<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus dated August 10, 1993)
$300,000,000
Consolidated Rail Corporation
MEDIUM-TERM NOTES
------------------------
Due More Than Nine Months from Date of Issue
------------------------
Consolidated Rail Corporation (the "Company") may offer from time to time
its Medium-Term Notes, having an aggregate initial public offering price of up
to $300,000,000. See "Plan of Distribution." The Notes will be issued as
unsecured and unsubordinated obligations of the Company. See "Description of
Debt Securities -- General" 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 Discount Notes (as
defined herein), or a floating rate as set forth therein and specified in a
supplement thereto (a "Pricing Supplement"). Fixed Rate Notes may pay a level
amount in respect of both interest and principal amortized over the life of the
Note (an "Amortizing Note").
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note (other than an Amortizing Note) is payable each March 1 and
September 1 and at maturity. Interest on each Floating Rate Note is payable on
the dates set forth therein and in the applicable Pricing Supplement. Unless
otherwise specified in the applicable Pricing Supplement, Amortizing Notes will
pay principal and interest semiannually each March 1 and September 1, or
quarterly each March 1, June 1, September 1 and December 1 and at maturity. 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. Unless otherwise
specified 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. See "Description of Notes."
Unless otherwise specified in the applicable Pricing Supplement, the Notes may
not be redeemed by the Company or the holder prior to maturity and will be
issued in fully registered form in denominations of $1,000 or any amount in
excess thereof which is an integral multiple of $1,000. Each Note will be
represented either by a Global Note registered in the name of a nominee of The
Depository Trust Company, as Depositary (a "Book-Entry Note"), or by a
certificate issued in definitive form (a "Certificated Note"), as set forth in
the applicable Pricing Supplement. Beneficial interests in Global Notes
representing Book-Entry Notes will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary and its
participants. Book-Entry Notes will not be issuable as Certificated Notes except
under the circumstances described in the accompanying Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT,
ANY SUPPLEMENT HERETO OR THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' DISCOUNTS PROCEEDS TO
PUBLIC (1) AND COMMISSION (2) COMPANY (2)(3)
------------------- ---------------------------- -----------------------------------
<S> <C> <C> <C>
Per Note................... 100.000% .125%-.750% 99.875%-99.250%
Total...................... $300,000,000 $375,000-$2,250,000 $299,625,000-$297,750,000
</TABLE>
- ---------------
(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) The commission payable to an Agent for each Note sold through such Agent
shall range from .125% to .750% of the principal amount of such Note;
provided, however, that commissions with respect to Notes maturing in
thirty years or greater will be negotiated. Unless otherwise specified
in the applicable Pricing Supplement, any Note sold to the Agent as
principal will be purchased by the Agent at a price equal to 100% of the
principal amount thereof less a percentage of the principal amount equal
to the commission applicable to an agency sale of a Note of identical
maturity. The Company may also sell Notes to an Agent, as principal, at
negotiated discounts, for resale to investors and other purchasers. The
Company has agreed to indemnify the Agents against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $200,000.
------------------------
Offers to purchase the Notes are being solicited from time to time by Morgan
Stanley & Co. Incorporated, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Salomon Brothers Inc and such other agents as the Company
may appoint from time to time (individually, an "Agent" and collectively, the
"Agents"), on behalf of the Company, in either case, on terms substantially
identical to the terms contained in the Distribution Agreement dated January 28,
1994, between the Company and the Agents (the "Distribution Agreement"). The
Agents have agreed or will agree to use their reasonable efforts to solicit
purchases of such Notes. The Company may also sell Notes to an Agent acting as
principal for its own account for resale to one or more investors and other
purchasers at varying prices related to prevailing market prices at the time of
resale or otherwise, to be determined by such Agent. In addition, the Company
may sell the Notes directly to investors. 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. The Company does not intend to list the Notes on any
securities exchange, and 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.
