<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 18, 1997
$300,000,000
NIPSCO CAPITAL MARKETS, INC.
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
---------------
ENTITLED TO THE BENEFIT OF A SUPPORT AGREEMENT
PROVIDING FOR THE PAYMENT OF PRINCIPAL AND INTEREST BY
NIPSCO INDUSTRIES, INC.
---------------
NIPSCO Capital Markets, Inc. ("Capital") may offer from time to time up to
$300,000,000 aggregate principal amount, or the equivalent thereof in one or
more foreign or composite currencies, of its Medium-Term Notes due nine months
or more from date of issue (the "Notes"). Such aggregate principal amount is
subject to reduction
(Continued on following page)
---------------
SEE "RISK FACTORS" COMMENCING ON PAGE S-3 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES
OFFERED HEREBY.
---------------
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, THE PROSPECTUS OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------
<TABLE>
<CAPTION>
AGENTS' DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(1)(2) COMPANY (1)(3)
--------- ----------------- --------------
<S> <C> <C> <C>
Per Note.......... 100% .125%-.750% 99.875%-99.250%
Total(4).......... $300,000,000 $375,000--$2,250,000 $299,625,000--$297,750,000
</TABLE>
- -------
(1) Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Morgan Stanley & Co. Incorporated (the "Agents"),
individually or in a syndicate, may purchase Notes, as principal, from
Capital for resale to investors and other purchasers at varying prices
related to prevailing market prices at the time of resale as determined by
the applicable Agent or, if so specified in the applicable Pricing
Supplement, for resale at a fixed offering price. Unless otherwise
specified in the applicable Pricing Supplement, any Note sold to an Agent
as principal will be purchased by such Agent at a price equal to 100% of
the principal amount thereof less a percentage of the principal amount
equal to the commission applicable to an agency sale (as described below)
of a Note of identical maturity. If agreed to by Capital and an Agent,
such Agent may utilize its reasonable efforts on an agency basis to
solicit offers to purchase the Notes at 100% of the principal amount
thereof, unless otherwise specified in the applicable Pricing Supplement.
Capital will pay a commission to an Agent, ranging from .125% to .750% of
the principal amount of a Note, depending upon its stated maturity, sold
through an Agent. Commissions with respect to Notes with stated maturities
in excess of 30 years that are sold through such Agent will be negotiated
between Capital and such Agent at the time of such sale. See "Plan of
Distribution."
(2) Capital has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(3) Before deducting expenses payable by Capital estimated at $255,400.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
---------------
The Notes are being offered on a continuing basis by Capital to or through
the Agents. Unless otherwise specified in the applicable Pricing Supplement,
the Notes will not be listed on any securities exchange. There is no assurance
that the Notes offered hereby will be sold or, if sold, that there will be a
secondary market for the Notes or liquidity in the secondary market if one
develops. Capital reserves the right to cancel or modify the offer made hereby
without notice. Capital or an Agent, if it solicits the offer on an agency
basis, may reject any offer to purchase Notes in whole or in part. See "Plan
of Distribution."
---------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
---------------
The date of this Prospectus Supplement is March 21, 1997.
<PAGE>
(Continued from previous page)
as a result of the sale by Capital of other Debt Securities described in the
accompanying Prospectus. Each Note will mature on any day nine months or more
from the date of issue, as specified in the applicable pricing supplement
hereto (each, a "Pricing Supplement"), and may be subject to redemption at the
option of Capital or repayment at the option of the Holder thereof, in each
case, in whole or in part, prior to its Stated Maturity Date, if specified in
the applicable Pricing Supplement. In addition, each Note will be denominated
and/or payable in United States dollars or a foreign or composite currency
("Foreign Currency Notes"), as specified in the applicable Pricing Supplement.
The Notes, other than Foreign Currency Notes, will be issued in minimum
denominations of $1,000 and integral multiples thereof, unless otherwise
specified in the applicable Pricing Supplement, while Foreign Currency Notes
will be issued in the minimum denominations specified in the applicable
Pricing Supplement.
Capital may issue Notes that bear interest at fixed rates ("Fixed Rate
Notes") or at floating rates ("Floating Rate Notes"). The applicable Pricing
Supplement will specify whether a Floating Rate Note is a Regular Floating
Rate Note, a Floating Rate/Fixed Rate Note or an Inverse Floating Rate Note
and whether the rate of interest thereon is determined by reference to one or
more of the CD Rate, the CMT Rate, the Commercial Paper Rate, the Eleventh
District Cost of Funds Rate, the Federal Funds Rate, LIBOR, the Prime Rate or
the Treasury Rate (each, an "Interest Rate Basis"), or any other interest rate
basis or formula, as adjusted by any Spread and/or Spread Multiplier. Interest
on each Floating Rate Note will accrue from its date of issue and, unless
otherwise specified in the applicable Pricing Supplement, will be payable
monthly, quarterly, semiannually or annually in arrears, as specified in the
applicable Pricing Supplement, and on the Maturity Date. 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, as specified in the applicable Pricing Supplement.
Interest on each Fixed Rate Note will accrue from its date of issue and,
unless otherwise specified in the applicable Pricing Supplement, will be
payable semiannually in arrears on March 15 and September 15 of each year and
on the Maturity Date. Capital may also issue Discount Notes, Indexed Notes and
Amortizing Notes.
The interest rate, or formula for the determination of the interest rate, if
any, applicable to each Note and the other variable terms thereof will be
established by Capital on the date of issue of such Note and will be specified
in the applicable Pricing Supplement. Interest rates or formulas and other
terms of the Notes are subject to change by Capital, but no such change will
affect any Note previously issued or as to which an offer to purchase has been
accepted by Capital.
Each Note will be issued in book-entry form (a "Book-Entry Note") or in
fully registered certificated form (a "Certificated Note"), as specified in
the applicable Pricing Supplement. Each Book-Entry Note will be represented by
one or more fully registered global securities (the "Global Securities")
deposited with or on behalf of The Depository Trust Company (or such other
depositary identified in the applicable Pricing Supplement) (the "Depositary")
and registered in the name of the Depositary or the Depositary's nominee.
Interests in the Global Securities will be shown on, and transfers thereof
will be effected only through, records maintained by the Depositary (with
respect to its participants) and the Depositary's participants (with respect
to beneficial owners). Except in limited circumstances, Book-Entry Notes will
not be exchangeable for Certificated Notes.
S-2
<PAGE>
CERTAIN PERSONS PARTICIPATING IN OFFERINGS OF NOTES MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH NOTES, AND THE IMPOSITION OF PENALTY BIDS, DURING AND AFTER SUCH
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
----------------
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in the Notes, whether resulting from such Notes being denominated
or payable in or determined by reference to a currency or composite currency
other than United States dollars or to one or more interest rate, currency or
other indices or formulas, or otherwise. Capital and the Agents disclaim any
responsibility to advise prospective investors of such risks as they exist at
the date of this Prospectus Supplement or as they change from time to time.
Prospective investors should consult their own financial and legal advisors as
to the risks entailed by an investment in the Notes and the suitability of
investing in the Notes in light of their particular circumstances. Foreign
Currency Notes are not an appropriate investment for investors who are
unsophisticated with respect to foreign currency transactions or transactions
involving the applicable interest rate or currency index or other indices or
formulas. Prospective investors should carefully consider, among other
factors, the matters described below.
STRUCTURE RISKS
An investment in the Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more interest rate, currency (including exchange
rates and swap indices between currencies or composite currencies) or other
indices or formulas, either directly or inversely, entails significant risks
that are not associated with similar investments in a conventional fixed rate
or floating rate debt security. Such risks include, without limitation, the
possibility that such indices or formulas may be subject to significant
changes, that no interest will be payable in respect of such Notes or will be
payable at a rate lower than one applicable to a conventional fixed rate or
floating rate debt security issued by Capital at the same time, that repayment
of the principal and/or premium, if any, in respect of such Notes may occur at
times other than that expected by the holders of the Notes ("Holders"), and
that the Holders could lose all or a substantial portion of principal and/or
premium, if any, payable with respect to such Notes on the Maturity Date (as
defined under "Description of Notes--General"). Such risks depend on a number
of interrelated factors, including economic, financial and political events,
over which Capital has no control. Additionally, if the formula used to
determine the amount of principal, premium, if any, and/or interest, if any,
payable with respect to such Notes contains a multiplier or leverage factor,
the effect of any change in the applicable index or indices or formula or
formulas will be magnified. In recent years, values of certain indices and
formulas have been highly volatile and such volatility may be expected to
continue in the future. Fluctuations in the value of any particular index or
formula that have occurred in the past are not necessarily indicative,
however, of fluctuations that may occur in the future.
Any optional redemption feature of the Notes might affect the market value
of such Notes. Since Capital may be expected to redeem such Notes when
prevailing interest rates are relatively low, Holders generally will not be
able to reinvest the redemption proceeds in a comparable security at an
effective interest rate as high as the current interest rate on such Notes.
The Notes will not have an established trading market when issued, and there
can be no assurance of a secondary market for the Notes or the liquidity of
the secondary market if one develops. See "Plan of Distribution."
The secondary market, if any, for the Notes will be affected by a number of
factors independent of the creditworthiness of Capital and the value of the
applicable index or indices or formula or
S-3
<PAGE>
formulas, including the complexity and volatility of each such index or
formula, the method of calculating the principal, premium, if any, and/or
interest, if any, in respect of such Notes, the time remaining to the maturity
of such Notes, the outstanding amount of such Notes, any redemption features
of such Notes, the amount of other debt securities linked to such index or
formula and the level, direction and volatility of market interest rates
generally. Such factors also will affect the market value of such Notes. In
addition, certain Notes may be designed for specific investment objectives or
strategies and, therefore, may have a more limited secondary market and
experience more price volatility than conventional debt securities. Holders
may not be able to sell such Notes readily or at prices that will enable them
to realize their anticipated yield. No investor should purchase Notes unless
such investor understands and is able to bear the risk that such Notes may not
be readily saleable, that the value of such Notes will fluctuate over time and
that such fluctuations may be significant.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes (as defined under "Description of
Notes--General") entails significant risks that are not associated with a
similar investment in a debt security denominated and payable in United States
dollars. Such risks include, without limitation, the possibility of
significant changes in the rate of exchange between the United States dollar
and the Specified Currency (as defined under "Description of Notes--General")
and the possibility of the imposition or modification of exchange controls by
the applicable governments or monetary authorities. Such risks generally
depend on factors over which Capital has no control, such as economic,
financial and political events and the supply and demand for the applicable
currencies or composite currencies. In addition, if the formula used to
determine the amount of principal, premium, if any, and/or interest, if any,
payable with respect to Foreign Currency Notes contains a multiplier or
leverage factor, the effect of any change in the applicable currencies or
composite currencies will be magnified. In recent years, rates of exchange
between the United States dollar and foreign or composite 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 that may occur in the
future. Depreciation of the Specified Currency applicable to a Foreign
Currency Note against the United States dollar would result in a decrease in
the United States dollar-equivalent yield of such Foreign Currency Note, in
the United States dollar-equivalent value of the principal and premium, if
any, payable on the Maturity Date of such Foreign Currency Note, and,
generally, in the United States dollar-equivalent market value of such Foreign
Currency Note.
Governments or monetary authorities have imposed from time to time, and may
in the future impose or revise, exchange controls at or prior to the date on
which any payment of principal of, or premium, if any, or interest, if any,
on, a Foreign Currency Note is due, which could affect exchange rates as well
as the availability of the Specified Currency on such date. Even if there are
no exchange controls, it is possible that the Specified Currency would not be
available on the applicable payment date due to other circumstances beyond the
control of Capital. In such cases, Capital will be entitled to satisfy its
obligations in respect of such Foreign Currency Note in United States dollars.
See "Special Provisions Relating to Foreign Currency Notes--Availability of
Specified Currency."
CREDIT RATINGS
The credit ratings assigned to Capital's medium-term note program may not
reflect the potential impact of all risks related to structure and other
factors on the value of the Notes. Accordingly, prospective investors should
consult their own financial and legal advisors as to the risks entailed by an
investment in the Notes and the suitability of investing in such Notes in
light of their particular circumstances.
S-4
<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities under an Indenture,
dated as of February 14, 1997, as amended or modified from time to time (the
"Indenture"), between Capital and The Chase Manhattan Bank, as trustee (the
"Trustee"). The Indenture is subject to, and governed by, the Trust Indenture
Act of 1939, as amended. The following summary of certain provisions of the
Notes and the Indenture does not purport to be complete and is qualified in
its entirety by reference to the actual provisions of the Notes and the
Indenture. Capitalized terms used but not defined herein shall have the
meanings given to them in the accompanying Prospectus, the Notes or the
Indenture, as the case may be. The term "Debt Securities," as used in this
Prospectus Supplement, refers to all debt securities, including the Notes,
issued and issuable from time to time under the Indenture. The following
description of the Notes will apply to each Note offered hereby unless
otherwise specified in the applicable Pricing Supplement.
GENERAL
All Debt Securities, including the Notes, issued and to be issued under the
Indenture will be unsecured general obligations of Capital and will rank pari
passu with all other unsecured and unsubordinated indebtedness of Capital from
time to time outstanding. The Indenture does not limit the aggregate principal
amount of Debt Securities that may be issued thereunder and Debt Securities
may be issued thereunder from time to time in one or more series up to the
aggregate principal amount from time to time authorized by Capital for each
series. Capital may, from time to time, without the consent of the Holders,
provide for the issuance of Notes or other Debt Securities under the Indenture
in addition to the $300,000,000 aggregate principal of Notes offered hereby.
The Notes are currently limited to up to $300,000,000 aggregate principal
amount, or the equivalent thereof in one or more foreign or composite
currencies. Each Note will mature on any day nine months or more from its date
of issue (the "Stated Maturity Date"), as specified in the applicable Pricing
Supplement, unless the principal thereof (or any installment of principal
thereof) becomes due and payable prior to the Stated Maturity Date, whether by
the declaration of acceleration of maturity, notice of redemption at the
option of Capital, notice of the Holder's option to elect repayment or
otherwise (the Stated Maturity Date or such prior date, as the case may be, is
herein referred to as the "Maturity Date" with respect to the principal of
such Note repayable on such date). Unless otherwise specified in the
applicable Pricing Supplement, interest-bearing Notes will either be Fixed
Rate Notes or Floating Rate Notes, as specified in the applicable Pricing
Supplement. Capital may also issue Discount Notes, Indexed Notes and
Amortizing Notes (as such terms are hereinafter defined).
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, in respect thereof will be made in, United States dollars.
The Notes also may be denominated in, and payments of principal, premium, if
any, and/or interest, if any, in respect thereof may be made in, one or more
foreign or composite currencies. See "Special Provisions Relating to Foreign
Currency Notes--Payment of Principal, Premium, if any, and Interest, if any."
The currency or composite currency in which a particular Note is denominated
(or, if such currency or composite currency is no longer legal tender for the
payment of public and private debts, such other currency or composite currency
of the relevant country which is then legal tender for the payment of such
debts) is herein referred to as the "Specified Currency" with respect to such
Note. References herein to "United States dollars", "U.S. dollars" or "$" are
to the lawful currency of the United States of America (the "United States").
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for the Notes in the applicable Specified Currencies. At
the present time, there are limited facilities in
S-5
<PAGE>
the United States for the conversion of United States dollars into foreign or
composite currencies and vice versa, and commercial banks do not generally
offer non-United States dollar checking or savings account facilities in the
United States. Capital believes that, unless otherwise specified in the
applicable Pricing Supplement, the Agent from or through which a Foreign
Currency Note is purchased may be prepared to arrange for the conversion of
United States dollars into the Specified Currency in order to enable the
purchaser to pay for such Foreign Currency Note, provided that a request is
made to such Agent on or prior to the fifth Business Day (as hereinafter
defined) preceding the date of delivery of such Foreign Currency Note, or by
such other day as determined by such Agent. Each such conversion will be made
by such Agent on such terms and subject to such conditions, limitations and
charges as such Agent may from time to time establish in accordance with its
regular foreign exchange practices. All costs of exchange will be borne by the
purchaser of each such Foreign Currency Note. See "Special Provisions Relating
to Foreign Currency Notes."
