<PAGE> 1
Filed Pursuant to Rule 424(B)(2)
Registration Number 333-16583
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 5, 1996
$200,000,000
LOGO THE REYNOLDS AND REYNOLDS COMPANY
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
---------------------------
The Reynolds and Reynolds Company (the "Company") may offer from time to
time its Medium-Term Notes (the "Notes") due from nine months or more from the
date of issue, as selected by the purchaser and agreed to by the Company. The
aggregate initial public offering price of the Notes offered hereby will not
exceed $200,000,000 or its equivalent in one or more foreign currencies or
composite currencies, subject to reduction as a result of the sale by the
Company of other Debt Securities described in the accompanying Prospectus.
The Notes may be denominated in U.S. dollars or in such foreign currencies
or composite currencies as may be designated by the Company at the time of
offering. The specific currency or composite currency, interest rate (if any),
issue price and maturity date of any Note will be set forth in the related
Pricing Supplement to this Prospectus Supplement. Unless otherwise specified in
the applicable Pricing Supplement, Notes denominated in other than U.S. dollars
or ECUs will not be sold in, or to residents of, the country issuing the
specified currency. See "Description of the Notes."
Unless otherwise specified in the applicable Pricing Supplement, interest on
the Fixed Rate Notes will be payable on each February 15, and August 15, and at
maturity. Interest on the Floating Rate Notes will be payable on the dates
specified therein and in the applicable Pricing Supplement. 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 Commercial Paper Rate, Prime Rate, LIBOR, Treasury Rate, CMT
Rate, CD Rate or Federal Funds Rate, or any other interest rate basis or
formula, as adjusted by any Spread and/or Spread Multiplier, if any. Notes may
also be issued that do not bear any interest currently or that bear interest at
a below market rate. See "Description of the Notes."
Unless a Redemption Commencement Date is specified in the applicable Pricing
Supplement, the Notes will not be redeemable prior to their Stated Maturity. If
a Redemption Commencement Date is so specified, the Notes will be redeemable at
the option of the Company at any time after such date as described herein. The
Notes will be repayable by the Company at the option of the Holders thereof
prior to their Stated Maturity only if one or more Optional Repayment Dates are
specified in the applicable Pricing Supplement.
The Notes offered hereby will be issued only in registered form in
denominations of $1,000 and integral multiples thereof or the approximate
equivalent thereof in the Specified Currency for each Note. See "Description of
the Notes."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO AGENT'S DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(1)(2) COMPANY(1)(3)
--------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Per Note...................... 100% .125%-.750% 99.250%-.99.875%
Total(4)...................... $200,000,000 $250,000-$1,500,000 $199,750,000-
$198,500,000
</TABLE>
- ---------------
(1) Notes will be issued at 100% of their principal amount, unless otherwise
specified in the applicable Pricing Supplement.
(2) The Company will pay the Agents a commission of from .125% to .750%,
depending on Stated Maturity, of the principal amount of any Notes sold
through them as agents (or sold to such Agents as principal in circumstances
in which no other discount is agreed). For Notes with maturities greater
than 30 years from their dates of issue, commissions will be negotiated at
the time of sale and indicated in the applicable Pricing Supplement. The
Company has agreed to indemnify the Agents against certain liabilities,
including liabilities under the Securities Act of 1933. See "Supplemental
Plan of Distribution."
(3) Before deducting estimated expenses of $225,000 payable by the Company,
including approximately $75,000 of estimated expenses of the Agents to be
reimbursed by the Company.
(4) Or the equivalent thereof in one or more foreign currencies or composite
currencies.
------------------------
OFFERS TO PURCHASE THE NOTES ARE BEING SOLICITED, ON A REASONABLE EFFORTS
BASIS, FROM TIME TO TIME BY THE AGENTS ON BEHALF OF THE COMPANY. NOTES MAY BE
SOLD TO THE AGENTS ON THEIR OWN BEHALF AT NEGOTIATED DISCOUNTS. THE COMPANY
RESERVES THE RIGHT TO SELL NOTES DIRECTLY ON ITS OWN BEHALF. THE COMPANY ALSO
RESERVES THE RIGHT TO WITHDRAW, CANCEL OR MODIFY THE OFFERING CONTEMPLATED
HEREBY WITHOUT NOTICE. THE COMPANY OR THE AGENTS MAY REJECT ANY ORDER AS A WHOLE
OR IN PART. SEE "SUPPLEMENTAL PLAN OF DISTRIBUTION."
------------------------
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS
DEUTSCHE MORGAN GRENFELL
FIRST CHICAGO CAPITAL MARKETS, INC.
The date of this Prospectus Supplement is February 17, 1998.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING 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 A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "SUPPLEMENTAL PLAN OF DISTRIBUTION."
USE OF PROCEEDS
The net proceeds from the sale of the Company's Medium-Term Notes will be
used to repay approximately $80 Million of unsecured revolving borrowings of
Reyna Capital Corporation (the Company's wholly-owned financing subsidiary). The
Company may also issue Medium-Term Notes for general working capital purposes,
to fund acquisitions and to lend to Reyna Capital Corporation ("Reyna") to fund
growth in Reyna's lease portfolio.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company on a consolidated basis for the periods indicated:
<TABLE>
<CAPTION>
3 MO.
FISCAL YEAR ENDED SEPTEMBER 30, ENDED
- ------------------------------------------------- 12-31
1992 1993 1994 1995 1996 1997 1997
- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
4.66x 6.83x 7.29x 8.79x 7.86x 4.41x 5.49 x
</TABLE>
The Company provides lease financing for its computer systems and products
through its wholly-owned financing subsidiary. The results of this financial
services business (which is managed to a higher debt:equity ratio) are included
in the Company's consolidated results. In order to separate the effect of the
financial services business from the rest of the Company's results, the Company
reports separate financial results for the information systems business, which
includes the business forms and computer systems segments, and financial
services.
The ratio of earnings to fixed charges for the Company's information
systems business for the fiscal years ended September 30, 1992, 1993, 1994,
1995, 1996, 1997 and for the three months ended December 31, 1997 was 6.81x,
9.07x, 9.09x, 12.93x, 11.13x, 5.47x, and 7.28x, respectively. The ratio of
earnings to fixed charges for the Company's financial services business for the
fiscal years ended September 30, 1992, 1993, 1994, 1995, 1996, 1997 and for the
three months ended December 31, 1997 was 1.37x, 2.90x, 3.59x, 2.83x, 2.59x,
2.32x and 2.07x, respectively.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings includes income before income taxes
and fixed charges excluding capitalized interest. Fixed charges includes
interest expense, capitalized interest and one-third of rent expense,
representative of the interest factor.
S-2
<PAGE> 3
CAPITALIZATION
The following table sets forth the cash and cash equivalents, current
portion of long-term obligations and capitalization of the Company by business
segment and on a consolidated basis as of December 31, 1997, and as adjusted to
give effect to the sale by the Company of the Notes offered hereby and the
application of the estimated net proceeds therefrom, after the repayment of
debt, as described under "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
(DOLLARS IN THOUSANDS)
AS ADJUSTED
FOR
ACTUAL OFFERING
------- -----------
<S> <C> <C>
CONSOLIDATED
Cash and Cash Equivalents.............................................. 10,046 10,046
======= =======
Current Liabilities:
Current Portion of Long-Term Obligations............................. 102,553 102,553
Notes Payable........................................................ 1,451 1,451
------- -------
Total............................................................ 104,004 104,004
======= =======
Long-Term Obligations:
6.71% Notes due September 30, 2003................................... 28,571 28,571
Variable Rate Notes Maturing through 2002, 4.43% -- 6.70%............ 106,757 26,757
7.00% Notes due December 15, 2006.................................... 99,561 99,561
Medium-Term Notes.................................................... -- 80,000
Fixed Rate Notes 4.85% -- 7.00%...................................... 41,442 41,442
------- -------
Total Long-Term Obligations...................................... 276,331 276,331
======= =======
Shareholders' Equity:
Preferred Stock, Authorized:
60,000,000 Shares; Issued, None...................................... -- --
Class A Common Stock, no Par Value; Authorized:
240,000,000 Shares; Issued: 78,696,582 Shares........................ 55,529 55,529
Class B Common Stock, no Par Value; Authorized:
40,000,000 Shares; Issued: 20,000,000 Shares......................... 625 625
Capital in Excess of Stated Value...................................... -- --
Unrealized Loss on Investments......................................... -- --
Retained Earnings...................................................... 323,570 323,570
Accumulated Translation and Min. Pension Liability Adj................. (5,957) (5,957)
------- -------
Total Shareholders' Equity....................................... 373,767 373,767
======= =======
Total Capitalization............................................. 650,098 650,098
======= =======
</TABLE>
S-3
<PAGE> 4
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
(DOLLARS IN THOUSANDS)
AS ADJUSTED
FOR
ACTUAL OFFERING
------- -----------
<S> <C> <C>
INFORMATION SYSTEMS
Cash and Cash Equivalents.............................................. 9,489 9,489
======= =======
Current Liabilities:
Current Portion of Long-Term Obligations............................. 48,326 48,326
Notes Payable........................................................ 1,451 1,451
------- -------
Total............................................................ 49,777 49,777
======= =======
Long-Term Obligations:
6.71% Notes due September 30, 2003................................... 28,571 28,571
7.00% Notes due December 15, 2006.................................... 99,561 99,561
Medium-Term Notes.................................................... 0 80,000
------- -------
Total Long-Term Obligations...................................... 128,132 208,132
======= =======
Shareholders' Equity:
Preferred Stock, Authorized:
60,000,000 Shares; Issued, None...................................... -- --
Class A Common Stock, no Par Value; Authorized:
240,000,000 Shares; Issued: 78,696,582 Shares........................ 55,529 55,529
Class B Common Stock, no Par Value; Authorized: 40,000,000 Shares;
Issued: 20,000,000 Shares............................................ 625 625
Capital in Excess of Stated Value...................................... -- --
Investment in Financial Services....................................... (1,000) (1,000)
Retained Earnings...................................................... 323,570 323,570
Accumulated Translation and Min. Pension Liability Adj................. (5,957) (5,957)
------- -------
Total Shareholders' Equity....................................... 372,767 372,767
======= =======
Total Capitalization............................................. 500,899 580,899
======= =======
FINANCIAL SERVICES
Cash and Cash Equivalents.............................................. 557 557
======= =======
Current Liabilities:
Current Portion of Long-Term Obligations............................. 54,227 54,227
------- -------
Total............................................................ 54,227 54,227
======= =======
Long-Term Obligations:
Fixed Rate Notes, 4.85% -- 7.00%..................................... 41,442 41,442
Payable to Parent.................................................... -- 80,000
Variable Rate Notes Maturing through 2002, 4.43% -- 6.70%............ 106,757 26,757
------- -------
Total Long-Term Obligations...................................... 148,199 148,199
======= =======
Shareholders' Equity:
Class A Common Stock, $1.25 Par Value; Authorized:
500 Shares; Issued: 500 Shares....................................... 1 1
Capital in Excess of Stated Value...................................... 999 999
Accumulated Translation Adj............................................ (21) (21)
Retained Earnings...................................................... 33,112 33,112
------- -------
Total Shareholders' Equity....................................... 34,091 34,091
======= =======
Total Capitalization............................................. 182,290 182,290
======= =======
</TABLE>
S-4
<PAGE> 5
DESCRIPTION OF THE NOTES
The Notes will be issued as a series of Debt Securities under the Indenture
dated as of December 18, 1996, as amended or supplemented from time to time (the
"Indenture"), between the Company and Norwest Bank Minnesota, National
Association, 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 Notes issued and to be issued under the Indenture will be unsecured
obligations of the Company and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Company from time to time outstanding. The
Indenture does not restrict the Company from periodically issuing Debt
Securities thereunder that may be secured, and 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 the Company
for each series. The Company may, from time to time, without the consent of the
Holders of the Notes, provide for the issuance of Notes or other Debt Securities
under the Indenture in addition to the $200,000,000 aggregate initial offering
price of Notes offered hereby.
