECU in that currency, determined as described below, as of
such first business day.
The equivalent of the ECU in the relevant Chosen Currency as of any
date (the "Day of Valuation") shall be determined by, or on behalf of, the
Exchange Rate Agent on the following basis. The amounts and components composing
the ECU for this purpose (the "Components") shall be the amounts and components
that composed the ECU as of the last date on which the ECU was used as the unit
of account of the EC. The equivalent of the ECU in the Chosen Currency shall be
calculated by, first, aggregating the U.S. dollar equivalents of the Components;
and then, in the case of a Chosen Currency other than U.S. dollars, using the
rate used for determining the U.S.
S-5
<PAGE>
dollar equivalent of the Components in the Chosen Currency as set forth below,
calculating the equivalent in the Chosen Currency of such aggregate amount in
U.S. dollars.
The U.S. dollar equivalent of each of the Components shall be
determined by, or on behalf of, the Exchange Rate Agent on the basis of the
middle spot delivery quotations prevailing at 2:30 P.M., Brussels time, on the
Day of Valuation, as obtained by, or on behalf of, the Exchange Rate Agent from
one or more major banks, as selected by the Company, in the country of issue of
the component currency in question.
If for any reason no direct quotations are available for a Component as
of a Day of Valuation from any of the banks selected for this purpose, in
computing the U.S. dollar equivalent of such Component, the Exchange Rate Agent
shall (except as provided below) use the most recent direct quotations for such
Component obtained by it or on its behalf, provided that such quotations were
prevailing in the country of issue not more than two Business Days before such
Day of Valuation. If such most recent quotations were so prevailing in the
country of issue more than two Business Days before such Day of Valuation, the
Exchange Rate Agent shall determine the U.S. dollar equivalent of such Component
on the basis of cross rates derived from the middle spot delivery quotations for
such component currency and for the U.S. dollar prevailing at 2:30 P.M.,
Brussels time, on such Day of Valuation, as obtained by, or on behalf of, the
Exchange Rate Agent from one or more major banks, as selected by the Company, in
a country other than the country of issue of such component currency.
Notwithstanding the foregoing, the Exchange Rate Agent shall determine the U.S.
dollar equivalent of such Component on the basis of such cross rates if the
Company or such agent judges that the equivalent so calculated is more
representative than the U.S. dollar equivalent calculated as provided in the
first sentence of this paragraph. Unless otherwise specified by the Company, if
there is more than one market for dealing in any component currency by reason of
foreign exchange regulations or for any other reason, the market to be referred
to in respect of such currency shall be that upon which a nonresident issuer of
securities denominated in such currency would purchase such currency in order to
make payments in respect of such securities.
Payments in the Chosen Currency will be made at the specified office of
a paying agent in the country of the Chosen Currency, or, if none, or at the
option of the holder, at the specified office of any Paying Agent either by a
check drawn on, or by transfer to an account maintained by the holder with, a
bank in the principal financial center of the country of the Chosen Currency.
All determinations referred to above made by, or on behalf of, the
Company or by, or on behalf of, the Exchange Rate Agent shall be at such
entity's sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on holders of Notes and coupons.
Notes Denominated in the Currencies of EC Member States
If, pursuant to the Treaty, all or some of the currencies of the member
countries of the EC are replaced by a new single European currency (expected to
be named the Euro), the payment of principal of, premium, if any, or interest
on, the Notes denominated in such currencies shall be effected in the new single
European currency in conformity with legally applicable measures taken pursuant
to, or by virtue of, the Treaty.
Forms, Denominations, Exchange and Transfer
Unless otherwise specified in the applicable Pricing Supplement, the
Notes may be issued (i) in fully registered definitive form without coupons
("Registered Notes") or (ii) in definitive bearer form with coupons attached or
in temporary or permanent global bearer form without coupons attached (in each
case, "Bearer Notes") or in any combination of the above such registered or
bearer forms.
Except as provided below or as otherwise specified in the applicable
Pricing Supplement, Notes denominated in U.S. dollars will be issued only in
denominations of U.S.$1,000 or any amount in excess thereof that is an integral
multiple of U.S.$1,000, Notes denominated in Japanese yen ("(Y)") will be issued
with a minimum denomination of (Y)1,000,000 and Notes denominated in a Specified
Currency other than U.S. dollars or Japanese
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<PAGE>
yen will be issued in denominations of the equivalent of U.S.$1,000 (rounded to
an integral multiple of 1,000 units of such Specified Currency), or any amount
in excess thereof which is an integral multiple of 1,000 units of such Specified
Currency, as determined by reference to the Market Exchange Rate of such
Specified Currency on the Business Day immediately preceding the date of
issuance; provided, however, that, in the case of the ECU, the Market Exchange
Rate shall be the rate of exchange determined by the Commission of the European
Communities (or any successor thereto) as published in the Official Journal of
the European Communities, or any successor publication, on the Business Day
immediately preceding the date of issuance.
Each Bearer Note and interest coupon, if any, will bear a legend
substantially 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
United States Internal Revenue Code of 1986, as amended to the date hereof."
Registered Notes will be exchangeable for Registered Notes in other
authorized denominations, in an equal aggregate principal amount in accordance
with the provisions set forth in the applicable Indenture. Bearer Notes will not
be issuable in exchange for Registered Notes. Registered Notes may be presented
for registration of transfer or exchange at the offices of the Registrar (as
defined below) or at the offices of any transfer agent designated by the Company
for such purpose. See "Registrar, Paying Agents and Transfer Agents." Bearer
Notes may be presented for exchange in the manner set forth below. No service
charge will be made for any registration of transfer or exchange of Notes but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Bearer Notes and any
coupons appertaining thereto will be transferable by delivery.
Each Bearer Note will be represented initially by a temporary global
Bearer Note, without interest coupons, and which, unless otherwise specified in
the applicable Pricing Supplement, will be deposited with a common depositary (a
"Common Depositary") for the Euroclear Operator and Cedel, for credit to the
account designated by or on behalf of the subscriber thereof. Upon deposit of
each such temporary global Bearer Note, the Euroclear Operator or Cedel, as the
case may be, will credit each subscriber with a principal amount of Notes equal
to the principal amount thereof for which it has subscribed and paid. The
interests of the beneficial owner or owners in a temporary global Bearer Note
will be exchangeable, after the date (the "Exchange Date") that is 40 days after
the date on which the Company receives the proceeds of the sale of such Note
(the "Closing Date"), for an interest in a permanent global Bearer Note to be
held by a Common Depositary for the Euroclear Operator and Cedel, for credit to
the account designated by or on behalf of the beneficial owner thereof; provided
that (i) the Exchange Date for any Note held by an Agent as part of an unsold
allotment or subscription more than 40 days after the Closing Date for such Note
shall be the day after the date such Note is sold by such Agent and (ii) such
exchange will be made only upon receipt of Ownership Certificates (as defined
below). No principal or interest may be paid on a temporary global Bearer Note
until the person entitled to receive such interest furnishes an Ownership
Certificate. An "Ownership Certificate" is a signed certificate in writing (or
an electronic certificate described in United States Treasury Regulations
Section 1.163-5(c)(2)(i)(D)(3)(ii)) stating that on such date such Bearer Note
(i) is owned by a person that is not a United States person (as defined in the
Prospectus), (ii) is owned by a United States person that (a) is a foreign
branch of a United States financial institution (as defined in United States
Treasury Regulations Section 1.165-12(c)(1)(v)) (a "financial institution")
purchasing for its own account or for resale, or (b) is acquiring such Bearer
Note through a foreign branch of a United States financial institution and who
holds the Bearer Note through such financial institution through such date (and
in either case (a) or (b), each such United States financial institution agrees,
on its own behalf or through its agent, that the Company may be advised that it
will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder), or
(iii) is owned by a United States or foreign financial institution for the
purposes of resale during the restricted period (as defined in United States
Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7) (the "Restricted Period")),
and in addition if the owner of such Bearer Note is a United States or foreign
financial institution described in clause (iii) above (whether or not also
described in clause (i) or (ii)), such financial institution certifies that it
has not acquired the Bearer Note for purposes of resale directly or indirectly
to a United States person or to a person within the United States or its
possessions.
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The beneficial owner of a Note represented by a permanent global Bearer
Note may, upon 30 days' written notice to the Principal Paying Agent (as defined
below), given by the beneficial owner through either the Euroclear Operator or
Cedel, exchange such owner's interest in such permanent global Bearer Note for a
definitive Bearer Note or Notes, which will be serially numbered, with coupons,
if any, attached or a definitive Registered Note or Notes, of any authorized
denominations. Upon receipt by the Principal Paying Agent of an initial request
to exchange an interest in a permanent global Bearer Note for a definitive
Bearer Note or Notes, all other interests in such permanent global Bearer Note
shall be exchanged for definitive Bearer Notes. The Common Depositary for the
Euroclear Operator and Cedel will instruct the Principal Paying Agent regarding
the aggregate principal amount and denominations of definitive Bearer Notes that
must be authenticated and delivered to each of the Euroclear Operator and Cedel.
Such exchanges shall occur at no expense to the beneficial owners as soon as
practicable after the receipt of the initial request for definitive Bearer
Notes. No Bearer Note will be delivered in the United States. References herein
to "Bearer Notes" shall, except where otherwise indicated, include interests in
a permanent or temporary global Bearer Note as well as definitive Bearer Notes
and any appurtenant coupons.
At the option of the holder, and subject to the terms of the applicable
Indenture or procedures established pursuant thereto, definitive Bearer Notes
(with all unmatured coupons, and all matured coupons, if any, in default) will
be exchangeable into Registered Notes of any authorized denominations of like
tenor and in an equal aggregate principal amount at the office of the Registrar
(as defined below) or at the office of any transfer agent designated by the
Company for such purpose. See "Registrar, Paying Agents and Transfer Agents."
Definitive Bearer Notes surrendered in exchange for Registered Notes after the
close of business at any such office on any Record Date for the payment of
interest on a Registered Note and before the opening of business at such office
on the relevant Interest Payment Date shall be surrendered without the coupon
relating to such payment of interest. Definitive Bearer Notes will be
exchangeable for definitive Bearer Notes in other authorized denominations, in
an equal aggregate principal amount, in accordance with the provisions of the
applicable Indenture and at the offices of the Principal Paying Agent in London,
England or at the office of any transfer agent designated by the Company for
such purpose. See "Registrar, Paying Agents and Transfer Agents."
The Company will not be required (i) to register the transfer of or
exchange Notes to be redeemed for a period of fifteen calendar days preceding
the first publication of the relevant notice of redemption, or if Registered
Notes are outstanding and there is no publication, the mailing of the relevant
notice of redemption or, (ii) to register the transfer of or exchange any
Registered Note selected for redemption or surrendered for optional repayment,
in whole or in part, except the unredeemed or unpaid portion of any such
Registered Note being redeemed or repaid, as the case may be, in part, or (iii)
to exchange any Bearer Note selected for redemption or surrendered for optional
repayment, except that such Bearer Note may be exchanged for a Registered Note
of like tenor, provided that such Registered Note shall be simultaneously
surrendered for redemption or repayment, as the case may be.
Interest and Principal Payments
Interest payable on a Bearer Note represented by a temporary global
Bearer Note or any portion thereof will, unless otherwise specified in the
applicable Pricing Supplement, be paid to each of the Euroclear Operator and
Cedel, as the case may be, with respect to that portion of such temporary global
Bearer Note held for its account upon delivery to the Principal Paying Agent of
an Ownership Certificate signed by the Euroclear Operator or Cedel, as the case
may be, dated no earlier than such Interest Payment Date, which certificate must
be based on Ownership Certificates provided to the Euroclear Operator or Cedel,
as the case may be, by its member organizations. Each of the Euroclear Operator
and Cedel will in such circumstances credit the interest received by it in
respect of such temporary global Bearer Note or any portion thereof to the
accounts of or for the beneficial owners thereof to the extent that they have
furnished such Ownership Certificates.
Each permanent global Bearer Note will, unless otherwise specified in
the applicable Pricing Supplement, provide that principal of, and premium, if
any, and interest on such permanent global Bearer Note will be paid to each of
the Euroclear Operator and Cedel, as the case may be, with respect to that
portion of such permanent global Bearer Note held for its account. Each of the
Euroclear Operator and Cedel will in such circumstances credit such principal,
premium, if any, and any interest received by it in respect of such permanent
global Bearer Note to the
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respective accounts of or for the beneficial owners of such permanent global
Bearer Note at maturity, redemption or repayment or on an Interest Payment Date,
as the case may be. If a Registered Note is issued in exchange for any portion
of a permanent global Bearer Note after the close of business at the office or
agency where such exchange occurs on any Record Date and before the opening of
business at such office or agency on the relevant Interest Payment Date, any
interest (or any principal and interest in the case of an Amortizing Note) will
not be payable on such Interest Payment Date in respect of such Registered Note,
but will be payable on such Interest Payment Date only to the Euroclear Operator
and Cedel, and the Euroclear Operator and Cedel will in such circumstances
credit any such interest to the account of or for the beneficial owner of such
portion of such permanent global Bearer Note on such Record Date. Payment of
principal of, premium, if any, and any interest in respect of any permanent
global Bearer Note will, unless otherwise specified in the applicable Pricing
Supplement, be made to the Euroclear Operator and Cedel in immediately available
funds.
Payment of principal of, premium, if any, and any interest on a
definitive Bearer Note at maturity or upon redemption or repayment will be made
in immediately available funds, subject to any applicable laws and regulations,
only against presentation and surrender of such Note and any coupons at the
offices of a Paying Agent (as defined below) outside the United States, at the
option of the holder, by check or by wire transfer of immediately available
funds to an account maintained by the payee with a bank located outside the
United States if appropriate wire transfer instructions have been received by a
Paying Agent not less than 15 calendar days prior to an applicable payment date.
Payment of interest on a definitive Bearer Note due on any Interest Payment Date
will be made only against presentation and surrender of the coupon relating to
such Interest Payment Date.
No payment with respect to any Bearer Note will be made at any office
or agency of the Company in the United States or by check mailed to any address
in the United States or by wire transfer to an account maintained with a bank
located in the United States except as may be permitted under United States
federal tax laws and regulations then in effect without adverse tax consequences
to the Company. Notwithstanding the foregoing, payments of principal of,
premium, if any, and interest on Bearer Notes payable in U.S. dollars will be
made at the office of the Company's paying agent in the Borough of Manhattan,
The City of New York, if, and only if (i) payment of the full amount thereof in
U.S. dollars at all offices or agencies outside the United States is illegal or
effectively precluded by exchange controls or other similar restrictions and
(ii) such paying agent in the Borough of Manhattan, The City of New York, under
applicable law and regulations, would be able to make such payment.
Interest will be payable on a Registered Note to the person in whose
name the Registered Note is registered at the close of business on the
applicable Record Date; provided that the interest payable upon maturity,
redemption or repayment (whether or not the date of maturity, redemption or
repayment is an Interest Payment Date) will be payable to the person to whom
principal is payable. The initial interest payment on a Registered Note will be
made on the first Interest Payment Date falling after the date the Registered
Note is issued; provided, however, that (i) payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Registered Note
originally issued less than 15 calendar days before an Interest Payment Date
will be paid on the next succeeding Interest Payment Date to the holder of
record on the Record Date with respect to such succeeding Interest Payment Date
and (ii) payments of interest (or, in the case of an Amortizing Note, principal
and interest) on a Registered Note issued in exchange for an interest in a
permanent global Bearer Note less than 15 calendar days before an Interest
Payment Date will be paid as described above. See "United States Federal
Taxation -- United States Holders -- Discount Notes" below.
U.S. dollar payments of interest on a Registered Note, other than
interest payable at maturity (or on the date of redemption or repayment, if a
Note is redeemed or repaid by the Company prior to maturity), will be made by
check mailed to the address of the person entitled thereto as shown on the Note
register. U.S. dollar payments of principal, premium, if any, and interest upon
maturity, redemption or repayment of a Registered Note will be made in
immediately available funds against presentation and surrender of the Note.