Incorporated
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
January 28, 1994
<PAGE> 2
IN CONNECTION WITH THE DISTRIBUTION OF NOTES, THE AGENTS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained 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. Neither the delivery of this
Prospectus Supplement, any Pricing Supplement and the accompanying Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the dates as of which information is given in this Prospectus Supplement and in
the accompanying Prospectus. This Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus do not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer
or solicitation.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUPPLEMENT
Recent Developments . . . . . . . . . . . . . . . S-3
Selected Consolidated Financial Data . . . . . . S-4
Description of Notes . . . . . . . . . . . . . . S-6
United States Federal Taxation . . . . . . . . . S-14
Plan of Distribution . . . . . . . . . . . . . . S-18
Legal Matters . . . . . . . . . . . . . . . . . . S-18
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS
Available Information . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . 3
Recent Developments . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . . . 3
Ratio of Earnings to Fixed Charges . . . . . . . 3
Description of Debt Securities . . . . . . . . . 4
Limitations on Issuance of Bearer
Debt Securities . . . . . . . . . . . . . . . . 9
Plan of Distribution . . . . . . . . . . . . . . 10
Legal Matters . . . . . . . . . . . . . . . . . . 11
Experts . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
S-2
<PAGE> 3
RECENT DEVELOPMENTS
On January 26, 1994, Conrail Inc., the holding company of which the
Company is the principal subsidiary, reported $106 million net income ($1.16
per share, fully diluted basis) for the fourth quarter of 1993, an increase of
15.2 percent in net income and 17.2 percent in earnings per share compared with
the same period of 1992 ($92 million net income, $0.99 per share, fully diluted
basis). For the full year 1993, net income was $160 million ($1.70 per share,
fully diluted basis), including one-time charges and non-recurring items,
versus $282 million net income ($2.99 per share, fully diluted basis) for the
same period of 1992. Excluding the one-time charges and non-recurring items in
1993, Conrail Inc. would have earned $318 million ($3.43 per share, fully
diluted basis), increases of 12.8 percent in net income and 14.7 percent in
earnings per share from 1992 levels. Conrail Inc.'s revenue for the fourth
quarter of 1993 totaled $910 million, an increase of 6.2 percent compared with
$857 million for the fourth quarter of 1992. Full year revenue totaled $3.453
billion for the year 1993, an increase of 3.2 percent compared with $3.345
billion for 1992.
The Company's net income for the fourth quarter of 1993 was $99 million,
an increase of 7.6 percent in net income compared with net income of $92
million for the same period of 1992. For the full year 1993, net income was
$164 million, including one-time charges and non-recurring items, versus $282
million net income for the same period of 1992. Excluding the one-time charges
and non-recurring items in 1993, the Company would have earned $326 million, an
increase of 15.6 percent in net income compared with 1992 levels.
The Company's one-time charges and non-recurring items were: charges
totaling $70 million (after taxes) recorded in the first quarter for adoption
of required changes in accounting for income taxes and postretirement benefits
other than pensions; an estimated loss of $58 million (net of estimated tax
benefits of $31 million) reflecting the establishment of a reserve for advances
made to Concord Resources Group, Inc., a subsidiary of Conrail Inc.; and a $34
million increase in deferred income taxes recorded in the third quarter, as
required by SFAS 109, for the retroactive effects of the federal corporate
income tax rate increase.
The Company's revenue for the fourth quarter of 1993 totaled $907
million, an increase of 5.8 percent compared with $857 million for the fourth
quarter of 1992. Full year revenue totaled $3.438 billion for the year 1993,
an increase of 2.8 percent compared with $3.345 billion for 1992.
S-3
<PAGE> 4
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company (see Note 1 below). The selected consolidated financial data for
the three-year period ended December 31, 1992 are derived from the Company's
consolidated financial statements, which have been audited by Coopers &
Lybrand, independent accountants. The selected consolidated financial data for
the nine months ended September 30, 1993 and 1992 are derived from unaudited
consolidated financial statements. The results for the nine months ended
September 30, 1993 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 1993. The following data should
be read in conjunction with the consolidated financial statements, related
notes, and other financial information contained in documents incorporated
herein by reference.
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- --------------------------------
1993 (2)(3)(5) 1992 1992 1991 (4) 1990
------------------- ---- -------- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues . . . . . . . . . . . . . . $2,531 $2,488 $3,345 $3,252 $3,372
Operating expenses . . . . . . . . . 2,129 2,116 2,811 3,513 2,945
Income (loss) from operations . . . 402 372 534 (261) 427
Income (loss) before the cumulative
effect of changes in accounting
principles . . . . . . . . . . . 135 190 282 (207) 247
Cumulative effect of changes in
accounting principles(2) . . . . (70)
Net income (loss) . . . . . . . . . $ 65 $ 190 $ 282 $ (207) $ 247
BALANCE SHEET AND OTHER DATA(1):
Working capital (deficit) . . . . . $ (164) $ (420) $ (489) $ (286) $ (216)
Total assets . . . . . . . . . . . . 7,833 7,150 7,315 7,096 7,245
Total debt(6) . . . . . . . . . . . 2,177 1,792 1,911 1,762 1,785
Stockholders' equity(7) . . . . . . 2,696 2,677 2,748 2,661 2,929
Total liabilities and stockholders'
equity . . . . . . . . . . . . . 7,833 7,150 7,315 7,096 7,245
Ratio of earnings to fixed
charges(8) . . . . . . . . . . . 2.70x 3.11x 3.33x -- 3.12x
- -----------
</TABLE>
1. On May 26, 1993, the shareholders of Consolidated Rail Corporation
("Conrail") approved a plan for the adoption of a holding company structure.
Under the Plan, each share of Conrail common stock which was issued and
outstanding or held in the treasury of Conrail, and each share of Conrail
preferred stock, all of which were held by the Non-union Employee Stock
Ownership Plan (the "ESOP"), were automatically converted into one share of
common stock and one share of preferred stock, respectively, of a newly
created holding company, Conrail Inc., on July 1, 1993. As a result,
effective July 1, 1993, Conrail Inc. became the publicly held entity and
Conrail became a wholly owned subsidiary of Conrail Inc.