The Notes are currently limited to up to $200,000,000 aggregate initial
offering price, or the equivalent thereof in one or more foreign or composite
currencies; however, such aggregate initial offering price may be reduced after
the date of this Prospectus Supplement as a result of the sale by the Company of
other Debt Securities described in the accompanying Prospectus.
The Notes will be offered on a continuous basis and will mature on any day
nine months or more from their dates of issue (each, a "Stated Maturity"), as
specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, interest-bearing Notes will either be Fixed
Rate Notes or Floating Rate Notes, as specified in the applicable Pricing
Supplement. Notes may also be issued that do not bear any interest currently or
that bear interest at a below market rate.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, will be made in, United States dollars. The Notes also may be
denominated in, and payments of principal, premium, if any, and/or interest, if
any, may be made in, one or more foreign currencies or composite currencies
("Foreign Currency Notes"). "Foreign Currency Risks -- Loss of Principal,
Premium, if any, and Interest." The currency or composite currency in which a
Note is denominated, whether United States dollars or otherwise, is herein
referred to as the "Specified Currency." References herein to "United States
dollars," "U.S. dollars" or "$" 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 the United States for the
conversion of United States dollars into foreign currencies 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. Each Agent is prepared to arrange for the conversion of United States
dollars into the Specified Currency in which the related
S-5
<PAGE> 6
Foreign Currency Note is denominated in order to enable the purchaser to pay for
such Foreign Currency Note, provided that a request is made to the applicable
Agent on or prior to the fifth Business Day (as defined below) preceding the
date of delivery of such Foreign Currency Note, or by such other day as
determined by the applicable Agent. Each such conversion will be made by the
applicable 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. "Foreign Currency Risks."
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other things, the aggregate principal amount of Notes
purchased in any single transaction. Interest rates or formulae and other terms
of the Notes are subject to change by the Company from time to time, but no such
change will affect any Note already issued or as to which an offer to purchase
has been accepted by the Company.
Each Note will be issued in fully registered form as a Global Debt Security
registered in the name of the Depository or a nominee of the Depository (each
such Note represented by a Global Debt Security being herein referred to as a
"Book-Entry Note") or a certificate in definitive registered form (a
"Certificated Note"). The authorized 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 authorized
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 the Company through the Trustee to the
Depository. "-- Book-Entry Notes." In the case of Certificated Notes, payment of
principal and premium, if any, due on the Stated Maturity or any prior date on
which the principal, or an installment of principal, of each Certificated Note
becomes due and payable, whether by the declaration of acceleration, notice of
redemption at the option of the Company, notice of the Holder's option to elect
repayment or otherwise (the Stated Maturity or such prior date, as the case may
be, is herein referred to as the "Maturity Date" with respect to the principal
repayable on such date) will be made in immediately available funds upon
presentation and surrender thereof at the (i) corporate trust office of the
Trustee currently located at Sixth and Marquette, Minneapolis, Minnesota or (ii)
office or agency maintained by the Company for such purpose in the Borough of
Manhattan, The City of New York (or, in the case of any repayment on an Optional
Repayment Date, upon presentation of such Certificated Note and a duly completed
election form in accordance with the provisions described below), currently the
offices of the affiliate of the Trustee located at c/o Depository Trust Company,
55 Water Street. Payment of interest, if any, due on the Maturity Date of each
Certificated Note will be made to the person to whom payment of the principal
and premium, if any, shall be made. Payment of interest, if any, due on each
Certificated Note on any Interest Payment Date (as defined below) other than the
Maturity Date will be made at the office or agency referred to above maintained
by the Company for such purpose or, at the option of the Company, may be made by
check mailed to the address of the Holder entitled thereto as such address shall
appear in the Security Register of the Company. Notwithstanding the foregoing, a
Holder of $10,000,000 (or, if the applicable Specified Currency is other than
United States dollars, the equivalent thereof in such Specified Currency) or
more in aggregate principal amount of 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 "Foreign
Currency Risks -- Loss of Principal, Premium, if any, and Interest."
As used herein, "Business Day" means any day except a Saturday, Sunday, or
a legal holiday in The City of New York, the City of Dayton, Ohio or the City of
Minneapolis, Minnesota on which
S-6
<PAGE> 7
banking institutions are authorized or required by law, regulation or executive
order to close; provided, however, that, with respect to Foreign Currency Notes
the payment of which is to be made in a currency or composite currency other
than United States dollars, 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 defined below) of the country
issuing such currency or composite currency (or, in the case of European
Currency Units ("ECU"), is 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 a day so designated by the ECU Banking Association) or, if ECU
non-settlement days do not appear on that page (and are not so designated), 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 defined below). "London Business Day" means (i) if the Index Currency
(as defined below) is other than ECU, any day on which dealings in such Index
Currency are transacted in the London interbank market or (ii) if the Index
Currency is ECU, any day that does not appear as an ECU non-settlement day on
the display designated as "ISDE" on the Reuter Monitor Money Rates Service (or a
day so designated by the ECU Banking Association) or, if ECU non-settlement days
do not appear on that page (and are not so designated), is not a day on which
payments in ECU cannot be settled in the international interbank market.
"Principal Financial Center" means the capital city of the country issuing
the currency or composite currency in which any payment in respect of the
related Notes is to be made or, solely with respect to the calculation of LIBOR,
the Index Currency, except that with respect to United States dollars,
Australian dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs
and ECUs, the Principal Financial Center shall be The City of New York, Sydney,
Frankfurt, Amsterdam, Milan, Zurich and Luxembourg, respectively.
Book-Entry Notes may be transferred or exchanged only through the
Depository. "-- Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by the
Company for such purpose in the Borough of Manhattan, The City of New York. No
service charge will be made by the Company or the Trustee for any such
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith (other than exchanges pursuant to the
Indenture not involving any transfer).
Certain Notes ("Indexed Notes") may be issued with the principal amount
payable at maturity, and/or the amount of interest payable on an interest
payment date, to be determined by reference to one or more currencies (including
baskets of currencies), one or more commodities (including baskets of
commodities), one or more securities (including baskets of securities) and/or
any other index as set forth in the applicable Pricing Supplement. Holders of
Indexed Notes may receive a principal amount at maturity that is greater than or
less than the face amount (but not less than zero) of such Notes depending upon
the value at maturity of the applicable index. With respect to any Indexed Note,
information as to the methods for determining the principal amount payable at
maturity and/or the amount of interest payable on an interest payment date, as
the case may be, as to any one or more currencies (including baskets of
currencies), commodities (including baskets of commodities), securities
(including baskets of securities) or other indices to which principal or
interest is indexed, as to any additional foreign exchange or other risks or as
to any additional tax considerations may be set forth in the applicable Pricing
Supplement. "Risks Relating to Indexed Notes."
The applicable Pricing Supplement will specify any redemption or repayment
terms applicable to the Notes. Unless otherwise specified in the applicable
Pricing Supplement, the Notes will not be subject to any sinking fund.
"Redemption and Repayment" below. Any optional redemption feature of Notes might
affect the market value of such Notes. Since the Company may be expected to
redeem such Notes when prevailing interest rates are relatively low, an investor
might not be able to
S-7
<PAGE> 8
reinvest the redemption proceeds at an effective interest rate as high as the
interest rate on such Notes.
The legal defeasance and covenant defeasance provisions of the Indenture
described under the caption "Description of Debt Securities -- Defeasance of
Debt Securities and Certain Covenants in Certain Circumstances" in the
accompanying Prospectus will apply to the Notes.
The covenant provisions and Events of Default under the Indenture described
under the captions "Description of Debt Securities -- Covenants," "-- Events of
Default" in the accompanying Prospectus will apply to the Notes.
The Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. No assurance can be given as
to the existence or liquidity of a secondary market for the Notes. See
"Supplemental Plan of Distribution."
The secondary market for such Notes will be affected by a number of factors
independent of the creditworthiness of the Company and the value of the
applicable index or indices or formula or 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. Investors may not be able to sell such Notes readily or at
prices that will enable investors 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 salable, that the value of such
Notes will fluctuate over time and that such fluctuations may be significant.
Any credit ratings assigned to the Company's medium-term note program may
not reflect the potential impact of all risks related to structure and other
factors on the market 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 such Notes in light of
their particular circumstances.
PAYMENT OF PRINCIPAL AND INTEREST
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 equal the amount of 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 any overdue principal, premium
and/or interest will be paid at the Default Rate per annum specified in the
applicable Pricing Supplement (to the extent that the payment of such interest
shall be legally enforceable).
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 (as defined below) and the
related Interest Payment Date will be made on the Interest Payment
S-8
<PAGE> 9
Date immediately following the next succeeding Record Date to the Holder on such
next succeeding Record Date.
FIXED RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be payable on February 15 and August 15 of each year
(each, an "Interest Payment Date") 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. Unless
otherwise specified in the applicable Pricing Supplement, a "Record Date" for
Fixed Rate Notes shall be the February 1 and August 1 (whether or not a Business
Day) immediately preceding the February 15 and August 15 Interest Payment Dates,
respectively.
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
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. 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 Period and Dates, Interest
Payment Period and 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
Index Currency and Designated LIBOR Page or the Designated CMT Maturity Index
and Designated CMT Telerate Page, respectively, as such terms are defined below.
Unless otherwise specified in the applicable Pricing Supplement, a "Record Date"
for Floating Rate Notes shall be the fifteenth day (whether or not a Business
Day) immediately preceding the related Interest Payment Date.
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 Provisions" apply, 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 (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
S-9
<PAGE> 10
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 specified in the applicable Pricing Supplement 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.
Notwithstanding the foregoing, if such Floating Rate Note is designated as
having an Addendum attached as specified on the face thereof, such Floating Rate
Note shall bear interest in accordance with the terms described in such Addendum
and the applicable Pricing Supplement.
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 defined below) 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.
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 Federal Funds Rate, (v) LIBOR, (vi) the Prime Rate, (vii) the
Treasury Rate, or (viii) such other Interest Rate Basis or interest rate formula
as may be specified in the applicable Pricing Supplement; provided, however,
that the interest rate in effect on a Floating Rate Note for the period, if any,
from the date of issue to the Initial Interest Reset Date will be the Initial
Interest Rate; provided, further, that with respect to a Floating Rate/Fixed
Rate Note 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.
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,
S-10
<PAGE> 11
which will reset the Tuesday of each week, except as described below); (iii)
monthly, the third Wednesday of each 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 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. In addition,
in the case of a Floating Rate Note as to which the Treasury Rate is an
applicable Interest Rate Basis and 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 rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date on or prior to the Calculation Date (as defined
below). 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; 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 Index 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 defined below) 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. 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.