Notwithstanding the foregoing, a holder of U.S.$10,000,000 (or the equivalent)
or more in aggregate principal amount of Registered Notes having the same
Interest Payment Date shall be entitled to receive payments of interest by wire
transfer of immediately available funds upon written request to the Paying Agent
not later than 15 calendar days prior to the applicable Interest Payment Date.
See "United States Federal Taxation -- Foreign Holders -- Income Taxes."
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With respect to any moneys paid by the Company and held by the
applicable Trustee or any Paying Agent for payment of the principal of, premium,
if any, or interest on any Notes that remain unclaimed at the end of two years
after such principal, premium, or interest shall have become due and payable
(whether at maturity or upon call for redemption or otherwise), (i) such Trustee
or such Paying Agent shall notify the holders of such Notes that such moneys
shall be repaid to the Company and any person claiming such moneys shall
thereafter look only to the Company for payment thereof and (ii) such moneys
shall be so repaid to the Company. Upon such repayment all liability of such
Trustee or such Paying Agent with respect to such moneys shall thereupon cease,
without, however, limiting in any way any obligation that the Company may have
to pay the principal of, premium, if any, or interest on the Notes as the same
shall become due.
Certain Notes, including Original Issue Discount Notes, may be
considered to be issued with original issue discount, which must be included in
income for United States federal income tax purposes at a constant yield. See
"United States Federal Taxation -- United States Holders -- Discount Notes"
below. Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Original Issue Discount Note is declared to be due and payable
immediately as described under "Description of Debt Securities -- Events of
Default" in the Prospectus, the amount of principal due and payable with respect
to such Note shall be limited to the aggregate principal amount of such Note
multiplied by the sum of its Issue Price (expressed as a percentage of the
aggregate principal amount) plus the original issue discount amortized from the
date of issue to the date of declaration, which amortization shall be calculated
using the "interest method" (computed in accordance with generally accepted
accounting principles in effect on the date of declaration). Special
considerations applicable to any such Notes will be set forth in the applicable
Pricing Supplement.
Registrar, Paying Agents and Transfer Agents
The Company has initially designated Chemical Bank, acting through its
principal corporate trust office in the Borough of Manhattan, The City of New
York, as its registrar and transfer agent for the Registered Notes (the
"Registrar," which term includes any successor Registrar appointed by the
Company) and as the Company's paying agent for Registered Notes in the United
States, and Chemical Bank, London Branch, as transfer and paying agent for the
Notes and as its principal paying agent for the Notes outside the United States
(the "Principal Paying Agent," which term includes any successor principal
paying agent appointed by the Company). Any initial designation by the Company
of the Registrar or a transfer agent may be rescinded at any time, except that,
so long as any Notes remain outstanding, the Company will maintain in the
Borough of Manhattan, The City of New York, one or more offices or agencies
where Registered Notes may be presented for registration of transfer and
exchange. The Company may at any time appoint additional transfer agents with
respect to the Notes and may appoint additional paying agents for the Notes
outside the United States (each a "Paying Agent," which term includes the
Principal Paying Agent and any additional or successor paying agent appointed by
the Company). So long as the Series D Notes are listed on the London Stock
Exchange and such exchange so requires, the Company will maintain a transfer
agent and a Paying Agent in London. So long as any Series D Notes are listed on
the Paris Bourse and such exchange so requires, the Company will maintain a
Paying Agent in Paris.
Fixed Rate Notes
Each Fixed Rate Note will bear interest from the date of issuance at
the annual rate stated on the face thereof until the principal thereof is paid
or made available for payment. Unless otherwise specified in the applicable
Pricing Supplement, such interest will be computed on the basis of a 360-day
year of twelve 30-day months. Unless otherwise specified in the applicable
Pricing Supplement, payments of interest on Fixed Rate Notes other than
Amortizing Notes will be made annually on each March 1 and at maturity or upon
any earlier redemption or repayment. Unless otherwise specified in the
applicable Pricing Supplement, payments of principal and interest on Amortizing
Notes, which are securities on which payments of principal and interest are made
in equal installments over the life of the security, will be made either
quarterly on each March 1, June 1, September 1 and December 1 or semiannually on
each March 1 and September 1, as set forth in the applicable Pricing Supplement,
and at maturity or upon any earlier redemption or repayment. Payments with
respect to Amortizing Notes will be applied first to interest due and payable
thereon and then to the reduction of the unpaid principal amount thereof.
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A table setting forth repayment information in respect of each Amortizing Note
will be provided to the original purchaser and will be available, upon request
made to the Company, to subsequent holders.
If any Interest Payment Date for any Fixed Rate Note would fall on a
day that is not a Business Day, the interest payment shall be postponed to the
next day that is a Business Day, and no interest on such payment shall accrue
for the period from and after the Interest Payment Date. If the maturity date
(or date of redemption or repayment) of any Fixed Rate Note would fall on a day
that is not a Business Day, the payment of interest and principal (and premium,
if any) may be made on the next succeeding Business Day, and no interest on such
payment shall accrue for the period from and after the maturity date (or date of
redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest
from and including the date of issue or from and including the last date in
respect of which interest has been paid, as the case may be, to, but excluding,
the Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.
Floating Rate Notes
Each Floating Rate Note will bear interest from the date of issuance
until the principal thereof is paid or made available for payment at a rate
determined by reference to an interest rate basis or formula (the "Base Rate"),
which may be adjusted by a Spread and/or Spread Multiplier (each as defined
below). The applicable Pricing Supplement will designate one or more of the
following Base Rates as applicable to each Floating Rate Note: (a) the CD Rate
(a "CD Rate Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate
Note"), (c) the Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a
"LIBOR Note"), (e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate
(a "Treasury Rate Note"), (g) the Constant-Maturity Treasury Rate (a "CMT Rate
Note") or (h) such other Base Rate or interest rate formula as is set forth in
such Pricing Supplement and in such Floating Rate Note. The "Index Maturity" for
any Floating Rate Note is the period of maturity of the instrument or obligation
from which the Base Rate is calculated and will be specified in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, and/or (ii) multiplied
by the Spread Multiplier, if any. The "Spread" is the number of basis points
(one one-hundredth of a percentage point) specified in the applicable Pricing
Supplement to be added to or subtracted from the Base Rate for such Floating
Rate Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement to be applied to the Base Rate for such Floating
Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate Note
may also have either or both of the following: (i) a maximum limitation, or
ceiling, on the rate of interest which may accrue during any interest period
("Maximum Interest Rate"); and (ii) a minimum limitation, or floor, on the rate
of interest that may accrue during any interest period ("Minimum Interest
Rate"). In addition to any Maximum Interest Rate that may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on a
Floating Rate Note will in no event be higher than the maximum rate permitted by
New York law, as the same may be modified by United States law of general
application. Under current New York law, the maximum rate of interest, subject
to certain exceptions, for any loan in an amount less than U.S.$250,000 is 16%
and for any loan in the amount of U.S.$250,000 or more but less than
U.S.$2,500,000 is 25% per annum on a simple interest basis. These limits do not
apply to loans of U.S.$2,500,000 or more.
Unless otherwise specified in the applicable Pricing Supplement, the
rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period" for such Note, and the first day of each Interest Reset Period
being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. The determination of the rate of interest at which a Floating Rate
Note will be reset on any Interest Reset Date will be made on the Interest
Determination Date (as defined below) pertaining
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to such Interest Reset Date. Unless otherwise specified in the Pricing
Supplement, the Interest Reset Date will be, in the case of Floating Rate Notes
which reset daily, each Business Day; in the case of Floating Rate Notes (other
than Treasury Rate Notes) which reset weekly, the Wednesday of each week; in the
case of Treasury Rate Notes which reset weekly, the Tuesday of each week, except
as provided below; in the case of Floating Rate Notes which reset monthly, the
third Wednesday of each month; in the case of Floating Rate Notes which reset
quarterly, the third Wednesday of March, June, September and December; in the
case of Floating Rate Notes which reset semiannually, the third Wednesday of two
months of each year, as specified in the applicable Pricing Supplement; and in
the case of Floating Rate Notes which reset annually, the third Wednesday of one
month of each year, as specified in the applicable Pricing Supplement; provided,
however, that (a) the interest rate in effect from the date of issue to the
first Interest Reset Date with respect to a Floating Rate Note will be the
initial interest rate set forth in the applicable Pricing Supplement (the
"Initial Interest Rate") and (b) unless otherwise specified in the applicable
Pricing Supplement, the interest rate in effect for the ten calendar days
immediately prior to maturity, redemption or repayment will be that in effect on
the tenth calendar day preceding such maturity, redemption or repayment date. If
any Interest Reset Date for any Floating Rate Note would otherwise be a day that
is not a Business Day, such Interest Reset Date shall be postponed to the next
succeeding Business Day, except that in the case of a LIBOR Note, if such
Business Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset Date,
on the third Wednesday of each month or on the third Wednesday of March, June,
September and December, as specified in the applicable Pricing Supplement; (ii)
in the case of Floating Rate Notes with a quarterly Interest Reset Date, on the
third Wednesday of March, June, September and December; (iii) in the case of
Floating Rate Notes with a semiannual Interest Reset Date, on the third
Wednesday of the two months specified in the applicable Pricing Supplement; and
(iv) in the case of Floating Rate Notes with an annual Interest Reset Date, on
the third Wednesday of the month specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, if any Interest
Payment Date (other than the maturity date or any earlier redemption or
repayment date) for any Floating Rate Note would fall on a day that is not a
Business Day with respect to such Floating Rate Note, such Interest Payment Date
will be the following day that is a Business Day with respect to such Floating
Rate Note, except that, in the case of a LIBOR Note, if such Business Day is in
the next succeeding calendar month, such Interest Payment Date shall be the
immediately preceding day that is a Business Day with respect to such LIBOR
Note. If the maturity date or any earlier redemption or repayment date of a
Floating Rate Note would fall on a day that is not a Business Day, the payment
of principal, premium, if any, and interest will be made on the next succeeding
Business Day, and no interest on such payment shall accrue for the period from
and after such maturity, redemption or repayment date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement,
interest payments for Floating Rate Notes shall be the amount of interest
accrued from and including the date of issue or from and including the last date
to which interest has been paid to, but excluding, the Interest Payment Date or
maturity date or date of redemption or repayment.
With respect to a Floating Rate Note, accrued interest shall be
calculated by multiplying the principal amount of such Floating Rate Note by an
accrued interest factor. Such accrued interest factor will be computed by adding
the interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by the
actual number of days in the year, in the case of Treasury Rate Notes and CMT
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point (.0000001), with five
one-millionths of a percentage point rounded upward, and all dollar amounts used
in or resulting from such calculation on Floating Rate Notes will be rounded to
the nearest cent, with one-half cent rounded upward. The interest rate in effect
on any Interest Reset Date will be the applicable rate as
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reset on such date. The interest rate applicable to any other day is the
interest rate from the immediately preceding Interest Reset Date (or, if none,
the Initial Interest Rate).
The applicable Pricing Supplement shall specify a calculation agent
(the "Calculation Agent") with respect to any issue of 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 determined, the interest rate
that will become effective on the next Interest Reset Date with respect to such
Floating Rate Note. The Calculation Agent will notify the London Stock Exchange
(in the case of the Series D Notes listed on such exchange) and the Paying
Agents of each determination of the interest rate applicable to any Floating
Rate Note promptly after such determination is made.
The "Interest Determination Date" pertaining to an Interest Reset Date
for CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, Prime
Rate Notes and CMT Rate Notes will be the second Business Day next preceding
such Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for a LIBOR Note will be the second London Banking Day
preceding such Interest Reset Date, except that the Interest Determination Date
pertaining to an Interest Reset Date for a LIBOR Note for which the Index
Currency is pounds sterling will be such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate Note
will be the day of the week in which such Interest Reset Date falls on which
Treasury bills would normally be auctioned. Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, but such auction may
be held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the Interest
Determination Date pertaining to the Interest Reset Date occurring in the next
succeeding week. If an auction falls on a day that is an Interest Reset Date,
such Interest Reset Date will be the next following Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD Rate Notes
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD
Rate" means, with respect to any Interest Determination Date, the rate on such
date for negotiable certificates of deposit having the Index Maturity designated
in the applicable Pricing Supplement as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable certificates
of deposit of major United States money center
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banks; provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting as set forth above, the "CD Rate" in effect
for the applicable period will be the same as the CD Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the rate of interest payable on the CD Rate Notes for which such CD Rate is
being determined shall be the Initial Interest Rate).
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement, as such rate shall be published in H.15(519), under the heading
"Commercial Paper." In the event that such rate is not published by 9:00 A.M.,
New York City time, on the Calculation Date pertaining to such Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate on such Interest Determination Date for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet available in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate shall be the Money Market Yield of
the arithmetic mean of the offered rates as of 11:00 A.M., New York City time,
on such Interest Determination Date of three leading dealers of commercial paper
in The City of New York selected by the Calculation Agent for commercial paper
of the specified Index Maturity, placed for an industrial issuer whose bond
rating is "AA," or the equivalent, from a nationally recognized rating agency;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting offered rates as mentioned in this sentence, the
"Commercial Paper Rate" in effect for the applicable period will be the same as
the Commercial Paper Rate for the immediately preceding Interest Reset Period
(or, if there was no such Interest Reset Period, the rate of interest payable on
the Commercial Paper Rate Notes for which such Commercial Paper Rate is being
determined shall be the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
Money Market Yield = D x 360 x 100
------------------------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Index Maturity.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Federal Funds Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates
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for the last transaction in overnight Federal funds, as of 11:00 A.M., New York
City time, on such Interest Determination Date, arranged by three leading
brokers of Federal funds transactions in The City of New York selected by the
Calculation Agent; provided, however, that if the brokers selected as aforesaid
by the Calculation Agent are not quoting as set forth above, the "Federal Funds
Rate" in effect for the applicable period will be the same as the Federal Funds
Rate for the immediately preceding Interest Reset Period (or, if there was no
such Interest Reset Period, the rate of interest payable on the Federal Funds
Rate Notes for which such Federal Funds Rate is being determined shall be the
Initial Interest Rate).