Interest rates offered by Capital with respect to the Notes may differ
depending upon, among other factors, the aggregate principal amount of Notes
purchased in any single transaction. Notes with different variable terms other
than interest rates may also be offered concurrently to different investors.
Interest rates or formulas and other terms of the Notes are subject to change
by Capital from time to time, but no such change will affect any Note
previously issued or as to which an offer to purchase has been accepted by
Capital.
Each Note will be issued as a Book-Entry Note represented by one or more
fully registered Global Securities or as a fully registered Certificated Note.
The minimum denominations of each Note other than a Foreign Currency Note will
be $1,000 and integral multiples thereof, unless otherwise specified in the
applicable Pricing Supplement, while the minimum denominations of each Foreign
Currency Note will be specified in the applicable Pricing Supplement.
Payments of principal of, and premium, if any, and interest, if any, on,
Book-Entry Notes will be made by Capital through the Trustee to the
Depositary. See "--Book-Entry Notes." In the case of Certificated Notes,
payment of principal and premium, if any, due on the Maturity Date will be
made in immediately available funds upon presentation and surrender thereof
(and, in the case of any repayment on an Optional Repayment Date, upon
submission of a duly completed election form in accordance with the provisions
described below) at the office or agency maintained by Capital for such
purpose in the Borough of Manhattan, The City of New York, currently the
corporate trust office of the Trustee. Payment of interest, if any, due on the
Maturity Date of a Certificated Note will be made to the person to whom
payment of the principal thereof and premium, if any, thereon shall be made.
Payment of interest, if any, due on a Certificated Note on any Interest
Payment Date (as hereinafter defined) other than the Maturity Date will be
made by check mailed to the address of the Holder entitled thereto as such
address shall appear in the Security Register of Capital. Notwithstanding the
foregoing, a Holder of $10,000,000 (or, if the Specified Currency is other
than United States dollars, the equivalent thereof in such Specified Currency)
or more in aggregate principal amount of Certificated Notes (whether having
identical or different terms and provisions) will be entitled to receive
interest payments, if any, on any Interest Payment Date other than the
Maturity Date by wire transfer of immediately available funds if appropriate
wire transfer instructions have been received in writing by the Trustee not
less than 15 days prior to such Interest Payment Date. Any such wire transfer
instructions received by the Trustee shall remain in effect until revoked by
such Holder. For special payment terms applicable to Foreign Currency Notes,
see "Special Provisions Relating to Foreign Currency Notes--Payment of
Principal, Premium, if any, and Interest, if any."
As used herein, "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, regulation or executive order
to close in The City of New York; provided, however, that, with respect to
Foreign Currency Notes, such day is also not a day on which banking
institutions are authorized or required by law, regulation or executive order
to close in the Principal Financial Center (as hereinafter defined) of
S-6
<PAGE>
the country issuing the Specified Currency (unless the Specified Currency is
European Currency Units ("ECU"), in which case such day is also not a day that
appears as an ECU non-settlement day on the display designated as "ISDE" on
the Reuter Monitor Money Rates Service (or is not a day designated as an ECU
non-settlement day by the ECU Banking Association) or, if ECU non-settlement
days do not appear on that page (and are not so designated), a day that is not
a day on which payments in ECU cannot be settled in the international
interbank market); provided, further, that, with respect to Notes as to which
LIBOR is an applicable Interest Rate Basis, such day is also a London Business
Day (as hereinafter defined). "London Business Day" means a day on which
dealings in the Designated LIBOR Currency (as hereinafter defined) are
transacted in the London interbank market.
"Principal Financial Center" means (i) the capital city of the country
issuing the Specified Currency (except as described in the immediately
preceding paragraph with respect to ECU) or (ii) the capital city of the
country to which the Designated LIBOR Currency, if applicable, relates (or, in
the case of ECU, Luxembourg), except, in each case, that with respect to
United States dollars, Australian dollars, Canadian dollars, Deutsche marks,
Dutch guilders, Italian lire and Swiss francs, the "Principal Financial
Center" shall be The City of New York, Sydney, Toronto, Frankfurt, Amsterdam,
Milan (solely in the case of clause (i) above) and Zurich, respectively,
unless otherwise specified in the applicable Pricing Supplement.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "--Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by Capital
for such purpose in the Borough of Manhattan, The City of New York, currently
the corporate trust office of the Trustee. No service charge will be made by
Capital or the Trustee for any such registration of transfer or exchange of
the Notes, but Capital may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith
(other than exchanges pursuant to the Indenture not involving any transfer).
REDEMPTION AT THE OPTION OF CAPITAL
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of Capital prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of Capital on
any date on and after the applicable Initial Redemption Date in whole or from
time to time in part in increments of $1,000 or such other minimum
denomination specified in such Pricing Supplement (provided that any remaining
principal amount thereof shall be at least $1,000 or such minimum
denomination), at the applicable Redemption Price (as hereinafter defined),
together with unpaid interest accrued thereon to the date of redemption, on
written notice given to the Holders thereof not more than 60 nor less than 30
calendar days prior to the date of redemption and in accordance with the
provisions of the Indenture. "Redemption Price", with respect to a Note, means
an amount equal to the Initial Redemption Percentage specified in the
applicable Pricing Supplement (as adjusted by the Annual Redemption Percentage
Reduction, if applicable) multiplied by the unpaid principal amount to be
redeemed. The Initial Redemption Percentage, if any, applicable to a Note
shall decline at each anniversary of the Initial Redemption Date by an amount
equal to the applicable Annual Redemption Percentage Reduction, if any, until
the Redemption Price is equal to 100% of the unpaid principal amount to be
redeemed. For a discussion of the redemption of Discount Notes, see "--
Discount Notes."
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by Capital at the option of the Holders thereof
prior to the Stated Maturity Date only if one or more Optional Repayment Dates
are specified in the applicable Pricing Supplement. If so specified, the Notes
will be subject to repayment at the option of the Holders
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<PAGE>
thereof on any Optional Repayment Date in whole or from time to time in part
in increments of $1,000 or such other minimum denomination specified in the
applicable Pricing Supplement (provided that any remaining principal amount
thereof shall be at least $1,000 or such other minimum denomination), at a
repayment price equal to 100% of the unpaid principal amount to be repaid,
together with unpaid interest accrued thereon to the date of repayment. For
any Note to be repaid, such Note must be received, together with the form
thereon entitled "Option to Elect Repayment" duly completed, by the Trustee at
its office maintained for such purpose in the Borough of Manhattan, The City
of New York, currently the corporate trust office of the Trustee, not more
than 60 nor less than 30 calendar days prior to the date of repayment.
Exercise of such repayment option by the Holder will be irrevocable. For a
discussion of the repayment of Discount Notes, see "--Discount Notes."
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any
portion of the Book-Entry Notes represented by such Global Securities repaid
must instruct the Participant (as hereinafter defined) through which they own
their interest to direct the Depositary to exercise the repayment option on
their behalf by delivering the related Global Security and duly completed
election form to the Trustee as aforesaid. In order to ensure that such Global
Security and election form are received by the Trustee on a particular day,
the applicable Beneficial Owner must so instruct the Participant through which
it owns its interest before such Participant's deadline for accepting
instructions for that day. Different firms may have different deadlines for
accepting instructions from their customers. Accordingly, Beneficial Owners
should consult the Participants through which they own their interest for the
respective deadlines for such Participants. All instructions given to
Participants from Beneficial Owners of Global Securities relating to the
option to elect repayment shall be irrevocable. In addition, at the time such
instructions are given, each such Beneficial Owner shall cause the Participant
through which it owns its interest to transfer such Beneficial Owner's
interest in the Global Security or Securities representing the related Book-
Entry Notes, on the Depositary's records, to the Trustee. See "--Book-Entry
Notes."
If applicable, Capital will comply with the requirements of Section 14(e) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules promulgated thereunder, and any other securities laws or regulations in
connection with any such repayment.
Capital may at any time purchase Notes at any price or prices in the open
market or otherwise. Notes so purchased by Capital may, at the discretion of
Capital, be held, resold or surrendered to the Trustee for cancellation.
INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate
per annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly
made available for payment. Unless otherwise specified in the applicable
Pricing Supplement, interest payments in respect of Fixed Rate Notes and
Floating Rate Notes will be made in an amount equal to the interest accrued
from and including the immediately preceding Interest Payment Date in respect
of which interest has been paid or duly made available for payment (or from
and including the date of issue, if no interest has been paid or duly made
available for payment) to but excluding the applicable Interest Payment Date
or the Maturity Date, as the case may be (each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless
otherwise specified in the applicable Pricing Supplement, the first payment of
interest on any such Note originally issued between a Record Date
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(as hereinafter defined) and the related Interest Payment Date will be made on
the Interest Payment Date immediately following the next succeeding Record
Date to the Holder on such next succeeding Record Date. Unless otherwise
specified in the applicable Pricing Supplement, a "Record Date" shall be the
fifteenth calendar day (whether or not a Business Day) immediately preceding
the related Interest Payment Date.
Fixed Rate Notes
Interest on Fixed Rate Notes will be payable on March 15 and September 15 of
each year or on such other date(s) specified in the applicable Pricing
Supplement (each, an "Interest Payment Date" with respect to Fixed Rate Notes)
and on the Maturity Date. Unless otherwise specified in the applicable Pricing
Supplement, interest on Fixed Rate Notes will be computed on the basis of a
360-day year of twelve 30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note falls
on a day that is not a Business Day, the required payment of principal,
premium, if any, and/or interest will be made on the next succeeding Business
Day as if made on the date such payment was due, and no interest will accrue
on such payment for the period from and after such Interest Payment Date or
the Maturity Date, as the case may be, to the date of such payment on the next
succeeding Business Day.
Floating Rate Notes
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds
Rate, (vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such
other Interest Rate Basis or interest rate formula as may be specified in the
applicable Pricing Supplement. The applicable Pricing Supplement will specify
certain terms with respect to which each Floating Rate Note is being
delivered, including: whether such Floating Rate Note is a "Regular Floating
Rate Note," a "Floating Rate/Fixed Rate Note" or an "Inverse Floating Rate
Note," the Fixed Rate Commencement Date, if applicable, Fixed Interest Rate,
if applicable, Interest Rate Basis or Bases, Initial Interest Rate, if any,
Initial Interest Reset Date, Interest Reset Dates, Interest Payment Dates,
Index Maturity, Maximum Interest Rate and/or Minimum Interest Rate, if any,
and Spread and/or Spread Multiplier, if any, as such terms are defined below.
If one or more of the applicable Interest Rate Bases is LIBOR or the CMT Rate,
the applicable Pricing Supplement will also specify the Designated LIBOR
Currency and Designated LIBOR Page or the Designated CMT Maturity Index and
Designated CMT Telerate Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note", or as having an
Addendum attached or having "Other/Additional Provisions" apply, in each
case relating to a different interest rate formula, such Floating Rate Note
will be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Pricing Supplement, will bear interest
at the rate determined by reference to the applicable Interest Rate Basis
or Bases (a) plus or minus the applicable Spread, if any, and/or (b)
multiplied by the applicable Spread Multiplier, if any. Commencing on the
Initial Interest Reset Date, the rate at which interest on such Regular
Floating Rate Note shall be payable shall be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset Date
will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases
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(a) plus or minus the applicable Spread, if any, and/or (b) multiplied by
the applicable Spread Multiplier, if any. Commencing on the Initial
Interest Reset Date, the rate at which interest on such Floating Rate/Fixed
Rate Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (y) the interest rate in effect for the period, if
any, from the date of issue to the Initial Interest Reset Date will be the
Initial Interest Rate and (z) the interest rate in effect for the period
commencing on the Fixed Rate Commencement Date to the Maturity Date shall
be the Fixed Interest Rate, if such rate is specified in the applicable
Pricing Supplement or, if no such Fixed Interest Rate is specified, the
interest rate in effect thereon on the day immediately preceding the Fixed
Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed
Interest Rate minus the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the applicable Spread, if
any, and/or (b) multiplied by the applicable Spread Multiplier, if any;
provided, however, that, unless otherwise specified in the applicable
Pricing Supplement, the interest rate thereon will not be less than zero.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Inverse Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted from
the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest
Rate Basis or Bases will be multiplied to determine the applicable interest
rate on such Floating Rate Note. The "Index Maturity" is the period to
maturity of the instrument or obligation with respect to which the related
Interest Rate Basis or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or
in the applicable Pricing Supplement, the interest rate in effect on each day
shall be (i) if such day is an Interest Reset Date, the interest rate
determined as of the Interest Determination Date (as hereinafter defined)
immediately preceding such Interest Reset Date or (ii) if such day is not an
Interest Reset Date, the interest rate determined as of the Interest
Determination Date immediately preceding the most recent Interest Reset Date.
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case
of Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly,
the Wednesday of each week (with the exception of weekly reset Floating Rate
Notes as to which the Treasury Rate is an applicable Interest Rate Basis,
which will reset the Tuesday of each week, except as described below); (iii)
monthly, the third Wednesday of each month (with the exception of monthly
reset Floating Rate Notes as to which the Eleventh District Cost of Funds Rate
is an applicable Interest Rate Basis, which will reset on the first calendar
day of the month); (iv) quarterly, the third Wednesday of March, June,
September and December of each year; (v) semiannually, the third Wednesday of
the two months specified in the applicable Pricing Supplement; and (vi)
annually, the third Wednesday of the month specified in the applicable Pricing
Supplement; provided, however, that, with respect to Floating Rate/Fixed Rate
Notes, the rate of interest thereon will not reset after the applicable Fixed
Rate Commencement 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
will be postponed to the next succeeding Business Day, except that in the case
of
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a Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis
and such Business Day falls in the next succeeding calendar month, such
Interest Reset Date will be the immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
related Interest Reset Date will be the rate determined by the Calculation
Agent as of the applicable Interest Determination Date and calculated on or
prior to the Calculation Date (as hereinafter defined), except with respect to
LIBOR and the Eleventh District Cost of Funds Rate, which will be calculated
on such Interest Determination Date. The "Interest Determination Date" with
respect to the CD Rate, the CMT Rate, the Commercial Paper Rate, the Federal
Funds Rate and the Prime Rate will be the second Business Day immediately
preceding the applicable Interest Reset Date; the "Interest Determination
Date" with respect to the Eleventh District Cost of Funds Rate will be the
last working day of the month immediately preceding the applicable Interest
Reset Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of
San Francisco") publishes the Index (as hereinafter defined); and the
"Interest Determination Date" with respect to LIBOR will be the second London
Business Day immediately preceding the applicable Interest Reset Date, unless
the Designated LIBOR Currency is British pounds sterling, in which case the
"Interest Determination Date" will be the applicable Interest Reset Date. With
respect to the Treasury Rate, the "Interest Determination Date" will be the
day in the week in which the applicable Interest Reset Date falls on which day
Treasury Bills (as hereinafter defined) are normally auctioned (Treasury Bills
are normally sold at an auction held on Monday of each week, unless that day
is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that such auction may be held on the preceding
Friday); provided, however, that if an auction is held on the Friday of the
week preceding the applicable Interest Reset Date, the "Interest Determination
Date" will be such preceding Friday; provided, further, that if the Interest
Determination Date would otherwise fall on an Interest Reset Date, then such
Interest Reset Date will be postponed to the next succeeding Business Day. The
"Interest Determination Date" pertaining to a Floating Rate Note the interest
rate of which is determined by reference to two or more Interest Rate Bases
will be the most recent Business Day which is at least two Business Days prior
to the applicable Interest Reset Date for such Floating Rate Note on which
each Interest Rate Basis is determinable. Each Interest Rate Basis will be
determined as of such date, and the applicable interest rate will take effect
on the applicable Interest Reset Date.