A Floating Rate Note may also have either or both of the following: (i) a
Maximum Interest Rate, or ceiling on the rate of interest, that may accrue
during any Interest Period and (ii) a Minimum Interest Rate, or floor on the
rate of interest, 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") 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
S-11
<PAGE> 12
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 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 currency 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 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 one of the applicable Interest Rate
Bases applied as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Norwest
Bank Minnesota, National Association 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
S-12
<PAGE> 13
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 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 market banks 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 week, or the month, as
applicable, ended immediately preceding the week in which the related CMT Rate
Interest Determination Date occurs. 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 defined below) as published in the relevant
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 the relevant H.15(519). If such information is not provided by
3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate 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 closing offer side prices 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 (each, a "Reference Dealer") in The City of New
York (which may include the Agents or their affiliates) selected by the
Calculation Agent (from five such Reference Dealers selected by the Calculation
Agent 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 offer side prices 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
S-13
<PAGE> 14
Designated CMT Maturity Index and in an amount of at least $100 million. If
three or four (and not five) of such Reference Dealers are quoting as described
above, then the CMT Rate will be based on the arithmetic mean of the offer
prices obtained and neither the highest nor the lowest of such quotes will be
eliminated; provided however, that if fewer than three Reference Dealers 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 from five Reference Dealers 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 on the page specified in the applicable Pricing Supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)). 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. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be 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 defined below) 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), or any successor
publication, under the heading "Commercial Paper-Nonfinancial" or if unavailable
such other headings representing commercial paper issued by non-financial
entities whose bond rating is "AA" or the equivalent from a nationally
recognized statistical rating agency. 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.
S-14
<PAGE> 15
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
<TABLE>
<S> <C>
Money Market Yield = 100X 360 X D
--------------
360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the period for which interest is being calculated.
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 Index 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 Index 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 appear, or if no
such rate 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 in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity specified in the applicable Pricing
S-15
<PAGE> 16
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 such Index 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 in such Principal Financial Center selected by the
Calculation Agent for loans in the Index 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 such Index 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.
"Index Currency" means the currency or composite currency specified in the
applicable Pricing Supplement as to which LIBOR shall be calculated. If no such
currency or composite currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) for the purpose of displaying the London
interbank rates of major banks for the applicable Index 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) for the purpose of displaying the
London interbank rates of major banks for the applicable Index 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 (as defined below) 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 for such Prime Rate Interest Determination Date, then the Prime Rate
will be determined by the Calculation Agent and shall be the arithmetic mean of
the 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 by four major money center banks 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 as many
substitute banks or trust companies as necessary in order 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.
S-16
<PAGE> 17
"Reuters Screen USPRIME1" means the display designated as page "USPRIME1"
on the Reuter Monitor Money Rates Service (or such other page as may replace the
USPRIME1 page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
TREASURY RATE. 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 Agent
or its 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.
REDEMPTION AND REPAYMENT
Redemption at the Option of the Company
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 the Company prior to the Stated Maturity only if a Redemption
Commencement Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the Company
on any date on and after the applicable Redemption Commencement Date in whole or
from time to time in part in increments of $1,000 or such other increments
specified in such Pricing Supplement (provided that any remaining principal
amount thereof shall be at least $1,000 or such other specified minimum
denomination), at the applicable Redemption Price (as defined below), together
with unpaid interest accrued to the date of redemption, on notice given 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 Redemption
Commencement 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. See also "-- Original Issue Discount
Notes."
Repayment at the Option of the Holder
The Notes will be repayable by the Company at the option of the Holders
thereof prior to the Stated Maturity only if one or more Optional Repayment
Dates are specified in the applicable Pricing
S-17
<PAGE> 18
Supplement. If so specified, the Notes will be subject to repayment at the
option of the Holders thereof on any Optional Repayment Date in whole or from
time to time in part in increments of $1,000 or such other increments specified
in the applicable Pricing Supplement (provided that any remaining principal
amount thereof shall be at least $1,000 or such other specified minimum
denomination), at a repayment price equal to 100% of the unpaid principal amount
to be repaid, together with unpaid interest accrued 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 Corporate Trust Office (or such other address of which the Company shall
from time to time notify the Holders) 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. See also "-- Original Issue Discount Notes."
Only the Depository may exercise the repayment option in respect of Global
Debt Securities representing Book-Entry Notes. Accordingly, owners of beneficial
interests ("Beneficial Owners") in Global Debt Securities that desire to have
all or any portion of the Book-Entry Notes represented by such Global Debt
Securities repaid must instruct the participant through which they own their
interest to direct the Depository to exercise the repayment option on their
behalf by delivering the related Global Debt Security and duly completed
election form to the Trustee as aforesaid. In order to ensure that such Global
Debt 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 Debt 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 Debt Security or Securities representing the related Book-Entry
Notes, on the Depository's records, to the Trustee. "-- Book-Entry Notes."
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
any other securities laws or regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may, at the
discretion of the Company, be held, resold or surrendered to the Trustee for
cancellation.
ADDENDUM AND/OR OTHER PROVISIONS
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 Maturity Date or any other term relating thereto, may be modified and/or
supplemented as specified under "Other Provisions" on the face thereof or in an
Addendum relating thereto, if so specified on the face thereof. Such provisions
will be described in the applicable Pricing Supplement.
AMORTIZING NOTES
The Company may from time to time offer Amortizing Notes. Unless otherwise
specified in the applicable Pricing Supplement, interest on each Amortizing Note
will be computed on the basis of a 360-day year of twelve 30-day months.
Payments 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
S-18
<PAGE> 19
specified in the applicable Pricing Supplement, including a table setting forth
repayment information for such Amortizing Notes.
ORIGINAL ISSUE DISCOUNT NOTES
The Company may offer Notes ("Original Issue 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).
Original Issue 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 an Original Issue Discount Note and par is
referred to herein as the "Discount." In the event of redemption, repayment or
acceleration of maturity of an Original Issue Discount Note, the amount payable
to the Holder of such Original Issue 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 Original Issue Discount Note (if applicable), multiplied
by the Initial Redemption Percentage specified in the applicable Pricing
Supplement (as adjusted by the Annual Redemption Percentage Reduction, if
applicable) and (ii) any unpaid interest on such Original Issue Discount Note
accrued from the date of issue 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 an
Original Issue 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 defined below), corresponds to the shortest period between Interest
Payment Dates for the applicable Original Issue Discount Note (with ratable
accruals within a compounding period), a coupon rate equal to the initial coupon
rate applicable to such Original Issue Discount Note and an assumption that the
maturity of such Original Issue Discount Note will not be accelerated. If the
period from the date of issue to the initial Interest Payment Date for an
Original Issue Discount Note (the "Initial Period") is shorter than the
compounding period for such Original Issue 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 Original
Issue Discount Notes may not be treated as having original issue discount within
the meaning of the Code, and Notes other than Original Issue Discount Notes may
be treated as issued with original issue discount for federal income tax
purposes. See "Certain United States Federal Income Tax Considerations" herein.
The Company may from time to time offer Notes ("Indexed Notes") with the
amount of principal, premium or interest payable in respect thereof to be
determined by reference to the price or prices of specified commodities or
stocks 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, or interest, if any, payable in
respect of Indexed Notes, certain historical information with respect to the
specified indexed item and any material tax consideration associated with an
investment in Indexed Notes will be specified in the applicable Pricing
Supplement.
BOOK-ENTRY NOTES
The Company has established a depository arrangement with The Depository
Trust Company with respect to the Book-Entry Notes, the terms of which are
summarized below. Any additional or
S-19
<PAGE> 20
differing terms of the depository arrangement with respect to the Book-Entry
Notes will be described in the applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes up to $200,000,000 aggregate principal
amount bearing interest (if any) at the same rate or pursuant to the same
formula and having the same date of issue, currency of denomination and payment,
Interest Payment Dates (if any), Stated Maturity, redemption provisions (if
any), repayment provisions (if any) and other terms will be represented by a
single Global Debt Security; all such Book-Entry Notes in excess of $200,000,000
aggregate principal amount will be represented by two or more Global Debt
Securities. Each Global Debt Security representing Book-Entry Notes will be
deposited with, or on behalf of, the Depository and will be registered in the
name of the Depository or a nominee of the Depository. No Global Debt Security
may be transferred except as a whole by a nominee of the Depository to the
Depository or to another nominee of the Depository, or by the Depository or such
nominee to a successor of the Depository or a nominee of such successor.
The Depository has advised the Company and the Agents as follows: The
Depository is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. The Depository was created to hold securities of its participating
organizations ("participants") and to facilitate the clearance and settlement of
securities transactions, such as transfers and pledges, among its participants
in such securities through electronic computerized book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. Participants include securities brokers and dealers
(including the Agents), banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own the
Depository. Access to the Depository's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. Persons who are not participants may beneficially own securities
held by the Depository only through participants.
RISKS RELATING TO INDEXED NOTES
IN ADDITION TO POTENTIAL FOREIGN CURRENCY RISKS AS DESCRIBED BELOW UNDER
"FOREIGN CURRENCY RISKS," AN INVESTMENT IN INDEXED NOTES PRESENTS CERTAIN
SIGNIFICANT RISKS NOT ASSOCIATED WITH OTHER TYPES OF SECURITIES. CERTAIN RISKS
ASSOCIATED WITH A PARTICULAR INDEXED NOTE MAY BE SET FORTH MORE FULLY IN THE
APPLICABLE PRICING SUPPLEMENT. INDEXED NOTES MAY PRESENT A HIGH LEVEL OF RISK,
AND INVESTORS IN CERTAIN INDEXED NOTES MAY LOSE THEIR ENTIRE INVESTMENT.
The treatment of Indexed Notes for United States federal income tax
purposes is often unclear due to the absence of any authority specifically
addressing the issues presented by any particular Indexed Note. Accordingly,
investors in Indexed Notes should, in general, be capable of independently
evaluating the federal income tax consequences applicable in their particular
circumstances of purchasing an Indexed Note.
LOSS OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST
The principal amount of an Indexed Note payable at maturity, and/or the
amount of interest payable on an interest payment date, will be determined by
reference to one or more currencies (including baskets of currencies), one or
more commodities (including baskets of commodities), one or more securities
(including baskets of securities) and/or any other index (each an "Index"). The
direction and magnitude of the change in the value of the relevant Index will
determine either or both the principal amount of an Indexed Note payable at
maturity or the amount of interest payable on an interest payment date. The
terms of a particular Indexed Note may or may not include a
S-20
<PAGE> 21
guaranteed return of a percentage of the face amount at maturity or a minimum
interest rate. Accordingly, the Holder of an Indexed Note may lose all or a
portion of the principal invested in an Indexed Note and may receive no interest
thereon.
VOLATILITY
Certain Indices are highly volatile. The expected principal amount payable
at maturity of, or the interest rate on, an Indexed Note based on a volatile
Index may vary substantially from time to time. Because the principal amount
payable at the maturity of, or interest payable on, an Indexed Note is generally
calculated based on the value of the relevant Index on a specified date or over
a limited period of time, volatility in the Index increases the risk that the
return on the Indexed Notes may be adversely affected by a fluctuation in the
level of the relevant Index.
The volatility of an Index may be affected by political or economic events,
including governmental actions, or by the activities of participants in the
relevant markets, any of which could adversely affect the value of an Indexed
Note.
AVAILABILITY AND COMPOSITION OF INDICES
Certain Indices reference several different currencies, commodities,
securities or other financial instruments. The compiler of such an Index
typically reserves the right to alter the composition of the Index and the
manner in which the value of the Index is calculated. Such an alteration may
result in a decrease in the value of or return on an Indexed Note which is
linked to such Index.