LIBOR Notes
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any) specified in
the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" for each Interest Determination Date will be determined by the
Calculation Agent as follows:
(i) As of the Interest Determination Date, the Calculation
Agent will determine (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the arithmetic mean of the offered rates
(unless the specified Designated LIBOR Page (as defined below) by its
terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Index Currency for the period of the
Index Maturity, each as designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, which appear on the
Designated LIBOR Page at approximately 11:00 A.M., London time, on such
Interest Determination Date, if at least two such offered rates appear
(unless, as aforesaid, only a single rate is required) on such
Designated LIBOR Page, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement, the rate for deposits in the Index
Currency for the period of the Index Maturity, each as designated in
the applicable Pricing Supplement, commencing on the second London
Banking Day following such Interest Determination Date (or, if pounds
sterling is the Index Currency, commencing on such Interest
Determination Date), that appears on the Designated LIBOR Page at
approximately 11:00 A.M., London time, on such Interest Determination
Date. If fewer than two offered rates appear (if "LIBOR Reuters" is
specified in the applicable Pricing Supplement and calculation of LIBOR
is based on the arithmetic mean of the offered rates) or if no rate
appears (if the applicable Pricing Supplement specifies either (x)
"LIBOR Reuters" and the Designated LIBOR Page by its terms provides
only for a single rate or (y) "LIBOR Telerate"), 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 (if "LIBOR Reuters" is specified in
the applicable Pricing Supplement and calculation of LIBOR is based on
the arithmetic mean of the offered rates) or no rate appears (if the
applicable Pricing Supplement specifies either (x) "LIBOR Reuters" and
the Designated LIBOR Page by its terms provides only for a single rate
or (y) "LIBOR Telerate"), the Calculation Agent will request the
principal London offices of each of four major reference banks in the
London interbank market, as selected by the Calculation Agent (after
consultation with the Company), to provide the Calculation Agent with
its offered quotations for deposits in the Index Currency for the
period of the specified Index Maturity, commencing on the second London
Banking Day immediately following such Interest Determination Date (or
if pounds sterling is the Index Currency, commencing on such Interest
Determination Date), to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such Interest Determination
Date and in a principal amount equal to an amount of not less than
U.S.$1 million (or the equivalent in the Index Currency, if the Index
Currency is not the U.S. dollar) that is representative of a single
transaction in such Index Currency in such market at such time. If at
least two such quotations are provided, LIBOR determined on such
Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR determined
on such Interest Determination Date will be the
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arithmetic mean of rates quoted at approximately 11:00 A.M. (or such
other time specified in the applicable Pricing Supplement), in the
applicable principal financial center for the country of the Index
Currency on such Interest Determination Date, by three major banks in
such principal financial center selected by the Calculation Agent
(after consultation with the Company) on such Interest Determination
Date for loans in the Index Currency to leading European banks, for the
period of the specified Index Maturity commencing on the second London
Banking Day immediately following such Interest Determination Date (or,
if pounds sterling is the Index Currency, commencing on such Interest
Determination Date) and in a principal amount of not less than U.S.$1
million (or the equivalent in the Index Currency, if the Index Currency
is not the U.S. dollar) that is representative of a single transaction
in such Index Currency in such market at such time; provided, however,
that if the banks selected as aforesaid by the Calculation Agent are
not quoting rates as mentioned in this sentence, "LIBOR" for such
Interest Reset Period will be the same as LIBOR for the immediately
preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the LIBOR Notes for which
LIBOR is being determined shall be the Initial Interest Rate).
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is
designated in the applicable Pricing Supplement, the display on the Reuters
Monitor Money Rates Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency, or (b) if "LIBOR
Telerate" is designated in the applicable Pricing Supplement, the display on the
Dow Jones Telerate Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency. If neither LIBOR Reuters
nor LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for
the applicable Index Currency will be determined as if LIBOR Telerate (and, if
the U.S. dollar is the Index Currency, Page 3750) had been specified.
Prime Rate Notes
Prime Rate Notes will bear interest at the interest rate (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 Page (as defined
below) as such bank's prime rate or base lending rate as in effect for such
Interest Determination Date as quoted on the Reuters Screen USPRIME1 Page on
such Interest Determination Date, or, if fewer than four such rates appear on
the Reuters Screen USPRIME1 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; provided, however, that if the
banks or trust companies selected as aforesaid by the Calculation Agent are not
quoting rates as set forth above, the "Prime Rate" in effect 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 such Prime Rate is being
determined shall be the Initial Interest Rate). "Reuters Screen
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USPRIME1 Page" means the display designated as Page "USPRIME1" on the Reuters
Monitor Money Rates Service (or such other page as may replace the USPRIME1 Page
on that service for the purpose of displaying prime rates or base lending rates
of major United States banks).
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury Bills
- -- auction average (investment)" or, if not so published by 9:00 A.M., New York
City time, on the Calculation Date pertaining to such Interest Determination
Date, the auction average rate on such Interest Determination Date (expressed as
a bond equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) as otherwise announced by the United States Department
of the Treasury. In the event that the results of the auction of Treasury Bills
having the Index Maturity designated in the applicable Pricing Supplement are
not published or reported as provided above by 3:00 P.M., New York City time, on
such Calculation Date or if no such auction is held on such Interest
Determination Date, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) calculated using the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 P.M., New York City time, on such
Interest Determination Date, of three leading primary United States government
securities dealers selected by the Calculation Agent for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity designated in the
applicable Pricing Supplement; provided, however, that if the dealers selected
as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in
this sentence, the "Treasury Rate" for such Interest Reset Date will be the same
as the Treasury Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the
Treasury Rate Notes for which the Treasury Rate is being determined shall be the
Initial Interest Rate).
CMT Rate Notes
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT
Rate" means, with respect to any Interest Determination Date, the rate displayed
for the Index Maturity designated in such CMT Rate Note on the Designated CMT
Telerate Page (as defined below) under the caption "... Treasury Constant
Maturities ... Federal Reserve Board Release H.15" under the column for the
Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT
Telerate Page is 7055, the rate on such Interest Determination Date and (ii) if
the Designated CMT Telerate Page is 7052, the week or the month, as applicable,
ended immediately preceding the week in which the related Interest Determination
Date occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such Treasury
Constant Maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If such rate is no longer published, or if not published by
3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate for such Interest Determination Date will be such Treasury Constant
Maturity rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the Interest
Determination Date with respect to the related Interest Reset Date as may then
be published by either the Board of Governors of the Federal Reserve System or
the United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in the relevant H.15(519). If such information is
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not provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for the Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date reported, according to
their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in The City of New York (which
may include the Agents or their affiliates) selected by the Calculation Agent
(from five such Reference Dealers selected by the Calculation Agent, after
consultation with the Company, and eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury notes") with
an original maturity of approximately the Designated CMT Maturity Index and
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury notes
quotations, the CMT Rate for such Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent, after consultation with the Company, and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury notes with an original maturity of the number of years that is the next
highest to the Designated CMT Maturity Index and a remaining term to maturity
closest to the Designated CMT Maturity Index and in an amount of at least
U.S.$100,000,000. If three or four (and not five) of such Reference Dealers are
quoting as described above, then the CMT Rate will be based on the arithmetic
mean of the offer prices obtained and neither the highest nor the lowest of such
quotes will be eliminated; provided, however, that if fewer than three Reference
Dealers selected by the Calculation Agent are quoting as described herein, the
CMT Rate for such Interest Reset Date will be the same as the CMT Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the CMT Rate Notes for which the
CMT Rate is being determined shall be the Initial Interest Rate). If two
Treasury notes with an original maturity as described in the second preceding
sentence have remaining terms to maturity equally close to the Designated CMT
Maturity Index, the quotes for the Treasury note with the shorter remaining term
to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones
Telerate Service on the page designated in an applicable Pricing Supplement (or
any other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" shall be the original period to
maturity of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30
years) specified in an applicable Pricing Supplement with respect to which the
CMT Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
Exchangeable Notes
Notes may be issued, from time to time, that are optionally or
mandatorily exchangeable into the securities of an entity unaffiliated with the
Company, into a basket of such securities, into an index or indices of such
securities or into any combination of the above, as may be set forth in the
applicable Pricing Supplement (the "Exchangeable Notes"). The Exchangeable Notes
may or may not bear interest or be issued with original issue discount or at a
premium.
Unless otherwise specified in the applicable Pricing Supplement,
optionally Exchangeable Notes (the "Optionally Exchangeable Notes") will entitle
the holder of such a Note, during a period, or at specific times, to exchange
such Note for the underlying security, basket of securities or index or indices
of securities (or combination thereof) at a specified rate of exchange. If so
specified in the applicable Pricing Supplement, Optionally Exchangeable Notes
will be redeemable at the option of the Company prior to maturity. If the holder
of an
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Optionally Exchangeable Note does not elect to exchange such Note prior to
maturity or any applicable redemption date, such holder will receive the
principal amount of such Note.
Unless otherwise specified in the applicable Pricing Supplement,
mandatorily Exchangeable Notes (the "Mandatorily Exchangeable Notes") do not
entitle the holder of such a Note to exchange such Note prior to maturity; at
maturity, the holder is required to exchange such Note for the underlying
security, basket of securities or index or indices of securities (or combination
thereof) at a specified rate of exchange, and, therefore, the holder of a
Mandatorily Exchangeable Note may receive less than the principal amount of such
Note at maturity. If so indicated in the applicable Pricing Supplement, the
specified rate at which a Mandatorily Exchangeable Note may be exchanged may
vary depending on the value of the underlying security, basket of securities or
index or indices (or combination thereof) so that, upon exchange, the holder
participates in a percentage, which may be less than, equal to, or greater than
100% of the change in value of the underlying security, basket of securities or
index or indices (or combination thereof).
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 or index or indices at the
specified exchange rate or the cash value of such underlying security or
securities, 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 currency 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, as may be specified in the
applicable Pricing Supplement. Exchangeable Notes may have other terms, which
will be specified in the applicable Pricing Supplement. Exchangeable Notes for
which a holder may receive the underlying security or securities constituting a
basket of securities or an index or indices will not be listed on the London
Stock Exchange unless listing particulars with respect thereto are approved by
the London Stock Exchange.
If an Optionally Exchangeable Note is represented by a global Bearer
Note or by definitive Notes that remain on deposit with a Common Depositary for
the Euroclear Operator or Cedel, the exercise of the right to exchange must be
made through the Euroclear Operator or Cedel. In order to ensure that the
Euroclear Operator or Cedel will timely exercise a right to exchange with
respect to a particular Note on behalf of a beneficial owner of such Note or an
interest in such 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 Euroclear Operator or Cedel of its desire to
exercise a right to exchange in accordance with the then applicable operating
procedures of the Euroclear Operator or Cedel. Different firms have different
deadlines for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other direct or indirect
participant through which it holds an interest in a Note in order to ascertain
the deadline for such an instruction in order for timely notice to be delivered
to the Euroclear Operator or Cedel.
Payments upon Acceleration of Maturity or upon Tax Redemption
If the principal amount payable at maturity of any Exchangeable Note is
declared due and payable prior to maturity or is redeemed as set forth below
under "Tax Redemption," and unless otherwise specified in the applicable Pricing
Supplement, the amount payable with respect to (i) an Optionally Exchangeable
Note will equal the face amount of such Note plus accrued interest, if any, to
but excluding the date of payment and (ii) a Mandatorily Exchangeable Note will
equal an amount determined as if the date of such declaration or tax redemption
were the maturity date plus accrued interest, if any, to but excluding the date
of payment.
Currency Linked Notes
Notes may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to the value of one or more
currencies (or composite currencies) as compared to the value of one or more
other currencies (or composite currencies) ("Currency Linked Notes").
Information as to the one or more currencies (or composite
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currencies) to which the principal amount payable on any principal payment date
or the amount of interest payable on any interest payment date is indexed, the
currency in which the face amount of the Currency Linked Note is denominated
(the "Denominated Currency"), the currency in which principal on the Currency
Linked Note will be paid (the "Payment Currency"), specific historic exchange
rate information, any currency risks relating to the specific currencies
selected, and certain additional tax considerations, if any, will be set forth
in the applicable Pricing Supplement. The Denominated Currency and the Payment
Currency may be the same currency or different currencies. Unless otherwise
specified in the applicable Pricing Supplement, interest on Currency Linked
Notes will be paid in the Denominated Currency based on the face amount of the
Currency Linked Note at the rate per annum and on the dates set forth in the
applicable Pricing Supplement. Currency Linked Notes may include, but are not
limited to, Notes of the types described below. The issuance of Currency Linked
Notes denominated or payable in Deutsche Marks will be made in compliance with
the policy of the German Central Bank, as amended from time to time, regarding
indexation of Deutsche Mark-denominated debt obligations.
Principal Exchange Rate Linked Securities (PERLS)
PERLS are Currency Linked Notes pursuant to which the principal amount
payable on any principal payment date equals the Payment Currency equivalent at
such date of a fixed amount of a designated currency (or composite currency)
(the "Indexed Currency"). Generally, the fixed amount of Indexed Currency to
which the principal of a PERLS will be linked will be approximately equal in
value to the face amount of the PERLS in the Denominated Currency based on the
exchange rate between the Indexed Currency and the Denominated Currency in
effect at the time of pricing. The Denominated Currency, the Indexed Currency
and the Payment Currency will be identified in the applicable Pricing
Supplement. In addition, the fixed amount of the Indexed Currency to which the
principal of the PERLS is linked will be set forth in the applicable Pricing
Supplement for a specific representative face amount of the PERLS as well as for
the aggregate face amount of all PERLS forming part of the same issue (the
"Conversion Reference Amount").
Holders of PERLS may receive an amount of principal greater than, less
than or equal in value to the face amount of the PERLS, depending on the change,
if any, in the relative exchange rates of the Denominated Currency, the Payment
Currency and the Indexed Currency from the issue date to the date that is two
Exchange Rate Days (as defined below) preceding the maturity date.
The Payment Currency equivalent of any Indexed Currency amount on any
date will be determined by an exchange rate agent (identified in the applicable
Pricing Supplement) based on the arithmetic mean of the quotations obtained by
such agent from reference dealers (identified in the applicable Pricing
Supplement) at 11:00 A.M., New York City time, on the second Exchange Rate Day
preceding such date for the purchase by the reference dealers of the Conversion
Reference Amount of the Indexed Currency with the Payment Currency for
settlement on such date; provided that if there is no cross-exchange rate
available in New York City between the Indexed Currency and the Payment
Currency, the quotations will be calculated by the exchange rate agent at the
time referred to above using the U.S. dollar equivalent of the Indexed Currency
and the Payment Currency as the basis for comparing the values of such
currencies; and provided further that if the Payment Currency and the Indexed
Currency are identical, then the Payment Currency equivalent of any Indexed
Currency amount will be such amount.
"Exchange Rate Day" means, with respect to any currency conversion, any
day other than a Saturday or Sunday or a day on which banking institutions in
New York City are authorized or required by law or executive order to close and
that is a business day in each of the cities designated in the Pricing
Supplement for the currencies being converted and, in the case of conversions
involving ECUs, that is not a non-ECU clearing day, as determined by the ECU
Banking Association in Paris.
Reverse Principal Exchange Rate Linked Securities (Reverse PERLS)
Reverse PERLS are Currency Linked Notes pursuant to which the principal
amount payable on any principal payment date equals the Payment Currency
equivalent at such date of a fixed amount of a designated currency (or composite
currency) (the "First Indexed Currency") minus the Payment Currency equivalent
at maturity
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of a fixed amount of another designated currency (or composite currency) (the
"Second Indexed Currency"); provided that the minimum principal amount payable
at maturity will be zero. Generally, the fixed amount of the First Indexed
Currency to which the principal of a Reverse PERLS will be linked will be
approximately equal in value to twice the face amount of the Reverse PERLS in
the Denominated Currency, and the fixed amount of the Second Indexed Currency to
which the principal of a Reverse PERLS will be linked will be approximately
equal in value to the face amount of the Reverse PERLS in the Denominated
Currency, in each case based on the exchange rate between each Indexed Currency
and the Denominated Currency in effect at the time of pricing.
Holders of Reverse PERLS may receive an amount of principal greater
than, less than (with a minimum of zero) or equal in value to the face amount of
the Reverse PERLS, depending on the change, if any, in the relative exchange
rates of the Denominated Currency, the Payment Currency and the First and Second
Indexed Currencies from the issue date to the date that is two Exchange Rate
Days preceding the maturity date.
The Denominated Currency, the First and Second Indexed Currencies and
the Payment Currency will be identified in the applicable Pricing Supplement. In
addition, the fixed amounts of the First and Second Indexed Currencies to which
the principal of the Reverse PERLS is linked will be set forth in the applicable
Pricing Supplement for a specific representative face amount of the Reverse
PERLS as well as for the aggregate face amount of all Reverse PERLS forming part
of the same issue (respectively, the "First Conversion Reference Amount" and the
"Second Conversion Reference Amount").
The Payment Currency equivalent of any First Indexed Currency amount on
any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the purchase by the reference dealers of the
First Conversion Reference Amount of the First Indexed Currency with the Payment
Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the First Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the First Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the First
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any First Indexed Currency amount will be such amount.
The Payment Currency equivalent of any Second Indexed Currency amount
on any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from the reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the sale by the reference dealers of the Second
Conversion Reference Amount of the Second Indexed Currency for the Payment
Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the Second Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Second Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the Second
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any Second Indexed Currency amount will be such amount.