The promissory note receivable plus accrued interest which Conrail received
from the ESOP in exchange for its preferred shares remained with Conrail and
is recorded in the stockholder's equity section of its balance sheet.
As part of the establishment of the holding company, a wholly owned
subsidiary of Conrail was transferred to Conrail Inc. The financial
position and results of operations of this subsidiary are not material to
the accompanying selected consolidated financial data.
2. Conrail adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106), and Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), effective January 1, 1993.
S-4
<PAGE> 5
As a result of adopting SFAS 106 and SFAS 109, in the first quarter of 1993,
Conrail recorded cumulative one-time charges of $22 million (net of tax
benefits of $14 million) and $52 million, respectively. As a result of the
adoption of the holding company, the SFAS 109 adjustment was reduced to $48
million in the third quarter of 1993. The principal effects on the balance
sheet of adopting SFAS 109 were the recording of a current deferred tax
asset of $147 million with a corresponding increase in the long-term
deferred income tax liabilities and the recording of deferred income tax
liabilities related to the cumulative adjustments.
3. As a result of the increase in the federal corporate income tax rate from
34% to 35%, enacted August 10, 1993 and effective January 1, 1993, income
tax expense for the nine months ended September 30, 1993 includes $36
million of a retroactive nature, primarily due to the effects of adjusting
deferred income taxes for the rate increase as required under SFAS 109.
In addition, in September 1993, Conrail reached a settlement with the
Internal Revenue Service relating to the audit of its consolidated federal
income tax returns for fiscal years 1987 through 1989. The settlement of
$51 million, including interest, had no effect on net income as adequate
accruals had been established.
4. Included in 1991 operating expenses is a special charge totalling $719
million, which reduced net income by $447 million. Without the special
charge, net income would have been $240 million.
5. In the third quarter of 1993, Conrail recorded a reserve of $89 million
relating to advances made to Concord Resources Group Inc., a subsidiary of
Conrail Inc.
6. In May 1993, Conrail sold $250 million of 7-7 8% Debentures Due 2043 under a
shelf registration statement filed on Form S-3 with the Securities and
Exchange Commission in April 1990.
7. Conrail paid a dividend of $31 million to Conrail Inc. in the third quarter
of 1993.
8. For the purpose of computing the ratio of earnings to fixed charges,
earnings represent income before income taxes (and before the cumulative
effect of changes in accounting principles) plus fixed charges, less equity
in undistributed earnings (losses) of 20% to 50% owned companies. Fixed
charges represent interest expense together with interest capitalized and a
portion of rent under long-term operating leases representative of an
interest factor. After the special charge of $719 million recognized in the
fourth quarter of 1991, earnings were insufficient by $343 million to cover
fixed charges for the year ended December 31, 1991.
S-5
<PAGE> 6
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.
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 herein or in the applicable Pricing Supplement and in such Note.
GENERAL
The Company's Medium-Term Notes (the "Notes") will be issued as a single
series under an Indenture, dated as of January 15, 1994, between the Company
and The First National Bank of Chicago, as trustee (the "Trustee") (the
"Indenture"). The Notes may be issued from time to time, and will initially be
limited to an aggregate initial public offering price of up to $300,000,000.
Such aggregate amount may be increased from time to time as authorized by, or
pursuant to authority delegated by, the Board of Directors of the Company. The
Indenture does not limit the amount of additional indebtedness the Company may
incur. For the purpose of this paragraph, the principal amount of any Discount
Note (as defined below) means the Issue Price (as defined below) of such Note.
Notes issued under the Indenture will rank prior to all subordinated
indebtedness of the Company and pari passu with all other unsecured and
unsubordinated indebtedness of the Company. See "Description of Debt
Securities -- General" in the Prospectus.
Fixed Rate Notes, Amortizing Notes and Discount Notes will mature on any
day more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. Unless otherwise specified 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. Except as may be provided for in the
Pricing Supplement, the Notes will be issued only in fully registered form in
denominations of U.S. $1,000 or any amount in excess thereof which is an
integral multiple of U.S. $1,000.
The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a Book-Entry Note or a Certificated Note. Except as
set forth in the Prospectus under "Description of Debt Securities -- Registered
Global Securities," Book-Entry Notes will not be issuable as Certificated
Notes. See "Book-Entry System" below.
The Notes may be presented for payment of principal and interest,
transfer of the Notes will be registrable and the Notes will be exchangeable at
the agency in the Borough of Manhattan, The City of New York, maintained by the
Company for such purpose; provided that Book-Entry Notes will be exchangeable
only in the manner and to the extent set forth under "Description of Debt
Securities -- Registered Global Securities" in the Prospectus. On the date
hereof, the agent for the payment, transfer and exchange of the Notes (the
"Paying Agent") is First Chicago Trust Company of New York, 14 Wall Street, 8th
Floor, New York, New York 10005.