An Index may become unavailable due to such factors as war, natural
disasters, cessation of publication of the Index, or suspension of or disruption
in trading in the currency or currencies, commodity or commodities, security or
securities or other financial instrument or instruments comprising or underlying
such Index. If an Index becomes unavailable, the determination of principal of
or interest on an Indexed Note may be delayed or an alternative method may be
used to determine the value of the unavailable Index. Alternative methods of
valuation are generally intended to produce a value similar to the value
resulting from reference to the relevant Index. However, it is unlikely that
such alternative methods of valuation will produce values identical to those
which would be produced were the relevant Index to be used. An alternative
method of valuation may result in a decrease in the value of or return on an
Indexed Note.
Certain Indexed Notes are linked to Indices which are not commonly utilized
or have been recently developed. The lack of a trading history may make it
difficult to anticipate the volatility or other risks to which such a Note is
subject. In addition, there may be less trading in such Indices or instruments
underlying such Indices, which could increase the volatility of such Indices and
decrease the value of or return on Indexed Notes relating thereto.
FOREIGN CURRENCY RISKS
GENERAL
THIS PROSPECTUS SUPPLEMENT AND THE APPLICABLE PRICING SUPPLEMENT DO NOT
DESCRIBE ALL THE RISKS OF AN INVESTMENT IN THE NOTES DENOMINATED IN OTHER THAN
U.S. DOLLARS. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN THE NOTES DENOMINATED IN A
CURRENCY (INCLUDING ANY COMPOSITE CURRENCY) OTHER THAN U.S. DOLLARS. SUCH NOTES
ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH
RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
THE INFORMATION SET FORTH IN THIS PROSPECTUS SUPPLEMENT IS DIRECTED TO
PROSPECTIVE PURCHASERS WHO ARE UNITED STATES RESIDENTS, AND THE COMPANY
DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS WHO ARE RESIDENTS
OF COUNTRIES OTHER THAN THE UNITED STATES WITH RESPECT TO ANY MATTERS THAT MAY
AFFECT THE PURCHASE, HOLDING OR RECEIPT OF PAYMENTS OF PRINCIPAL OF (AND
S-21
<PAGE> 22
PREMIUM, IF ANY) AND INTEREST ON THE NOTES. SUCH PERSONS SHOULD CONSULT THEIR
OWN FINANCIAL AND LEGAL ADVISORS WITH REGARD TO SUCH MATTERS.
The information set forth below has been summarized and prospective
purchasers of Foreign Currency Notes should consult their own financial and
legal advisors with respect to any matters that may affect the purchase or
holding of a Foreign Currency Note in a Specified Currency (as defined below).
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in other than U.S. dollars
entails significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the U.S.
dollar and the various foreign currencies or composite currencies and the
possibility of the imposition or modification of foreign exchange controls by
either the U.S. or foreign governments. Such risks generally depend on factors
over which the Company has no control, such as economic and political events and
the supply of and demand for the relevant currencies. In recent years, rates of
exchange between the U.S. dollar and certain foreign currencies have been highly
volatile and such volatility may be expected in the future. Fluctuations in any
particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations in the rate that may occur during the term
of any Note. Depreciation of the Specified Currency in which a Note is
denominated against the U.S. dollar could result in a decrease in the effective
yield of such Note and, in certain circumstances, could result in a loss to the
investor on a U.S. dollar basis.
Governments have imposed from time to time and may in the future impose
exchange controls which could affect exchange rates as well as the availability
of the Specified Currency at a Note's maturity or on any other payment date in
respect thereof. Even if there are no actual exchange controls, it is possible
that the Specified Currency for any particular Note would not be available on
any one or more days on which payment is due in respect of such Note. In that
event, the Company will be entitled to make all payments due in respect of such
Note on any such payment date (including Maturity) in U.S. dollars on the basis
of the most recently available Exchange Rate. "Description of the
Notes -- Payment of Principal and Interest" above.
Unless otherwise indicated in the applicable Pricing Supplement, payments
on Notes made in a Specified Currency other than U.S. dollars may be made, at
the Company's option, from an account with a bank located in the country issuing
the Specified Currency (or, with respect to Notes denominated in ECUs, from an
ECU account). "Description of the Notes -- Payment of Principal and Interest."
Except as otherwise indicated in the applicable Pricing Supplement or as
permitted by applicable law, Notes denominated in other than U.S. dollars or
ECUs will not be sold in, or to residents of, the country issuing the Specified
Currency in which particular Notes are denominated.
GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If an action based on Foreign Currency Notes were
commenced in a court of the United States, it is likely that such court would
grant judgment relating to such Foreign Currency Notes only in United States
dollars. It is not clear, however, whether, in granting such judgment, the rate
of conversion into United States dollars would be determined with reference to
the date of default, the date of entry of the judgment or some other date. Under
current New York law, a state court in the State of New York rendering such
judgment would be required to render such judgment in the applicable foreign
currency or composite currency, and such judgment would be converted into United
States dollars at the exchange rate prevailing on the date of entry of the
judgment. Accordingly, Holders of Foreign Currency Notes would bear the risk of
exchange rate fluctuations
S-22
<PAGE> 23
between the time the amount of the judgment is calculated and the time such
amount is converted from United States dollars into the applicable foreign
currency or composite currency.
LOSS OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, the
Company is obligated to make payments of principal of, and premium, if any, and
interest, if any, on, Foreign Currency Notes in the applicable Specified
Currency (or, if such Specified Currency is not at the time of such payment
legal tender for the payment of public and private debts, in such other coin or
currency of the country which issued such Specified Currency as at the time of
such payment is legal tender for the payment of such debts). Any such amounts
payable by the Company in a foreign currency or composite currency will, unless
otherwise specified in the applicable Pricing Supplement, be converted by the
Exchange Rate Agent named in the applicable Pricing Supplement into United
States dollars for payment to Holders. However, the Holder of a Foreign Currency
Note may elect to receive amounts payable in a foreign currency or composite
currency in such foreign currency or composite currency as hereinafter
described.
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 the Company for the
purchase by the quoting dealer of the applicable foreign currency or composite
currency for United States dollars for settlement on such payment date in the
aggregate amount of such currency or composite 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 applicable foreign currency or composite currency.
If the principal of, and premium, if any, and interest, if any, on, Foreign
Currency Notes are payable in a foreign currency or composite currency, Holders
of such Foreign Currency Notes may elect to receive all or a specified portion
of such payments in such foreign currency or composite currency by submitting a
written request for such payment to the Trustee at its corporate trust office in
the City of Chicago or at its window in the Borough of Manhattan, 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 such Foreign Currency Notes may elect to receive all or
a specified portion of all future payments in the applicable foreign currency or
composite currency in respect of such principal, premium, if any, and/or
interest, if any, 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 such 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 applicable
foreign currency or composite currency may be made.
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. "Description of the Notes -- General." Payments of interest, if
any, on Foreign Currency Notes which are to be made in the applicable foreign
currency or composite 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 the
S-23
<PAGE> 24
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
applicable foreign currency or composite 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
principal corporate trust office of the Trustee in time for the Trustee to make
such payments in such funds in accordance with its normal procedures.
Unless otherwise specified in the applicable Pricing Supplement, a
Beneficial Owner of a Global Security or Securities representing Book-Entry
Notes payable in a currency or composite currency other than United States
dollars which elects to receive payments of principal, premium, if any, and/or
interest, if any, in such currency or composite currency must 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 Depository 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 Depository 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 Depository, and by the Depository to the Trustee, on or prior
to such dates, then such Beneficial Owner will receive payments in the
applicable foreign currency or composite currency.
PAYMENT CURRENCY
Except as set forth below, if the principal of, premium, if any, and/or
interest, if any, on, any Note is payable in a Specified Currency other than
U.S. dollars and such Specified Currency is not available to the Company for
making payments thereof due to the imposition of exchange controls or other
circumstances beyond the control of the Company or is no longer used by the
government of the country issuing such currency or for the settlement of
transactions by public institutions within the international banking community,
then the Company will be entitled to satisfy its obligations to holders of the
Notes by making such payments in U.S. dollars on the basis of the Market
Exchange Rate (as defined below) on the second Business Day prior to such
payment date or, if such Market Exchange Rate is not then available, on the
basis of the most recently available Market Exchange Rate; provided, however,
that if such Specified Currency is replaced by a single European currency
(expected to be named the Euro), the payment of principal of, premium, if any,
or interest on any Note denominated in such currency shall be effected in the
new single European currency in conformity with legally applicable measures
taken pursuant to, or by virtue of, the treaty establishing the European
Community, as amended by the treaty on European Union.
Unless otherwise specified in the applicable Pricing Supplement, if payment
in respect of a Foreign Currency Note is required to be made in any composite
currency, and such composite currency is unavailable due to the imposition of
exchange controls or other circumstances beyond the control of the Company, the
Company will be entitled to satisfy its obligations to the Holder of such
Foreign Currency Note by making such payment in United States dollars. The
amount of each payment in United States dollars shall be computed by the
Exchange Rate Agent on the basis of the equivalent of the composite currency in
United States dollars. The component currencies of the composite currency for
this purpose (collectively, the "Component Currencies" and each, a "Component
Currency") 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
most
S-24
<PAGE> 25
recently available Market Exchange Rate for each such Component Currency, or as
otherwise specified in the applicable Pricing Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of 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 currency or composite currency other than
United States dollars means the noon dollar buying rate in The City of New York
for cable transfers for such currency or composite currency as certified for
customs purposes by (or if not so certified, as otherwise determined by) the
Federal Reserve Bank of New York. Any payment made in United States dollars or a
new single European currency under the circumstances described above where the
required payment is in a currency or composite currency other than United States
dollars or such single European currency, respectively, 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.
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS
The following summary of the principal United States federal income tax
consequences of ownership of Notes deals only with Notes held as capital assets
by initial purchasers, and not with special classes of holders, such as dealers
in securities or currencies, traders in securities that elect to mark to market,
banks, tax-exempt organizations, life insurance companies, persons that hold
Notes that are a hedge or that are hedged against currency risks or that are
part of a straddle or conversion transaction, or persons whose functional
currency is not the U.S. dollar. Moreover, the summary deals only with Notes
that are due to mature 30 years or less from the date on which they are issued.
The United States federal income tax consequences of ownership of Notes that are
due to mature more than 30 years from their date of issue will be discussed in
an applicable Pricing Supplement. The summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), its legislative history, existing and
proposed regulations thereunder, published rulings and court decisions, all as
currently in effect and all subject to change at any time, perhaps with
retroactive effect.
Prospective purchasers of Notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of the ownership of Notes.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Interest on a Note, whether payable in U.S. dollars or a currency,
composite currency or basket of currencies other than U.S. dollars (a "foreign
currency"), other than interest on a "Discount Note" that is not "qualified
stated interest" (each as defined below under "Original Issue
Discount -- General"), will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A United
S-25
<PAGE> 26
States Holder is a beneficial owner that is (i) a citizen or resident of the
United States, (ii) a domestic corporation, (iii) an estate the income of which
is subject to United States federal income tax without regard to its source or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
If an interest payment is denominated in, or determined by reference to, a
foreign currency, the amount of income recognized by a cash basis United States
Holder will be the U.S. dollar value of the interest payment, based on the
exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a foreign currency in accordance with either of two methods. Under
the first method, the amount of income accrued will be based on the average
exchange rate in effect during the interest accrual period (or, with respect to
an accrual period that spans two taxable years, the part of the period within
the taxable year).
Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all debt
instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service (the "Service").