Multicurrency Principal Exchange Rate Linked Securities
(Multicurrency PERLS)
Multicurrency PERLS are Currency Linked Notes pursuant to which the
principal amount payable on any principal payment date equals the Payment
Currency equivalent at such date of a fixed amount of a designated currency (or
composite currency) (the "First Indexed Currency") plus or minus the Payment
Currency equivalent at maturity of a fixed amount of a second designated
currency (or composite currency) (the "Second Indexed Currency") plus or minus
the Payment Currency equivalent at maturity of a fixed amount of a third
designated currency (or composite currency) (the "Third Indexed Currency");
provided that the minimum principal amount payable at maturity will be zero.
Generally, the added and subtracted fixed amounts of the First, Second and Third
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Indexed Currencies (each, an "Indexed Currency") to which the principal of a
Multicurrency PERLS will be linked will have an aggregate value approximately
equal to the face amount of the Multicurrency PERLS in the Denominated Currency
based on exchange rates between each Indexed Currency and the Denominated
Currency in effect at the time of pricing.
Holders of Multicurrency PERLS may receive an amount of principal
greater than, less than (with a minimum of zero) or equal in value to the face
amount of the Multicurrency PERLS, depending on the change, if any, in the
relative exchange rates for the Denominated Currency, the Payment Currency and
the First, Second and Third Indexed Currencies from the issue date to the date
that is two Exchange Rate Days preceding the maturity date.
The Denominated Currency, each Indexed Currency, the Payment Currency
and whether the fixed amounts of the Second and Third Indexed Currencies are to
be added or subtracted to determine the principal amount payable at maturity of
the Multicurrency PERLS will be set forth in the applicable Pricing Supplement.
In addition, the fixed amounts of the First, Second and Third Indexed Currencies
to which the principal of the Multicurrency PERLS is linked will be set forth in
the applicable Pricing Supplement for a specific representative face amount of
the Multicurrency PERLS as well as for the aggregate face amount of all
Multicurrency PERLS forming part of the same issue (respectively, the "First
Conversion Reference Amount," the "Second Conversion Reference Amount" and the
"Third Conversion Reference Amount," each, a "Conversion Reference Amount"). As
used herein, "Added Indexed Currency" means the First Indexed Currency and any
other Indexed Currency that is added to determine the principal amount payable
at maturity of the Multicurrency PERLS and a "Subtracted Indexed Currency" means
an Indexed Currency that is subtracted to determine the principal amount payable
at maturity of the Multicurrency PERLS.
The Payment Currency equivalent of any Added Indexed Currency amount on
any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the purchase by the reference dealers of the
applicable Conversion Reference Amount of the Added Indexed Currency with the
Payment Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the Added Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Added Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the Added
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any Added Indexed Currency amount will be such amount.
The Payment Currency equivalent of any Subtracted Indexed Currency
amount on any date will be determined by an exchange rate agent (identified in
the applicable Pricing Supplement) based on the arithmetic mean of the
quotations obtained by such agent from reference dealers (identified in the
applicable Pricing Supplement) at 11:00 A.M., New York City time, on the second
Exchange Rate Day preceding such date for the sale by the reference dealers of
the applicable Conversion Reference Amount of the Subtracted Indexed Currency
for the Payment Currency for settlement on such date; provided that if there is
no cross-exchange rate available in New York City between the Subtracted Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Subtracted Indexed Currency and the Payment Currency as the
basis for comparing the values of such currencies; provided further that if the
Subtracted Indexed Currency and the Payment Currency are identical, then the
Payment Currency equivalent of any Subtracted Indexed Currency amount will be
such amount.
Payments upon Acceleration of Maturity or upon Tax Redemption
If the principal amount payable at maturity of any PERLS, Reverse PERLS
or Multicurrency PERLS is declared due and payable prior to maturity, or if any
PERLS, Reverse PERLS or Multicurrency PERLS are redeemed as set forth below
under "Tax Redemption," and unless otherwise specified in the applicable Pricing
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Supplement, the amount payable with respect to such Note will be paid in the
Denominated Currency and will equal the face amount of such Note plus accrued
interest to but excluding the date of payment.
Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or
Indices
Notes may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to one or more commodity
prices, securities of entities unaffiliated with the Company, baskets of such
securities or indices and on such other terms as may be set forth in the
relevant Pricing Supplement. The issuance of such Notes (excluding Notes indexed
to interest indices) denominated or payable in Deutsche Marks will be made in
compliance with German law and with the policies and guidelines of the German
Central Bank, as amended from time to time, regarding indexation of Deutsche
Mark-denominated debt obligations, which currently prohibits the issuance of
Deutsche Mark-denominated Notes whose payments are linked to oil, gold or
similar commodities, any index related thereto or consumer price or similar
indices. Each issue of index-linked French Franc Notes which are to be listed on
the Paris Bourse must be made in compliance with the general principles set
forth in COB bulletin no. 281 of June 1994.
An investment in such Notes or Currency Linked Notes entails
significant risks not associated with similar investments in a conventional debt
security. If the interest rate of such a Note or Currency Linked Note is so
indexed, it may result in an interest 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 paid, and, if the principal amount of such
a Note or Currency Linked Note 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 values 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 or basket of securities, commodity or index,
including the volatility of the applicable currency, security or basket of
securities, commodity or index, the time remaining to the maturity of the Notes,
the outstanding principal amount of the Notes and market interest rates. The
value of the applicable currency, security or basket of securities, commodity or
index depends 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 interest
payable with respect to such Notes contains a multiple or leverage factor, the
effect of any change in the applicable currency, security or basket of
securities, commodity or index may be increased. The historical experience of
the relevant currencies, securities or baskets of securities, commodities or
indices should not be taken as an indication of future performance of such
currencies, securities or baskets of securities, commodities or indices during
the term of any Note.
Optional Redemption
The Pricing Supplement will indicate either that the Notes cannot be
redeemed prior to maturity (other than as provided under "Tax Redemption" below)
or will indicate the terms on which the Notes will be redeemable at the option
of the Company. Notes denominated or payable in French Francs or pounds sterling
may not be redeemed at the option of the Company during the first year after
issuance and Notes denominated or payable in Deutsche Marks may not be redeemed
during the first two years after issuance, except in each case pursuant to a Tax
Redemption. Unless otherwise specified in the applicable Pricing Supplement,
notice of redemption to holders of Notes will be published in the manner
described under "Notices" below, once in each of three successive calendar
weeks, the first publication to be not less than 30 nor more than 60 days prior
to the date set for redemption. Unless otherwise specified in the applicable
Pricing Supplement, notice of redemption shall also be provided to holders of
Registered Notes in the manner described under "Notices" below, not less than 30
days and not more than 60 days prior to the date fixed for redemption. The
Notes, except for Amortizing Notes, will not be subject to any sinking fund.
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Repayment at the Noteholders' Option; Repurchase
If applicable, the Pricing Supplement relating to each Note will
indicate that the Note will be repayable at the option of the holder on a date
or dates specified prior to its maturity date (which, in the case of Notes
denominated or payable in French Francs or pounds sterling may not occur during
the first year after issuance and, in the case of Deutsche Marks, may not occur
during the first two years after issuance) and, unless otherwise specified in
such Pricing Supplement, at a price equal to 100% of the principal amount
thereof, together with accrued interest to the date of repayment, unless such
Note was issued with original issue discount, in which case the Pricing
Supplement will specify the amount payable upon such repayment.
In order for such a Note to be repaid, the Principal Paying Agent must
receive at least 15 days but not more than 30 days prior to the repayment date
(i) the Note with the form entitled "Option to Elect Repayment" on the reverse
of the Note duly completed, together with any coupons appertaining thereto, or
(ii) a telegram, telex, facsimile transmission or letter from a member of a
national securities exchange or the National Association of Securities Dealers,
Inc. (the "NASD") or a commercial bank or trust company in the United States,
Western Europe or Japan setting forth the name of the holder of the Note (in the
case only of a Registered Note), the principal amount of the Note, the principal
amount of the Note to be repaid, the certificate number or a description of the
tenor and terms of the Note, a statement that the option to elect repayment is
being exercised thereby and a guarantee that the Note to be repaid, together
with the duly completed form entitled "Option to Elect Repayment" on the reverse
of the Note, together with any coupons appertaining thereto, will be received by
the Principal Paying Agent not later than the fifth Business Day after the date
of such telegram, telex, facsimile transmission or letter; provided, however,
that such telegram, telex, facsimile transmission or letter shall only be
effective if such Note and form duly completed, together with any coupons
appertaining thereto, are received by the Principal Paying Agent by such fifth
Business Day. Unless otherwise specified in the applicable Pricing Supplement,
exercise of the repayment option by the holder of a Note will be irrevocable.
The repayment option may be exercised by the holder of a Note for less than the
entire principal amount of the Note but, in that event, the principal amount of
the Note remaining outstanding after repayment must be an authorized
denomination.
The Company may purchase Notes at any price in the open market or
otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the relevant Trustee for
cancellation.
Tax Redemption
All Notes
Notes may be redeemed as a whole, at the option of the Company at any
time prior to maturity, upon the giving of a notice of redemption as described
below, at a redemption price equal to 100% of the principal amount thereof
(except as otherwise specified in the applicable Pricing Supplement or unless
such Note is a Mandatorily Exchangeable Note), together with accrued interest to
the date fixed for redemption, if the Company determines that, as a result of
any change in or amendment to the laws (or any regulations or rulings
promulgated thereunder) of the United States or of any political subdivision or
taxing authority thereof or therein affecting taxation, or any change in
official position regarding the application or interpretation of such laws,
regulations or rulings, which change or amendment becomes effective on or after
the date of issuance of such Notes, the Company has or will become obligated to
pay Additional Amounts with respect to such Notes as described below under
"Payment of Additional Amounts." Prior to the giving of any notice of redemption
pursuant to this paragraph, the Company shall deliver to the applicable Trustee
(i) a certificate stating that the Company is entitled to effect such redemption
and setting forth a statement of facts showing that the conditions precedent to
the right of the Company to so redeem have occurred (the date on which such
certificate is delivered to the Trustee is the "Redemption Determination Date"),
and (ii) an opinion of independent counsel satisfactory to such Trustee to such
effect based on such statement of facts; provided that no such notice of
redemption shall be given earlier than 60 days prior to the earliest date on
which the Company would be obligated to pay such Additional Amounts if a payment
in respect of such Note were then due.
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Notice of redemption will be given not less than 30 nor more than 60
days prior to the date fixed for redemption, which date and the applicable
redemption price will be specified in the notice. Such notice will be given in
accordance with "Notices" below.
If any date fixed for redemption is a date prior to the Exchange Date,
definitive Bearer Notes will be issuable on and after such redemption date as if
such redemption date had been the Exchange Date, subject to receipt of Ownership
Certificates described above under "Forms, Denominations, Exchange and
Transfer," delivery of which is a condition to delivery of definitive Bearer
Notes.
Special Tax Redemption of Bearer Notes
If the Company shall determine that any payment made outside the United
States by the Company or any Paying Agent of principal, premium, if any, or
interest due in respect of any Bearer Note or coupon would, under any present or
future laws or regulations of the United States, be subject to any
certification, identification or other information reporting requirement of any
kind, the effect of which is the disclosure to the Company, any Paying Agent or
any governmental authority of the nationality, residence or identity of a
beneficial owner of such Bearer Note or coupon who is a United States Alien (as
defined below in "Payment of Additional Amounts") (other than such a requirement
(a) that would not be applicable to a payment made by the Company or any Paying
Agent (i) directly to the beneficial owner or (ii) to a custodian, nominee or
other agent of the beneficial owner, or (b) that can be satisfied by such
custodian, nominee or other agent certifying to the effect that such beneficial
owner is a United States Alien; provided that in each case referred to in
clauses (a)(ii) and (b) payment by such custodian, nominee or agent to such
beneficial owner is not otherwise subject to any such requirement), the Company
shall redeem the Bearer Notes, as a whole, at a redemption price equal to 100%
of the principal amount thereof, together with accrued interest to the date
fixed for redemption, or, at the election of the Company if the conditions of
the next paragraph are satisfied, pay the additional amounts specified in such
paragraph. The Company shall make such determination and election as soon as
practicable and publish prompt notice thereof (the "Determination Notice")
stating the effective date of such certification, identification or other
information reporting requirements, whether the Company will redeem the Bearer
Notes or has elected to pay the additional amounts specified in the next
paragraph, and (if applicable) the last date by which the redemption of the
Bearer Notes must take place, as provided in the next sentence. If the Company
redeems the Bearer Notes, such redemption shall take place on such date, not
later than one year after the publication of the Determination Notice, as the
Company shall elect by notice to the applicable Trustee at least 60 days prior
to the date fixed for redemption. Notice of such redemption of the Bearer Notes
will be given to the holders of the Bearer Notes not more than 60 nor less than
30 days prior to the date fixed for redemption. Such redemption notice shall
include a statement as to the last date by which the Bearer Notes to be redeemed
may be exchanged for Registered Notes. Notwithstanding the foregoing, the
Company shall not so redeem the Bearer Notes if the Company shall subsequently
determine, not less than 30 days prior to the date fixed for redemption, that
subsequent payments would not be subject to any such requirement, in which case
the Company shall publish prompt notice of such determination and any earlier
redemption notice shall be revoked and of no further effect. The right of the
holders of Bearer Notes called for redemption pursuant to this paragraph to
exchange Bearer Notes for Registered Notes will terminate at the close of
business of the Principal Paying Agent on the fifteenth day prior to the date
fixed for redemption, and no further exchanges of Bearer Notes for Registered
Notes shall be permitted.
If and so long as the certification, identification or other
information reporting requirements referred to in the preceding paragraph would
be fully satisfied by payment of a backup withholding tax or similar charge, the
Company may elect to pay as additional amounts such amounts as may be necessary
so that every net payment made outside the United States following the effective
date of such requirements by the Company or any Paying Agent of principal,
premium or interest due in respect of any Bearer Note or any coupon of which the
beneficial owner is a United States Alien (but without any requirement that the
nationality, residence or identity of such beneficial owner be disclosed to the
Company, any Paying Agent or any governmental authority, with respect to the
payment of such additional amounts), after deduction or withholding for or on
account of such backup withholding tax or similar charge (other than a backup
withholding tax or similar charge that (i) would not be applicable in the
circumstances referred to in the second parenthetical clause of the first
sentence of the preceding paragraph, or (ii)
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is imposed as a result of presentation of such Bearer Note or coupon for payment
more than 15 days after the date on which such payment becomes due and payable
or on which payment thereof is duly provided for, whichever occurs later), will
not be less than the amount provided for in such Bearer Note or coupon to be
then due and payable. In the event the Company elects to pay any additional
amounts pursuant to this paragraph, the Company shall have the right to redeem
the Bearer Notes as a whole at any time pursuant to the applicable provisions of
the preceding paragraph and the redemption price of such Bearer Notes will not
be reduced for applicable withholding taxes. If the Company elects to pay
additional amounts pursuant to this paragraph and the condition specified in the
first sentence of this paragraph should no longer be satisfied, then the Company
will redeem the Bearer Notes as a whole, pursuant to the applicable provisions
of the preceding paragraph.