Notwithstanding the foregoing, a Floating Rate Note may also have either or
both of the following: (i) a Maximum Interest Rate, or ceiling, that may
accrue during any Interest Period and (ii) a Minimum Interest Rate, or floor,
that may accrue during any Interest Period. In addition to any Maximum
Interest Rate that may apply to any Floating Rate Note, the interest rate on
Floating Rate Notes will in no event be higher than the maximum rate permitted
by New York law, as the same may be modified by United States law of general
application.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date" with respect to Floating Rate Notes) and, in each case, on the
Maturity Date. If any Interest Payment Date other than the Maturity Date for
any Floating Rate Note would otherwise be a day that is not a Business Day,
such Interest Payment Date will be postponed to the next succeeding Business
Day, except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity Date of a Floating Rate Note falls on
a day that is not a Business Day, the required payment of principal, premium,
if any, and interest will be
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made on the next succeeding Business Day as if made on the date such payment
was due, and no interest will accrue on such payment for the period from and
after the Maturity Date to the date of such payment on the next succeeding
Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used
in or resulting from such calculation on Floating Rate Notes will be rounded,
in the case of United States dollars, to the nearest cent or, in the case of a
foreign or composite currency, to the nearest unit (with one-half cent or unit
being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which an applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of
days in the year in the case of Floating Rate Notes for which an applicable
Interest Rate Basis is the CMT Rate or the Treasury Rate. Unless otherwise
specified in the applicable Pricing Supplement, the interest factor for
Floating Rate Notes for which the interest rate is calculated with reference
to two or more Interest Rate Bases will be calculated in each period in the
same manner as if only the applicable Interest Rate Basis specified in the
applicable Pricing Supplement applied.
Unless otherwise specified in the applicable Pricing Supplement, The Chase
Manhattan Bank will be the "Calculation Agent." Upon request of the Holder of
any Floating Rate Note, the Calculation Agent will disclose the interest rate
then in effect and, if determined, the interest rate that will become
effective as a result of a determination made for the next succeeding Interest
Reset Date with respect to such Floating Rate Note. Unless otherwise specified
in the applicable Pricing Supplement, the "Calculation Date," if applicable,
pertaining to any 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.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
CD RATE. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date
for negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates
of deposit of the Index Maturity specified in the applicable Pricing
Supplement as published by the Federal Reserve Bank of New York in its daily
statistical release "Composite 3:30 P.M. Quotations for U.S. Government
Securities" or any successor publication ("Composite Quotations") under the
heading "Certificates of Deposit." If such rate is not yet published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the CD Rate on such CD Rate 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 CD Rate Interest Determination Date, of
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three leading nonbank dealers in negotiable United States dollar certificates
of deposit in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent for negotiable United States
dollar certificates of deposit of major United States money center banks for
negotiable certificates of deposit with a remaining maturity closest to the
Index Maturity specified in the applicable Pricing Supplement in an amount
that is representative for a single transaction in that market at that time;
provided, however, that if the dealers so selected by the Calculation Agent
are not quoting as mentioned in this sentence, the CD Rate determined as of
such CD Rate Interest Determination Date will be the CD Rate in effect on such
CD Rate Interest Determination Date.
CMT RATE. Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date relating to
a Floating Rate Note for which the interest rate is determined with reference
to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate displayed
on the Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
P.M.," under the column for the Designated CMT Maturity Index for (i) if the
Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
weekly or monthly average, as specified in the applicable Pricing Supplement,
for the week or the month, as applicable, ended immediately preceding the week
or the month, as applicable, in which the related CMT Rate Interest
Determination Date falls. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as published in H.15(519). If such rate is no longer published
or is not published by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate on such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index (or other United States Treasury rate for the Designated CMT
Maturity Index) for the CMT Rate Interest Determination Date with respect to
such Interest Reset Date as may then be published by either the Board of
Governors of the Federal Reserve System or the United States Department of the
Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in
H.15(519). If such information is not provided by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate on the CMT Rate
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 offered rates as of approximately 3:30 P.M., New York City time, on
such CMT Rate Interest Determination Date reported, according to their written
records, by three leading primary United States government securities dealers
in The City of New York (which may include the Agents or their affiliates)
(each, a "Reference Dealer") selected by the Calculation Agent (from five such
Reference Dealers selected by the Calculation Agent and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for the
most recently issued direct noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not less
than such Designated CMT Maturity Index minus one year. If the Calculation
Agent is unable to obtain three such Treasury Note quotations, the CMT Rate on
such CMT Rate 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 offered rates as of approximately 3:30 P.M., New York
City time, on such CMT Rate Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent and eliminating the highest quotation (or, in the event
of equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least $100 million. If three or four (and not
five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offered rates obtained and
neither the
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highest nor the lowest of such quotes will be eliminated; provided, however,
that if fewer than three Reference Dealers so selected by the Calculation
Agent are quoting as mentioned herein, the CMT Rate determined as of such CMT
Rate Interest Determination Date will be the CMT Rate in effect on such CMT
Rate Interest Determination Date. 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 Calculation
Agent will obtain quotations for the Treasury Note with the shorter remaining
term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on such
service) 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" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified
in the applicable Pricing Supplement with respect to which the CMT Rate will
be calculated or, if no such maturity is specified in the applicable Pricing
Supplement, 2 years.
COMMERCIAL PAPER RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest
rate is determined with reference to the Commercial Paper Rate (a "Commercial
Paper Rate Interest Determination Date"), the Money Market Yield (as
hereinafter defined) on such date of the rate for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement as published in
H.15(519) under the heading "Commercial Paper." In the event that such rate is
not published by 3:00 P.M., New York City time, on the related Calculation
Date, then the Commercial Paper Rate on such Commercial Paper Rate Interest
Determination Date will be the Money Market Yield of the rate for commercial
paper having the Index Maturity specified in the applicable Pricing Supplement
as published in Composite Quotations under the heading "Commercial Paper"
(with an Index Maturity of one month or three months being deemed to be
equivalent to an Index Maturity of 30 days or 90 days, respectively). If such
rate is not yet published in either H.15(519) or Composite Quotations by 3:00
P.M., New York City time, on the related Calculation Date, then the Commercial
Paper Rate on such Commercial Paper Rate Interest Determination Date will be
calculated by the Calculation Agent and will be the Money Market Yield of the
arithmetic mean of the offered rates at approximately 11:00 A.M., New York
City time, on such Commercial Paper Rate Interest Determination Date of three
leading dealers of commercial paper in The City of New York (which may include
the Agents or their affiliates) selected by the Calculation Agent for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement placed for an industrial issuer whose bond rating is "Aa", or the
equivalent, from a nationally recognized statistical rating organization;
provided, however, that if the dealers so selected by the Calculation Agent
are not quoting as mentioned in this sentence, the Commercial Paper Rate
determined as of such Commercial Paper Rate Interest Determination Date will
be the Commercial Paper Rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
D x 360
----------
Money Market Yield =360-(D x X 100
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 applicable Interest Reset Period.
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ELEVENTH DISTRICT COST OF FUNDS RATE. Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to a Floating Rate
Note for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), the rate equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00
A.M., San Francisco time, on such Eleventh District Cost of Funds Rate
Interest Determination Date. If such rate does not appear on Telerate Page
7058 on such Eleventh District Cost of Funds Rate Interest Determination Date,
then the Eleventh District Cost of Funds Rate on such Eleventh District Cost
of Funds Rate Interest Determination Date shall be the monthly weighted
average cost of funds paid by member institutions of the Eleventh Federal Home
Loan Bank District that was most recently announced (the "Index") by the FHLB
of San Francisco as such cost of funds for the calendar month immediately
preceding such Eleventh District Cost of Funds Rate Interest Determination
Date. If the FHLB of San Francisco fails to announce the Index on or prior to
such Eleventh District Cost of Funds Rate Interest Determination Date for the
calendar month immediately preceding such Eleventh District Cost of Funds Rate
Interest Determination Date, the Eleventh District Cost of Funds Rate
determined as of such Eleventh District Cost of Funds Rate Interest
Determination Date will be the Eleventh District Cost of Funds Rate in effect
on such Eleventh District Cost of Funds Rate Interest Determination Date.
FEDERAL FUNDS RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest
rate is determined with reference to the Federal Funds Rate (a "Federal Funds
Rate Interest Determination Date"), the rate on such date for United States
dollar federal funds as published in H.15(519) under the heading "Federal
Funds (Effective)" or, if not published by 3:00 P.M., New York City time, on
the related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds
Rate 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 United States dollar federal funds arranged by three leading brokers
of federal funds transactions in The City of New York (which may include the
Agents or their affiliates) selected by the Calculation Agent prior to 9:00
A.M., New York City time, on such Federal Funds Rate Interest Determination
Date; provided, however, that if the brokers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
determined as of such Federal Funds Rate Interest Determination Date will be
the Federal Funds Rate in effect on such Federal Funds Rate Interest
Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page by
its terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Designated LIBOR Currency having the
Index Maturity specified in such Pricing Supplement, commencing on the
applicable Interest Reset Date, that appear (or, if only a single rate is
required as aforesaid, appears) on the Designated LIBOR Page as of 11:00
A.M., London time, on such LIBOR Interest Determination Date, or (b) if
"LIBOR Telerate" is specified in the applicable Pricing Supplement or if
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable
Pricing Supplement as the method for calculating LIBOR, the rate for
deposits in the Designated LIBOR
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Currency having the Index Maturity specified in such Pricing Supplement,
commencing on such Interest Reset Date, that appears on the Designated
LIBOR Page as of 11:00 A.M., London time, on such LIBOR Interest
Determination Date. If fewer than two such offered rates so appear, or if
no such rate so appears, as applicable, LIBOR on such LIBOR Interest
Determination Date will be determined in accordance with the provisions
described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the Designated LIBOR Page as specified in clause (i) above, the Calculation
Agent will request the principal London offices of each of four major
reference banks (which may include affiliates of the Agents) in the London
interbank market, as selected by the Calculation Agent, to provide the
Calculation Agent with its offered quotation for deposits in the Designated
LIBOR Currency for the period of the Index Maturity specified in the
applicable Pricing Supplement, commencing on the applicable Interest Reset
Date, to prime banks in the London interbank market at approximately 11:00
A.M., London time, on such LIBOR Interest Determination Date and in a
principal amount that is representative for a single transaction in the
Designated LIBOR Currency in such market at such time. If at least two such
quotations are so provided, then LIBOR on such LIBOR Interest Determination
Date will be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, then LIBOR on such LIBOR Interest Determination
Date will be the arithmetic mean of the rates quoted at approximately 11:00
A.M., in the applicable Principal Financial Center, on such LIBOR Interest
Determination Date by three major banks (which may include affiliates of
the Agents) in such Principal Financial Center selected by the Calculation
Agent for loans in the Designated LIBOR Currency to leading European banks,
having the Index Maturity specified in the applicable Pricing Supplement
and in a principal amount that is representative for a single transaction
in the Designated LIBOR Currency in such market at such time; provided,
however, that if the banks so selected by the Calculation Agent are not
quoting as mentioned in this sentence, LIBOR determined as of such LIBOR
Interest Determination Date will be LIBOR in effect on such LIBOR Interest
Determination Date.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Pricing Supplement as to which LIBOR shall be
calculated or, if no such currency or composite currency is specified in the
applicable Pricing Supplement, United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuters Monitor Money Rates
Service (or any successor service) on the page specified in such Pricing
Supplement (or any other page as may replace such page on such service) for
the purpose of displaying the London interbank rates of major banks for the
Designated LIBOR Currency, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate"
is specified in the applicable Pricing Supplement as the method for
calculating LIBOR, the display on the Dow Jones Telerate Service (or any
successor service) on the page specified in such Pricing Supplement (or any
other page as may replace such page on such service) for the purpose of
displaying the London interbank rates of major banks for the Designated LIBOR
Currency.
PRIME RATE. Unless otherwise specified in the applicable Pricing Supplement,
"Prime Rate" means, with respect to any Interest Determination Date relating
to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading
"Bank Prime Loan." If such rate is not published prior to 3:00 P.M., New York
City time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as hereinafter defined) as such
bank's prime rate or base lending rate as in effect for such Prime Rate
Interest Determination Date. If fewer than four such rates appear on the
Reuters Screen USPRIME1 Page for such Prime Rate
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Interest Determination Date, then the Prime Rate shall be the arithmetic mean
of the prime rates or base lending rates quoted on the basis of the actual
number of days in the year divided by a 360-day year as of the close of
business on such Prime Rate Interest Determination Date by four major money
center banks (which may include affiliates of the Agents) in The City of New
York selected by the Calculation Agent. If fewer than four such quotations are
so provided, then the Prime Rate shall be the arithmetic mean of four prime
rates quoted on the basis of the actual number of days in the year divided by
a 360-day year as of the close of business on such Prime Rate Interest
Determination Date as furnished in The City of New York by the major money
center banks, if any, that have provided such quotations and by a reasonable
number of substitute banks or trust companies (which may include affiliates of
the Agents) to obtain four such prime rate quotations, provided such
substitute banks or trust companies are organized and doing business under the
laws of the United States, or any State thereof, each having total equity
capital of at least $500 million and being subject to supervision or
examination by Federal or State authority, selected by the Calculation Agent
to provide such rate or rates; provided, however, that if the banks or trust
companies so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Prime Rate determined as of such Prime Rate Interest
Determination Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuters Monitor
Money Rates Service (or any successor service) on the "USPRIME1" page (or such
other page as may replace such page on such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
TREASURY RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is
determined by reference to the Treasury Rate (a "Treasury Rate Interest
Determination Date"), the rate from the auction held on such Treasury Rate
Interest Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity specified in the
applicable Pricing Supplement, as such rate is published in H.15(519) under
the heading "Treasury Bills-auction average (investment)" or, if not published
by 3:00 P.M., New York City time, on the related Calculation Date, the auction
average rate of such Treasury Bills (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 specified in the applicable Pricing Supplement are not reported
as provided by 3:00 P.M., New York City time, on the related Calculation Date,
or if no such Auction is held, then the Treasury Rate will be calculated by
the Calculation Agent and will 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 Treasury
Rate Interest Determination Date, of three leading primary United States
government securities dealers (which may include the Agents or their
affiliates) selected by the Calculation Agent, for the issue of Treasury Bills
with a remaining maturity closest to the Index Maturity specified in the
applicable Pricing Supplement; provided, however, that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this
sentence, the Treasury Rate determined as of such Treasury Rate Interest
Determination Date will be the Treasury Rate in effect on such Treasury Rate
Interest Determination Date.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Stated Maturity Date, any redemption or repayment provisions or any
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other term relating thereto, may be modified and/or supplemented as specified
under "Other/Additional Provisions" on the face thereof or in an Addendum
relating thereto, if so specified on the face thereof and described in the
applicable Pricing Supplement.
DISCOUNT NOTES
Capital may offer Notes ("Discount Notes") from time to time that have an
Issue Price (as specified in the applicable Pricing Supplement) that is less
than 100% of the principal amount thereof (i.e. par) by more than a percentage
equal to the product of 0.25% and the number of full years to the Stated
Maturity Date. Discount Notes may not bear any interest currently or may bear
interest at a rate that is below market rates at the time of issuance. The
difference between the Issue Price of a Discount Note and par is referred to
herein as the "Discount." In the event of redemption, repayment or
acceleration of maturity of a Discount Note, the amount payable to the Holder
of such Discount Note will be equal to the sum of (i) the Issue Price
(increased by any accruals of Discount) and, in the event of any redemption of
such Discount Note (if applicable), multiplied by the Initial Redemption
Percentage (as adjusted by the Annual Redemption Percentage Reduction, if
applicable) and (ii) any unpaid interest accrued thereon to the date of such
redemption, repayment or acceleration of maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of Discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for a
Discount Note, such Discount will be accrued using a constant yield method.
The constant yield will be calculated using a 30-day month, 360-day year
convention, a compounding period that, except for the Initial Period (as
hereinafter defined), corresponds to the shortest period between Interest
Payment Dates for the applicable Discount Note (with ratable accruals within a
compounding period), a coupon rate equal to the initial coupon rate applicable
to such Discount Note and an assumption that the maturity of such Discount
Note will not be accelerated. If the period from the date of issue to the
initial Interest Payment Date for a Discount Note (the "Initial Period") is
shorter than the compounding period for such Discount Note, a proportionate
amount of the yield for an entire compounding period will be accrued. If the
Initial Period is longer than the compounding period, then such period will be
divided into a regular compounding period and a short period with the short
period being treated as provided in the preceding sentence. The accrual of the
applicable Discount may differ from the accrual of original issue discount for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"),
certain Discount Notes may not be treated as having original issue discount
within the meaning of the Code, and Notes other than Discount Notes may be
treated as issued with original issue discount for federal income tax
purposes. See "United States Federal Income Tax Considerations."