Upon receipt of the interest payment (including a payment attributable to
accrued but unpaid interest upon the sale or retirement of a Note) denominated
in, or determined by reference to, a foreign currency, the United States Holder
will recognize ordinary income or loss measured by the difference between (x)
the average exchange rate used to accrue interest income, or the exchange rate
as determined under the second method described above if the United States
Holder elects that method, and (y) the exchange rate in effect on the date of
receipt, regardless of whether the payment is in fact converted into U.S.
dollars.
ORIGINAL ISSUE DISCOUNT
General. A Note, other than a Note with a term of one year or less (a
"short-term Note"), will be treated as issued at an original issue discount (a
"Discount Note") if the excess of the Note's "stated redemption price at
maturity" over its issue price is more than a "de minimis amount" (as defined
below). Generally, the issue price of a Note will be the first price at which a
substantial amount of Notes included in the issue of which the Note is a part is
sold to other than bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers. The
stated redemption price at maturity of a Note is the total of all payments
provided by the Note that are not payments of "qualified stated interest." A
qualified stated interest payment is generally any one of a series of stated
interest payments on a Note that are unconditionally payable at least annually
at a single fixed rate (with certain exceptions for lower rates paid during some
periods) applied to the outstanding principal amount of the Note. Special rules
for "Variable Rate Notes" (as defined below under "Original Issue
Discount -- Variable Rate Notes") are described below under "Original Issue
Discount -- Variable Rate Notes."
In general, if the excess of a Note's stated redemption price at maturity
over its issue price is less than 1/4 of 1 percent of the Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity (the "de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount Note. If,
however, the amount of
S-26
<PAGE> 27
original issue discount on the Note is more than the de minimis amount as
otherwise determined, and all stated interest provided for in the Note would be
qualified stated interest except that for one or more accrual periods the
interest rate is below the rate applicable for the remainder of the Note's term,
then for purposes of determining whether the Note has de minimis original issue
discount the Note's stated redemption price at maturity is treated as equal to
the Note's issue price plus the greater of the amount of "foregone interest" or
the excess (if any) of the instrument's stated principal amount over its issue
price. The amount of foregone interest is the amount of additional stated
interest that would be required to be payable on the Note during the period of
the interest shortfall so that all stated interest would be qualified stated
interest. Unless the election described below under "Election to Treat All
Interest as Original Issue Discount" is made, a United States Holder of a Note
with de minimis original issue discount must include such de minimis original
issue discount in income as stated principal payments on the Note are made. The
includible amount with respect to each such payment will equal the product of
the total amount of the Note's de minimis original issue discount and a
fraction, the numerator of which is the amount of the principal payment made and
the denominator of which is the stated principal amount of the Note.
United States Holders of Discount Notes having a maturity of more than one
year from their date of issue must, generally, include original issue discount
("OID") in income calculated on a constant-yield method before the receipt of
cash attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Note. The amount of OID
includible in income by a United States Holder of a Discount Note is the sum of
the daily portions of OID with respect to the Discount Note for each day during
the taxable year or portion of the taxable year on which the United States
Holder holds such Discount Note ("accrued OID"). The daily portion is determined
by allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Note may be
of any length selected by the United States Holder and may vary in length over
the term of the Note as long as (i) no accrual period is longer than one year
and (ii) each scheduled payment of interest or principal on the Note occurs on
either the final or first day of an accrual period. The amount of OID allocable
to an accrual period equals the excess of (a) the product of the Discount Note's
adjusted issue price at the beginning of the accrual period and such Note's
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of the payments of qualified stated interest on the Note allocable
to the accrual period. The "adjusted issue price" of a Discount Note at the
beginning of any accrual period is the issue price of the Note increased by (x)
the amount of accrued OID for each prior accrual period and decreased by (y) the
amount of any payments previously made on the Note that were not qualified
stated interest payments. For purposes of determining the amount of OID
allocable to an accrual period, if an interval between payments of qualified
stated interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual period
immediately following the interval) is allocated pro rata on the basis of
relative lengths to each accrual period in the interval, and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but that is not payable until the end of the
interval. The amount of OID allocable to an initial short accrual period may be
computed using any reasonable method if all other accrual periods other than a
final short accrual period are of equal length. The amount of OID allocable to
the final accrual period is the difference between (x) the amount payable at the
maturity of the Note (other than any payment of qualified stated interest) and
(y) the Note's adjusted issue price as of the beginning of the final accrual
period.
Acquisition Premium. A United States Holder that purchases a Note for an
amount less than or equal to the sum of all amounts payable on the Note after
the purchase date other than payments of qualified stated interest but in excess
of its adjusted issue price (as determined above under "Original Issue Discount
- -- General")(any such excess being "acquisition premium") and that
S-27
<PAGE> 28
does not make the election described below under "Election to Treat All Interest
as Original Issue Discount" shall reduce the daily portions of OID by a
fraction, the numerator of which is the excess of the United States Holder's
adjusted basis in the Note immediately after its purchase over the adjusted
issue price of the Note, and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date, other than payments
of qualified stated interest, over the Note's adjusted issue price.
Market Discount. A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i) the amount for
which a United States Holder purchased the Note is less than the Note's issue
price (as determined above under "Original Issue Discount -- General") and (ii)
the Note's stated redemption price at maturity or, in the case of a Discount
Note, the Note's "revised issue price," exceeds the amount for which the United
States Holder purchased the Note by at least 1/4 of 1 percent of such Note's
stated redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the Note's maturity. If such
excess is not sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount" and such Note is not
subject to the rules discussed in the following paragraphs. The Code provides
that, for these purposes, the "revised issue price" of a Note generally equals
its issue price, increased by the amount of any OID that has accrued on the
Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a United States
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such an election shall apply to all debt
instruments with market discount acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A United States Holder of a
Market Discount Note that does not elect to include market discount in income
currently generally will be required to defer deductions for interest on
borrowings allocable to such Note in an amount not exceeding the accrued market
discount on such Note until the maturity or disposition of such Note.
Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year of the Note's
issue date and (iii) the payment will equal or exceed the amount of pre-issuance
accrued interest, then the United States Holder may elect to decrease the issue
price of the Note by the amount of pre-issuance accrued interest. In that event,
a portion of the first stated interest payment will be treated as a return of
the excluded pre-issuance accrued interest and not as an amount payable on the
Note.
Notes Subject to Contingencies Including Optional Redemption. If a Note
provides for an alternative payment schedule or schedules applicable upon the
occurrence of a contingency or contingencies (other than a remote or incidental
contingency), whether such contingency relates to payments of interest or of
principal, if the timing and amount of the payments that comprise each payment
schedule are known as of the issue date and if one of such schedules is
significantly more likely than not to occur, the yield and maturity of the Note
are determined by assuming that the payments will be made according to that
payment schedule. If there is no single payment schedule that is significantly
more likely than not to occur (other than because of a mandatory sinking fund),
the Note will be subject to the general rules that govern contingent payment
obligations. These rules will be discussed in an applicable Pricing Supplement.
S-28
<PAGE> 29
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Company or the holder has an
unconditional option or options that, if exercised, would require payments to be
made on the Note under an alternative payment schedule or schedules, then (i) in
the case of an option or options of the Company, the Company will be deemed to
exercise or not exercise an option or combination of options in the manner that
minimizes the yield on the Note and (ii) in the case of an option or options of
the holder, the holder will be deemed to exercise or not exercise an option or
combination of options in the manner that maximizes the yield on the Note. If
both the Company and the holder have options described in the preceding
sentence, those rules apply to such options in the order in which they may be
exercised. For purposes of those calculations, the yield on the Note is
determined by using any date on which the Note may be redeemed or repurchased as
the maturity date and the amount payable on such date in accordance with the
terms of the Note as the principal amount payable at maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the Note
is repaid as a result of the change in circumstances and solely for purposes of
determining the amount and accrual of OID, the yield and maturity of the Note
are redetermined by treating the Note as having been retired and reissued on the
date of the change in circumstances for an amount equal to the Note's adjusted
issue price on that date.
Election to Treat All Interest as Original Issue Discount. A United States
Holder may elect to include in gross income all interest that accrues on a Note
using the constant-yield method described above under the heading "Original
Issue Discount -- General," with the modifications described below. For purposes
of this election, interest includes stated interest, OID, de minimis original
issue discount, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium (described below under
"Notes Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal its cost to the
electing United States Holder, the issue date of the Note will be the date of
its acquisition by the electing United States Holder, and no payments on the
Note will be treated as payments of qualified stated interest. This election
will generally apply only to the Note with respect to which it is made and may
not be revoked without the consent of the Service. If this election is made with
respect to a Note with amortizable bond premium, then the electing United States
Holder will be deemed to have elected to apply amortizable bond premium against
interest with respect to all debt instruments with amortizable bond premium
(other than debt instruments the interest on which is excludible from gross
income) held by the electing United States Holder as of the beginning of the
taxable year in which the Note with respect to which the election is made is
acquired or thereafter acquired. The deemed election with respect to amortizable
bond premium may not be revoked without the consent of the Service.
If the election to apply the constant-yield method to all interest on a
Note is made with respect to a Market Discount Note, the electing United States
Holder will be treated as having made the election discussed above under
"Original Issue Discount -- Market Discount" to include market discount in
income currently over the life of all debt instruments held or thereafter
acquired by such United States Holder.
Variable Rate Notes. A "Variable Rate Note" is a Note that: (i) has an
issue price that does not exceed the total noncontingent principal payments by
more than the lesser of (1) the product of (x) the total noncontingent principal
payments, (y) the number of complete years to maturity from the issue date and
(z) .015, or (2) 15 percent of the total noncontingent principal payments, and
(ii) does not provide for stated interest other than stated interest compounded
or paid at least annually at (1) one or more "qualified floating rates," (2) a
single fixed rate and one or more qualified floating rates, (3) a single
"objective rate" or (4) a single fixed rate and a single objective rate that is
a "qualified inverse floating rate."
S-29
<PAGE> 30
A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the Note
is denominated or (ii) it is equal to the product of such a rate and either (a)
a fixed multiple that is greater than 0.65 but not more than 1.35, or (b) a
fixed multiple greater than 0.65 but not more than 1.35, increased or decreased
by a fixed rate. If a Note provides for two or more qualified floating rates
that (i) are within 0.25 percentage points of each other on the issue date or
(ii) can reasonably be expected to have approximately the same values throughout
the term of the Note, the qualified floating rates together constitute a single
qualified floating rate. A rate is not a qualified floating rate, however, if
the rate is subject to certain restrictions (including caps, floors, governors,
or other similar restrictions) unless such restrictions are fixed throughout the
term of the Note or are not reasonably expected to significantly affect the
yield on the Note.
An "objective rate" is a rate, other than a qualified floating rate, that
is determined using a single, fixed formula and that is based on objective
financial or economic information that is not within the control of or unique to
the circumstances of the issuer or a related party. A variable rate is not an
objective rate, however, if it is reasonably expected that the average value of
the rate during the first half of the Note's term will be either significantly
less than or significantly greater than the average value of the rate during the
final half of the Note's term. An objective rate is a "qualified inverse
floating rate" if (i) the rate is equal to a fixed rate minus a qualified
floating rate, and (ii) the variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds.