Payment of Additional Amounts
The Company will, subject to certain exceptions and limitations set
forth below, pay such additional amounts (the "Additional Amounts") to the
holder of any Note or of any coupon appertaining thereto who is a United States
Alien as may be necessary in order that every net payment of the principal of
and interest on such Note and any other amounts payable on such Note, after
withholding for or on account of any present or future tax, assessment or
governmental charge imposed upon or as a result of such payment by the United
States (or any political subdivision or taxing authority thereof or therein),
will not be less than the amount provided for in such Note or coupon to be then
due and payable. The Company will not, however, be required to make any payment
of Additional Amounts to any such holder for or on account of:
(a) any such tax, assessment or other governmental charge that
would not have been so imposed but for (i) the existence of any present
or former connection between such holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of such holder, if such
holder is an estate, a trust, a partnership or a corporation) and the
United States, including, without limitation, such holder (or such
fiduciary, settlor, beneficiary, member or shareholder) being or having
been a citizen or resident thereof or being or having been engaged in a
trade or business or present therein or having, or having had, a
permanent establishment therein or (ii) the presentation by the holder
of any such Note or coupon for payment on a date more than 15 days
after the date on which such payment became due and payable or the date
on which payment thereof is duly provided for, whichever occurs later;
(b) any estate, inheritance, gift, sales, transfer or personal
property tax or any similar tax, assessment or governmental charge;
(c) any tax, assessment or other governmental charge imposed
by reason of such holder's past or present status as a personal holding
company or foreign personal holding company or controlled foreign
corporation or passive foreign investment company with respect to the
United States or as a corporation that accumulates earnings to avoid
United States federal income tax or as a private foundation or other
tax-exempt organization;
(d) any tax, assessment or other governmental charge that is
payable otherwise than by withholding from payments on or in respect of
any Note;
(e) any tax, assessment or other governmental charge required
to be withheld by any Paying Agent from any payment of principal of, or
interest on, any Note, if such payment can be made without such
withholding by any other Paying Agent in a city in Western Europe;
(f) any tax, assessment or other governmental charge that
would not have been imposed but for the failure to comply with
certification, information or other reporting requirements concerning
the nationality, residence or identity of the holder or beneficial
owner of such Note, if such compliance is required by statute or by
regulation of the United States or of any political subdivision or
taxing authority thereof or therein as a precondition to relief or
exemption from such tax, assessment or other governmental charge;
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(g) any tax, assessment or other governmental charge imposed
by reason of such holder's past or present status as the actual or
constructive owner of 10% or more of the total combined voting power of
all classes of stock entitled to vote of the Company or as a direct or
indirect subsidiary of the Company; or
(h) any combination of item (a), (b), (c), (d), (e), (f) or
(g);
nor shall Additional Amounts be paid with respect to any payment on a Note to a
United States Alien who is a fiduciary or partnership or other than the sole
beneficial owner of such payment to the extent such payment would be required by
the laws of the United States (or any political subdivision thereof) to be
included in the income, for tax purposes, of a beneficiary or settlor with
respect to such fiduciary or a member of such partnership or a beneficial owner
who would not have been entitled to the Additional Amounts had such beneficiary,
settlor, member or beneficial owner been the holder of the Note.
The term "United States Alien" means any person who, for United States
federal income tax purposes, is a foreign corporation, a nonresident alien
individual, a nonresident alien fiduciary of a foreign estate or trust, or a
foreign partnership one or more of the members of which is a foreign
corporation, a nonresident alien individual or a nonresident alien fiduciary of
a foreign estate or trust.
Replacement of Notes and Coupons
Any Notes or coupons that become mutilated, destroyed, lost or stolen
or are apparently destroyed, lost or stolen will be replaced by the Company at
the expense of the holder upon delivery of such Notes or coupons or satisfactory
evidence of the destruction, loss or theft thereof to the Company, the Principal
Paying Agent, the Registrar (in the case of Registered Notes) and the applicable
Trustee. In each case, an indemnity satisfactory to the Company, the Principal
Paying Agent, the Registrar (in the case of Registered Notes) and the applicable
Trustee may be required at the expense of the holder of such Note or coupon
before a replacement Note or coupon will be issued.
Notices
Notices to holders of the Notes will be given by publication in a
newspaper in the English language of general circulation in the Borough of
Manhattan, The City of New York, and in The City of London or, if publication in
London is not practical, in an English language newspaper with general
circulation in Western Europe. Such publication is expected to be made in The
Wall Street Journal and the Financial Times. Such notices will be deemed to have
been given on the date of such publication or, if published in such newspapers
on different dates, on the date of the first such publication.
Notices to holders of Registered Notes will also be given by mailing
such notices to each holder by first class mail, postage prepaid, at the
respective address of each holder as that address appears upon the books of the
Company.
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls
An investment in Notes that are denominated in, or the payment of which
is related to the value of, a Specified Currency other than the currency of the
country in which the purchaser is a resident or the currency (including the ECU
and any other such composite currency) in which the purchaser conducts its
business or activities (the "home currency") entails significant risks that are
not associated with a similar investment in a security denominated in the home
currency. Such risks include, without limitation, the possibility of significant
changes in rates of exchange between the home currency and the various foreign
currencies (or composite currencies) and the possibility of the imposition or
modification of exchange controls by either the U.S. or foreign governments.
Such
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risks generally depend on economic and political events over which the Company
has no control. In recent years, rates of exchange for certain currencies have
been highly volatile and such volatility may be expected to continue in the
future. Fluctuations in any particular exchange rate that have occurred in the
past are not necessarily indicative, however, of fluctuations in such rate that
may occur during the term of any Note. Depreciation of the Specified Currency
for a Note against the relevant home currency would result in a decrease in the
effective yield of such Note below its coupon rate and, in certain
circumstances, could result in a loss to the investor on a home currency basis.
In addition, depending on the specific terms of a Currency Linked Note, changes
in exchange rates relating to any of the currencies involved may result in a
decrease in its effective yield and, in certain circumstances, could result in a
loss of all or a substantial portion of the principal of a Note to the investor.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN FINANCIAL AND LEGAL
ADVISORS AS TO ANY SPECIFIC RISKS ENTAILED BY AN INVESTMENT BY SUCH INVESTOR IN
NOTES DENOMINATED IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF,
FOREIGN CURRENCY. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO
ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
Foreign exchange rates can either float or be fixed by sovereign
governments. Exchange rates of most economically developed nations are permitted
to fluctuate in value relative to the U.S. dollar. National governments,
however, rarely voluntarily allow their currencies to float freely in response
to economic forces. From time to time governments use a variety of techniques,
such as intervention by a country's central bank or imposition of regulatory
controls or taxes, to affect the exchange rate of their currencies. Governments
may also issue a new currency to replace an existing currency or alter the
exchange rate or relative exchange characteristics by devaluation or revaluation
of a currency. Thus, a special risk in purchasing non-home currency-denominated
Notes or Currency Linked Notes is that their home currency-equivalent yields
could be affected by governmental actions, which could change or interfere with
theretofore freely determined currency valuation, fluctuations in response to
other market forces, and the movement of currencies across borders. There will
be no adjustment or change in the terms of such Notes in the event that exchange
rates should become fixed, or in the event of any devaluation or revaluation or
imposition of exchange or other regulatory controls or taxes, or in the event of
other developments affecting the U.S. dollar or any applicable Specified
Currency.
Governments have imposed from time to time, and may in the future
impose, exchange controls that could affect exchange rates as well as the
availability of a specified foreign currency at the time of payment of principal
of, premium, if any, or interest on a Note. Even if there are no actual exchange
controls, it is possible that the Specified Currency for any particular Note not
denominated in U.S. dollars would not be available when payments on such Note
are due, including as a result of the replacement of such Specified Currency by
a single European currency (expected to be named the Euro). In that event, the
Company would make required payments in U.S. dollars on the basis of the Market
Exchange Rate on the date of such payment or, if such rate of exchange is not
then available, on the basis of the Market Exchange Rate as of the most recent
practicable date; provided, however, that, if the Specified Currency is not
available because it has been replaced by a single European currency, the
Company would make such payments in the new single European currency in
conformity with legally applicable measures taken pursuant to, or by virtue of,
the Treaty. See "Description of Notes -- Payment Currency."
Governing Law and Judgments
The Notes will be governed by and construed in accordance with the laws
of the State of New York. The courts of the States of New York and Delaware will
have jurisdiction over claims relating to the Series D Notes. If a court in the
United States were to grant a judgment in an action based on Notes denominated
in a Specified Currency other than U.S. dollars, it is likely that such court
would grant judgment only in U.S. dollars. If the court were a New York court,
however, such court would grant a judgment in the Specified Currency. Such
judgment would then be converted into U.S. dollars at the rate of exchange
prevailing on the date of entry of the judgment.
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UNITED STATES FEDERAL TAXATION -- FOREIGN HOLDERS
In the opinion of Shearman & Sterling, counsel to the Company, the
following summary accurately describes the principal United States federal
income and estate tax consequences of ownership and disposition of the Notes by
a Foreign Holder (as defined below). This summary is based on the Internal
Revenue Code of 1986, as amended to the date hereof (the "Code"), and existing
and proposed Treasury regulations, revenue rulings and judicial decisions. This
summary does not discuss all of the tax consequences that may be relevant to
holders in light of their particular circumstances or to holders subject to
special rules, such as persons other than Foreign Holders, nonresident alien
individuals that have lost United States citizenship or that have ceased to be
treated as resident aliens, corporations that are treated as foreign or domestic
personal holding companies, controlled foreign corporations, or passive foreign
investment companies and Foreign Holders that are owned or controlled by persons
subject to United States income tax. Persons considering the purchase of the
Notes should consult with their own tax advisors with regard to the application
of the United States federal income and estate tax laws to their particular
situations as well as any tax consequences arising under the laws of any state,
local or foreign tax jurisdiction.
As used herein, the term "Foreign Holder" means a beneficial owner of a
Note that is for United States federal income tax purposes (i) a nonresident
alien individual, (ii) a corporation, partnership or other entity that was not
created or organized in or under the laws of the United States or any political
subdivision thereof or (iii) a nonresident alien or foreign fiduciary or grantor
of a trust or estate.
Income Taxes
A Foreign Holder will generally not be subject to United States federal
income taxes, including withholding taxes, on payments of principal of, premium,
if any, or interest (including original issue discount, if any) on a Note or
coupon, or any gain arising from the sale or disposition of a Note or coupon,
provided that (i) any such income is not effectively connected with the conduct
of a trade or business within the United States, (ii) such Foreign Holder is not
a person who owns (directly or by attribution) ten percent or more of the total
combined voting power of all classes of stock of the Company, (iii) the Foreign
Holder (if an individual) is not present in the United States 183 days or more
during the taxable year of the disposition, (iv) the Foreign Holder does not
have a "tax home" (as defined in section 911(d)(3) of the Code) or an office or
other fixed place of business in the United States and (v) in the case of a Note
issued in registered form, required certification of the non-United States
status of the beneficial owner is provided to the Company or the Agent.
The 31% "backup" withholding and information reporting requirements
will generally not apply to payments by the Company or its agents of principal
of, premium, if any, and interest on any obligation, and to proceeds of the sale
or redemption of an obligation before maturity, with respect to a Foreign Holder
of a Bearer Note or coupon. Such requirements will likewise generally not apply
to such payments made on a Registered Note if required certification of the
holder's non-United States status is provided to the Company or the Agent.
Foreign Holders of Notes should consult their tax advisors regarding
the application of information reporting and backup withholding in their
particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available. Any amounts withheld
from a payment to a Foreign Holder under the backup withholding rules will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the United States Internal Revenue Service (the
"Service").
Estate Taxes
A Note or coupon held by an individual who at the time of his death is
not a citizen or domiciliary of the United States will not be subject to United
States federal estate tax as a result of such individual's death, provided that
(i) interest paid to such individual on such Note or coupon would not be
effectively connected with the conduct by such individual of a trade or business
within the United States and (ii) such individual is not a person who owns
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(directly or by attribution) ten percent or more of the total combined voting
power of all classes of stock of the Company.
Exchangeable Notes
A Foreign Holder will generally not be subject to United States federal
income tax, including withholding tax, or estate tax with regard to an
Exchangeable Note if (i) the Note is treated as indebtedness of the Company for
United States federal income tax purposes, (ii) the Notes are exchangeable only
into securities that are actively traded, into a basket of securities that are
actively traded or an index or indices of securities that are actively traded,
and (iii) the other requirements for exemption from tax listed above under
"Income Taxes" and "Estate Taxes" are met. With regard to the above
requirements, Optionally Exchangeable Notes for which the principal amount
payable in cash equals or exceeds the issue price will be treated as
indebtedness of the Company for United States federal income tax purposes and,
unless otherwise noted in the applicable Pricing Supplement, the Company intends
to treat other Exchangeable Notes as indebtedness for United States federal
income tax purposes. No opinion is expressed herein as to the impact of the
"United States real property holding company" rules, which could affect the
taxation of Foreign Holders in certain circumstances. Holders intending to
purchase Exchangeable Notes should refer to the discussion relating to taxation
in the applicable Pricing Supplement for disclosure, if any is deemed necessary,
concerning the applicability of such rules. For information regarding the United
States federal income tax consequence of ownership and disposition of the
property received in exchange for the Note, please refer to the publicly
available documents described in the applicable Pricing Supplement.
Notes Linked to Commodity Prices, Single Securities, Baskets of
Securities or Indices
The United States federal income tax consequences to a Foreign Holder
of the ownership and disposition of Notes that have principal or interest
determined by reference to commodity prices, securities of entities unaffiliated
with the Company, baskets of such securities or indices may vary depending upon
the exact terms of the Notes and related factors. Notes containing any of such
features may be subject to rules that differ from the general rules discussed
above. Holders intending to purchase such Notes should refer to the discussion
relating to taxation in the applicable Pricing Supplement.
UNITED STATES FEDERAL TAXATION -- UNITED STATES HOLDERS
In the opinion of Shearman & Sterling, counsel to the Company, the
following summary accurately describes the principal United States federal
income tax consequences of ownership and disposition of the Notes by a United
States Holder (as defined below). This summary is based on the Code and existing
and proposed Treasury regulations, revenue rulings and judicial decisions. This
summary deals only with the Notes held as capital assets within the meaning of
Section 1221 of the Code. It does not discuss all of the tax consequences that
may be relevant to holders in light of their particular circumstances or to
holders subject to special rules, such as persons other than United States
Holders, life insurance companies, dealers in securities or foreign currencies,
persons holding the Notes as part of a hedging transaction, "straddle,"
conversion transaction, or other integrated transaction, or United States
Holders whose functional currency (as defined in Section 985 of the Code) is not
the United States dollar. Persons considering the purchase of the Notes should
consult with their own tax advisors with regard to the application of the United
States federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign tax
jurisdiction.
As used herein, the term "United States Holder" means a beneficial
owner of a Note that is for United States federal income tax purposes (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
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Payments of Interest on the Notes
Interest paid on a Note (whether in United States dollars or in other
than United States dollars) that is not a Discount Note, as defined below, will
generally be taxable to a United States Holder as ordinary interest income at
the time it accrues or is received, in accordance with the United States
Holder's method of accounting for federal income tax purposes.
Special rules governing the treatment of interest paid with respect to
Discount Notes, including certain Notes that pay interest annually that are
issued less than 15 calendar days before an Interest Payment Date, Notes that
mature one year or less from their date of issuance and Notes issued for an
amount less than their stated redemption price at maturity, are described under
"Discount Notes" below.
Discount Notes
The following discussion is a summary of the principal United States
federal income tax consequences of the ownership and disposition of Discount
Notes (as defined below) by United States Holders. Additional rules applicable
to Discount Notes that are denominated in a Specified Currency other than the
U.S. dollar, or have payments of interest or principal determined by reference
to the value of one or more currencies or currency units other than the U.S.
dollar, are described under "Foreign Currency Notes" below.
A Note that has an "issue price" that is less than its "stated
redemption price at maturity" will generally be considered to have been issued
bearing original issue discount ("OID") for United States federal income tax
purposes (a "Discount Note"), unless such difference is less than a specified de
minimis amount. The issue price of a Note issued for cash generally will be the
initial offering price to the public at which price a substantial amount of
Notes is sold. Such issue price does not change even if part of the issue is
subsequently sold at a different price. The stated redemption price at maturity
of a Discount Note is the total of all payments required to be made under the
Discount Note other than "qualified stated interest" payments. The term
"qualified stated interest" is defined as stated interest that is
unconditionally payable at least annually at a single fixed rate of interest. In
addition, qualified stated interest generally includes stated interest with
respect to a variable rate debt instrument that is unconditionally payable at
least annually at a single qualified floating rate or a rate that is determined
using a single fixed formula that is based on one or more qualified floating
rates. A rate is a qualified floating rate if variations in the rate can
reasonably be expected to measure contemporaneous fluctuations in the cost of
newly borrowed funds.