INDEXED NOTES
Capital may from time to time offer Notes ("Indexed Notes") with the amount
of principal, premium and/or interest payable in respect thereof to be
determined with reference to the price or prices of specified commodities or
stocks, to the exchange rate of one or more designated currencies (including a
composite currency such as the ECU) relative to an indexed currency or to
other items, in each case as specified in the applicable Pricing Supplement.
In certain cases, Holders of Indexed Notes may receive a principal payment on
the Maturity Date that is greater than or less than the principal amount of
such Indexed Notes depending upon the relative value on the Maturity Date of
the specified indexed item. Information as to the method for determining the
amount of principal, premium, if any, and/or interest, if any, payable in
respect of Indexed Notes, certain historical information with respect to the
specified indexed item and any material tax considerations associated with an
investment in Indexed Notes will be specified in the applicable Pricing
Supplement. See also "Risk Factors."
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AMORTIZING NOTES
Capital may from time to time offer Notes ("Amortizing Notes") with the
amount of principal thereof and interest thereon payable in installments over
the term of such Notes. Unless otherwise specified in the applicable Pricing
Supplement, interest on each Amortizing Note will be computed on the basis of
a 360-day year of twelve 30-day months. Payments with respect to Amortizing
Notes will be applied first to interest due and payable thereon and then to
the reduction of the unpaid principal amount thereof. Further information
concerning additional terms and provisions of Amortizing Notes will be
specified in the applicable Pricing Supplement, including a table setting
forth repayment information for such Amortizing Notes.
BOOK-ENTRY NOTES
Capital has established a depositary arrangement with The Depository Trust
Company with respect to the Book-Entry Notes, the terms of which are
summarized below. Any additional or differing terms of the depositary
arrangement with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes of like tenor and terms up to
$200,000,000 aggregate principal amount will be represented by a single Global
Security. Each Global Security representing Book-Entry Notes will be deposited
with, or on behalf of, the Depositary and will be registered in the name of
the Depositary or a nominee of the Depositary. No Global Security may be
transferred except as a whole by a nominee of the Depositary to the Depositary
or to another nominee of the Depositary, or by the Depositary or such nominee
to a successor of the Depositary or a nominee of such successor.
So long as the Depositary or its nominee is the registered owner of a Global
Security, the Depositary or its nominee, as the case may be, will be the sole
Holder of the Book-Entry Notes represented thereby for all purposes under the
Indenture. Except as otherwise provided below, the Beneficial Owners of the
Global Security or Securities representing Book-Entry Notes will not be
entitled to receive physical delivery of Certificated Notes and will not be
considered the Holders thereof for any purpose under the Indenture, and no
Global Security representing Book-Entry Notes shall be exchangeable or
transferable. Accordingly, each Beneficial Owner must rely on the procedures
of the Depositary and, if such Beneficial Owner is not a Participant, on the
procedures of the Participant through which such Beneficial Owner owns its
interest in order to exercise any rights of a Holder under such Global
Security or the Indenture. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
certificated form. Such limits and laws may impair the ability to transfer
beneficial interests in a Global Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each Global
Security representing Book-Entry Notes will be exchangeable for Certificated
Notes of like tenor and terms and of differing authorized denominations in a
like aggregate principal amount, only if (i) the Depositary notifies Capital
that it is unwilling or unable to continue as Depositary for the Global
Securities or Capital becomes aware that the Depositary has ceased to be a
clearing agency registered under the Exchange Act and, in any such case,
Capital shall not have appointed a successor to the Depositary within 90 days
thereafter, (ii) Capital, in its sole discretion, determines that the Global
Securities shall be exchangeable for Certificated Notes or (iii) an Event of
Default (or event which with the giving of notice or lapse of time would
constitute an Event of Default) shall have occurred and be continuing with
respect to the Notes under the Indenture. Upon any such exchange, the
Certificated Notes shall be registered in the names of the Beneficial Owners
of the Global Security or Securities representing Book-Entry Notes, which
names shall be provided by the Depositary's relevant Participants (as
identified by the Depositary) to the Trustee.
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The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's partnership
nominee). One fully registered Global Security will be issued for each
issue of Book-Entry Notes, each in the aggregate principal amount of such
issue, and will be deposited with the Depositary. If, however, the
aggregate principal amount of any issue exceeds $200,000,000, one Global
Security will be issued with respect to each $200,000,000 of principal
amount and an additional Global Security will be issued with respect to any
remaining principal amount of such issue.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The Depositary
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants of the Depositary ("Direct Participants")
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations and certain other organizations. The
Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the Depositary's
system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to the Depositary and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be made
by or through Direct Participants, which will receive a credit for such
Book-Entry Notes on the Depositary's records. The ownership interest of
each actual purchaser of each Book-Entry Note represented by a Global
Security ("Beneficial Owner") is in turn to be recorded on the records of
Direct Participants and Indirect Participants. Beneficial Owners will not
receive written confirmation from the Depositary of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through
which such Beneficial Owners entered into the transactions. Transfers of
ownership interests in a Global Security representing Book-Entry Notes are
to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners of a Global Security
representing Book-Entry Notes will not receive Certificated Notes
representing their ownership interests therein, except in the event that
use of the book-entry system for such Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depositary
are registered in the name of the Depositary's nominee, Cede & Co. The
deposit of Global Securities with, or on behalf of, the Depositary and
their registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners
of the Global Securities representing the Book-Entry Notes; the
Depositary's records reflect only the identity of the Direct Participants
to whose accounts such Book-Entry Notes are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to
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Beneficial Owners will be governed by arrangements among them, subject to
any statutory or regulatory requirements as may be in effect from time to
time.
Neither the Depositary nor Cede & Co. will consent or vote with respect
to the Global Securities representing the Book-Entry Notes. Under its usual
procedures, the Depositary mails an Omnibus Proxy to Capital as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Book-Entry Notes are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
Global Securities representing the Book-Entry Notes will be made in
immediately available funds to the Depositary. The Depositary's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depositary's records
unless the Depositary has reason to believe that it will not receive
payment on such date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of such
Participant and not of the Depositary, the Trustee or Capital, subject to
any statutory or regulatory requirements as may be in effect from time to
time. Payment of principal, premium, if any, and/or interest, if any, to
the Depositary is the responsibility of Capital and the Trustee,
disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct Participants and
Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes of like tenor and terms are being
redeemed, the Depositary's practice is to determine by lot the amount of
the interest of each Direct Participant in such issue to be redeemed.
A Beneficial Owner shall give notice of any option to elect to have its
Book-Entry Notes repaid by Capital, through its Participant, to the
Trustee, and shall effect delivery of such Book-Entry Notes by causing the
Direct Participant to transfer the Participant's interest in the Global
Security or Securities representing such Book-Entry Notes, on the
Depositary's records, to the Trustee. The requirement for physical delivery
of Book-Entry Notes in connection with a demand for repayment will be
deemed satisfied when the ownership rights in the Global Security or
Securities representing such Book-Entry Notes are transferred by Direct
Participants on the Depositary's records.
The Depositary may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to Capital or the Trustee. Under such circumstances, in
the event that a successor securities depository is not obtained,
Certificated Notes are required to be printed and delivered.
Capital may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that Capital believes to be
reliable, but Capital takes no responsibility for the accuracy thereof.
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SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Foreign
Currency Notes will not be sold in, or to residents of, the country issuing
the applicable currency. The information set forth in this Prospectus
Supplement is directed to prospective purchasers who are United States
residents and, with respect to Foreign Currency Notes, is by necessity
incomplete. Capital and the Agents disclaim any responsibility to advise
prospective purchasers who are residents of countries other than the United
States with respect to any matters that may affect the purchase, holding or
receipt of payments of principal of, and premium, if any, and interest, if
any, on, Foreign Currency Notes. Such persons should consult their own
financial and legal advisors with regard to such matters. See "Risk Factors--
Exchange Rates and Exchange Controls."
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST, IF ANY
Unless otherwise specified in the applicable Pricing Supplement, Capital is
obligated to make payments of principal of, and premium, if any, and interest,
if any, on, a Foreign Currency Note in the Specified Currency. Any such
amounts payable by Capital in the Specified Currency will be converted by the
exchange rate agent named in the applicable Pricing Supplement (the "Exchange
Rate Agent") into United States dollars for payment to Holders unless
otherwise specified in the applicable Pricing Supplement or the Holder of such
Foreign Currency Note elects, in the manner hereinafter described, to receive
such amounts in the Specified Currency.
Any United States dollar amount to be received by a Holder of a Foreign
Currency Note will be based on the highest bid quotation in The City of New
York received by the Exchange Rate Agent at approximately 11:00 A.M., New York
City time, on the second Business Day preceding the applicable payment date
from three recognized foreign exchange dealers (one of whom may be the
Exchange Rate Agent) selected by the Exchange Rate Agent and approved by
Capital for the purchase by the quoting dealer of the Specified Currency for
United States dollars for settlement on such payment date in the aggregate
amount of such Specified Currency payable to all Holders of Foreign Currency
Notes scheduled to receive United States dollar payments and at which the
applicable dealer commits to execute a contract. All currency exchange costs
will be borne by the Holders of such Foreign Currency Notes by deductions from
such payments. If three such bid quotations are not available, payments will
be made in the Specified Currency.
Holders of Foreign Currency Notes may elect to receive all or a specified
portion of any payment of principal, premium, if any, and/or interest, if any,
in the Specified Currency by submitting a written request for such payment to
the Trustee at its corporate trust office in The City of New York on or prior
to the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be. Such written request may be mailed or hand
delivered or sent by cable, telex or other form of facsimile transmission.
Holders of Foreign Currency Notes may elect to receive all or a specified
portion of all future payments in the Specified Currency and need not file a
separate election for each payment. Such election will remain in effect until
revoked by written notice to the Trustee, but written notice of any such
revocation must be received by the Trustee on or prior to the applicable
Record Date or at least fifteen calendar days prior to the Maturity Date, as
the case may be. Holders of Foreign Currency Notes to be held in the name of a
broker or nominee should contact such broker or nominee to determine whether
and how an election to receive payments in the Specified Currency may be made.
Unless otherwise specified in the applicable Pricing Supplement, if the
Specified Currency is other than United States dollars, a Beneficial Owner of
the related Global Security or Securities which elects to receive payments of
principal, premium, if any, and/or interest, if any, in the Specified Currency
must
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notify the Participant through which it owns its interest on or prior to the
applicable Record Date or at least fifteen calendar days prior to the Maturity
Date, as the case may be, of such Beneficial Owner's election. Such
Participant must notify the Depositary of such election on or prior to the
third Business Day after such Record Date or at least twelve calendar days
prior to the Maturity Date, as the case may be, and the Depositary will notify
the Trustee of such election on or prior to the fifth Business Day after such
Record Date or at least ten calendar days prior to the Maturity Date, as the
case may be. If complete instructions are received by the Participant from the
Beneficial Owner and forwarded by the Participant to the Depositary, and by
the Depositary to the Trustee, on or prior to such dates, then such Beneficial
Owner will receive payments in the Specified Currency.
Payments of the principal of, and premium, if any, and/or interest, if any,
on, Foreign Currency Notes which are to be made in United States dollars will
be made in the manner specified herein with respect to Notes denominated in
United States dollars. See "Description of Notes--General." Payments of
interest, if any, on Foreign Currency Notes which are to be made in the
Specified Currency on an Interest Payment Date other than the Maturity Date
will be made by check mailed to the address of the Holders of such Foreign
Currency Notes as they appear in the Security Register, subject to the right
to receive such interest payments by wire transfer of immediately available
funds under the circumstances described under "Description of Notes--General."
Payments of principal of, and premium, if any, and/or interest, if any, on,
Foreign Currency Notes which are to be made in the Specified Currency on the
Maturity Date will be made by wire transfer of immediately available funds to
an account with a bank designated at least fifteen calendar days prior to the
Maturity Date by each Holder thereof, provided that such bank has appropriate
facilities therefor and that the applicable Foreign Currency Note is presented
and surrendered at the office or agency maintained by Capital for such purpose
in the Borough of Manhattan, The City of New York, currently the corporate
trust office of the Trustee, in time for the Trustee to make such payments in
such funds in accordance with its normal procedures.
AVAILABILITY OF SPECIFIED CURRENCY
Except as set forth below, if the Specified Currency for a Foreign Currency
Note is not available for the required payment of principal, premium, if any,
and/or interest, if any, in respect thereof due to the imposition of exchange
controls or other circumstances beyond the control of Capital, Capital will be
entitled to satisfy its obligations to the Holder of such Foreign Currency
Note by making such payment in United States dollars on the basis of the
Market Exchange Rate, computed by the Exchange Rate Agent, on the second
Business Day prior to such payment or, if such Market Exchange Rate is not
then available, on the basis of the most recently available Market Exchange
Rate, or as otherwise specified in the applicable Pricing Supplement.
If the Specified Currency for a Foreign Currency Note is a composite
currency that is not available for the required payment of principal, premium,
if any, and/or interest, if any, in respect thereof due to the imposition of
exchange controls or other circumstances beyond the control of Capital,
Capital will be entitled to satisfy its obligations to the Holder of such
Foreign Currency Note by making such payment in United States dollars on the
basis of the equivalent of the composite currency in United States dollars.
The component currencies of the composite currency for this purpose (the
"Component Currencies") shall be the currency amounts that were components of
the composite currency as of the last day on which the composite currency was
used. The equivalent of the composite currency in United States dollars shall
be calculated by aggregating the United States dollar equivalents of the
Component Currencies. The United States dollar equivalent of each of the
Component Currencies shall be determined by the Exchange Rate Agent on the
basis of the Market Exchange Rate on the second Business Day prior to the
required payment or, if such Market Exchange Rate is not then available, on
the basis of the most recently available Market Exchange Rate for each such
Component Currency, or as otherwise specified in the applicable Pricing
Supplement.
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If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in
such single currency equal to the sum of the amounts of the consolidated
Component Currencies expressed in such single currency. If any Component
Currency is divided into two or more currencies, the amount of the original
Component Currency shall be replaced by the amounts of such two or more
currencies, the sum of which shall be equal to the amount of the original
Component Currency.
The "Market Exchange Rate" for a Specified Currency other than United States
dollars means the noon dollar buying rate in The City of New York for cable
transfers for such Specified Currency as certified for customs purposes (or,
if not so certified, as otherwise determined) by the Federal Reserve Bank of
New York. Any payment made in United States dollars under such circumstances
where the required payment is in a Specified Currency other than United States
dollars will not constitute an Event of Default under the Indenture with
respect to the Notes.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the Holders of the Foreign Currency
Notes.
JUDGMENTS
Under current New York law, a state court in the State of New York rendering
a judgment in respect of a Foreign Currency Note would be required to render
such judgment in the Specified Currency, and such foreign currency judgment
would be converted into United States dollars at the exchange rate prevailing
on the date of entry of such judgment. Accordingly, the Holder of such Foreign
Currency Note would be subject to exchange rate fluctuations between the date
of entry of such foreign currency judgment and the time the amount of such
foreign currency judgment is paid to such Holder in United States dollars and
converted by such Holder into the Specified Currency. It is not certain,
however, whether a non-New York state court would follow the same rules and
procedures with respect to conversions of foreign currency judgments.
Capital will indemnify the Holder of any Note against any loss incurred by
such Holder as a result of any judgment or order being given or made for any
amount due under such Note and such judgment or order requiring payment in a
currency or composite currency (the "Judgment Currency") other than the
Specified Currency, and as a result of any variation between (i) the rate of
exchange at which the Specified Currency amount is converted into the Judgment
Currency for the purpose of such judgment or order, and (ii) the rate of
exchange at which the Holder of such Note, on the date of payment of such
judgment or order, is able to purchase the Specified Currency with the amount
of the Judgment Currency actually received by such Holder, as the case may be.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal
with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the
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Notes should consult their own tax advisors concerning the application of
United States Federal income tax laws to their particular situations as well
as any consequences of the purchase, ownership and disposition of the Notes
arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. 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, (iii) an estate or trust the income of which is
subject to United States Federal income taxation regardless of its source or
(iv) any other person whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business. As used
herein, the term "non-U.S. Holder" means a beneficial owner of a Note that is
not a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST
Payments of interest on a Note generally will be taxable to a U.S. Holder as
ordinary interest income at the time such payments are accrued or are received
(in accordance with the U.S. Holder's regular method of tax accounting).