If interest on a Note is stated at a fixed rate for an initial period of
one year or less followed by either a qualified floating rate or an objective
rate for a subsequent period and (i) the fixed rate and the qualified floating
rate or objective rate have values on the issue date of the Note that do not
differ by more than 0.25 percentage points or (ii) the value of the qualified
floating rate or objective rate is intended to approximate the fixed rate, the
fixed rate and the qualified floating rate or the objective rate constitute a
single qualified floating rate or objective rate. Under these rules, Commercial
Paper Rate Notes, CMT Rate Notes, Prime Rate Notes, LIBOR Notes, Treasury Rate
Notes, CD Rate Notes, and Federal Funds Rate Notes will generally be treated as
Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a
single qualified floating rate or objective rate, all stated interest on the
Note is qualified stated interest and the amount of OID, if any, is determined
by using, in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or qualified
inverse floating rate, or, in the case of any other objective rate, a fixed rate
that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or a single objective rate and also does not provide for
interest payable at a fixed rate (other than at a single fixed rate for an
initial period), the amount of interest and OID accruals on the Note are
generally determined by (i) determining a fixed rate substitute for each
variable rate provided under the Variable Rate Note (generally, the value of
each variable rate as of the issue date or, in the case of an objective rate
that is not a qualified inverse floating rate, a rate that reflects the
reasonably expected yield on the Note), (ii) constructing the equivalent fixed
rate debt instrument (using the fixed rate substitutes described above), (iii)
determining the amount of qualified stated interest and OID with respect to the
equivalent fixed rate debt instrument, and (iv) making the appropriate
adjustments for actual variable rates during the applicable accrual period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate
S-30
<PAGE> 31
(other than at a single fixed rate for an initial period), the amount of
interest and OID accruals are determined as in the immediately preceding
paragraph with the modification that the Variable Rate Note is treated, for
purposes of the first three steps of the determination, as if it provided for a
qualified floating rate (or a qualified inverse floating rate, as the case may
be) rather than the fixed rate. The qualified floating rate (or qualified
inverse floating rate) replacing the fixed rate must be such that the fair
market value of the Variable Rate Note as of the issue date would be
approximately the same as the fair market value of an otherwise identical debt
instrument that provides for the qualified floating rate (or qualified inverse
floating rate) rather than the fixed rate.
Short-Term Notes. In general, an individual or other cash basis United
States Holder of a short-term Note is not required to accrue OID (as specially
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis United
States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common trust funds,
United States Holders who hold Notes as part of certain identified hedging
transactions, certain pass-through entities and cash basis United States Holders
who so elect, are required to accrue OID on short-term Notes on either a
straight-line basis or under the constant-yield method (based on daily
compounding), at the election of the United States Holder. In the case of a
United States Holder not required and not electing to include OID in income
currently, any gain realized on the sale or retirement of the short-term Note
will be ordinary income to the extent of the OID accrued on a straight-line
basis (unless an election is made to accrue the OID under the constant-yield
method) through the date of sale or retirement. United States Holders who are
not required and do not elect to accrue OID on short-term Notes will be required
to defer deductions for interest on borrowings allocable to short-term Notes in
an amount not exceeding the deferred income until the deferred income is
realized.
For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Note, including stated interest, are included
in the short-term Note's stated redemption price at maturity.
Foreign Currency Discount Notes. OID for any accrual period on a Discount
Note that is denominated in, or determined by reference to, a foreign currency
will be determined in the foreign currency and then translated into U.S. dollars
in the same manner as stated interest accrued by an accrual basis United States
Holder, as described under "Payments of Interest." Upon receipt of an amount
attributable to OID (whether in connection with a payment of interest or the
sale or retirement of a Note), a United States Holder may recognize ordinary
income or loss.
NOTES PURCHASED AT A PREMIUM
A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium,"
in which case the amount required to be included in the United States Holder's
income each year with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's yield to
maturity) to such year. In the case of a Note that is denominated in, or
determined by reference to, a foreign currency, amortizable bond premium will be
computed in units of foreign currency, and amortizable bond premium will reduce
interest income in units of the foreign currency. At the time amortized bond
premium offsets interest income, exchange gain or loss (taxable as ordinary
income or loss) is realized measured by the difference between exchange rates at
that time and at the time of the acquisition of the Notes. Any election to
amortize bond premium shall apply to all bonds (other than bonds the interest on
which is excludible from gross income) held by the United States Holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States Holder, and is irrevocable without the consent of
the Service. See also "Original Issue Discount -- Election to Treat All Interest
as Original Issue Discount."
S-31
<PAGE> 32
PURCHASE, SALE AND RETIREMENT OF THE NOTES
A United States Holder's tax basis in a Note will generally be its U.S.
dollar cost (as defined below), increased by the amount of any OID or market
discount included in the United States Holder's income with respect to the Note
and the amount, if any, of income attributable to de minimis original issue
discount and de minimis market discount included in the United States Holder's
income with respect to the Note, and reduced by (i) the amount of any payments
that are not qualified stated interest payments, and (ii) the amount of any
amortizable bond premium applied to reduce interest on the Note. The U.S. dollar
cost of a Note purchased with a foreign currency will generally be the U.S.
dollar value of the purchase price on the date of purchase or, in the case of
Notes traded on an established securities market, as defined in the applicable
Treasury Regulations, that are purchased by a cash basis United States Holder
(or an accrual basis United States Holder that so elects), on the settlement
date for the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. The amount realized on a sale
or retirement for an amount in foreign currency will be the U.S. dollar value of
such amount on (i) the date payment is received in the case of a cash basis
United States Holder, (ii) the date of disposition in the case of an accrual
basis United States Holder or (iii) in the case of Notes traded on an
established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis United States Holder (or an accrual basis
United States Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue
Discount -- Short-Term Notes" or "Original Issue Discount -- Market Discount,"
described in the next succeeding paragraph, attributable to accrued but unpaid
interest or subject to the general rules governing contingent payment
obligations, gain or loss recognized on the sale or retirement of a Note will be
capital gain or loss. Long-term capital gain of a non-corporate United States
Holder is generally subject to a maximum tax rate of 28% in respect of property
held for more than one year and to a maximum rate of 20% in respect of property
held in excess of 18 months.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Note that is attributable to changes in exchange rates will be treated as
ordinary income or loss. However, exchange gain or loss is taken into account
only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on a Note or on the sale or
retirement of a Note will have a tax basis equal to its U.S. dollar value at the
time such interest is received or at the time of such sale or retirement.
Foreign currency that is purchased will generally have a tax basis equal to the
U.S. dollar value of the foreign currency on the date of purchase. Gain or loss
recognized on a sale or other disposition of a foreign currency (including its
use to purchase Notes or upon exchange for U.S. dollars) will generally be
ordinary income or loss.
INDEXED NOTES AND AMORTIZING NOTES
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Notes that are not
subject to the rules governing Variable Rate Notes payments on which are
determined by reference to any index and other Notes that are subject to the
general rules governing contingent payment obligations. In addition, a
discussion of any special United States federal income tax rules with respect to
amortizing notes will be contained in the applicable Pricing Supplement.
S-32
<PAGE> 33
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder of a Note who is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership or estate or trust, in either case not subject to
United States federal income tax on a net income basis in respect of income or
gain from a Note. This discussion assumes that the Note is not subject to the
rules of Section 871(h)(4)(A) of the Code (relating to interest payments that
are determined by reference to the income, profits, changes in the value of
property or other attributes of the debtor or a related party).
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest, including OID, by
the Company or any of its paying agents to any holder of a Note that is a United
States Alien Holder will not be subject to United States federal withholding tax
if, in the case of interest or OID, (a) the beneficial owner of the Note does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (b) the
beneficial owner of the Note is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (A) the
beneficial owner of the Note certifies to the Company or its agent, under
penalties of perjury, that it is not a United States Holder and provides its
name and address or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution") and holds the Note certifies
to the Company or its agent under penalties of perjury that such statement has
been received from the beneficial owner by it or by a financial institution
between it and the beneficial owner and furnishes the payor with a copy thereof;
(ii) a United States Alien Holder of a Note will not be subject to United
States federal withholding tax on any gain realized on the sale or exchange of a
Note; and
(iii) a Note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's gross
estate for purposes of the United States federal estate tax as a result of the
individual's death if (a) the individual did not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote and (b) the income on the Note would not have been
effectively connected with a United States trade or business of the individual
at the individual's death.
Recently finalized Treasury regulations (the "Final Withholding
Regulations"), that are generally effective with respect to payments after
December 31, 1998, would provide alternative methods for satisfying the
certification requirement described in clause (i)(c) above. The Final
Withholding Regulations also would require, in the case of Notes held by a
foreign partnership, that (x) the certification described in clause (i)(c) above
be provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of a
Note before maturity within the United States to, and to the accrual of OID on a
Discount Note with respect to, non-corporate United States Holders, and "backup
withholding" at a rate of 31% will apply to such payments and to payments of OID
if the United States Holder fails to provide an accurate taxpayer identification
number or is notified by the Internal Revenue Service that it has failed to
report all interest and dividends required to be shown on its federal income tax
returns.
S-33
<PAGE> 34
UNITED STATES ALIEN HOLDERS
Under current law, information reporting on Internal Revenue Service Form
1099 and backup withholding will not apply to payments of principal, premium (if
any) and interest (including OID) made by the Company or a paying agent to a
United States Alien Holder on a Note; provided, the certification described in
clause (i)(c) under "United States Alien Holders" above is received; and
provided further that the payor does not have actual knowledge that the holder
is a United States person. The Company or a paying agent, however, may report
(on Internal Revenue Service Form 1042S) payments of interest (including OID) on
Notes. See the discussion above with respect to the rules under the Final
Withholding Regulations.
Payments of the proceeds from the sale by a United States Alien Holder of a
Note made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Note to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Distribution
Agreement, the Notes are being offered on a continuing basis by the Company
through Goldman, Sachs & Co., BancAmerica Robertson Stephens, Deutsche Morgan
Grenfell Inc. and First Chicago Capital Markets, Inc. (the "Agents"), who have
agreed to use reasonable efforts to solicit purchases of the Notes. The Company
will have the sole right to accept offers to purchase Notes and may reject any
proposed purchase of Notes in whole or in part. The Agents shall have the right,
in their discretion reasonably exercised, to reject any offer to purchase Notes,
in whole or in part. The Company will pay the Agents a commission of from 0.125%
to 0.750% of the principal amount of Notes, depending upon maturity, for sales
made through them as Agents. For Notes with maturities greater than 30 years
from their dates of issue, commissions will be negotiated at the time of sale
and indicated in the applicable Pricing Supplement.
The Company may also sell Notes to the Agents as principals for their own
accounts at a discount to be agreed upon at the time of sale, or the purchasing
Agents may receive from the Company a commission or discount equivalent to that
set forth on the cover page hereof in the case of any such principal transaction
in which no other discount is agreed. Such Notes may be resold at prevailing
market prices, or at prices related thereto, at the time of such resale, as
determined by the Agents.
In addition, the Agents may offer the Notes they have purchased as
principal to other dealers. The Agents may sell Notes to any dealer at a
discount and, unless otherwise specified in the applicable Pricing Supplement,
such discount allowed to any dealer may include all or part of the discount to
be received from the Company. Unless otherwise indicated 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 equal to the commission applicable to any agency sale of a Note of
identical maturity. After the initial public offering of Notes to be resold to
investors and other purchasers on a fixed public offering price basis, the
public offering price, concession and discount may be changed.
In connection with the offering, the Agents may purchase and sell the Notes
in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Agents in connection with the offering. Stabilizing transactions consist
S-34
<PAGE> 35
of certain bids or purchases for the purpose of preventing or retarding a
decline in the market price of the Notes, and short positions created by the
Agents involve the sale by the Agents of a greater aggregate principal amount of
Notes than they are required to purchase from the Company. The Agents also may
impose a penalty bid, whereby selling concessions allowed to broker-dealers in
respect of the Notes sold in the offering 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 price of
the Notes, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The Company reserves the right to sell Notes through one or more additional
agents or directly to certain investment banking firms as underwriters for
resale to the public. No commission will be payable to the Agents on any Notes
sold through other agents or directly by the Company to underwriters. The
Company has additionally reserved the right to sell Notes directly to investors
on its own behalf in those jurisdictions where it is authorized to do so.