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
formula, maturity and principal amount and any other terms on which each such
Note will be issued.
"Business Day" means, unless otherwise specified in the applicable
Pricing Supplement, 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 and with respect
to LIBOR Notes (as defined below), is also a London Banking Day.
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 U.S.
dollars are transacted in the London interbank market.
S-6
<PAGE> 7
The "Record Date" with respect to any Interest Payment Date shall be the
date 15 calendar days prior to such Interest Payment Date, whether or not such
day shall be a Business Day.
INTEREST AND PRINCIPAL PAYMENTS
Interest will be payable to the person in whose name the Note is
registered at the close of business on the applicable Record Date, provided
that the interest payable at maturity or upon redemption (whether or not the
maturity date or date of redemption is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest
payment on a Note will be made on the first Interest Payment Date falling after
the date the Note is issued; provided, however, that payments of interest (or,
in the case of an Amortizing Note, principal and interest) on a Note 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.
Except as specified below, payments of interest, other than interest
payable at maturity (or on the date of redemption, if a Note is redeemed by the
Company prior to the maturity date), will be made by check mailed to the
address of the person entitled thereto as shown on the Note register. Payments
of principal and interest at maturity or upon redemption will be made in
immediately available funds against presentation and surrender of the Note.
Notwithstanding the foregoing, (a) the Depositary, as holder of Book-Entry
Notes, shall be entitled to receive payments of interest by wire transfer of
immediately available funds and (b) a holder of $10,000,000 or more in
aggregate principal amount of Certificated 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.
Certain Notes, including 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 rate. See "United States
Federal Taxation -- Discount Notes" below. Unless otherwise specified in the
applicable Pricing Supplement, if the principal of any 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 its Issue Price
(expressed as a percentage of the aggregate principal amount), plus the dollar
amount of 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.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issue at the
annual rate stated on the face thereof until the principal thereof is paid or
made available for payment. 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 semiannually on each March 1 and September 1
and at maturity. Unless otherwise specified in the applicable Pricing
Supplement, payments of principal and interest on Amortizing Notes 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. 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) 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).
Interest payments for Fixed Rate Notes will include accrued interest from
the date of issue or from 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
maturity date or earlier redemption, as the case may be. The interest rates
the Company will agree to pay on
S-7
<PAGE> 8
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.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from the date of issue until
the principal thereof is paid or made available for payment at a rate
determined by reference to an interest rate basis (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") or (g) 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 Pricin g 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 which may accrue during any interest period ("Minimum Interest
Rate"). Regardless of any Maximum Interest Rate which 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 present New York law, the maximum rate of interest, with
certain exceptions, for any loan in an amount less than $250,000 is 16% per
annum and for any loan in the amount of $250,000 or more but less than
$2,500,000 is 25% per annum on a simple interest basis. These limits do not
apply to loans of $2,500,000 or more.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually, annually or otherwise periodically
(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. 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 one month and the third Wednesday of the sixth following
month 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"); (b) the interest rate in effect for the ten days
immediately prior to maturity or redemption will be that in effect on the tenth
day preceding such maturity or redemption. 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 next preceding
Business Day.
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Except as provided below and unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in
the case of 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 of each year, as specified in the applicable Pricing
Supplement; (ii) in the case of Notes with a quarterly Interest Reset Date, on
the third Wednesday of March, June, September and December; (iii) in the case
of 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 Notes with an annual Interest Reset Date, on the third Wednesday of the
month specified in the applicable Pricing Supplement. If any Interest Payment
Date for any Floating Rate Note (other than an Interest Payment Date occurring
on a maturity date) would fall on a day that is not a Business Day with respect
to such Note, such Interest Payment Date will be the following day that is a
Business Day with respect to such Note, except that, in the case of a LIBOR
Note, if such 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 date of
redemption) of any Floating 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).
Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes (except Floating Rate Notes on which interest
is reset daily or weekly) shall be the amount of interest accrued from the date
of issue or from the last date to which interest has been paid to, but
excluding, the Interest Payment Date or maturity date (or any redemption date).
In the case of a Floating Rate Note on which interest is reset daily or weekly,
interest payments shall be the amount of interest accrued from the date of
issue or from, but excluding, the last date to which interest has been paid, as
the case may be, to and including the Record Date immediately preceding such
Interest Payment Date, except that at maturity or earlier redemption, the
interest payable will include interest accrued to, but excluding, the maturity
date or the date of redemption, as the case may be.
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. The interest factor for each such day is computed by
dividing the interest rate applicable to such day by 360, in the cases 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. 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 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
which will become effective on the next Interest Reset Date with respect to
such Floating Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date
for CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes and
Prime 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. 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.