ORIGINAL ISSUE DISCOUNT
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Original Issue
Discount Notes"). The following summary is based upon final Treasury
regulations (the "OID Regulations") released by the Internal Revenue Service
("IRS") on January 27, 1994, as amended on June 11, 1996, under the original
issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of
1% of the Note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date or, in the case of a
Note providing for the payment of any amount other than qualified stated
interest (as hereinafter defined) prior to maturity, multiplied by the
weighted average maturity of such Note). The issue price of each Note in an
issue of Notes equals the first price at which a substantial amount of such
Notes has been sold (ignoring sales to bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters, placement
agents, or wholesalers). The stated redemption price at maturity of a Note is
the sum of all payments provided by the Note other than "qualified stated
interest" payments. The term "qualified stated interest" generally means
stated interest that is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually at a single fixed rate.
In addition, under the OID Regulations, if a Note bears interest for one or
more accrual periods at a rate below the rate applicable for the remaining
term of such Note (e.g., Notes with teaser rates or interest holidays), and if
the greater of either the resulting foregone interest on such Note or any
"true" discount on such Note (i.e., the excess of the Note's stated principal
amount over its issue price) equals or exceeds a specified de minimis amount,
then the stated interest on the Note would be treated as original issue
discount rather than qualified stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an Original Issue Discount Note must include
original issue discount in income as ordinary interest for United States
Federal income tax purposes as it accrues under a constant yield method in
advance of receipt of the cash payments attributable to such income,
regardless of such U.S. Holder's regular method of tax accounting. In general,
the amount of original issue discount included in income by the initial U.S.
Holder of an Original Issue
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Discount Note is the sum of the daily portions of original issue discount with
respect to such Original Issue Discount Note for each day during the taxable
year (or portion of the taxable year) on which such U.S. Holder held such
Original Issue Discount Note. The "daily portion" of original issue discount
on any Original Issue Discount Note is determined by allocating to each day in
any accrual period a ratable portion of the original issue discount allocable
to that accrual period. An "accrual period" may be of any length and the
accrual periods may vary in length over the term of the Original Issue
Discount Note, provided that each accrual period is no longer than one year
and each scheduled payment of principal or interest occurs either on the final
day of an accrual period or on the first day of an accrual period. The amount
of original issue discount allocable to each accrual period is generally equal
to the difference between (i) the product of the Original Issue 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 appropriately adjusted to take into account the length of
the particular accrual period) and (ii) the amount of any qualified stated
interest payments allocable to such accrual period. The "adjusted issue price"
of an Original Issue Discount Note at the beginning of any accrual period is
the sum of the issue price of the Original Issue Discount Note plus the amount
of original issue discount allocable to all prior accrual periods minus the
amount of any prior payments on the Original Issue Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases an Original Issue Discount Note for an amount
that is greater than its adjusted issue price as of the purchase date and less
than or equal to the sum of all amounts payable on the Original Issue Discount
Note after the purchase date other than payments of qualified stated interest,
will be considered to have purchased the Original Issue Discount Note at an
"acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross
income with respect to such Original Issue Discount Note for any taxable year
(or portion thereof in which the U.S. Holder holds the Original Issue Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the
total noncontingent principal payments due under the Variable Note by more
than a specified de minimis amount and (b) it provides for stated interest,
paid or compounded at least annually, at current values of (i) one or more
qualified floating rates, (ii) a single fixed rate and one or more qualified
floating rates, (iii) a single objective rate, or (iv) a single fixed rate and
a single objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable
rate equal to the product of a qualified floating rate and a fixed multiple
that is greater than .65 but not more than 1.35 will constitute a qualified
floating rate. A variable rate equal to the product of a qualified floating
rate and a fixed multiple that is greater than .65 but not more than 1.35,
increased or decreased by a fixed rate, will also constitute a qualified
floating rate. In addition, under the OID Regulations, two or more qualified
floating rates that can reasonably be expected to have approximately the same
values throughout the term of the Variable Note (e.g., two or more qualified
floating rates with values within 25 basis points of each other as determined
on the Variable Note's issue date) will be treated as a single qualified
floating rate. Notwithstanding the foregoing, a variable rate that would
otherwise constitute a qualified floating rate but which is subject to one or
more restrictions such as a maximum numerical limitation (i.e., a cap) or a
minimum numerical limitation (i.e., a floor) may, under certain circumstances,
fail to be treated as a qualified floating rate under the OID Regulations
unless such cap or floor is fixed
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throughout the term of the Note. An "objective rate" is a rate that is not
itself a qualified floating rate but which is determined using a single fixed
formula and which is based upon objective financial or economic information. A
rate will not qualify as an objective rate if it is based on information that
is within the control of the issuer (or a related party) or that is unique to
the circumstances of the issuer (or a related party), such as dividends,
profits or the value of the issuer's stock (although a rate does not fail to
be an objective rate merely because it is based on the credit quality of the
issuer). A "qualified inverse floating rate" is any objective rate where such
rate is equal to a fixed rate minus a qualified floating rate, as long as
variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate. The OID Regulations
also provide that if a Variable Note provides for stated interest at a fixed
rate for an initial period of one year or less followed by a variable rate
that is either a qualified floating rate or an objective rate and if the
variable rate on the Variable Note's issue date is intended to approximate the
fixed rate (e.g., the value of the variable rate on the issue date does not
differ from the value of the fixed rate by more than 25 basis points), then
the fixed rate and the variable rate together will constitute either a single
qualified floating rate or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations and
if interest on such Note is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually, then all stated
interest on such Note will constitute qualified stated interest and will be
taxed accordingly. Thus, a Variable Note that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof and that qualifies as a "variable rate debt instrument" under
the OID Regulations will generally not be treated as having been issued with
original issue discount unless the Variable Note is issued at a "true"
discount (i.e., at a price below the Note's stated principal amount) in excess
of a specified de minimis amount. The amount of qualified stated interest and
the amount of original issue discount, if any, that accrues during an accrual
period on such Variable Note is determined under the rules applicable to fixed
rate debt instruments by assuming that the variable rate is a fixed rate equal
to (i) in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or (ii) in the case of an objective rate
(other than a qualified inverse floating rate), a fixed rate that reflects the
yield that is reasonably expected for the Variable Note. The qualified stated
interest allocable to an accrual period is increased (or decreased) if the
interest actually paid during an accrual period exceeds (or is less than) the
interest assumed to be paid during the accrual period pursuant to the
foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed
rate that reflects the yield that is reasonably expected for the Variable
Note. In the case of a Variable Note that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or
a qualified inverse floating rate, if the Variable Note provides for a
qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Variable Note as of the
Variable Note's issue date is approximately the same as the fair market value
of an otherwise identical debt instrument that provides for either the
qualified floating rate or qualified inverse floating rate rather than the
fixed rate.
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Subsequent to converting the fixed rate into either a qualified floating rate
or a qualified inverse floating rate, the Variable Note is then converted into
an "equivalent" fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S.
Holder of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. Each accrual period appropriate adjustments will be made
to the amount of qualified stated interest or original issue discount assumed
to have been accrued or paid with respect to the "equivalent" fixed rate debt
instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. It is not entirely clear under current law
how a Variable Note would be taxed if such Note were treated as a contingent
payment debt obligation. U.S. Holders should be aware that on June 11, 1996
the Treasury Department issued final regulations (the "CPDI Regulations")
concerning the proper United States Federal income tax treatment of contingent
payment debt instruments. In general, the CPDI Regulations would cause the
timing and character of income, gain or loss reported on a contingent payment
debt instrument to differ substantially from the timing and character of
income, gain or loss reported on a contingent payment debt instrument under
general principles of current United States Federal income tax law.
Specifically, the CPDI Regulations generally require a U.S. Holder of such an
instrument to include future contingent and noncontingent interest payments in
income as such interest accrues based upon a projected payment schedule.
Moreover, in general, under the CPDI Regulations, any gain recognized by a
U.S. Holder on the sale, exchange, or retirement of a contingent payment debt
instrument will be treated as ordinary income and all or a portion of any loss
realized could be treated as ordinary loss as opposed to capital loss
(depending upon the circumstances). The CPDI Regulations apply to debt
instruments issued on or after August 13, 1996. The proper United States
Federal income tax treatment of Variable Notes that are treated as contingent
payment debt obligations will be more fully described in the applicable
Pricing Supplement. Furthermore, any other special United States Federal
income tax considerations, not otherwise discussed herein, which are
applicable to any particular issue of Notes will be discussed in the
applicable Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of Capital prior to
their stated maturity (a "call option") and/or (ii) may be repayable at the
option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and
features of the purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
SHORT-TERM NOTES
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount. In
general, an individual or other cash method U.S. Holder is not required to
accrue such original issue discount unless the U.S. Holder elects to do so. If
such an election is not made, any gain recognized by the U.S. Holder on the
sale, exchange or maturity of the
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Short-Term Note will be ordinary income to the extent of the original issue
discount accrued on a straight-line basis, or upon election under the constant
yield method (based on daily compounding), through the date of sale or
maturity, and a portion of the deductions otherwise allowable to the U.S.
Holder for interest on borrowings allocable to the Short-Term Note will be
deferred until a corresponding amount of income is realized. U.S. Holders who
report income for United States Federal income tax purposes under the accrual
method, and certain other holders including banks and dealers in securities,
are required to accrue original issue discount on a Short-Term Note on a
straight-line basis unless an election is made to accrue the original issue
discount under a constant yield method (based on daily compounding).
MARKET DISCOUNT
If a U.S. Holder purchases a Note, other than an Original Issue Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of an Original Issue Discount Note, for an amount that is less than its
adjusted issue price as of the purchase date, such U.S. Holder will be treated
as having purchased such Note at a "market discount," unless such market
discount is less than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of an Original Issue 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 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. 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 U.S. Holder elects to accrue market discount on
the basis of semiannual compounding.
A U.S. 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 a Note with market discount until the maturity of the Note
or certain earlier dispositions, because a current deduction is only allowed
to the extent the interest expense exceeds an allocable portion of market
discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding 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. Generally, such currently included market discount is treated as
ordinary interest for United States Federal income tax purposes. Such an
election will apply to all debt instruments acquired by the U.S. Holder on or
after the first day of the first taxable year to which such election applies
and may be revoked only with the consent of the IRS.
PREMIUM
If a U.S. Holder purchases a Note for an amount that is greater than the sum
of all amounts payable on the Note after the purchase date other than payments
of qualified stated interest, such U.S. Holder will be considered to have
purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the Note and may offset interest
otherwise required to be included in respect of the Note during any taxable
year by the amortized amount of such excess for the taxable year. However, if
the Note may be optionally redeemed after the U.S. 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 the Note. Any election to amortize bond
premium applies to all taxable debt instruments then owned and thereafter
acquired by the U.S. Holder on or after the first day of the first taxable
year to which such election applies and may be revoked only with the consent
of the IRS.
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DISPOSITION OF A NOTE
Except as discussed above, upon the sale, exchange or retirement of a Note,
a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in
a Note generally will equal such U.S. Holder's initial investment in the Note
increased by any original issue discount included in income (and accrued
market discount, if any, if the U.S. Holder has included such market discount
in income) and decreased by the amount of any payments, other than qualified
stated interest payments, received and amortizable bond premium taken with
respect to such Note. Such gain or loss generally will be long-term capital
gain or loss if the Note were held for more than one year.
NOTES DENOMINATED, OR IN RESPECT OF WHICH INTEREST IS PAYABLE, IN A FOREIGN
CURRENCY
As used herein, "Foreign Currency" means a currency or composite currency
other than U.S. dollars.
PAYMENTS OF INTEREST IN A FOREIGN CURRENCY
CASH METHOD. A U.S. Holder who uses the cash method of accounting for United
States Federal income tax purposes and who receives a payment of interest on a
Note (other than original issue discount or market discount) 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 U.S. Holder's tax basis in such Foreign Currency.
ACCRUAL METHOD. A U.S. Holder who uses the accrual method of accounting for
United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the
U.S. dollar value of the amount of interest income (including original issue
discount or market discount and reduced by amortizable bond premium to the
extent applicable) that has accrued and is otherwise required to be taken into
account with respect to a 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 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. A U.S. Holder may elect, however, to translate
such accrued interest income using the rate of exchange on the last day of the
accrual period or, with respect to an accrual period that spans two taxable
years, using the rate of exchange on the last day of the taxable year. If the
last day of an accrual period is within five business days of the date of
receipt of the accrued interest, a U.S. Holder may translate such interest
using the rate of exchange on the date of receipt. The above election will
apply to other debt obligations held by the U.S. Holder and may not be changed
without the consent of the IRS. A U.S. Holder should consult a tax advisor
before making the above election. A U.S. Holder will recognize exchange gain
or loss (which will be treated as ordinary income or loss) with respect to
accrued interest income on the date such income is received. The amount of
ordinary income or loss recognized will equal the difference, if any, between
the U.S. dollar value of the Foreign Currency payment 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).
PURCHASE, SALE AND RETIREMENT OF NOTES
A U.S. Holder who purchases a Note with previously owned Foreign Currency
will recognize ordinary income or loss in an amount equal to the difference,
if any, between such U.S. Holder's tax basis in the Foreign Currency and the
U.S. dollar fair market value of the Foreign Currency used to purchase the
Note, determined on the date of purchase.
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Except as discussed above with respect to Short-Term Notes, upon the sale,
exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement and such U.S. Holder's adjusted tax basis in the Note. Such gain
or loss generally will be capital gain or loss (except to the extent of any
accrued market discount not previously included in the U.S. Holder's income)
and will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held by such U.S. Holder for more than one year.
To the extent the amount realized represents accrued but unpaid interest,
however, such amounts must be taken into account as interest income, with
exchange gain or loss computed as described in "Payments of Interest in a
Foreign Currency" above. If a U.S. Holder receives Foreign Currency on such a
sale, exchange or retirement the amount realized will be based on the U.S.
dollar value of the Foreign Currency on the date the payment is received or
the Note is disposed of (or deemed disposed of as a result of a material
change in the terms of such Note). In the case of a Note that is denominated
in Foreign Currency and is traded on an established securities market, a cash
basis U.S. Holder (or, upon election, an accrual basis U.S. Holder) will
determine the U.S. dollar value of the amount realized by translating the
Foreign Currency payment at the spot rate of exchange on the settlement date
of the sale. A U.S. Holder's adjusted tax basis in a Note will equal the cost
of the Note to such holder, increased by the amounts of any market discount or
original issue discount previously included in income by the holder with
respect to such Note and reduced by any amortized acquisition or other premium
and any principal payments received by the holder. A U.S. Holder's tax basis
in a Note, and the amount of any subsequent adjustments to such holder's tax
basis, will be the U.S. dollar value of the Foreign Currency amount paid for
such Note, or of the Foreign Currency amount of the adjustment, determined on
the date of such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. 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 the Note, determined on the date such payment is received or the
Note is disposed of, and the U.S. dollar value of the Foreign Currency
principal amount of the Note, determined on the date the U.S. Holder acquired
the Note. Such Foreign Currency gain or loss will be recognized only to the
extent of the total gain or loss realized by the U.S. Holder on the sale,
exchange or retirement of the Note.
ORIGINAL ISSUE DISCOUNT
In the case of an Original Issue Discount Note or Short-Term Note, (i)
original issue discount is determined in units of the Foreign Currency, (ii)
accrued original issue discount is translated into U.S. dollars as described
in "Payments of Interest in a Foreign Currency--Accrual Method" above and
(iii) the amount of Foreign Currency gain or loss on the accrued original
issue discount is determined by comparing the amount of income received
attributable to the discount (either upon payment, maturity or an earlier
disposition), as translated into U.S. dollars at the rate of exchange on the
date of such receipt, with the amount of original issue discount accrued, as
translated above.