The Agents, as agents or principals, may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 (the "Securities Act"). The
Company has agreed to indemnify the Agents against certain liabilities,
including liabilities under the Securities Act. The Company has agreed to
reimburse the Agents for certain expenses.
The Agents may sell to or through dealers who may resell to investors, and
the Agents may pay all or part of their discount or commission to such dealers.
Such dealers may be deemed to be "underwriters" within the meaning of the
Securities Act.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of Notes will be required to be made in immediately available
funds in The City of New York.
Goldman, Sachs & Co., BancAmerica Robertson Stephens, Deutsche Morgan
Grenfell Inc. and First Chicago Capital Markets, Inc. and their respective
affiliates may engage in transactions with and perform services for the Company
in the ordinary course of business.
The Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. No assurance can be given as
to the existence or liquidity of the secondary market for the Notes.
VALIDITY OF THE NOTES
The validity of the Notes offered hereby will be passed upon for the
Company by Shefsky & Froelich Ltd., Chicago, Illinois, and for the Agents by
Sullivan & Cromwell, New York. Sullivan & Cromwell will rely on Shefsky &
Froelich Ltd. as to matters of Ohio law.
S-35
<PAGE> 36
$300,000,000
THE REYNOLDS AND REYNOLDS COMPANY
DEBT SECURITIES
------------------------
The Company may from time to time offer Debt Securities consisting of
debentures, notes and/or other unsecured evidences of indebtedness in one or
more series at an aggregate initial offering price not to exceed $300,000,000 or
its equivalent in any other currency or composite currency. The Debt Securities
may be offered as separate series in amounts, at prices and on terms to be
determined at the time of sale. The accompanying Prospectus Supplement sets
forth with regard to the series of Debt Securities in respect of which this
Prospectus is being delivered the title, aggregate principal amount,
denominations (which may be in United States dollars, in any other currency or
in a composite currency), maturity, rate, if any (which may be fixed or
variable), and time of payment of any interest, any terms for redemption at the
option of the Company or the holder, any terms for sinking fund payments, any
listing on a securities exchange and the initial public offering price and any
other terms in connection with the offering and sale of such series of Debt
Securities.
The Company may sell Debt Securities to or through underwriters, and also
may sell Debt Securities directly to other purchasers or through agents. Such
underwriters may include Goldman, Sachs & Co., or may be a group of underwriters
represented by firms including Goldman, Sachs & Co. and Deutsche Morgan
Grenfell. Goldman, Sachs & Co. and Deutsche Morgan Grenfell may also act as
agents. See "Plan of Distribution." The accompanying Prospectus Supplement sets
forth the names of any underwriters or agents involved in the sale of the Debt
Securities in respect of which this Prospectus is being delivered, the principal
amounts, if any, to be purchased by underwriters and the compensation, if any,
of such underwriters or agents.
------------------------
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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
GOLDMAN, SACHS & CO. DEUTSCHE MORGAN GRENFELL
------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 5, 1996.
<PAGE> 37
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and at 7 World Trade Center, Suite 1300, New York, New
York 10048; and copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. If available, such reports and other information may
also be accessed through the Commission's electronic data gathering, analysis
and retrieval system ("EDGAR") via electronic means, including the Commission's
web site on the Internet (http://www.sec.gov). The Company's Class A Common
Shares are listed on the New York Stock Exchange and reports, proxy and
information statements and other information concerning the Company can be
inspected at such exchange at 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information set forth in such Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is made to such Registration Statement
and to the exhibits relating thereto for further information with respect to the
Company and the Offered Debt Securities. Any statements contained herein
concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission or incorporated by
reference herein are not necessarily complete, and, in each instance, reference
is made to the copy of such document so filed for a more complete description of
the matter involved. Each such statement is qualified in its entirety by such
reference.
The Company's principal executive offices are located at 115 South Ludlow
Street, Dayton, Ohio 45402, and its telephone number at that address is (937)
485-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following document, which has been filed with the Commission pursuant
to the Exchange Act, is incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K (including financial
statements together with the independent auditors report thereon) for the
fiscal year ended September 30, 1996 (File No. 0-132).
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the offering of the Offered Debt Securities shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of any such document. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein or in
any Prospectus Supplement shall be deemed to be modified by or superseded for
purposes of this Prospectus or any Prospectus Supplement to the extent that a
statement contained herein or therein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein or
therein 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 or any Prospectus Supplement.
A copy of any document or part thereof incorporated by reference in the
registration statement of which this Prospectus constitutes a part (not
including exhibits to the information that is
2
<PAGE> 38
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that the registration statement incorporates)
shall be provided without charge to each person, including any beneficial owner,
to whom a copy of this Prospectus is delivered, upon written or oral request
made to the Company at 115 South Ludlow Street, Dayton, Ohio 45402, Attention:
General Counsel and Secretary, (937) 485-2000.
THE COMPANY
The Company, incorporated in 1889, operates principally in two business
segments -- business forms and computer systems.
The business forms segment offers its products and services to customers in
the automotive, healthcare and general business markets. It operates nineteen
manufacturing facilities in the United States and Canada. In the automotive
market, the Company offers its products and services to all departments of
automobile, truck and recreational vehicle dealerships including sales, parts,
service, accounting, finance and insurance. The Company also markets its
products and services to automotive-related businesses such as repair garages,
auto parts stores, service stations and body shops. The products and services
include standard and custom business forms (including dealer image products),
forms management services, promotional items, custom designed filing systems,
dealership customer satisfaction measurement and management services, customer
prospecting services, and promotional mailing services. In the healthcare
market, the Company offers standard and custom forms and forms management
services to hospitals and large healthcare organizations. In the general
business market, the Company offers a wide variety of paper-based and electronic
business document solutions to value seeking businesses. Solutions offered
include standard and custom business forms, electronic business forms, on-demand
printing services, checks, labels, mailers, stationery, envelopes and tickets.
Many of these business documents incorporate a broad range of security features
to help deter fraudulent document reproduction and counterfeiting. The Company
also offers a wide variety of forms management solutions to help customers
improve their productivity: forms survey and analysis, inventory management and
reporting, cost center reporting, low stock reporting, distribution services and
process work flow reengineering services. Additionally, pegboard accounting
systems are sold to smaller businesses through a network of office supply
dealers and independent forms distributors.
The computer systems segment offers its products and services to the
automotive and healthcare markets. The Company markets turnkey information
management systems and professional services primarily to automobile dealers.
The hardware portion of the systems is supplied from manufacturers who
specialize in platforms for industry-standard operating systems. With a few
minor exceptions, the application software products are owned by the Company and
licensed to users. Some of the software products offered include standard
programs for accounting, payroll, vehicle and parts inventory control, service
merchandising and scheduling, leasing, finance and insurance, parts and vehicle
locators, manufacturer communications, new and used vehicle retailing, and
electronic document imaging. Other applications link dealerships to credit
bureaus to verify the credit worthiness of prospective customers, process and
approve credit documentation and electronically process vehicle registrations in
five states. The Company also markets computer products and services directly to
automobile manufacturers. Hardware maintenance, software support and training
and other professional services are integral parts of the Company's turnkey
approach to marketing computer systems. These services are provided by service
and support personnel located in nearly 200 offices in the United States and
Canada. The Healthcare Systems Division markets a similar array of turnkey
computer systems and services to physician groups and integrated healthcare
delivery networks. Products include software and services for the administrative
and clinical processes that enhance the practice of medicine.
3
<PAGE> 39
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Offered
Debt Securities will be used as set forth in a Prospectus Supplement relating to
such Offered Debt Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
2.98x 4.66x 6.83x 7.29x 8.79x 7.86x
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings includes income before income taxes
and fixed charges excluding capitalized interest. Fixed charges includes
interest expense, capitalized interest and one-third of rent expense,
representative of the interest factor.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement and
the extent, if any, to which such general provisions may not apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Debt Securities.
The Debt Securities are to be issued under an Indenture to be dated as of
December 18, 1996 (the "Indenture") between the Company and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee"). A copy of the form
of such Indenture has been filed as an exhibit to the Registration Statement.
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 reference to, all the provisions of the Indenture, including
the definitions therein of certain terms. Wherever particular Sections, Articles
or defined terms of the Indenture are referred to, it is intended that such
Sections, Articles or defined terms shall be incorporated herein by reference.
Article and Section references used herein are references to the Indenture.
Capitalized terms not otherwise defined herein shall have the respective
meanings given to them in the Indenture.
GENERAL
The Debt Securities will be unsecured obligations of the Company and will
rank on a parity with all other unsecured and unsubordinated debt of the
Company.
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provides that Debt Securities may
be issued thereunder from time to time in one or more series. Reference is made
to the Prospectus Supplement relating to the particular Debt Securities offered
thereby (the "Offered Debt Securities") which shall set forth the following
terms, as applicable, of the Offered Debt Securities: (1) the title of the
Offered Debt Securities; (2) any limit on the aggregate principal amount of the
Offered Debt Securities; (3) the price (expressed as a percentage of the
aggregate principal amount thereof) at which the Offered Debt Securities will be
issued; (4) the Person to whom any interest on the Offered Debt Securities will
be payable, if other than the Person in whose name such Offered Debt Securities
(or one or more Predecessor Securities) are registered on any Regular Record
Date; (5) the date or dates on which the principal of the Offered Debt
Securities will be payable; (6) the rate or rates per annum (which may be fixed,
4
<PAGE> 40
floating or adjustable) at which the Offered Debt Securities will bear interest,
if any, or the formula pursuant to which such rate or rates shall be determined,
the date or dates from which such interest will accrue and the dates on which
such interest, if any, will be payable and the Regular Record Dates for such
interest payment dates; (7) the place or places where principal of (and premium,
if any) and interest, if any, on Offered Debt Securities will be payable; (8) if
applicable, the price at which, the periods within which and the terms and
conditions upon which the Offered Debt Securities may be redeemed at the option
of the Company, pursuant to a sinking fund or otherwise; (9) if applicable, any
obligation of the Company to redeem or purchase Offered Debt Securities pursuant
to any sinking fund or analogous provisions or at the option of a Holder
thereof, and the period or periods within which, the price or prices at which
and the terms and conditions upon which the Offered Debt Securities will be
redeemed or purchased, in whole or in part; (10) if other than denominations of
$1,000 and any integral multiple thereof, the denominations in which the Offered
Debt Securities will be issuable; (11) the currency or currencies, including
composite currencies or currency units, in which payment of the principal of (or
premium, if any) or interest, if any, on any of the Offered Debt Securities will
be payable if other than the currency of the United States of America; (12) if
the amount of payments of principal of (or premium, if any) or interest, if any,
on the Offered Debt Securities may be determined with reference to one or more
indices, the manner in which such amounts will be determined; (13) if the
principal of (or premium, if any) or interest, if any, on any of the Offered
Debt Securities of the series is to be payable, at the election of the Company
or a Holder thereof, in one or more currencies, including composite currencies,
or currency units other than that or those in which the Securities are stated to
be payable, the currency, currencies, including composite currencies, or
currency units in which payment of the principal of (or premium, if any) or
interest, if any, on Securities of such series as to which such election is made
will be payable, and the periods within which and the terms and conditions upon
which such election is to be made; (14) the portion of the principal amount of
the Offered Debt Securities, if other than the entire principal amount thereof,
payable upon acceleration of maturity thereof; (15) whether all or any part of
the Offered Debt Securities will be issued in the form of a permanent Global
Security or Securities, as described under "Permanent Global Securities," and,
if so, the depositary for, and other terms relating to, such permanent Global
Security or Securities; (16) any event or events of default applicable with
respect to the Offered Debt Securities in addition to those provided in the
Indenture; (17) any other covenant or warranty included for the benefit of the
Offered Debt Securities in addition to (and not inconsistent with) those
included in the Indenture for the benefit of Debt Securities of all series, or
any other covenant or warranty included for the benefit of the Offered Debt
Securities in lieu of any covenant or warranty included in the Indenture for the
benefit of Offered Debt Securities, or any combination of such covenants,
warranties or provisions; (18) any restriction or condition on the
transferability of the Offered Debt Securities; (19) if applicable, that such
Offered Debt Securities, in whole or any specified part, are defeasible pursuant
to the provisions of the Indenture described under "Defeasance and Covenant
Defeasance"; (20) any authenticating or paying agents, registrars, conversion
agents or any other agents with respect to the Offered Debt Securities; and (21)
any other specific terms or provisions of the Offered Debt Securities not
inconsistent with the Indenture. (Section 301)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Debt Securities are to be issued as registered securities without
coupons in denominations of $1,000 or any integral multiple of $1,000. (Section
302). No service charge will be made for any transfer or exchange of such
Offered Debt Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
(Section 305)
Debt Securities may be issued under the Indenture as Original Issue
Discount Debt Securities to be offered and sold at a substantial discount below
their stated principal amount. Special Federal income tax, accounting and other
considerations applicable thereto will be described in the Prospectus Supplement
relating thereto. "Original Issue Discount Debt Security" means any security
which provides for an amount less than the principal amount thereof to be due
and payable
5
<PAGE> 41
upon the declaration of acceleration of the maturity thereof upon the occurrence
and continuance of an Event of Default. (Section 101)
If the Debt Securities are denominated in whole or in part in any currency
other than United States dollars, if the principal of (and premium, if any) or
interest, if any, on the Debt Securities are to be payable, at the election of
the Company or a Holder thereof, in a currency or currencies other than that in
which such Debt Securities are to be payable, or if any index is used to
determine the amount of payments of principal of, premium, if any, or interest
on any series of the Debt Securities, special Federal income tax, accounting and
other considerations applicable thereto will be described in the Prospectus
Supplement relating thereto.