No payment of interest on a Note that matures one year or less from its
date of issuance will be considered qualified stated interest and accordingly
such a Note will be treated as a Discount Note.
A United States Holder of Discount Notes is required to include
qualified stated interest in income at the time it is received or accrued, in
accordance with such holder's method of accounting.
In addition, United States Holders of Discount Notes that mature more
than one year from the date of issuance will be required to include OID in
income for United States federal income tax purposes as it accrues, in
accordance with a constant yield method based on a compounding of interest,
before the receipt of cash payments attributable to such income, but such
holders will not be required to include separately in income cash payments
received on such Notes, even if denominated as interest, to the extent they do
not constitute qualified stated interest. The amount of OID includible in income
for a taxable year by the initial United States Holder of a Discount Note will
generally equal the sum of the "daily portions" of the total OID on the Discount
Note for each day during the taxable year in which such holder held the Discount
Note ("accrued OID"). Generally, the daily portion of the OID is determined by
allocation to each day in any "accrual period" a ratable portion of the OID
allocable to such accrual period. The term "accrual period" means an interval of
time of one year or less; provided that each scheduled payment of principal or
interest either occurs on the final day of an accrual period or the first day of
an accrual period. The amount of OID allocable to an accrual period will be the
excess of (a) the product of the "adjusted issue price" of the Discount Note at
the beginning of such accrual period and its "yield to maturity" over
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(b) the amount of any qualified stated interest allocable to the accrual period.
The "adjusted issue price" of a Discount Note at the beginning of an accrual
period will equal the issue price plus the amount of OID previously includible
in the gross income of any United States Holder (without reduction for any
premium or amortized acquisition premium, as described below), less any payments
made on such Discount Note (other than qualified stated interest) on or before
the first day of the accrual period. The "yield to maturity" of the Discount
Note will be computed on the basis of a constant annual interest rate and
compounded at the end of each accrual period. Under the foregoing rules, United
States Holders of Discount Notes will generally be required to include in income
increasingly greater amounts of OID in successive accrual periods. Special rules
will apply for calculating OID for initial short or final accrual periods.
Notes that pay interest annually that are issued less than 15 calendar
days before an Interest Payment Date may be treated as Discount Notes. United
States Holders intending to purchase such Notes should refer to the applicable
Pricing Supplement.
Certain of the Discount Notes may be redeemable prior to maturity at
the option of the Company (a "call option") and/or repayable prior to maturity
at the option of the holder (a "put option"). Discount Notes containing either
or both of such features may be subject to rules that differ from the general
rules discussed above. Holders intending to purchase Discount Notes with either
or both of such features should carefully examine the applicable Pricing
Supplement and should consult with their own tax advisors with respect to either
or both of such features since the tax consequences with respect to OID will
depend, in part, on the particular terms and the particular features of the
purchased Note.
In general, a United States Holder who uses the cash method of tax
accounting and who holds a Discount Note that matures one year or less from the
date of its issuance (a "short-term Discount Note") is not required to accrue
OID for United States federal income tax purposes unless such holder elects to
do so. United States Holders who report income for United States federal income
tax purposes on the accrual method and certain other holders, including banks
and dealers in securities, are required to include OID (or alternatively
acquisition discount) on such short-term Discount Notes on a straight-line
basis, unless an election is made to accrue the OID according to a constant
yield method based on daily compounding. In the case of a United States 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 a short-term Discount Note
will be ordinary interest income to the extent of the OID accrued on a
straight-line basis (or alternatively under the constant yield method) through
the date of sale, exchange or retirement. In addition, such non-electing United
States Holders who are not subject to the current inclusion requirement
described in the second sentence of this paragraph will be required to defer the
deduction of all or a portion of any interest paid on indebtedness incurred to
purchase short-term Discount Notes until such OID is included in such holder's
income.
If the amount of OID with respect to a Note is less than the specified
de minimis amount (generally, 0.0025 multiplied by the product of the stated
redemption price at maturity and the number of complete years to maturity), the
amount of OID is treated as zero and all stated interest is treated as qualified
stated interest. A United States Holder will be required to treat any stated
principal payment on a Note as capital gain to the extent of the product of the
total amount of de minimis OID and a fraction the numerator of which is the
amount of the principal payment made and the denominator of which is the stated
principal amount of the Note.
United States Holders are permitted to elect to include all interest on
a Note using the constant yield method. For this purpose, interest includes
stated interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. Special rules apply to elections made with
respect to Notes with amortizable bond premium or market discount and United
States Holders considering such an election should consult their own tax
advisors. The election cannot be revoked without the approval of the Service.
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Market Discount and Premium
If a United States Holder purchases a Note (other than a Discount Note)
for an amount that is less than its stated redemption price at maturity or, in
the case of a Discount Note, its adjusted issue price, the amount of the
difference will be treated as "market discount" for United States federal income
tax purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules of the Code, a United States Holder
will be required to treat any partial principal payment (or, in the case of a
Discount Note, any payment that does not constitute qualified stated interest)
on, or any gain realized on the sale, exchange, retirement or other disposition
of, a Note as ordinary income to the extent of the lesser of (i) the amount of
such payment or realized gain or (ii) the market discount that has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. If such Note is disposed of in a
nontaxable transaction (other than a nonrecognition transaction described in
Code Section 1276(c)), the amount of gain realized on such disposition for
purposes of the market discount rules shall be determined as if such holder had
sold the Note at its then fair market value. Market discount will be considered
to accrue ratably during the period from the date of acquisition to the maturity
date of the Note, unless the United States Holder elects to accrue on the basis
of a constant interest rate. A different rule may apply to Discount Notes or
Amortizing Notes under forthcoming regulations.
A United States Holder may be required to defer the deduction of all or
a portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry such Note until the maturity of the Note or its
earlier disposition (except for certain nonrecognition transactions). A United
States Holder may elect to include market discount in income currently as it
accrues (on either a ratable or a constant interest rate basis), in which case
the rules described above regarding the treatment as ordinary income of gain
upon the disposition of the Note and upon the receipt of certain cash payments
and regarding the deferral of interest deductions will not apply.
A United States Holder who purchases a Discount Note for an amount that
is greater than its adjusted issue price, but less than or equal to the sum of
all amounts payable on the Note, after the purchase date (other than qualified
stated interest), will be considered to have purchased such Note at an
"acquisition premium" within the meaning of the Code. Under the acquisition
premium rules of the Code, the amount of OID which such holder must include in
its gross income with respect to such Note for any taxable year will be reduced
by a fraction the numerator of which is the excess of the cost of the Note over
its adjusted issue price and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date (other than qualified
stated interest) over the adjusted issue price.
A United States Holder who purchases a Discount Note for an amount that
is greater than the sum of all amounts payable on the Note after the purchase
date (other than qualified stated interest) will be considered to have purchased
such Note at a "premium" within the meaning of the OID Regulations. In such
case, the holder is not required to include any OID in gross income.
If a United States Holder purchases a Note for an amount that is
greater than the amount payable at maturity (or on the earlier call date, in the
case of a Note that is redeemable at the option of the Company), such holder
will be considered to have purchased such Note with "amortizable bond premium"
equal in amount to such excess, and may elect (in accordance with applicable
Code provisions) to amortize such premium, using a constant yield method over
the remaining term of the Note and to offset interest otherwise required to be
included in income in respect of such Note during any taxable year by the
amortized amount of such excess for such taxable year. However, if such Note may
be optionally redeemed after the United States Holder acquires it at a price in
excess of its stated redemption price at maturity, special rules would apply
which could result in a deferral of the amortization of some bond premium until
later in the term of such Note.
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Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of a Note, a United States Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such holder's adjusted tax
basis in the Note. A taxpayer's amount realized on the sale, exchange or
retirement of a Note will be reduced by any amount attributable to accrued
interest (or, in the case of a Discount Note, accrued qualified stated
interest), which will be taxable as such unless previously taken into account. A
United States Holder's adjusted tax basis in a Note generally will equal the
cost of the Note to such holder, increased by the amounts of any market
discount, OID and de minimis OID previously included in income by the holder
with respect to such Note and reduced by any amortized bond premium and any
principal payments received by the United States Holder and, in the case of a
Discount Note, by the amounts of any other payments that do not constitute
qualified stated interest.
Subject to the discussion under "Foreign Currency Notes" below, gain or
loss recognized on the sale, exchange or retirement of a Note will be capital
gain or loss (except to the extent of any accrued market discount or, in the
case of a short-term Discount Note, any accrued OID which the United States
Holder has not previously included in income), and will generally be long-term
capital gain or loss if at the time of sale, exchange or retirement the Note has
been held for more than one year.
Unless a United States Holder holds a Bearer Note through a financial
institution that satisfies the requirements of United States Treasury
Regulations Section 1.165-12(c)(3), such United States Holder generally will not
be entitled to deduct any loss on such Bearer Note or coupon and must treat as
ordinary income any gain realized on the sale or other disposition (including
the receipt of principal) of such Bearer Note or coupon.
Foreign Currency Notes
The following discussion summarizes the principal United States federal
income tax consequences to a United States Holder of the ownership and
disposition of Notes (other than the Currency Linked Notes described above) that
are denominated in a Specified Currency other than the U.S. dollar or the
payments of interest or principal on which are payable in one or more currencies
or currency units other than the U.S. dollar (a "Foreign Currency Note").
The rules discussed below will generally not apply to a United States
Holder that enters into a "qualified hedging transaction." A qualified hedging
transaction is an integrated economic transaction consisting of a qualifying
debt instrument, such as a Foreign Currency Note, and a "section 1.988-5(a)
hedge," as defined in section 1.988-5(a)(4) of the Treasury regulations.
Generally, such an integrated economic transaction, if identified as such by
either the United States Holder or the Service, is treated as a single
transaction for United States federal income tax purposes, the effect of which
is to treat such a holder as owning a synthetic debt instrument that is subject
to rules applicable to Discount Notes. The rules with respect to a qualified
hedging transaction are extremely complex and special rules may apply in certain
circumstances, and persons that are considering hedging the currency risk are
urged to consult with their own tax advisors with respect to the application of
these rules.
A United States Holder who uses the cash method of accounting and who
receives a payment of interest with respect to a Foreign Currency Note (other
than a Discount Note (except to the extent any qualified stated interest is
received) in which OID is accrued on a current basis) will be required to
include in income the U.S. dollar value of the foreign currency payment
(determined on the date such payment is received) regardless of whether the
payment is in fact converted to U.S. dollars at that time, and such U.S. dollar
value will be the United States Holder's tax basis in the foreign currency.
A United States Holder (to the extent the above paragraph is not
applicable) will be required to include in income the U.S. dollar value of the
amount of interest income (including OID or market discount and reduced by
premium, acquisition premium and amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Foreign Currency Note during an accrual period. The U.S.
dollar value of such accrued income will be determined by translating such
income at the average rate of
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exchange for the accrual period or, with respect to an accrual period that spans
two taxable years, at the average rate for the partial period within the taxable
year. The average rate of exchange for the accrual period (or partial period) is
the simple average of the exchange rates for each business day of such period
(or other method if such method is reasonably derived and consistently applied).
A United States Holder may elect to determine the U.S. dollar value of such
accrued income by translating such income at the spot rate on the last day of
the interest accrual period (or, in the case of a partial accrual period, the
spot rate on the last day of the taxable year) or, if the date of receipt is
within five business days of the last day of the interest accrual period, the
spot rate on the date of receipt. Such United States Holder will recognize
ordinary gain or loss with respect to accrued interest income on the date such
income is received. The amount of ordinary gain or loss recognized will equal
the difference between the U.S. dollar value of the foreign currency payments
received (determined on the date such payment is received) in respect of such
accrual period and the U.S. dollar value of interest income that has accrued
during such accrual period (as determined above).
A United States Holder will have a tax basis in any foreign currency
received on the sale, exchange or retirement of a Foreign Currency Note equal to
the U.S. dollar value of such foreign currency, determined at the time of such
sale, exchange or retirement. Any gain or loss realized by a United States
Holder on a sale or other disposition of foreign currency (including its
exchange for U.S. dollars or its use to purchase Foreign Currency Notes) will be
ordinary income or loss.
A United States Holder's tax basis in a Foreign Currency Note, and the
amount of any subsequent adjustment to such holder's tax basis, will be the U.S.
dollar value of the foreign currency amount paid for such Foreign Currency Note,
or of the foreign currency amount of the adjustment, determined on the date of
such purchase or adjustment. A United States Holder who converts U.S. dollars to
a foreign currency and immediately uses that currency to purchase a Foreign
Currency Note denominated in the same currency ordinarily will not recognize
gain or loss in connection with such conversion and purchase. However, a United
States Holder who purchases a Foreign Currency Note with previously owned
foreign currency will recognize ordinary income or loss in an amount equal to
the difference, if any, between such holder's tax basis in the foreign currency
and the U.S. dollar fair market value of the Foreign Currency Note on the date
of purchase. For purposes of determining the amount of any gain or loss
recognized by a United States Holder on the sale, exchange or retirement of a
Foreign Currency Note, the amount realized upon such sale, exchange or
retirement will be the U.S. dollar value of the foreign currency received,
determined on the date of sale, exchange or retirement.
Gain or loss realized upon the sale, exchange or retirement of a
Foreign Currency Note will be ordinary income or loss to the extent it is
attributable to fluctuations in currency exchange rates. Gain or loss
attributable to fluctuations in exchange rates will equal the difference between
the U.S. dollar value of the foreign currency principal amount of such Note,
determined on the date such payment is received or such Note is disposed of,
including any payment with respect to accrued interest, and the U.S. dollar
value of the foreign currency principal amount of such Note, determined on the
date such United States Holder acquired such Note, and the U.S. dollar value of
accrued interest received (determined by translating such interest at the
average exchange rate for the accrual period). The foreign currency principal
amount of a Foreign Currency Note generally equals the United States Holder's
purchase price in units of foreign currency. Such foreign currency gain or loss
will be recognized only to the extent of the total gain or loss recognized by a
United States Holder on the sale, exchange or retirement of the Foreign Currency
Note.
The source of exchange gain or loss will be determined by reference to
the residence of the holder or the "qualified business unit" of the holder on
whose books the Note is properly reflected. Any gain or loss recognized by such
a United States Holder in excess of such foreign currency gain or loss will be
capital gain or loss (except to the extent of any accrued market discount or, in
the case of a short-term Discount Note, any accrued OID), and generally will be
long-term capital gain or loss if the holding period of the Foreign Currency
Note exceeds one year.
Any gain or loss that is treated as ordinary income or loss, as
described above, generally will not be treated as interest income or expense
except to the extent provided by administrative pronouncements of the Service.
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OID, market discount, premium, acquisition premium and amortizable bond
premium of a Foreign Currency Note are to be determined in the relevant foreign
currency. The amount of such discount or premium that is taken into account
currently under general rules applicable to Notes other than Foreign Currency
Notes is to be determined for any accrual period in the relevant foreign
currency and then translated into the United States Holder's functional currency
on the basis of the average exchange rate in effect during such accrual period.
The amount of accrued market discount (other than market discount that is
included in income on a current basis) taken into account upon the receipt of
any partial principal payment or upon the sale, exchange, retirement or other
disposition of a Foreign Currency Note will be the U.S. dollar value of such
accrued market discount (determined on the date of receipt of such partial
principal payment or upon the sale, exchange, retirement or other disposition).