PREMIUM AND MARKET DISCOUNT
In the case of a Note with market discount, (i) market discount is
determined in units of the Foreign Currency, (ii) accrued market discount
taken into account upon the receipt of any partial principal payment or upon
the sale, exchange, retirement or other disposition of the Note (other than
accrued market discount required to be taken into account currently) is
translated into U.S. dollars at the exchange rate on such disposition date
(and no part of such accrued market discount is treated as exchange gain or
loss) and (iii) accrued market discount currently includible in income by a
U.S. Holder for any accrual period is translated into U.S. dollars on the
basis of the average exchange rate in effect during such accrual period, and
the exchange gain or loss is determined upon the receipt of any partial
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principal payment or upon the sale, exchange, retirement or other disposition
of the Note in the manner described in "Payments of Interest in a Foreign
Currency--Accrual Method" above with respect to computation of exchange gain
or loss on accrued interest.
With respect to a Note issued with amortizable bond premium, such premium is
determined in the relevant Foreign Currency and reduces interest income in
units of the Foreign Currency. Although not entirely clear, a U.S. Holder
should recognize exchange gain or loss equal to the difference between the
U.S. dollar value of the bond premium amortized with respect to a period,
determined on the date the interest attributable to such period is received,
and the U.S. dollar value of the bond premium determined on the date of the
acquisition of the Note.
EXCHANGE OF FOREIGN CURRENCIES
A U.S. Holder will have a tax basis in any Foreign Currency received as
interest or on the sale, exchange or retirement of a Note equal to the U.S.
dollar value of such Foreign Currency, determined at the time the interest is
received or at the time of the sale, exchange or retirement. Any gain or loss
realized by a U.S. Holder on a sale or other disposition of Foreign Currency
(including its exchange for U.S. dollars or its use to purchase Notes) will be
ordinary income or loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a Note, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of Capital, a controlled foreign
corporation related to Capital or a bank receiving interest described in
section 881(c)(3)(A) of the Code. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial
owner of the Note under penalties of perjury, (ii) certifies that such owner
is not a U.S. Holder and (iii) provides the name and address of the beneficial
owner. The statement may be made on an IRS Form W-8 or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such change. If a Note
is held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement
to the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by
the beneficial owner to the organization or institution. The Treasury
Department is considering implementation of further certification requirements
aimed at determining whether the issuer of a debt obligation is related to
holders thereof.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a Note, provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should
consult its tax advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of Capital
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number)
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<PAGE>
in the required manner. Generally, individuals are not exempt recipients,
whereas corporations and certain other entities generally are exempt
recipients. Payments made in respect of the Notes to a U.S. Holder must be
reported to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-
U.S. Holder (and certain other conditions are met). Such a sale must also be
reported by the broker to the IRS, unless either (i) the broker determines
that the seller is an exempt recipient or (ii) the seller certifies its non-
U.S. status (and certain other conditions are met). Certification of the
registered owner's non-U.S. status would be made normally on an IRS Form W-8
under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by Capital to or
through Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated (the
"Agents"). The Agents, individually or in a syndicate, may purchase Notes, as
principal, from Capital from time to time for resale to investors and other
purchasers at varying prices relating to prevailing market prices at the time
of resale as determined by the applicable Agent or, if so specified in the
applicable Pricing Supplement, for resale at a fixed offering price. If agreed
to by Capital and an Agent, such Agent may also utilize its reasonable efforts
on an agency basis to solicit offers to purchase the Notes at 100% of the
principal amount thereof, unless otherwise specified in the applicable Pricing
Supplement. Capital will pay a commission to an Agent, ranging from .125% to
.750% of the principal amount of each Note, depending upon its stated
maturity, sold through such Agent as an agent of Capital. Commissions with
respect to Notes with stated maturities in excess of 30 years that are sold
through an Agent as an agent of Capital will be negotiated between Capital and
such Agent at the time of such sale. Capital may also sell Notes directly to
purchasers in those jurisdictions in which it is permitted to do so and in
certain circumstances may engage other agents to act on the same terms as the
Agents. No commission will be payable by Capital on Notes sold directly by
Capital.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from Capital as
principal to certain dealers less a concession equal to all or any portion of
the discount received in connection with such purchase. Such Agent may allow,
and such dealers may reallow, a discount to certain other dealers. After the
initial offering of the Notes, the offering price (in the case of Notes to be
resold on a fixed offering price basis), the concession and the reallowance
may be changed.
Capital reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject offers in whole or in part (whether
placed directly with Capital or through an Agent). Each Agent will have the
right, in its discretion reasonably exercised, to reject in whole or in part
any offer to purchase Notes received by it on an agency basis.
S-33
<PAGE>
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in the Specified Currency in The City of New York on the date
of settlement. See "Description of Notes--General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time
to time purchase and sell Notes in the secondary market, but the Agents are
not obligated to do so, and there can be no assurance that there will be a
secondary market for the Notes or that there will be liquidity in the
secondary market if one develops. From time to time, the Agents may make a
market in the Notes, but the Agents are not obligated to do so and may
discontinue any market-making activity at any time.
During and after offerings of Notes, the Agents may purchase and sell the
offered Notes in the open market. These transactions may include over-
allotment and stabilizing transactions, and purchases to cover short positions
created in connection with such offerings. The Agents also may impose penalty
bids, whereby selling concessions allowed to other broker-dealers in respect
of the Notes sold in such offerings for their account may be reclaimed by the
Agents if such Notes are repurchased by the Agents in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market prices of such Notes, which may be higher than the prices that might
otherwise prevail in the open market. These transactions may be effected in
the over-the-counter market or otherwise, and these activities, if commenced,
may be discontinued at any time.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). Capital has agreed
to indemnify the Agents against, and to provide contribution with respect to,
certain liabilities (including liabilities under the Securities Act). Capital
has agreed to reimburse the Agents for certain other expenses.
In the ordinary course of its business, the Agents and their affiliates have
engaged and may in the future engage in investment and commercial banking
transactions with Capital and certain of its affiliates.
From time to time, Capital may issue and sell other Debt Securities
described in the accompanying Prospectus, and the amount of Notes offered
hereby is subject to reduction as a result of such sales.
LEGAL OPINIONS
The validity of the Notes offered hereby will be passed upon for Capital by
Schiff Hardin & Waite, Chicago, Illinois. See "Legal Opinions" in the
Prospectus. Certain legal matters relating to the Notes offered hereby will be
passed upon for the Agents by Sonnenschein Nath & Rosenthal, Chicago,
Illinois.
S-34
<PAGE>
PROSPECTUS
$300,000,000
NIPSCO CAPITAL MARKETS, INC.
DEBT SECURITIES
ENTITLED TO THE BENEFIT OF A SUPPORT AGREEMENT
PROVIDING FOR THE PAYMENT OF PRINCIPAL AND INTEREST BY
NIPSCO INDUSTRIES, INC.
NIPSCO Capital Markets, Inc., an Indiana corporation ("Capital"), may offer
from time to time up to $300,000,000 aggregate initial offering price, or the
equivalent thereof in one or more foreign or composite currencies, of its
unsecured debt securities (the "Debt Securities"). The Debt Securities offered
pursuant to this Prospectus may be issued in one or more series or in amounts,
at prices and on terms to be determined at or prior to the time of sale and
set forth in one or more supplements to this Prospectus (each, a "Prospectus
Supplement"). The Debt Securities are entitled to the benefits of a Support
Agreement, dated as of April 4, 1989 (as amended, the "Support Agreement"),
between Capital and its parent company, NIPSCO Industries, Inc.
("Industries"), providing for the payment of principal and interest, if any,
on the Debt Securities in the event of default of Capital.
Certain specific terms of the particular Debt Securities in respect of which
this Prospectus is being delivered will be set forth in the accompanying
Prospectus Supplement, including, where applicable, the initial public
offering price of the Debt Securities, the net proceeds thereof to Capital,
any listing of such Debt Securities on a securities exchange and any other
special terms. The Prospectus Supplement will set forth with regard to the
Debt Securities being offered, without limitation, the specific designation,
priority of payment, aggregate principal amount, authorized denominations,
maturity, any interest rate (which may be fixed or variable) or method of
calculation of interest and date or dates of payment of any interest, any
premium, the place or places where principal of, premium, if any, and any
interest on the Debt Securities will be payable, any terms of redemption at
the option of Capital or the holder of any Debt Securities, any terms for
sinking fund payments, the currency or currencies, composite currency,
currency unit or currency units (collectively, the "Currency") of denomination
and payment, any terms for conversion or exchange and any other terms in
connection with the offering and sale of Debt Securities in respect of which
this Prospectus is delivered.
----------------
THESE DEBT SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
Capital may sell the Debt Securities directly to other purchasers or through
agents and may also sell the Debt Securities to or through underwriters or
dealers. See "Plan of Distribution." The Prospectus Supplement will set forth
the names of any agents, underwriters or dealers involved in the sale of the
Debt Securities in respect of which this Prospectus is being delivered and any
applicable fee, commission and discount arrangements with them. See "Plan of
Distribution" for a description of possible indemnification arrangements among
Capital and Industries and any agents, underwriters or dealers.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE DEBT SECURITIES
WITHOUT DELIVERY OF ONE OR MORE PROSPECTUS SUPPLEMENTS.
----------------
The date of this Prospectus is March 18, 1997.
<PAGE>
AVAILABLE INFORMATION
Capital and Industries have filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (including
any amendments thereto, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Debt
Securities. This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted pursuant to the rules of the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. With respect to each
such contract, agreement or other document filed or incorporated by reference
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference.
Industries is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by
Industries with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and at
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material also may be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov. Such reports, proxy statements and
other information concerning Industries may also be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005, the
Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois 60605, and
the Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104,
on which exchanges certain of Industries' securities are listed.
On September 25, 1992, the staff of the Commission informed Industries and
Capital by letter that it would not recommend enforcement action to the
Commission if Capital did not file periodic reports pursuant to Sections 13
and 15(d) of the Exchange Act, subject to Industries' compliance with the
conditions set forth therein. In reliance upon such letter, no documents have
been filed or will be filed by Capital under the Exchange Act. Capital does
not intend to issue any periodic or other reports to holders of the Debt
Securities. Capital has been advised by the Commission's staff that financial
information regarding Capital need not be included in any registration
statement on Form S-3 filed by Capital and Industries with respect to the Debt
Securities and the Support Agreement.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by Industries with the Commission are
incorporated herein by reference:
(a) Industries' Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(b) Industries' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996; and
(c) Industries' Current Report on Form 8-K as filed on February 14, 1997.
All documents subsequently filed by Industries pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the Debt Securities shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or
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<PAGE>
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
INDUSTRIES WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, ON THE
WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS
REFERRED TO ABOVE WHICH HAVE BEEN OR MAY BE INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THE PROSPECTUS
INCORPORATES. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO NINA M. RAUSCH,
SECRETARY, NIPSCO INDUSTRIES, INC., 5265 HOHMAN AVENUE, HAMMOND, INDIANA
46320, TELEPHONE NUMBER (219) 853-5199.
THE COMPANIES
CAPITAL
Capital was incorporated in Indiana in 1989. Capital was organized by
Industries to engage in financing activities that provide funds for use in
Industries' business operations and those of its direct and indirect wholly-
owned subsidiaries, excluding Northern Indiana Public Service Company
("Northern Indiana"). Industries owns all of the 1,000 authorized capital
shares of Capital.
On April 4, 1989, Capital and Industries entered into the Support Agreement,
which subsequently was amended as of May 15, 1989, December 10, 1990, and
February 14, 1991. Under the Support Agreement, Industries has agreed, among
other things, to ensure the timely payment of principal, premium, if any, and
interest owed on any debt securities issued by Capital, with the limitation
that no holder of such debt securities will have recourse to or against the
stock or assets of Northern Indiana, or any interest of Industries or Capital
therein. See "Description of the Support Agreement."
On March 27, 1991, the Commission issued an order pursuant to Section 6(c)
of the Investment Company Act of 1940, as amended (the "Investment Company
Act"), granting an exemption to Capital from all of the provisions of the
Investment Company Act, subject to Capital's compliance with the conditions
set forth therein.
The principal executive offices of Capital are located at 5265 Hohman
Avenue, Hammond, Indiana 46320. Its telephone number is (219) 853-5200.
INDUSTRIES
Industries is an Indiana corporation, incorporated in 1987, which serves as
the holding company for a number of wholly-owned subsidiaries, including three
public utility operating companies: Northern Indiana, Kokomo Gas and Fuel
Company ("Kokomo Gas") and Northern Indiana Fuel and Light Company, Inc.
("NIFL"). In addition to Capital, Industries has three other major non-utility
subsidiaries, NIPSCO Development Company, Inc., NIPSCO Energy Services, Inc.
and Primary Energy, Inc. The principal executive offices of Industries are
located at 5265 Hohman Avenue, Hammond, Indiana 46320, and its telephone
number is (219) 853-5200.
Northern Indiana, Industries' largest and dominant subsidiary, was
incorporated in Indiana in 1912 and supplies electricity and natural gas to
the public in 30 counties in the northern part of Indiana, serving an area of
about 12,000 square miles with a population of approximately 2,188,000. At
December 31, 1996, it supplied approximately 411,500 customers with
electricity and approximately 653,000 customers with natural gas. For the
fiscal year ended December 31, 1996, approximately 58% of its revenues were
derived from the sale of electricity and approximately 42% from the sale and
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<PAGE>
transportation of natural gas. Kokomo Gas, which was incorporated in Indiana
in 1917, and NIFL, which was incorporated in Indiana in 1906, both are engaged
in supplying natural gas to the public in service territories contiguous to
Northern Indiana's service territory. At December 31, 1996, Kokomo Gas and
NIFL served approximately 32,900 and 32,400 customers, respectively.
Industries expects to complete the acquisition of IWC Resources Corporation,
an Indiana corporation ("IWC Resources"), on or about March 31, 1997 for
approximately $290,000,000. See "Use of Proceeds" below. IWC Resources is a
holding company which owns and operates seven subsidiaries, including two
regulated water utility companies which supply water to approximately 240,000
customers for residential, commercial and industrial uses, and fire protection
service, in Indianapolis, Indiana, and surrounding areas. Upon completion of
the acquisition, IWC Resources will be a wholly-owned subsidiary of
Industries.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth Industries' ratio of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges.......... 3.21x 3.30x 3.10x 3.00x 2.74x
</TABLE>
For the purpose of calculating the ratios of earnings to fixed charges,
"earnings" consist of income from continuing operations before income taxes,
and "fixed charges" consist of interest on all indebtedness, amortization of
debt expense, the percentage of rental expense on operating leases deemed
representative of the interest factor, and preferred stock dividend
requirements of majority-owned subsidiaries.
A statement setting forth the computation of ratio of earnings to fixed
charges is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, Capital
will use a portion of the net proceeds of this offering to repay commercial
paper and short-term borrowings under money market lines of credit and will
advance the balance of such net proceeds to Industries promptly after
completion of the offering. In the interim, Capital will invest any funds held
by it only in the manner permitted by Rule 3a-5 under the Investment Company
Act of 1940, as amended. Industries will use the funds received to pay the
cash portion of the consideration payable in connection with the pending
acquisition of IWC Resources and for general corporate purposes. Pending
application of such net proceeds for specific purposes, such proceeds may be
invested in short-term or marketable securities. Specific allocations of
proceeds to a particular purpose that have been made at the date of any
Prospectus Supplement will be described therein.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture, dated as of February
14, 1997 (the "Indenture"), among Capital, Industries and The Chase Manhattan
Bank, as trustee (the "Trustee"), which shall act as indenture trustee for the
purposes of the Trust Indenture Act of 1939, as amended. The forms of the
Indenture and the Debt Securities are filed as exhibits to the Registration
Statement. Capitalized terms used in this section which are not otherwise
defined in this Prospectus shall have the meanings set forth in the Indenture.
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<PAGE>
The following summaries of certain provisions of the Debt Securities and the
Indenture do not purport to be complete and are subject to, and are qualified
in their entirety by express reference to, all the provisions of the Debt
Securities and the Indenture, including the definitions therein of certain
terms.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder. The Debt Securities may be issued
from time to time in one or more series up to the aggregate principal amount
which may be authorized therefor from time to time by Capital.