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<PAGE> 10
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 immediately preceding the
applicable Interest Payment Date or the 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)
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 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 the
denomination of U.S. $5,000,000 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
(which may include the Agents) selected by the Calculation Agent for negotiable
certificates of deposit of major United States money center banks of the
highest credit standing in the market for negotiable certificates of deposit;
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) 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 prior to 9:00
A.M., New York City time, on the Calculation 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
the 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
in commercial paper in The City of New York (which may include the Agents)
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 the sentence, the Commercial Paper Rate in effect
for the applicable period will be
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<PAGE> 11
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:
<TABLE>
<S> <C> <C>
D x 360
Money Market Yield = ------------------ x 100
360 - (D x M)
</TABLE>
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 period for which accrued interest is being
calculated.
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) 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 by the Board of Governors of
the Federal Reserve System 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 by
the Federal Reserve Bank of New York in the Composite Quotations under the
heading "Federal Funds Effective Rate." If such rate is not yet published in
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 for the last transaction in overnight
U.S. dollar federal funds, as of 9:00 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 (which may include the Agents) 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) specified
in such LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
means the rate determined by the Calculation Agent in accordance with the
following provisions:
(i) With respect to a LIBOR Interest Determination Date, LIBOR
will be, as specified in the applicable Pricing Supplement, either: (a)
the arithmetic mean of the offered rates for deposits in U.S. dollars
having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following the LIBOR Interest Determination Date, that appear on the
Reuters Screen LIBO Page as of 11:00 A.M., London time, on that LIBOR
Interest Determination Date, if at least two such offered rates appear on
the Reuters Screen LIBO Page ("LIBOR Reuters"), or (b) the rate for
deposits in U.S. dollars having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking
Day immediately following that LIBOR Interest Determination Date, that
appears on the Telerate Page 3750 as of 11:00 A.M., London time, on that
LIBOR Interest Determination Date ("LIBOR Telerate"). "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on
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<PAGE> 12
that service for the purpose of displaying London interbank offered rates
of major banks). "Telerate Page 3750" means the display designated as
page "3750" on the Telerate Service (or such other page as may replace
the 3750 page on that service or such other service or services as may be
nominated by the British Bankers' Association for the purpose of
displaying London interbank offered rates for U.S. dollar deposits). If
neither LIBOR Reuters nor LIBOR Telerate is specified in the applicable
Pricing Supplement, LIBOR will be determined as if LIBOR Telerate had
been specified. If fewer than two offered rates appear on the Reuters
Screen LIBO Page, or if no rate appears on the Telerate Page 3750, as
applicable, LIBOR in respect of that LIBOR Interest Determination Date
will be determined as if the parties specified the rate described in (ii)
below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear on the Reuters Screen LIBO Page, as
specified in (i)(a) above, or on which no rate appears on Telerate Page
3750, as specified in (i)(b) above, as applicable, LIBOR will be
determined on the basis of the rates at which deposits in U.S. dollars
having the Index Maturity designated in the applicable Pricing Supplement
are offered at approximately 11:00 A.M., London time, on that LIBOR
Interest Determination Date by four major banks in the London interbank
market selected by the Calculation Agent ("Reference Banks") to prime
banks in the London interbank market commencing on the second London
Banking Day immediately following that LIBOR Interest Determination Date
and in a principal amount equal to an amount of not less than $1,000,000
that is representative for a single transaction in such market at such
time. The Calculation Agent will request the principal London office of
each of the Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, LIBOR in respect of that LIBOR
Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR in respect
of that LIBOR Interest Determination Date will be the arithmetic mean of
the rates quoted at approximately 11:00 A.M., New York City time, on that
LIBOR Interest Determination Date by three major banks in The City of New
York selected by the Calculation Agent for loans in U.S. dollars to
leading European banks having the Index Maturity designated in the
applicable Pricing Supplement commencing on the second London Banking Day
immediately following that LIBOR Interest Determination Date and in a
principal amount equal to an amount of not less than $1,000,000 that is
representative for a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR
with respect to such LIBOR Interest Determination Date will be the rate
of LIBOR in effect on such date.
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)
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, the Prime Rate for such Interest Determination Date will be
the arithmetic mean of the rates of interest publicly announced by each bank
named on the Reuters Screen NYMF Page as such bank's prime rate or base lending
rate as in effect for such Interest Determination Date as quoted on the Reuters
Screen NYMF Page on such Interest Determination Date, or, if fewer than four
such rates appear on the Reuters Screen NYMF Page for such Interest
Determination Date, the rate shall be the arithmetic mean of the prime rates
quoted on the basis of the actual number of days in the year divided by 360 as
of the close of business on such Interest Determination Date by at least two of
the three major money center banks in The City of New York selected by the
Calculation Agent from which quotations are requested. If fewer than two
quotations are provided, the Prime Rate shall be calculated by the Calculation
Agent and shall be determined as the arithmetic mean on the basis of the prime
rates in The City of New York by the appropriate number of substitute banks or
trust companies organized and doing business under the laws of the United
States, or any State thereof, in each case having total equity capital of at
least U.S. $500,000,000 and being subject to supervision or examination by
federal or state authority, selected by the Calculation Agent to quote such
rate or rates.