Any loss realized on the sale, exchange or retirement of a Foreign
Currency Note with amortizable bond premium by a United States Holder who has
not elected to amortize such premium will be a capital loss to the extent of
such bond premium. If such an election is made, amortizable bond premium taken
into account on a current basis shall reduce interest income in units of the
relevant foreign currency. Exchange gain or loss is realized on such amortized
bond premium with respect to any period by treating the bond premium amortized
in such period as a return of principal.
The Code and the applicable regulations do not discuss the tax
consequences of an issuance of a Foreign Currency Note that is denominated in,
or has payments of interest or principal determined by reference to, a so-called
hyperinflationary currency or more than one currency. On March 17, 1992,
Treasury regulations were proposed with regard to debt instruments denominated
in a hyperinflationary currency and certain debt instruments denominated in more
than one currency. These proposed regulations are proposed to be effective for
transactions entered into on or after the date such regulations are finalized.
A Foreign Currency Note will be considered to be a debt instrument
denominated in a hyperinflationary currency if it is denominated in a Specified
Currency of a country in which there is cumulative inflation of at least 100%
during the 36 calendar month period ending on the last day of the preceding
calendar year. Under the proposed regulations, a United States Holder that
acquires a Foreign Currency Note that is denominated in a hyperinflationary
currency will recognize gain or loss for its taxable year determined by
reference to the change in exchange rates between the first day of the taxable
year (or the date the Note was acquired, if later) and the last day of the
taxable year (or the date the Note was disposed of, if earlier). Such gain or
loss will reduce or increase the amount of interest income otherwise required to
be taken into account. Special rules apply to the extent such loss exceeds the
amount of interest income otherwise taken into account.
Under the proposed regulations, a Foreign Currency Note will be
considered to be a "dual currency debt instrument" if (i) the qualified stated
interest is denominated in or determined by reference to a single currency, (ii)
the stated redemption price at maturity is denominated in or determined by
reference to a different currency, and (iii) the amount of all payments in each
currency is fixed on the issue date. A Foreign Currency Note (other than a dual
currency debt instrument) will be considered to be a "multicurrency debt
instrument" if payments are to be made in more than one currency and the amount
of all payments in each currency is fixed on the issue date. A dual currency
debt instrument will be treated as two hypothetical debt instruments, a zero
coupon bond denominated in the currency of the stated redemption price at
maturity and an installment obligation denominated in the currency of the
qualified stated interest. A multicurrency debt instrument will be treated
similarly and separated into component hypothetical debt instruments in each
currency. The OID and foreign currency rules discussed above will apply to each
hypothetical debt instrument. The proposed regulations do not apply to any
Foreign Currency Note that is denominated in, or has payments of interest or
principal determined by reference to, more than one currency except to the
extent the Note meets the definition of a dual currency debt instrument or
multicurrency debt instrument.
Exchangeable Notes
The following discussion summarizes the principal United States federal
income tax consequences to a United States Holder of the ownership and
disposition of Exchangeable Notes.
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There are substantial uncertainties regarding the United States federal
income tax consequences of an investment in Exchangeable Notes because of the
absence of authority that addresses instruments having characteristics similar
to such instruments. Optionally Exchangeable Notes for which the principal
amount payable in cash equals or exceeds the issue price will be treated as
indebtedness of the Company for United States federal income tax purposes.
Unless otherwise noted in the applicable Pricing Supplement, the Company intends
to treat other Exchangeable Notes as indebtedness of the Company and such
characterization is binding on all United States Holders except for holders who
disclose a different position on their United States federal income tax return.
In any case, the Company's treatment is not binding upon the Service or the
courts, and there can be no assurance that it will be accepted.
Under current law, interest paid on an Exchangeable Note will be
taxable to a United States Holder as ordinary interest income at the time it
accrues or is received, in accordance with the United States Holder's method of
accounting for United States federal income tax purposes. Any difference between
the issue price of such a Note and its principal amount will be treated as OID
under "Discount Notes," above. Under current law, a United States Holder will
not be required to include as income any increase in the value of an
Exchangeable Note attributable to the exchange feature before the sale, exchange
or retirement of the Note unless such holder becomes entitled to a fixed amount
of cash (or the equivalent) under such exchange feature before such sale,
exchange or retirement. In such a case, a United States Holder may be required
to recognize amounts in respect of an exchange feature prior to the sale,
exchange or retirement of the Note.
Upon the sale, exchange or retirement of an Exchangeable Note, a United
States Holder will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange or retirement of an
Exchangeable Note and such holder's tax basis in the Note. If the Company
delivers property (other than cash) to a holder in retirement of an Exchangeable
Note, the amount realized would equal the fair market value of the property,
determined at the time of such retirement, increased by any cash received in
lieu of fractional stock or securities, and reduced by any amount attributable
to accrued interest, which will be taxable as such unless previously taken into
account. Gain or loss recognized on the sale or exchange (before retirement) of
an Exchangeable Note will be capital gain or loss (except to the extent of any
accrued market discount) and will generally be long-term capital gain or loss if
at the time of the sale or exchange the Exchangeable Note has been held for more
than one year.
Under current law, there is uncertainty as to whether gain recognized
upon a retirement (including a retirement pursuant to an optional or mandatory
exchange for property) of an Exchangeable Note would be capital gain or, to the
extent attributable to the optional or mandatory exchange feature, ordinary
interest income. Any loss recognized upon a retirement will be a capital loss.
The applicable Pricing Supplement will disclose whether or not the Company
intends to treat gain upon a retirement to the extent attributable to the
optional or mandatory exchange feature as interest income and to report such
amounts accordingly. Prospective investors should consult with their tax
advisors regarding the character of gain recognized upon retirement.
A United States Holder will have a tax basis in any property (other
than cash) received upon the retirement of an Exchangeable Note equal to the
fair market value of such property, determined at the time of such retirement.
Any gain or loss realized by a United States Holder on a sale or exchange of
such property will generally be capital gain or loss and will generally be
long-term capital gain or loss if the sale or exchange occurs more than one year
after the retirement of the Exchangeable Note.
United States Holders that have acquired debt instruments that are
similar to Exchangeable Notes and have accounted for such debt instruments in a
consistent manner (including under proposed, but subsequently withdrawn,
Treasury regulations) may be deemed to have established a method of tax
accounting. In such instance, the United States Holder would be required to
apply such method of tax accounting to the Exchangeable Notes, unless consent of
the Commissioner of the Service is obtained to change such method. The Service
or a court would not be required to accept such method as correct and the United
States Holder could be liable for penalties if such method is found to be
incorrect.
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The Code and the applicable regulations do not discuss the tax
consequences of an issuance of Notes that provide for one or more contingent
payments. On December 15, 1994, Treasury regulations were proposed addressing
the treatment of contingent debt instruments. These proposed regulations are
proposed to be effective for debt instruments issued on or after the date that
is 60 days after the date final regulations are promulgated. Under the proposed
regulations, the so-called "noncontingent bond method" would apply in
determining the amount of interest income with respect to an Exchangeable Note.
Under the noncontingent bond method, a projected payment schedule is determined
for a debt instrument, and interest accrues on the debt instrument based on this
schedule. The projected payment schedule would consist of all noncontingent
payments (including payments that otherwise would be considered qualified stated
interest) and a projected amount for each contingent payment. Appropriate
adjustments are made to take into account differences between the actual amount
of a contingent payment and the projected amount. Under the proposed
regulations, any gain recognized by a United States Holder on the sale, exchange
or retirement of an Exchangeable Note would be treated as interest income. Any
loss recognized on the sale, exchange or retirement would be treated as an
ordinary loss to the extent of prior interest inclusions.
There can be no assurance that the ultimate tax treatment of the
Exchangeable Notes would not differ significantly from the description herein.
Prospective investors are urged to consult their tax advisors as to the possible
consequences of holding the Exchangeable Notes.
PERLS, Reverse PERLS and Multicurrency PERLS
The following discussion relates to PERLS, Reverse PERLS and
Multicurrency PERLS that bear current coupons consistent with or greater than
comparable dollar-denominated debt obligations. In other cases, holders should
refer to the discussion relating to taxation in the applicable Pricing
Supplement.
Although no authority exists that addresses instruments having
characteristics similar to such instruments and the conclusions herein are
therefore not entirely free from doubt, Shearman & Sterling advises that such
PERLS, Reverse PERLS and Multicurrency PERLS should constitute debt obligations
for United States federal income tax purposes and that no portion of the issue
price should be allocated to the foreign currency feature. The Company intends
to treat PERLS, Reverse PERLS and Multicurrency PERLS as indebtedness of the
Company and such characterization is binding on all United States Holders,
except for holders who disclose a different position on their United States
federal income tax return. In any case, the Company's treatment is not binding
upon the Service or the courts, and there can be no assurance that it will be
accepted.
The regulations under the OID rules state that a debt instrument will
not be treated as a contingent debt instrument merely because some or all of the
payments are denominated in or determined by reference to the value of one or
more foreign currencies. It should be noted, however, that the foreign currency
regulations do not yet address the treatment of instruments like PERLS, Reverse
PERLS or Multicurrency PERLS and the proposed regulations do not address the
treatment of such instruments except insofar as they meet the definitions of
dual currency debt instruments and multicurrency debt instruments. It is
possible that such regulations (or other authority), when issued, could result
in tax consequences that differ from those described herein, and that such
authority could apply with retroactive effect. See discussion under "Foreign
Currency Notes" for a summary of other federal income tax principles that may
apply to United States Holders of PERLS, Reverse PERLS and Multicurrency PERLS.
Notes Linked to Commodity Prices, Single Securities, Baskets of
Securities or Indices
The United States federal income tax consequences to a United States
Holder of the ownership and disposition of Notes that have principal or interest
determined by reference to commodity prices, securities of entities unaffiliated
with the Company, baskets of such securities or indices will vary depending upon
the exact terms of the Notes and related factors. Notes containing any of such
features may be subject to rules that differ from the general rules discussed
above. Holders intending to purchase such Notes should refer to the discussion
relating to taxation in the applicable Pricing Supplement.
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<PAGE>
Backup Withholding
The 31% "backup" withholding and information reporting requirements
apply to certain payments of principal, premium, if any, and interest on an
obligation, and to proceeds of the sale or redemption of an obligation before
maturity, to certain noncorporate United States Holders. The Company, its agent,
a broker, the relevant Trustee or any paying agent, as the case may be, will be
required to withhold from any payment that is subject to backup withholding a
tax equal to 31% of such payment if the United States Holder fails to furnish
his taxpayer identification number (social security number or employer
identification number), to certify that such holder is not subject to backup
withholding, or to otherwise comply with the applicable requirements of the
backup withholding rules. Certain holders (including, among others, corporations
and persons who are not United States persons) are not subject to the backup
withholding and reporting requirements.
Any amounts withheld under the backup withholding rules from a payment
to a United States Holder would be allowed as a refund or a credit against such
holder's United States federal income tax provided that the required information
is furnished to the Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company
exclusively through the Agents, who have agreed to use reasonable efforts to
solicit offers to purchase Notes. The Company will have the sole right to accept
offers to purchase Notes and may reject any offer to purchase Notes in whole or
in part. The Agents will have the right to reject any offer to purchase Notes
solicited by them in whole or in part. Payment of the purchase price of the
Notes will be required to be made in immediately available funds. Unless
otherwise specified in the applicable Pricing Supplement, the Company will pay
an Agent, in connection with sales of Notes resulting from a solicitation made
or an offer to purchase received by such Agent, a commission ranging from .125%
to .750% of the principal amount of Notes to be sold, depending upon the
maturity of the Notes; provided, however, that commissions with respect to Notes
having a maturity of 30 years or greater will be negotiated.
The Company may also sell Notes to an Agent as principal for its own
account at discounts to be agreed upon at the time of sale. Such Notes may be
resold to investors and other purchasers at a fixed offering price or at
prevailing market prices, or prices related thereto at the time of such resale
or otherwise, as determined by such Agent and specified in the applicable
Pricing Supplement. An Agent may offer the Notes it has purchased as principal
to other dealers. Such Agent may sell the Notes to any dealer at a discount and,
unless otherwise specified in the applicable Pricing Supplement, such discount
allowed to any dealer will not be in excess of the discount to be received by
such Agent from the Company. After the initial public offering of Notes that are
to be resold by an Agent to investors and other purchasers on a fixed public
offering price basis, the public offering price, concession and discount may be
changed.
In compliance with United States federal income tax laws and
regulations, the Company and each Agent has agreed that it will not, in
connection with the original issuance of any Bearer Notes or during the
Restricted Period (as defined above in "Description of Notes -- Forms,
Denominations, Exchange and Transfer"), offer, sell, resell or deliver, directly
or indirectly, any Bearer Notes in the United States or its possessions or to
United States persons (other than as permitted by the applicable Treasury
Regulations). In addition, each Agent has represented and agreed that it will
have in effect procedures reasonably designed to ensure that its employees or
agents who are
S-39
<PAGE>
directly engaged in selling Bearer Notes are aware of the above restrictions on
the offering, sale, resale or delivery of Bearer Notes.
With respect to Notes to be offered or sold in the United Kingdom, each
Agent, underwriter, dealer, other agent and remarketing firm participating in
the distribution of such Notes has represented and agreed, or will represent and
agree, that: (i) in relation to Notes which have a maturity of one year or more
and which are to be listed on the London Stock Exchange, it has not offered or
sold and will not offer or sell any such Notes to persons in the United Kingdom
prior to admission of such Notes to listing in accordance with Part IV of the
Financial Services Act 1986 (the "Act") except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Act; (ii) in
relation to Notes which have a maturity of one year or more and which are not to
be listed on the London Stock Exchange, it has not offered or sold and, prior to
the expiry of the period of six months from the date of issue of such Notes,
will not offer or sell any such Notes to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (iii) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to such Notes in, from or otherwise involving the United
Kingdom; and (iv) it has only issued or passed on and will only issue or pass on
in the United Kingdom any document received by it in connection with the issue
of such Notes, other than any document which consists of or any part of listing
particulars, supplementary listing particulars or any other document required or
permitted to be published by the listing rules under part IV of the Act, to a
person who is of a kind described in article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom
such document may otherwise lawfully be issued or passed on.
The Notes have not been, and will not be, registered under the
Securities and Exchange Law of Japan. Accordingly, the Notes may not be offered
or sold, directly or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (which term as used herein means any person resident in Japan
including any corporation or other entity organized under the laws of Japan) or
to others for the reoffering or resale, directly or indirectly, in Japan or to a
resident of Japan except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Securities and Exchange
Law of Japan and other relevant laws and regulations of Japan.
Notes denominated or payable in Deutsche Marks may only be offered and
sold from time to time by the Company through Morgan Stanley Bank AG, acting as
agent for the Company or as lead manager in a syndicated transaction. The
issuance of Notes denominated or payable in Deutsche Marks will take place in
compliance with the guidelines of the German Central Bank, as amended from time
to time, regarding the issue of debt securities denominated in Deutsche Marks.
The Notes may not be offered or sold in the Federal Republic of Germany other
than in compliance with the provisions of the German Sales Prospectus Act
(Wertpapier-Verkaufsprospektgesetz) of December 13, 1990, as amended, and of any
other laws applicable in the Federal Republic of Germany governing the issue,
offering and sale of securities.
Notes denominated or payable in or indexed to Swiss francs may only be
offered and sold from time to time by the Company through Bank Morgan Stanley
AG, acting as agent for the Company or as lead manager in a syndicated
transaction. The issuance of Notes denominated or payable in or indexed to Swiss
francs will take place in compliance with Swiss law and the relevant regulations
of the Swiss National Bank in effect from time to time.
Morgan Stanley S.A. has represented and agreed, and any dealers for
French Franc Notes will represent and agree, that French Franc Notes will be
issued outside the Republic of France and that, in connection with their initial
distribution, Morgan Stanley S.A. and such dealers will not offer or sell,
directly or indirectly, any French Franc Notes to the public in the Republic of
France, and will not distribute or cause to be distributed to the public in the
Republic of France this Prospectus Supplement, the accompanying Prospectus or
any other offering material
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<PAGE>
relating to French Franc Notes. As of the date of this Prospectus Supplement,
only French credit institutions (which includes French subsidiaries of foreign
banks) may act as underwriters, dealers or agents with respect to issuances of
French Franc Notes (except for syndicated issuances of French Franc Notes, where
the lead manager must be a credit institution authorized to act as lead manager
of French Franc debt instrument issuances).