The Indenture does not contain provisions to afford the Holders of Debt
Securities protection in the event of a highly leveraged transaction or a
takeover attempt nor do they contain provisions requiring the repurchase of
any Debt Securities upon a change in control of Capital. In addition, the
Indenture does not contain any provisions that would limit the ability of
Capital and its subsidiaries to incur unsecured indebtedness.
The Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a discount below their principal
amount. United States federal income tax, accounting and other special
considerations applicable to any such Original Issue Discount Securities will
be described in any Prospectus Supplement relating thereto. "Original Issue
Discount Security" means any security 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 as a result of the occurrence of an Event
of Default and the continuation thereof. In addition, the Debt Securities may,
for United States Federal income tax purposes, be deemed to have been issued
with "original issue discount" ("OID") even if such securities are offered and
sold at an amount equal to their stated principal amount. The United States
Federal income tax consequences of Debt Securities deemed to be issued with
OID will be described in any Prospectus Supplement relating thereto.
REGISTRATION AND TRANSFER
The Debt Securities may be issued as Registered Securities or Bearer
Securities. At the option of the Holder, Registered Securities of any series
(except a Global Security representing all or a portion of such series) may be
exchanged for Registered Securities of the same series, Stated Maturity and
original issue date, of any authorized denominations and of like tenor and
aggregate principal amount, upon surrender of the Debt Securities to be
exchanged at the office or agency in a Place of Payment maintained for such
purpose for such series. At the option of the Holder, Bearer Securities of any
series may be exchanged for Registered Securities of the same series, Stated
Maturity and original issue date, of any authorized denominations and of like
tenor and aggregate principal amount, upon surrender of the Bearer Securities
to be exchanged at any such office or agency, with all unmatured coupons and
all matured coupons in default thereto appertaining. If the Holder of a Bearer
Security is unable to produce any such unmatured coupon or coupons or matured
coupon or coupons in default, such exchange may be effected if the Bearer
Securities are accompanied by payment in funds acceptable to Capital and the
Trustee in an amount equal to the face amount of such missing coupon or
coupons, or the surrender of such missing coupon or coupons may be waived by
Capital and the Trustee if there is furnished to them such security or
indemnity as they may require to save each of them and any Paying Agent
harmless.
The Debt Securities may be presented for exchange as described above, and
Registered Securities may be presented for registration of transfer (duly
endorsed or accompanied by a written instrument of transfer), at the Corporate
Trust Office of the Trustee or at the office of any transfer agent designated
by Capital for such purpose with respect to any series of Debt Securities and
referred to in the Prospectus Supplement applicable thereto. No service charge
will be made for any transfer or exchange of Debt Securities, but Capital may
require payment of a sum sufficient to cover any tax or
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<PAGE>
other governmental charge payable in connection therewith. If any Prospectus
Supplement refers to any transfer agent (in addition to the Trustee) initially
designated by Capital with respect to any series of Debt Securities, Capital
may at any time rescind the designation of any such transfer agent or approve
a change in the location at which any such transfer agent acts, except that,
if Debt Securities of a series are issuable solely as Registered Securities,
Capital will be required to maintain a transfer agent in each Place of Payment
for such series and, if Debt Securities of a series may be issuable both as
Registered Securities and as Bearer Securities, Capital will be required to
maintain (in addition to the Trustee) a transfer agent in a Place of Payment
for such series located outside the United States. Capital may at any time
designate additional transfer agents with respect to any series of Debt
Securities.
In the event of any redemption of Debt Securities of any series, Capital
shall not be required (i) to issue, to register the transfer of, or to
exchange Debt Securities of any series during a period of 15 Business Days
immediately preceding the date notice is given identifying the serial numbers
of the Debt Securities of that series called for redemption, or (ii) to issue,
to register the transfer of or to exchange any Registered Security so selected
for redemption in whole or in part, except the unredeemed portion of any Debt
Security being redeemed in part, or (iii) to exchange any Bearer Security so
selected for redemption except that such a Bearer Security may be exchanged
for a Registered Security of that series, provided that such Registered
Security shall be immediately surrendered for redemption with written
instruction for payment consistent with the provisions of the Indenture.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities (as such term is defined below), which
will be deposited with, or on behalf of, a depositary ("Depositary") or its
nominee identified in the applicable Prospectus Supplement. In such case, one
or more Global Securities will be issued in a denomination or aggregate
denomination equal to the portion of the aggregate principal amount of
outstanding Debt Securities of the series to be represented by such Global
Security or Global Securities. Unless and until it is exchanged in whole or in
part for the individual Debt Securities represented thereby, a Global Security
may not be registered for transfer or exchange except (i) as a whole by the
Depositary for such Global Security to a nominee of such Depositary, by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or a nominee of such Depositary to a
successor Depositary or a nominee of such successor Depositary, and (ii) in
any other circumstances described in the Prospectus Supplement applicable
thereto. The term "Global Security," when used with respect to any series of
Debt Securities, means a Debt Security that is executed by Capital and
authenticated and delivered by the Trustee to the Depositary or pursuant to
the Depositary's instruction, which shall be registered in the name of the
Depositary or its nominee and which shall represent, and shall be denominated
in an amount equal to the aggregate principal amount of, all of the
Outstanding Debt Securities of such series or any portion thereof, in either
case having the same terms, including, without limitation, the same original
issue date, date or dates on which principal is due, and interest rate or
method of determining interest.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security will be
described in the Prospectus Supplement applicable thereto. Capital expects
that the following provisions will apply to depositary arrangements.
Debt Securities that are to be represented by a Global Security to be
deposited with or on behalf of a Depositary will be represented by a Global
Security registered in the name of such Depositary or its nominee. Upon the
issuance of such Global Security, and the deposit of such Global Security with
or on behalf of the Depositary for such Global Security, the Depositary will
credit on its book-entry registration and transfer system the respective
principal amounts of the Debt Securities represented
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by such Global Security to the accounts of institutions that have accounts
with such Depositary or its nominee ("participants"). The accounts to be
credited will be designated by the underwriters or agents of such Debt
Securities or, if such Debt Securities are offered and sold directly by
Capital, by Capital. Ownership of beneficial interests in such Global Security
will be limited to participants or Persons that may hold interests through
participants. Ownership of beneficial interests by participants in such Global
Security will be shown only on, and the transfer of that ownership interest
will be effected only through, records maintained by the Depositary or its
nominee or any such participant (with respect to interests of persons held by
such participants on their behalf) for such Global Security. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations
and such laws may impair the ability to transfer beneficial interests in such
Global Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner and the Holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise specified in the applicable Prospectus Supplement,
owners of beneficial interests in such Global Security will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certificated form and will not
be considered the Holders thereof for any purposes under the Indenture.
Accordingly, each Person owning a beneficial interest in such Global Security
must rely on the procedures of the Depositary and, if such Person is not a
participant, on the procedures of the participant through which such Person
owns its interest to exercise any rights of a Holder of Debt Securities under
the Indenture. Capital understands that under existing industry practices, if
Capital requests any action of Holders or an owner of a beneficial interest in
such Global Security desires to give any notice or take any action a Holder is
entitled to give or take under the Indenture, then the Depositary would
authorize the participants to give such notice or take such action, and
participants would authorize beneficial owners owning through such
participants to give such notice or take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
CERTAIN COVENANTS OF THE COMPANY
Although the Indenture contains certain covenants, described below, with
respect to limitations on liens and merger or consolidation, these covenants
do not focus on the debt incurred in many types of transactions and do not
otherwise afford protection to Holders of Debt Securities in the event of a
highly leveraged transaction that is not in violation of the covenants.
Capital does not currently intend to include any covenants or other provisions
affording such protection in the Debt Securities or any series thereof. If
Capital determines in the future that it is desirable to include covenants or
other provisions of this type in any series of securities, they will be
described in the Prospectus Supplement for that series.
CONSOLIDATION, MERGER AND SALE
Under the terms of the Indenture, neither Capital nor Industries may merge
or consolidate with or into any other Corporation, or convey, transfer or
lease their properties and assets substantially as an entirety unless (i) the
Corporation formed by any such consolidation or into which it is merged or the
Person which acquires by conveyance or transfer, or which leases, its
properties and assets substantially as an entirety shall be a Corporation
organized and existing under the laws of any domestic jurisdiction and shall
expressly assume, in the case of Capital, its obligations under the Debt
Securities and the Indenture and, in the case of Industries, its obligations
under the Indenture and the
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Support Agreement, (ii) immediately after giving effect to such transaction,
no Event of Default, and no event which, after notice or lapse of time, would
become an Event of Default, shall have occurred and be continuing, and (iii)
Capital or Industries, as applicable, shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease complies with the
Indenture and that all conditions precedent therein provided for relating to
such transaction have been complied with.
LIMITATION ON LIENS
Neither Capital nor Industries will, nor will Industries permit any
Subsidiary other than a Utility, to, issue, assume or guarantee any debt for
money borrowed (for purposes of this paragraph, "Debt"), secured by any
mortgage, security interest, pledge, lien or other encumbrance (herein
referred to as "mortgage") upon any property of Capital, Industries or any
such Subsidiary (other than a Utility), except indebtedness issued by any such
Subsidiary and owned by Industries or any other such Subsidiary (whether such
property or indebtedness is owned at the date of the Indenture or thereafter
acquired), without effectively securing the Notes equally and ratably with (or
prior to) such Debt. The foregoing restrictions do not apply to (i) mortgages
on any property, acquired, constructed or improved by Industries or any of the
Subsidiaries other than the Utilities after the date of the Indenture which
are created or assumed contemporaneously with, or within 120 days after, such
acquisition or completion of such construction or improvement, or within six
months thereafter pursuant to a firm commitment for financing arranged with a
lender or investor within such 120-day period, to secure or provide for the
payment of all or any part of the purchase price of such property or the cost
of such construction or improvement incurred after the date of the Indenture,
or, in addition to mortgages contemplated by clauses (ii) and (iii) below,
mortgages on any property existing at the time of acquisition thereof,
provided that the mortgages shall not apply to any property theretofore owned
by Industries or any such Subsidiary other than, in the case of any such
construction or improvement, any theretofore unimproved real property on which
the property so constructed or the improvement is located; (ii) existing
mortgages on any property or indebtedness of a corporation which is merged
with or into or consolidated with Industries or a Subsidiary; (iii) mortgages
on property or indebtedness of a corporation existing at the time such
corporation becomes a Subsidiary; (iv) mortgages to secure Debt of a
Subsidiary to Industries or to another Subsidiary other than a Utility; (v)
mortgages in favor of the United States of America, any State, any foreign
country or any department, agency or instrumentality or political subdivision
of any such jurisdiction, to secure partial, progress, advance or other
payments pursuant to any contract or statute or to secure any indebtedness
incurred for the purpose of financing all or any part of the purchase price or
the cost of constructing or improving the property subject to such mortgages,
including, without limitation, mortgages to secure Debt of the pollution
control or industrial revenue bond type; (vi) mortgages to secure loans to
Industries or any Subsidiary other than a Utility maturing within 12 months
from the creation thereof and made in the ordinary course of business; (vii)
mortgages on any property (including any natural gas, oil or other mineral
property) to secure all or part of the cost of exploration, drilling or
development thereof or to secure Debt incurred to provide funds for any such
purpose; (viii) mortgages existing on the date of the Indenture; and (ix)
mortgages for the sole purposes of extending, renewing or replacing in whole
or in part Debt secured by any mortgage referred to in the foregoing clauses
(i) to (viii), inclusive, or this clause (ix); provided, however, that the
principal amount of Debt secured thereby shall not exceed the principal amount
of Debt so secured at the time of such extension, renewal or replacement, and
that such extension, renewal or replacement shall be limited to all or a part
of the property or indebtedness which secured the mortgage so extended,
renewed or replaced (plus improvements on such property). Furthermore, such
restrictions do not apply to the issuance, assumption or guarantee by
Industries or any Subsidiary of Debt secured by a mortgage which would
otherwise be subject to the foregoing restriction up to an aggregate amount
which, together with all other secured Debt (not including secured Debt
permitted under the foregoing exceptions), does not exceed 5 percent of
consolidated net tangible assets of Industries and the Subsidiaries (other
than the Utilities), determined in accordance with generally
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accepted accounting principles and as of a date not more than 90 days prior to
the happening of the event for which such determination is being made. For
purposes of the foregoing, "consolidated net tangible assets" means the total
amount of assets appearing on a consolidated balance sheet of Industries and
the Subsidiaries (other than the Utilities), less, without duplication, (i)
all current liabilities (excluding any thereof which are by their terms
extendable or renewable at the sole option of the obligor thereon without
requiring the consent of the obligee to a date more than 12 months after the
date on which the determination of consolidated net tangible assets is made),
(ii) all reserves for depreciation and other asset valuation reserves but
excluding any reserves for deferred Federal income taxes arising from
accelerated amortization or otherwise, (iii) all intangible assets such as
goodwill, trademarks, trade names, patents and unamortized debt discount and
expense carried as an asset on said balance sheet, and (iv) all appropriate
adjustments on account of minority interests of other persons holding common
shares or stock in any Subsidiary.
EVENTS OF DEFAULT
The Indenture provides, with respect to any series of Debt Securities
outstanding thereunder, that any one or more of the following events that has
occurred and is continuing shall constitute an Event of Default: (i) default
in the payment of any interest upon any Debt Security of that series, when the
same becomes due and payable and the continuance of such default for 30 days;
(ii) default in the payment of the principal of or any premium, if any, on any
Debt Security of that series when due, whether at maturity, upon redemption,
by declaration or otherwise and continuance of such default for a period of
three Business Days thereafter; (iii) default in the deposit of any sinking
fund payment, when and as due by the terms of any Debt Securities of that
series and the continuance of such default for three Business Days thereafter;
(iv) default in the performance or breach of any covenant or agreement of
Capital or Industries in the Indenture or the Support Agreement (other than
those referred to in (i), (ii) and (iii) above) and the continuance thereof
for 60 days after there shall have been given, by registered or certified
mail, to Capital and Industries from the Trustee or from the Holders of at
least 25 percent of the Outstanding Debt Securities of that series written
notice specifying such default and stating that such notice is a "Notice of
Default"; (v) certain events in bankruptcy, insolvency or reorganization of
Capital, Industries or Northern Indiana; (vi) a default under any bond,
debenture, note or other evidence of indebtedness for money borrowed by
Capital (including a default with respect to Debt Securities of any series
other than that series) or under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by Capital (including the Indenture), whether
such indebtedness now exists or shall hereafter be created, which default
shall constitute a failure to pay in excess of $5,000,000 of the principal or
interest of such indebtedness when due and payable after the expiration of any
applicable grace period with respect thereto or shall have resulted in such
indebtedness in an amount in excess of $5,000,000 becoming or being declared
due and payable prior to the date on which it would otherwise have become due
and payable, without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled within a period of 90 days
after there shall have been given, by registered or certified mail, to Capital
by the Trustee or to Capital and the Trustee by the Holders of at least 25
percent in principal amount of the Outstanding Debt Securities of that series
written notice specifying such default and stating that such notice is a
"Notice of Default"; and (vii) any other Event of Default provided with
respect to Debt Securities of that series.
Each of Capital and Industries will be required to furnish annually to the
Trustee a statement as to the performance by it of certain of its obligations
under the Indenture and as to any default in such performance.
The Holders of not less than a majority in principal amount of the Debt
Securities may, on behalf of the Holders of all the Debt Securities, waive any
past default under the Indenture with respect to the Debt Securities and its
consequences, except a default (i) in the payment of the principal of or
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interest on any Debt Securities or (ii) in respect of a covenant or provision
that cannot be modified or amended without the consent of the Holder of each
outstanding Debt Security affected thereby.
ACCELERATION OF MATURITY
If an Event of Default occurs and is continuing with respect to Debt
Securities of a particular series, the Trustee or the Holders of not less than
33 percent in principal amount of Outstanding Debt Securities of that series
may declare the Outstanding Debt Securities of that series due and payable
immediately.