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<PAGE> 13
If in any month or two consecutive months the Prime Rate is not published
in H.15(519) and the banks or trust companies selected as aforesaid are not
quoting as mentioned in the preceding paragraph, the "Prime Rate" for such
Interest Reset Period will be the same as the Prime Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the rate of interest payable on the Prime Rate Notes for which the
Prime Rate is being determined shall be the Initial Interest Rate). If this
failure continues over three or more consecutive months, the Prime Rate for
each succeeding Interest Determination Date until the maturity date or
redemption of such Prime Rate Notes or, if earlier, until this failure ceases,
shall be LIBOR determined as if such Prime Rate Notes were LIBOR Notes, and the
Spread, if any, shall be the number of basis points specified in the applicable
Pricing Supplement as the "Alternate Rate Event Spread."
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) 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 by the Board of Governors of the
Federal Reserve System in H.15(519) under the heading "U.S. Government
Securities -- 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) of the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on such Interest Determination Date, of three leading primary United
States government securities dealers (which may include the Agents) 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).
Inverse Floating Rate Notes
Any Floating Rate Note may be designated in the applicable Pricing
Supplement as an "Inverse Floating Rate Note," in which event, unless otherwise
specified in the applicable Pricing Supplement, the interest rate on such
Floating Rate Note will be equal to (i) in the case of the period, if any,
commencing on the date of issue up to the first Interest Reset Date, a fixed
rate of interest established by the Company as described in the applicable
Pricing Supplement and (ii) in the case of each period commencing on an
Interest Reset Date, a fixed rate of interest specified in the Pricing
Supplement minus the interest rate determined by reference to the Base Rate as
adjusted by the Spread and/or Spread Multiplier, if any; provided, however,
that (x) the interest rate thereon will not be less than zero and (y) the
interest rate in effect for the ten days immediately prior to the maturity date
of such Inverse Floating Rate Note will be that in effect on the tenth day
preceding such date.
FLOATING RATE/FIXED RATE NOTES OR FIXED RATE/FLOATING RATE NOTES
The applicable Pricing Supplement may provide that a Note will be a
Floating Rate Note for a specified portion of its term and a Fixed Rate Note
for the remainder of its term, in which event the interest rate on such Note
will be determined as herein provided as if it were a Floating Rate Note and a
Fixed Rate Note hereunder for each
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<PAGE> 14
such respective period, all as specified in such applicable Pricing Supplement.
A Note also may be designated in the applicable Pricing Supplement as a Fixed
Rate Note for a specified portion of its term and a Floating Rate Note for the
remainder of its term, in which case the interest rate will be determined as
herein provided as if it were a Fixed Rate Note and a Floating Rate Note for
each such respective period, all as specified in such applicable Pricing
Supplement.
PAYMENTS ON AMORTIZING NOTES
Amortizing Notes are securities for which payments of principal and
interest are made in equal installments over the life of the security.
Interest on each Amortizing Note will be computed on the basis of a 360-day
year of twelve 30-day months. Payments with respect to Amortizing Notes will
be applied first to interest due and payable thereon and then to the reduction
of the unpaid principal amount thereof. 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, to subsequent holders.
BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Book-Entry Notes having the same Issue
Date, interest rate, if any, amortization schedule, if any, and maturity date
will be represented by a single Global Note, and all Floating Rate Book-Entry
Notes having the same Issue Date, Initial Interest Rate, Base Rate, Interest
Period, Interest Payment Dates, Index Maturity, Spread or Spread Multiplier, if
any, Minimum Interest Rate, if any, Maximum Interest Rate, if any, and maturity
date will be represented by a single Global Note. Each Global Note
representing Book-Entry Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depositary"), and registered
in the name of a nominee of the Depositary. Certificated Notes will not be
exchangeable for Book-Entry Notes and, except under the circumstances described
in the Prospectus under "Description of Debt Securities -- Registered Global
Securities," Book-Entry Notes will not be exchangeable for Certificated Notes
and will not otherwise be issuable as Certificated Notes.
A further description of the Depositary's procedures with respect to
Global Notes representing Book-Entry Notes is set forth in the Prospectus under
"Description of Debt Securities -- Registered Global Securities." The
Depositary has confirmed to the Company, each Agent and the Trustee that it
intends to follow such procedures.
REDEMPTION AND REPURCHASE
The Pricing Supplement relating to each Note will indicate whether or not
such Note can be redeemed prior to its maturity at the option of the Company on
or after a specified date or dates prior to its maturity on the terms set forth
therein. The Notes, except for the Amortizing Notes, will not be subject to
any sinking fund.
The Company may repurchase 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 Trustee for cancellation.
GOVERNING LAW AND JUDGMENTS
The Notes will be governed by and construed in accordance with the laws
of the State of New York.