Each of the Agents may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933 (the "Securities Act"). The Company and
the Agents have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
made in respect thereof. The Company has also agreed to reimburse the Agents for
certain expenses.
Morgan Stanley & Co. International Limited, Bank Morgan Stanley AG,
Morgan Stanley S.A. and Morgan Stanley Bank AG are each an affiliate of the
Company. The Company has been advised by the Agents that they intend to make a
market in the Notes, as permitted by applicable laws and regulations. The Agents
are not obligated to do so, however, and the Agents may discontinue making a
market at any time without notice. No assurance can be given as to the liquidity
of any trading market for the Notes.
Concurrently with the offering of Notes through the Agents as described
herein, the Company may issue other Debt Securities pursuant to the Indentures
referred to herein. Such Debt Securities may include medium-term notes ("Global
Medium-Term Notes, Series C") that may have terms substantially similar to the
terms of the Notes offered hereby and that may be offered, concurrently with the
offering of the Notes, on a continuing basis in the United States by the Company
pursuant to a distribution agreement (the "U.S. Distribution Agreement") with
Morgan Stanley & Co. Incorporated, an affiliate of the Company ("MS&Co."), as
agent for the Company, the terms of which are substantially similar to the terms
of the distribution agreement (the "Euro Distribution Agreement") with the
Agents, except for certain selling restrictions specified in the Euro
Distribution Agreement. Any Global Medium-Term Notes, Series C sold pursuant to
such U.S. Distribution Agreement, and any Debt Securities or Debt Warrants
issued by the Company pursuant to the Indentures, will reduce the aggregate
offering price of Notes that may be offered by this Prospectus Supplement, any
Pricing Supplement hereto and the Prospectus.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by
Jonathan M. Clark, Esq., General Counsel and Secretary of the Company and a
Managing Director of MS&Co., or other counsel who is satisfactory to the Agents
and an officer of the Company. Mr. Clark and such other counsel beneficially
own, or have rights to acquire under an employee benefit plan of the Company, an
aggregate of less than 1% of the common stock of the Company. Certain legal
matters relating to the Notes will be passed upon for the Agents by Davis Polk &
Wardwell. Davis Polk & Wardwell has in the past represented and continues to
represent the Company on a regular basis and in a variety of matters, including
in connection with its merchant banking and leveraged capital activities.
Shearman & Sterling, which is opining on the accuracy of the summary of certain
tax matters described under the captions "United States Federal Taxation --
Foreign Holders" and "United States Federal Taxation -- United States Holders,"
represents the Company on a regular basis and in a variety of matters, including
in connection with its merchant banking and leveraged capital activities.
S-41
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company at February 29, 1996. As of the date hereof and
except as described in the footnotes to the following table, there has been no
material change in the capitalization of the Company and its consolidated
subsidiaries, taken as a whole, since February 29, 1996. The following should be
read in conjunction with the Company's consolidated financial statements, the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's Annual Report on Form 10-K for the
fiscal period ended November 30, 1995 and Quarterly Report on Form 10-Q for the
quarter ended February 29, 1996, each incorporated herein by reference.
At February 29, 1996
---------------------
(In thousands, except
share and unit data)
Short-term borrowings....................................... U.S.$ 12,930,519
Current portion of long-term borrowings..................... 2,397,724
------------
Total.................................................. U.S.$ 15,328,243
============
Long-term borrowings (1).................................... U.S.$ 9,894,864
------------
Capital Units............................................... 865,283
------------
Stockholders' equity:
Preferred stock, no par value; authorized 30,000,000 shares:
ESOP Convertible Preferred Stock, liquidation preference
U.S.$35.88; outstanding 3,745,901 shares............... 134,384
9.36% Cumulative Preferred Stock, stated value U.S.$25;
outstanding 5,500,000 shares........................... 137,500
8.88% Cumulative Preferred Stock, stated value U.S.$200;
outstanding 975,000 shares............................. 195,000
8 3/4% Cumulative Preferred Stock, stated value U.S.$200;
outstanding 750,000 shares............................. 150,000
7 3/8% Cumulative Preferred Stock, stated value U.S.$200;
outstanding 1,000,000 shares........................... 200,000
Common stock, U.S.$1.00 par value; authorized 300,000,000
shares; issued 164,389,850 shares....................... 164,390
Paid-in capital............................................ 644,902
Retained earnings.......................................... 4,038,783
Cumulative translation adjustments......................... (10,053)
-------------
Subtotal......................................... 5,654,906
Less:
Note receivable related to sale of preferred stock
to ESOP ............................................... 86,773
Common stock held in treasury, at cost 10,558,016 shares. 411,493
------------
Total stockholders' equity....................... 5,156,640
------------
Total capitalization........................................ U.S.$ 15,916,787
============
- ---------------
(1) A shelf registration statement became effective in March 1995 for up to
U.S.$4,829,470 of debt securities, warrants to purchase debt securities,
preferred stock and depositary shares. Additional senior notes aggregating
U.S.$760,676 were issued after February 29, 1996 and through March 31,
1996, pursuant to such shelf registration statement.
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BOARD OF DIRECTORS
The current Directors of the Company and their principal occupations
are listed below. The business address of each director is 1585 Broadway, New
York, New York 10036.
Richard B. Fisher ................. Chairman, Managing Director and Director
John J. Mack ...................... President, Managing Director and Director
Barton M. Biggs.................... Managing Director and Director
Peter F. Karches................... Managing Director and Director
Sir David A. Walker................ Managing Director and Director
Robert P. Bauman................... Director
Daniel B. Burke.................... Director
S. Parker Gilbert.................. Director
Allen E. Murray.................... Director
Paul J. Rizzo...................... Director
GENERAL INFORMATION
The listing of the Series D Notes on the London Stock Exchange will be
expressed as a percentage of their principal amount excluding accrued interest.
Listing of the Series D Notes offered hereby is expected to be granted by the
London Stock Exchange on May 3, 1996 subject only to issuance of Series D Notes
(including temporary global notes). The listing agent with respect to the
application for the listing of the Series D Notes on the London Stock Exchange
is Morgan Stanley Securities Limited. The French Franc arranger, any dealers for
French Franc Notes and the Company will comply with the French EuroFranc
Regulations.
Ernst & Young LLP, independent auditors, have audited the consolidated
statement of financial condition of the Company as of November 30, 1995, January
31, 1995, January 31, 1994, January 31, 1993 and December 31, 1991 and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for the fiscal period ended November 30, 1995, for the
fiscal years ended January 31, 1995, January 31, 1994, January 31, 1993 and
December 31, 1991 and for the one-month period ended January 31, 1992.
Shearman & Sterling has given and not withdrawn its written consent to
the inclusion in this Prospectus Supplement of its opinion under "United States
Federal Taxation -- Foreign Holders" and "United States Federal Taxation --
United States Holders" and has authorized the contents of that part of the
listing particulars for the purposes of Section 152(1)(e) of the Financial
Services Act 1986.
Listing on the London Stock Exchange of the Series D Notes is
conditional upon issuance of such Notes. The obligation of a prospective
purchaser (including the Agents) to pay for any Notes it has agreed to purchase
is subject to the satisfaction of certain conditions which, if not satisfied or
waived, would result in such purchaser having no obligation to pay for any such
Notes.
The issuance of the Notes was authorized pursuant to resolutions
adopted by unanimous written consent of the Board of Directors of the Company
dated March 12, 1996 and unanimous written consent of the Executive Committee of
the Board of Directors of the Company dated April 24, 1996.
The Company is incorporated in Delaware, U.S.A., and its registered
office is located at 32 Loockerman Square, Suite L-100, Dover, Delaware 19901.
Since February 29, 1996, the date of the latest published unaudited
financial statements, there has been no material adverse change in the financial
or business position of the Company and its consolidated subsidiaries, taken as
a whole.
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<PAGE>
As of the date hereof, there are no legal, arbitration or
administrative proceedings including any pending or, to the Company's knowledge,
threatened involving the Company or any of its consolidated subsidiaries which
may have or have had during the previous 12 months a material effect on the
Company's consolidated financial condition.
The Notes have been accepted for clearance through the Euroclear
Operator, Cedel and (in the case of French Franc Notes) SICOVAM. The appropriate
code for each issue allocated by the Euroclear Operator and Cedel will be
contained in the applicable Pricing Supplement. Transactions will normally be
effected for settlement not earlier than two business days after the date of the
transaction.
Copies of the Euro Distribution Agreement dated May 2, 1996 among the
Company and the Agents, the U.S. Distribution Agreement dated May 1, 1996
between the Company and MS&Co., each of the Indentures, the Company's Annual
Reports on Form 10-K for the fiscal period ended November 30, 1995 and for the
fiscal years ended January 31, 1995 and January 31, 1994 and Quarterly Reports
on Form 10-Q for 1993, 1994, 1995 and 1996 (each excluding exhibits), the
Company's listing particulars, all of the Company's future Annual, Quarterly and
Current Reports, supplementary listing particulars and Pricing Supplements and
the Company's Restated Certificate of Incorporation, as amended, and By-laws, as
amended, will, from the date hereof and so long as any Note is outstanding and
throughout the term of the medium-term note program (the "Program"), be
available for inspection during business hours at the corporate trust office of
each of the Trustees in The City of New York, the office of each Paying Agent
and the principal executive offices of the Company specified in the accompanying
Prospectus. The Company's Quarterly Reports on Form 10-Q contain unaudited
quarterly financial statements.
Documents incorporated by reference herein and any part of the
Registration Statement not included herein do not form part of the listing
particulars.
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 Supplement (but not the listing
particulars) to the extent that a statement contained herein or in any
subsequently filed document that 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 Supplement.
PARIS LISTING INFORMATION
Under regulations made by the French Tresor, French Franc Notes are
required to be listed on the Paris Bourse if (a) such French Franc Notes are, or
are intended to be, listed on any other stock exchange or (b) such French Franc
Notes are, or are intended to be, distributed as a public offer (within the
meaning of the French EuroFranc Regulations). The following procedures will
apply to French Franc Notes which are to be so listed.
Only French credit institutions (which includes French subsidiaries of
foreign banks) may act as underwriters, dealers or agents for French Franc Notes
(except for syndicated issuances of French Franc Notes, where the lead manager
must be a credit institution authorized to act as lead manager of French Franc
debt instrument issuances). The French Franc arranger, any dealers in respect of
French Franc Notes and the Company must comply with the French EuroFranc
Regulations, including with respect to French Franc Notes issued in a private
placement under French law. The minimum aggregate principal amount of French
Franc Notes listed on the Paris Bourse and distributed in a public offer shall
be 300,000,000 French Francs. In addition, French Franc Notes which are listed
on the Paris Bourse will be issued subject to the requirements of the Paris
Bourse. Under the current regulations, "private placements" shall be construed
as issuances of Notes placed on a firm basis with a small number of
predetermined nonresident investors. Index-linked French Franc Notes which are
to be listed on the Paris Bourse will be issued in compliance with the
regulations of the COB and the Conseil des Bourses de Valeurs.
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<PAGE>
Commission des Operations de Bourse ("COB")
Prior to listing of any French Franc Notes on the Paris Bourse, the COB
is required to approve this Prospectus Supplement and the accompanying
Prospectus. In addition, the Pricing Supplement applicable to each issue of
French Franc Notes to be listed on the Paris Bourse is currently required to be
approved at the time of the relevant issue. The relevant approval in relation to
the Program and each such issue will each be evidenced by the issue of a visa by
the COB. The visa numbers will be disclosed in the Pricing Supplement applicable
to the relevant French Franc Notes.
Conseil des Bourses de Valeurs ("CBV")
The listing of French Franc Notes on the Paris Bourse is subject to
approval by the CBV. Such approval will be evidenced by publication in the
Bulletin Officiel de la Cote. At the option of the Company, publication may be
made in one notice published in connection with a particular issue of French
Franc Notes or in two notices, the first published in relation to the Program
generally and the second published in connection with a particular issue of
French Franc Notes incorporated by reference to the contents of the first notice
(to the extent not modified in the second notice).
Bulletin des Annonces Legales Obligatoires ("BALO")
French Franc Notes to be listed on the Paris Bourse may not be offered
in France and the publication of the Pricing Supplement applicable thereto must
not be made before such listing becomes effective and details of the relevant
French Franc Notes (in the form of a notice legale) have been published in the
BALO.
Documents available for inspection
In the case of French Franc Notes listed on the Paris Bourse, the
applicable Pricing Supplement will specify the additional places in Paris at
which documents incorporated by reference herein (or otherwise required to be
made available for inspection) may be inspected during normal business hours.
The Company has undertaken to make such documents available as so required.
S-45
<PAGE>
PARIS BOURSE RESPONSIBILITY STATEMENT
PERSONNES QUI ASSUMENT
LA RESPONSABILITE DU "PROSPECTUS" ET DU "PROSPECTUS SUPPLEMENT"
EN CE QUI CONCERNE LES INSTRUMENTS QUI SONT ADMIS A LA COTATION
SUR LE COMPARTIMENT INTERNATIONAL DE LA BOURSE DE PARIS
AU NOM DE L'EMETTEUR ET DE LA BANQUE PRESENTATRICE
A la connaissance de l'emetteur et de la banque presentatrice, les donnees des
presents documents denommes "Prospectus" et "Prospectus Supplement" sont
conformes a la realite et ne comportent pas d'omission de nature a en alterer la
portee.
Valerie Blin Philip N. Duff
Associate Chief Financial Officer and Treasurer
Attorney-in-fact Morgan Stanley Group Inc.
Morgan Stanley S.A.
VISA DE LA COMMISSION DES OPERATIONS DE BOURSE
En vue de la cotation a Paris des titres eventuellement emis dans le
cadre de ce present Programme, et par application des articles 6 et 7 de
l'ordonnance No. 67-833 du 28 septembre 1967, la Commission des Operations de
Bourse a enregistre les presents documents denommes "Prospectus" et "Prospectus
Supplement" sous le No.
P96-095 du 30 avril 1996.
S-46
<PAGE>
PRINCIPAL EXECUTIVE OFFICES REGISTERED OFFICE OF THE
OF THE COMPANY COMPANY IN DELAWARE
1585 Broadway 32 Loockerman Square, Suite L-100
New York, New York 10036 Dover, Delaware 19901
U.S.A. U.S.A.
TRUSTEES
(Senior Notes) (Subordinated Notes)
Chemical Bank The First National Bank of Chicago
450 West 33rd Street One First National Plaza
New York, New York 10001 Chicago, Illinois 60670
U.S.A. U.S.A.
PRINCIPAL PAYING AGENT, EXCHANGE AGENT AND
TRANSFER AGENT FOR BEARER NOTES AND REGISTERED NOTES
Chemical Bank
Chemical Bank House
180 Strand
London WC2R 1EX
England
OTHER PAYING AGENT AND TRANSFER
AGENT FOR REGISTERED NOTES
Chemical Bank
450 West 33rd Street
New York, New York 10001
U.S.A.
LEGAL ADVISORS TO THE COMPANY LEGAL ADVISORS TO THE AGENTS
Shearman & Sterling Davis Polk & Wardwell
599 Lexington Avenue 450 Lexington Avenue
New York, New York 10022 New York, New York 10017
U.S.A. U.S.A.
LISTING AGENT
Morgan Stanley Securities Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
PARIS LISTING AGENT
Morgan Stanley S.A.
25, rue de Balzac
75008 Paris
France
AUDITORS OF THE COMPANY
Ernst & Young LLP
277 Park Avenue
New York, New York 10172
U.S.A.