At any time after a declaration of acceleration with respect to Debt
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee therefor, the
Holders of a majority in principal amount of the Outstanding Debt Securities
of that series, by written notice to Capital, Industries and such Trustee, may
rescind and annul such declaration and its consequences if: (i) Capital or
Industries has paid or deposited with the Trustee a sum sufficient to pay: (a)
all overdue interest on all Debt Securities of that series, (b) the principal
of (and premium, if any, on) any such Debt Securities which has become due
otherwise than by such declaration of acceleration, and interest on such
unpaid principal at the rate or rates prescribed therefor in such Debt
Securities, (c) to the extent lawful, interest on overdue interest at the rate
or rates prescribed therefor in such Debt Securities, and (d) all sums paid or
advanced by such Trustee and the reasonable compensation, expenses,
disbursements and advances of such Trustee, its agents and counsel, and any
other amounts due the Trustee under the Indenture; and (2) all Events of
Default with respect to Debt Securities of that series, other than the non-
payment of the principal of such Debt Securities which have become due solely
by such declaration of acceleration, have been cured or waived. No such
rescission and annulment shall affect any subsequent default or impair any
right consequent thereon.
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may, on behalf of the Holders of all
the Debt Securities of such series and any related Coupons, waive any past
default under the Indenture with respect to such series and its consequences,
except a default (i) in the payment of the principal of (or premium, if any)
or interest on any Debt Security of such series, or (ii) in respect of a
covenant or provision that cannot be modified or amended without the consent
of the Holder of each Outstanding Debt Security of such series affected
thereby.
Subject to the provisions in the Indenture relating to the duties of the
Trustee thereunder, if an Event of Default with respect to Debt Securities of
a particular series occurs and is continuing, such Trustee shall be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders of Debt Securities of such series,
unless such Holders shall have offered to such Trustee reasonable indemnity or
security against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction. Subject to such provisions
for the indemnification of the Trustee, the Holders of a majority in principal
amount of the Outstanding Debt Securities of such series shall have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee under the Indenture, or exercising any trust
or power conferred on the Trustee with respect to the Debt Securities of that
series; provided, that such direction shall not be in conflict with any rule
of law or the Indenture, expose the Trustee to personal liability or be unduly
prejudicial to Holders not joining therein, and the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
MODIFICATION OR WAIVER
Modification and amendment of the Indenture may be made by Capital,
Industries and the Trustee with the consent of the Holders of not less than a
majority in principal amount of all Outstanding Debt
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Securities thereunder of any series that are affected by such modification or
amendment; provided that no such modification or amendment may, without the
consent of the Holder of each Outstanding Debt Security of such series: (i)
change the Stated Maturity of the principal of or any installment of principal
of or interest on any Debt Security (except as otherwise provided in the
Indenture) of such series, (ii) reduce the principal amount or the rate of
interest on, or any premium payable upon the redemption of, any Debt Security
of such series, (iii) change any obligation of Capital to pay additional
amounts in respect of any Debt Security of such series (except as otherwise
provided in the Indenture), (iv) reduce the amount of principal of a Debt
Security of such series that is an Original Issue Discount Security that would
be due and payable upon a declaration of acceleration of the Stated Maturity
thereof, (v) change the place or currency of payment of principal of, or any
premium or interest on, any Debt Security of such series, (vi) impair the
right to institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof or any Redemption Date therefor, (vii) reduce the
above-stated percentage of Holders of Outstanding Debt Securities of such
series necessary to modify or amend the Indenture or to consent to any waiver
thereunder or reduce the requirements for voting or quorum described below,
(viii) change any obligation of Capital to maintain an office or agency in any
requisite place of payment or an obligation of Capital to maintain an office
or agency outside the United States of America (to the extent required
pursuant to the terms of the Indenture), or (ix) modify the foregoing
requirements or reduce the percentage of Outstanding Debt Securities of such
series necessary to waive any past default.
Modification and amendment of the Indenture may be made by Capital,
Industries and the Trustee without the consent of any Holder, for any of the
following purposes: (i) to evidence the succession of another Corporation to
Capital or Industries; (ii) to add to the covenants of Capital and Industries
for the benefit of the Holders of all or any series of Debt Securities (and if
such covenants are to be for the benefit of less than all of any series of
Debt Securities, stating that such covenants are expressly being included
solely for the benefit of such portion of such series) or to surrender any
right or power herein conferred upon Capital; (iii) to add any additional
Events of Default; (iv) to add or change any provisions of the Indenture to
facilitate the issuance of Bearer Securities; (v) to change or eliminate any
provisions of the Indenture, provided that any such change or elimination
shall become effective only when there are no Outstanding Debt Securities of
any series created prior thereto that is entitled to the benefit of such
provision; (vi) to establish the form or terms of Debt Securities of any
series; (vii) to secure the Debt Securities; (viii) to provide for the
acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under the Indenture by more than one Trustee;
(ix) to cure any ambiguity, defect or inconsistency in the Indenture or to
make any other provisions with respect to matters or questions arising under
the Indenture, provided such action does not adversely affect the interests of
Holders of Debt Securities of any series under the Indenture in any material
respect; (x) to effect assumption by Industries or one of its subsidiaries of
Capital's obligations as contemplated by the Indenture; and (xi) to conform
the Indenture to any amendments to the Trust Indenture Act.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series. Such a meeting may be called at any time by the
Trustee at its discretion for certain purposes set forth in the Indenture
relating to Bearer Securities or by the Trustee pursuant to a request made to
the Trustee by Capital or the Holders of at least 10% in principal amount of
the Outstanding Debt Securities of any series under the Indenture, but in any
case, notice shall be given as provided in the Indenture. Except for any
consent that must be given by the Holder of each Debt Security affected
thereby, as described above, any resolution presented at a meeting or
adjourned meeting duly reconvened at which a quorum is present may be adopted
by the affirmative vote of the Holders of a majority in principal amount of
the Debt Securities of that series Outstanding; provided, however, that, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by
the Holders of a specified percentage that is less than a majority in
principal amount of Debt Securities of a series Outstanding may be adopted at
a
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meeting or adjourned meeting, duly reconvened and at which a quorum is
present, by the affirmative vote of the Holders of such specified percentage
in principal amount of the Debt Securities of that series Outstanding. Any
resolution passed or decision taken at any meeting of Holders of Debt
Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series, whether or not
present or represented at the meeting. The quorum at any meeting called to
adopt a resolution, and at any reconvened meeting, will consist of Persons
entitled to vote a majority in principal amount of the Debt Securities of a
series Outstanding.
INFORMATION CONCERNING THE TRUSTEE
Except during the continuance of an Event of Default with respect to Debt
Securities of any series, the Trustee undertakes to perform, with respect to
Debt Securities of such series, only such duties of the Trustee as are
specifically set forth in the Indenture, and no implied covenants or
obligations shall be read into the Indenture against the Trustee, and in the
absence of bad faith on its part, the Trustee may, with respect to Debt
Securities of such series, conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of the Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of the
Indenture. In case an Event of Default with respect to Debt Securities of any
series has occurred and is continuing, the Trustee shall exercise, with
respect to Debt Securities of such series, such of the rights and powers
vested in it by the Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York.
MISCELLANEOUS
Industries or a Subsidiary may directly assume, by a supplemental indenture,
the performance of every covenant of the Indenture on the part of Capital to
be performed or observed. Upon any such assumption, Industries or such
Subsidiary shall succeed to and be substituted for and may exercise every
right and power of Capital under the Indenture with the same effect as if
Industries or such Subsidiary had been named as Capital therein and Capital
shall be released from its liability as obligor on the Debt Securities;
provided that, in the case of such assumption by a Subsidiary, the Support
Agreement is modified so that references to Capital and its Debt therein are
changed to, or modified to include, references to such Subsidiary and its Debt
(including the Debt Securities). No such assumption shall be permitted unless
Industries has delivered to the Trustee an Officers' Certificate of Industries
and an Opinion of Counsel for Industries, each stating that such assumption
and supplemental indenture comply with the Indenture that all conditions
precedent therein provided for relating to such transaction have been complied
with and, in the event of assumption by a Subsidiary, that Industries'
obligations under the Indenture and the Support Agreement (modified as
aforesaid) remain in full force and effect.
DESCRIPTION OF THE SUPPORT AGREEMENT
The Support Agreement between Capital and Industries provides that, during
the term thereof, (i) Industries will own all of the voting stock of Capital,
(ii) Industries will cause Capital to have at all times a positive net worth
(net assets less intangible assets, if any), as determined in accordance with
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generally accepted accounting principles, and (iii) if Capital is unable to
make timely payment of principal of or any premium or interest on any Debt (as
defined below) issued by Capital, Industries will, at the request of Capital
or any Lender (as defined below), provide funds to Capital to make such
payments. The Support Agreement also provides that any Lender to Capital shall
have the right to demand that Capital enforce its rights against Industries
under the Support Agreement as described in the previous sentence, and, in the
event that Capital fails to require Industries to perform such obligations or
Capital defaults in the timely payment of principal of or any premium or
interest on any Debt owed to a Lender, such Lender may proceed directly
against Industries to enforce Capital's rights against Industries under the
Support Agreement or to obtain payment of such defaulted principal, premium or
interest owed to such Lender.
The Support Agreement provides that in no event may any Lender, on default
of Capital or Industries or upon failure by Capital or Industries to comply
with the Support Agreement, have recourse to or against the stock or assets of
Northern Indiana, or any interest of Capital or Industries therein.
Notwithstanding this limitation, the Support Agreement provides that funds
available to Industries to satisfy any obligations under the Support Agreement
will include cash dividends paid by Northern Indiana to Industries. In
addition to the cash dividends paid to Industries by any Subsidiary, the
assets of Industries other than the stock and assets of Northern Indiana are
available as recourse to holders of Capital's Debt. The carrying value of such
assets reflected in Industries' consolidated balance sheet at December 31,
1996 is approximately $519 million. The term "Debt" is defined in the Support
Agreement as debt securities or other obligations, and includes the Debt
Securities. The term "Lender" is defined in the Support Agreement as any
person, firm or corporation to which Capital is indebted for money borrowed or
to which Capital otherwise owes any Debt or which is acting as trustee or
authorized representative on behalf of such person, firm or corporation. The
Indenture provides that each Holder of a Debt Security, as well as the
Trustee, shall be considered a "Lender" for purposes of the Support Agreement.
Funds to pay the principal of and interest on the Debt Securities pursuant
to the Support Agreement would come from earnings in the form of dividends
paid to Industries by Northern Indiana, Kokomo Gas and NIFL, the earnings of
other businesses of Industries and its subsidiaries or the proceeds of
refinancing transactions. During the next few years, it is expected that the
majority of Industries' earnings that would ultimately be available to pay the
principal of and interest on the Debt Securities will depend upon dividends
paid to Industries by Northern Indiana. Northern Indiana's Indenture of
Mortgage provides that Northern Indiana will not declare or pay any dividends
on any class of capital stock (other than preferred or preference stock)
except out of earned surplus or net profits of Northern Indiana. At December
31, 1996, Northern Indiana had approximately $146 million of retained earnings
(earned surplus) available for the payment of dividends. Future dividends
payable by Northern Indiana to Industries will depend upon adequate retained
earnings, adequate future earnings and the absence of adverse developments. In
addition, since Industries is a holding company, the right of its creditors,
including Holders of the Debt Securities pursuant to the Support Agreement, to
participate in any distribution of the assets of any subsidiary other than
Capital upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent claims of Industries as a creditor may be recognized. The Indenture
does not limit the amount of indebtedness that Capital, Industries or any of
Industries' other subsidiaries may incur.
The Support Agreement may be amended or terminated at any time by agreement
of Industries and Capital, provided that (i) no amendment regarding the terms
described above may be made unless all Lenders consent in advance and in
writing to such amendment; (ii) no amendment regarding any other term of the
Support Agreement may be made in a manner that adversely affects the rights of
Lenders unless all affected Lenders consent in advance and in writing to such
amendment; and (iii) no termination shall be effective until such time as all
Debt (including the Debt Securities) shall have been paid in full.
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PLAN OF DISTRIBUTION
Capital may sell the Debt Securities in any of the following ways: (i)
through underwriters or dealers; (ii) directly to purchasers; (iii) through
agents; or (iv) through any combination of the above. The Prospectus
Supplement with respect to the Debt Securities will set forth the terms of the
offering, the purchase price of the Debt Securities and the proceeds to
Capital from such sale, any underwriters, dealers or agents, any fees,
underwriting discounts and other items constituting underwriters' compensation
and any discounts or concessions allowed or reallowed or paid to dealers or
agents.
If underwriters are involved in the sale, the Debt Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The Debt Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of the Debt
Securities will be named in the Prospectus Supplement relating to such
offering or, if an underwriting syndicate is used, the managing underwriter or
underwriters, will be set forth on the cover of such Prospectus Supplement.
Unless otherwise set forth in the Prospectus Supplement relating thereto, the
obligations of the underwriters to purchase the Debt Securities will be
subject to conditions precedent and the underwriters will be obligated to
purchase all the Debt Securities offered by the Prospectus Supplement if any
are purchased.
If dealers are utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, Capital will sell such Debt Securities to
the dealers as principals. The dealers may then resell such Debt Securities to
the public at varying prices to be determined by such dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in the Prospectus Supplement relating thereto.
The Debt Securities may be sold directly by Capital or through agents
designated by Capital from time to time. Any agent involved in the offer or
sale of the Debt Securities in respect to which this Prospectus is delivered
will be named, and any commissions payable by Capital to such agent will be
set forth in, the Prospectus Supplement relating thereto.
The Debt Securities may be sold directly by Capital to institutional
investors or others, who may be deemed to be underwriters within the meaning
of the Securities Act with respect to any resale thereof. The terms of any
such sales will be described in the Prospectus Supplement relating thereto.
Agents, dealers and underwriters may be entitled under agreements entered
into with Capital and Industries to indemnification by Capital and Industries
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for Capital and Industries in the ordinary course of business.
LEGAL OPINION
The validity of the Debt Securities offered hereby and the Support Agreement
will be passed upon for Capital by Schiff Hardin & Waite, Chicago, Illinois.
The opinions with respect to the Debt Securities may be conditioned upon, and
subject to certain assumptions regarding, future action to be taken by
Capital, Industries and the Trustee in connection with the issuance and sale
of particular Debt Securities, the specific terms of the Debt Securities and
other matters that may affect the validity of the Debt Securities but that
cannot be ascertained on the date of such opinions.
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<PAGE>
EXPERTS
The consolidated financial statements and schedules of Industries and its
subsidiaries incorporated by reference in this Registration Statement from
Industries' 1995 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996
and Current Report on Form 8-K as filed on February 14, 1997 have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference in this
Registration Statement in reliance upon the authority of said firm as experts
in giving said reports. Reference is made to Industries' 1995 Annual Report on
Form 10-K, which includes an explanatory paragraph with respect to changes in
the methods of accounting for income taxes and post-retirement benefits other
than pensions, as discussed in the notes to the consolidated financial
statements.
15
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING
SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PRO-
SPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE AGENTS. NEITHER THE DELIVERY
OF THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUM-
STANCE CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT, THE APPLICA-
BLE PRICING SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLIC-
ITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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PROSPECTUS SUPPLEMENT
<S> <C>
Risk Factors............................................................... S-3
Description of Notes....................................................... S-5
Special Provisions Relating to Foreign Currency Notes...................... S-22
Certain United States Federal Income Tax Considerations.................... S-24
Plan of Distribution....................................................... S-33
Legal Opinions............................................................. S-34
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents By Reference............................ 2
The Companies.............................................................. 3
Use of Proceeds............................................................ 4
Description of Debt Securities............................................. 4
Plan of Distribution....................................................... 14
Legal Opinion.............................................................. 14
Experts.................................................................... 15
</TABLE>
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$300,000,000
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE
FROM DATE OF ISSUE
NIPSCO
CAPITAL MARKETS, INC.
ENTITLED TO THE BENEFIT OF A SUPPORT
AGREEMENT PROVIDING THE PAYMENT OF
PRINCIPAL AND INTEREST BY
NIPSCO
INDUSTRIES, INC.
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PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
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