UNITED STATES FEDERAL TAXATION
In the opinion of Harkins Cunningham, independent counsel to the Company,
the following description accurately summarizes the material United States
federal income tax consequences of ownership of the Notes. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), and
existing and proposed Treasury regulations, revenue rulings and judicial
decisions, all as in effect on the date of this Prospectus Supplement and all
of which are subject to change possibly with retroactive effect, or to
different interpretations. 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 a holder in light
of his particular circumstances
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<PAGE> 15
or to holders subject to special rules, such as persons other than United
States Holders (as defined below), life insurance companies, dealers in
securities, persons holding the Notes as a hedge against currency or other
risks, or United States Holders whose functional currency (as defined in Code
section 985) is not the United States dollar. Persons considering the purchase
of the Notes and making any election under the Code or the Treasury Regulations
with respect to such Notes should consult with their own tax advisors with
regard to the application of the U.S. 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 U.S. federal income tax purposes, a citizen or resident
of the United States, 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 an estate or trust the income of which is subject to
U.S. federal income taxation regardless of its source.
Payments of Interest on the Notes
Interest payable on a Note that is not a Discount Note (as defined below)
generally 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 federal income tax purposes.
Discount Notes
The following summary is a general description of U.S. federal income tax
consequences to holders of Notes issued with original issue discount ("Discount
Notes") and is based on the provisions of the Code as in effect on the date
hereof. Prospective holders should be aware, however, that in December, 1992,
the Internal Revenue Service (the "IRS") promulgated proposed regulations under
the original issue discount rules of the Code (the "Proposed OID Regulations").
The Proposed OID Regulations provide that they will only apply to debt
instruments issued on or after the date that is 60 days after the date
regulations are issued in final form. Subsequent regulations may adopt
positions that would apply to Discount Notes and that may be different from the
positions discussed below. In the meantime, the Company expects that it will
prepare information returns with respect to Discount Notes in accordance with
the Proposed OID Regulations. Holders should consult the applicable pricing
supplement and their own tax advisors concerning the applicability of any
subsequent regulations to their purchase, ownership and disposition of the
Notes and with respect to Notes issued with features not discussed herein.
For U.S. federal income tax purposes, original issue discount is the
excess of the stated redemption price at maturity of each discount Note over
its issue price if such excess is greater than or equal to a de minimis amount
(generally 1/4 of 1% of the Discount Note's stated redemption price at maturity
multiplied by the number of complete years to maturity from the issue date).
The issue price of an issue of Discount Notes that are publicly offered and not
issued for property will be equal to the first price at which a substantial
amount of such Notes is sold to the public. The stated redemption price at
maturity of a Discount Note is the sum of all payments provided by the Discount
Note other than payments of "fixed periodic interest." For purposes of this
discussion, the term "fixed periodic interest" means stated interest that is
unconditionally payable at fixed periodic intervals of one year or less during
the entire term of the debt instrument. Except as described below with respect
to short-term Discount Notes, a holder of a Discount Note will be required to
include original issue discount in income as it accrues before the receipt of
cash attributable to such income, regardless of such holder's method of
accounting for tax purposes.
The amount of original issue discount includible in income by the initial
holder of a Discount Note is the sum of the daily portions of original issue
discount with respect to such Note for each day during the taxable year on
which such holder held such Note ("accrued original issue discount").
Generally, the daily portion of the original issue discount is determined by
allocating to each day in any "accrual period" a ratable portion of the
original issue discount allocable to such accrual period. Under the Code, an
"accrual period" is any six-month period (or shorter period from the issue date
of such Note) which ends on a day in the calendar year corresponding to the
maturity date of the Note or the date six months before such date. The amount
of original issue discount allocable to each accrual period is equal to the
excess (if any) of (a) the product of a Discount Note's adjusted issue price at
the beginning of such accrual period and its yield to maturity (determined on
the basis of compounding at the close of each accrual period and adjusted for
the length of such accrual period) over (b) the amount of the fixed periodic
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interest, if any, payable on such Discount Note and allocable to such accrual
period. The "adjusted issue price" of a Discount Note at the beginning of any
accrual period generally is the sum of the issue price of a Discount Note plus
the accrued original issue discount allocable for all prior accrual periods
reduced by any prior payment on the Discount Note other than a payment of fixed
periodic interest. Under these rules, a holder of a Discount Note generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
Certain of the Discount Notes may be redeemable prior to maturity (a
"call option"). Discount Notes containing such a feature may be subject to
rules that differ from the general rules discussed above. Holders intending to
purchase Discount Notes with such a feature should carefully examine the
applicable Pricing Supplement and should consult with their own tax advisors
with respect to such a feature since the tax consequences with respect to
original issue discount will depend, in part, on the particular terms and
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
original issue discount for U.S. federal income tax purposes unless such
Holder elects to do so. United States Holders who report income for U.S.
federal income tax purposes on the accrual method and certain other holders,
including banks and dealers in securities, are required to include original
issue discount (or alternatively, acquisition discount) on such short-term
Discount Notes on a straight-line basis, unless an election is made to accrue
the original issue discount (or, alternatively, acquisition discount) 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 original
issue discount in income currently, any gain realized on the sale, exchange or
retirement of a short-term Discount Note will be ordinary income to the extent
of the original issue discount 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 original issue discount is included in
such Holder's income.
Premium and Market Discount
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 as of the purchase date,
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 fixed periodic 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 which 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
under the rules applicable to original issue discount.
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 in a taxable transaction, because a current deduction is
only allowed to the extent the interest expense exceeds an allocable portion of
market discount. A United States Holder may elect to include market discount
in income currently as it accrues, in which case the rules described above
regarding the treatment as ordinary income or 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. Generally, such currently included
market discount is treated as interest for federal income tax purposes.
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A United States Holder who purchases a Discount Note without an
"amortizable bond premium" (as defined below) for an amount that is greater
than its adjusted issue price as of the purchase date, 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 original
issue discount which such Holder must include in its gross income with respect
to such Note for any taxable year (or portion thereof in which such Holder
holds such Note) will be reduced (but not below zero) by the portion of such
acquisition premium properly allocable to such period.
If a United States Holder purchases a Note for an amount that is greater
than its stated redemption price at maturity, such Holder will be considered to
have purchased such Note with "amortizable bond premium" equal in amount to
such excess. In accordance with applicable Code provisions, such Holder may
elect 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.
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 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 and original issue discount (or, alternatively,
acquisition discount) previously included in income by the Holder with respect
to such Note and reduced by any acquisition premium or 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 fixed periodic interest.
Gain or loss recognized on the sale, exchange or retirement of a Note
generally 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
original issue discount which the United States Holder has not previously
included in income), and generally will 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.
Backup Withholding
The Company, an Agent, a broker, the 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%. Such payment will be subject to backup
withholding if the United States Holder fails to furnish its taxpayer
identification number ("TIN") (which is an individual's social security number
or an entity's employer identification number), or if the IRS or a broker
notifies the party in control of such payment that such Holder's TIN is
incorrect or such Holder is subject to backup withholding due to that Holder's
underreporting, or if such Holder fails to certify that such Holder is not
subject to backup withholding or if such Holder fails otherwise to comply with
the applicable requirements of the backup withholding rules. The 31% "backup"
withholding and information reporting requirements apply to certain payments of
principal, premium, if any, and interest (including original issue discount) on
an obligation, and to proceeds of the sale or redemption of an obligation
before maturity. Certain Holders (including, among others, corporations) 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 liability provided that the required information is
furnished to the IRS.
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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. EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF A NOTE, 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 through
the Agents who have agreed or will agree 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. Each Agent will have the right to reject any offer to purchase Notes
solicited by it in whole or in part. Payment of the purchase price of the
Notes will be required to be made in immediately available funds. The Company
will pay each Agent a commission, in connection with sales of Notes to
purchasers solicited by such Agent, ranging from .125% to .750% of the
principal amount of Notes to be sold; provided, however, that commissions with
respect to Notes maturing in thirty years or greater will be negotiated.
The Company may also sell Notes to any 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 prevailing market prices, or prices
related thereto at the time of such resale or otherwise, as determined by such
Agent or, if so agreed, at a fixed public offering price. In addition, the
Agents may offer the Notes they have purchased as principal to other dealers.
The Agents may sell 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 to be resold to
investors and other purchasers, the public offering price (in the case of Notes
to be resold at a fixed public offering price), concession and discount may be
changed.
The Company has reserved the right to sell, and may solicit and accept
offers to purchase, Notes directly to investors from time to time on its own
behalf. No commission will be payable by the Company to any Agent on account
of sales of Notes made directly by the Company. The Company may accept (but
not solicit) offers to purchase Notes through additional agents and may appoint
additional agents for the purpose of soliciting offers to purchase Notes, in
either case on terms substantially identical to the terms contained in the
Distribution Agreement. Such other agents, if any, will be named in the
applicable Pricing Supplement.
Each Agent, as Agent or principal, 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 or will agree 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
or will agree to reimburse the Agents for certain expenses.
Concurrently with the offering of the Notes through the Agents as
described herein, the Company may issue other debt securities pursuant to the
Registration Statement of which this Prospectus Supplement is a part.
The Company does not intend to apply for a listing of the Notes on a
national securities exchange. 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. However, none of the Agents are obligated to do so, and any Agent
may discontinue making a market in the Notes at any time without notice. No
assurance can be given as to the liquidity of any trading market for the Notes.
In addition, other agents may also make a market in the Notes, as permitted by
applicable laws and regulations.
LEGAL MATTERS
The validity of the Notes offered hereby is being passed upon for the
Company by Timothy T. O'Toole, Esq., Vice President and General Counsel of the
Company, and for the Agents by Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022. Mr. O'Toole owns and has options to acquire shares of
common stock of Conrail Inc.
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