The Indenture does not contain any provisions that would provide protection
to Holders of the Debt Securities against a sudden and dramatic decline in
credit quality of the Company resulting from any takeover, recapitalization or
similar restructuring or from other highly leveraged transactions.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest payment. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Company may designate for such purpose from time to time, except that, at
the option of the Company, payment of any interest may be made by check mailed
to the address of the Person entitled thereto as such address appears in the
Security Register. Unless otherwise indicated in the applicable Prospectus
Supplement, the corporate trust office of the Trustee in Minneapolis, Minnesota
will be designated as the Company's sole Paying Agent for payments with respect
to Debt Securities of each series.
Any other Paying Agents initially designated by the Company for the Debt
Securities of a particular series will be named in the applicable Prospectus
Supplement. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, except that the Company will be required to
maintain a Paying Agent in each place of payment for the Debt Securities of a
particular series. (Section 1002)
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to the Company, and the Holder of such
Debt Security thereafter may look only to the Company for payment thereof.
(Section 1003)
COVENANTS
Limitation on Liens
The Indenture provides that the Company may not, and may not permit any
Principal Subsidiary to, create or suffer to exist any Lien to secure any
Indebtedness of the Company or any Subsidiary upon any Principal Property, or
upon any shares of capital stock or evidences of Indebtedness issued by any
Principal Subsidiary and owned by the Company or any Principal Subsidiary
(whether such Principal Property, shares or evidences of indebtedness were owned
as of the date of the Indenture or thereafter acquired), without making, or
causing such Principal Subsidiary to make, effective provision to secure all of
the Debt Securities issued under the Indenture and then Outstanding by such
Lien, equally and ratably with any and all other Indebtedness thereby secured,
6
<PAGE> 42
so long as such Indebtedness is so secured, unless, after giving effect thereto,
the sum of (A) the principal amount of Indebtedness secured by all Liens
incurred after the date of the Indenture and otherwise prohibited by the
Indenture and (B) the Attributable Value of all Sale and Leaseback Transactions
entered into after the date of the Indenture and otherwise prohibited by the
Indenture does not exceed 10% of Consolidated Net Tangible Assets of the
Company. The foregoing restrictions shall not apply to Indebtedness secured by
Liens existing on the date of the Indenture or to: (i) Liens on any property
existing at the time of the acquisition thereof; (ii) Liens on property of a
corporation existing at the time such corporation is merged into or consolidated
with the Company or a Principal Subsidiary or at the time of a sale, lease or
other disposition of the properties of such corporation (or a division thereof)
as an entirety or substantially as an entirety to the Company or a Principal
Subsidiary, provided that such Lien as a result of such merger, consolidation,
sale, lease or other disposition is not extended to property owned by the
Company or such Principal Subsidiary immediately prior thereto; (iii) Liens on
property of a corporation existing at the time such corporation becomes a
Principal Subsidiary; (iv) Liens securing Indebtedness of a Principal Subsidiary
to the Company or to another Principal Subsidiary; (v) Liens to secure all or
part of the cost of acquisition, construction, development or improvement of the
underlying property, or to secure Indebtedness incurred to provide funds for any
such purpose, provided that the commitment of the creditor to extend the credit
secured by any such Lien shall have been obtained not later than 24 months after
the later of (a) the completion of the acquisition, construction, development or
improvement of such property or (b) the placing in operation of such property or
of such property as so constructed, developed or improved; (vi) Liens on any
property created, assumed or otherwise brought into existence in contemplation
of the sale or other disposition of the underlying property, whether directly or
indirectly, by way of share disposition or otherwise, provided that the Company
must have disposed of such property within 180 days after the creation of such
Liens and that any Indebtedness secured by such Liens shall be without recourse
to the Company or any Subsidiary; (vii) Liens in favor of the United States of
America or any State thereof, or any department, agency or instrumentality or
political subdivision thereof, to secure partial, progress, advance or other
payments; (viii) Liens to secure Indebtedness of joint ventures in which the
Company or a Principal Subsidiary has an interest, to the extent such Liens are
on property or assets of, or equity interests in, such joint ventures; and (ix)
extension, renewal, replacement or refunding of any Lien existing on the date of
the Indenture or referred to in clauses (i) to (iii) or (v), provided that the
principal amount of Indebtedness secured thereby and not otherwise authorized by
clauses (i) to (iii) or (v) shall not exceed the principal amount of
Indebtedness, plus any premium or fee payable in connection with any such
extension, renewal, replacement or refunding, so secured at the time of such
extension, renewal, replacement or refunding. (Section 1008)
Limitation on Sale and Leaseback Transactions
The Indenture provides that the Company may not, and may not permit any
Principal Subsidiary to, enter into any Sale and Leaseback Transaction with
respect to any Principal Property, unless, either (i) the Company or such
Principal Subsidiary would otherwise be entitled to issue, assume or guarantee
Indebtedness secured by a Lien on such Principal Property without equally and
ratably securing the outstanding Debt Securities under the Indenture; (ii) the
Company or such Principal Subsidiary applies, within 180 days after the
effective date of such Sale and Leaseback Transaction, an amount equal to the
Net Available Proceeds therefrom to (A) the acquisition of one or more Principal
Properties or (B) to the retirement of the Debt Securities or the repayment of
other Indebtedness of the Company or a Principal Subsidiary (other than such
Indebtedness owned by the Company or a Principal Subsidiary) which, in the case
of such Indebtedness of the Company, is not subordinate and junior in right of
payment to the prior payment of the Debt Securities; or (iii) after giving
effect thereto, the sum of (A) the principal amount of Indebtedness secured by
all Liens incurred after the date of the Indenture and otherwise prohibited by
the Indenture and (B) the Attributable Value of all Sale and Leaseback
Transactions entered into after the date of the Indenture and otherwise
prohibited by the Indenture does not exceed 10% of Consolidated Net
7
<PAGE> 43
Tangible Assets of the Company. The foregoing restrictions will not apply to (x)
a Sale and Leaseback Transaction providing for a lease for a term, including any
renewal thereof, of not more than three years, by the end of which term it is
intended that the use of such Principal Property by the lessee will be
discontinued; (y) a Sale and Leaseback Transaction between the Company and a
Principal Subsidiary or between Principal Subsidiaries; (z) a Sale and Leaseback
Transaction between the Company or a Principal Subsidiary and a joint venture in
which the Company or a Principal Subsidiary has an interest. (Section 1009)
RESTRICTIONS ON MERGER AND SALE OF ASSETS
The Indenture provides that the Company may not consolidate with or merge
into any other Person or sell, lease or otherwise transfer its property and
assets as, or substantially as, an entirety to any Person, and the Company may
not permit any Person to merge into or consolidate with the Company unless (i)
either (A) the Company will be the resulting or surviving entity or (B) any
successor or purchaser is a corporation, partnership, limited liability company
or trust organized under the laws of the United States of America, any State or
the District of Columbia, and any such successor or purchaser expressly assumes
the Company's obligations on the Debt Securities under a supplemental Indenture;
(ii) immediately after giving effect to the transaction no Event of Default, and
no event which after notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing; (iii) if, as a result of any
such transaction, property or assets of the Company or any Principal Subsidiary
would become subject to a Lien which would not be permitted by the limitation on
Liens contained in the Indenture, the Company or, if applicable, the successor
to the Company, as the case may be, shall take such steps as shall be necessary
effectively to secure the Debt Securities issued under the Indenture equally and
ratably with Indebtedness secured by such Lien; and (iv) certain other
conditions are met. (Section 801). Upon any consolidation or merger into any
other Person or any conveyance, transfer or lease of the Company's assets
substantially as an entirety to any Person, the successor Person shall succeed
to, and be substituted for, the Company under the Indenture, and the Company,
except in the case of a lease, shall be relieved of all obligations and
covenants under the Indenture and the Debt Securities to the extent it was the
predecessor Person. (Section 802)
EVENTS OF DEFAULT AND NOTICE THEREOF
Unless otherwise specified in the Prospectus Supplement relating to a
particular series of Debt Securities, the following events are defined in the
Indenture as "Events of Default" with respect to Debt Securities of any series:
(a) failure to pay principal (including any sinking fund payment) of (or
premium, if any, on) any Debt Security of that series when due; (b) failure to
pay any interest on any Debt Security of that series when due, continued for 30
days; (c) failure to perform any other covenant or agreement of the Company
under the Indenture (other than a covenant the performance of which is dealt
with specifically elsewhere in the Indenture or which has been included in the
Indenture solely for the benefit of a series of Debt Securities other than that
series), continued for 90 days after written notice as provided in the
Indenture; (d) failure to pay when due (after applicable grace periods as
provided in the Indenture) the principal of, or acceleration of, any
indebtedness for money borrowed by the Company having an aggregate principal
amount outstanding equal to at least $10 million, if such indebtedness is not
discharged, or such acceleration is not annulled, within 10 days after written
notice as provided in the Indenture; (e) certain events of bankruptcy,
insolvency or reorganization; and (f) any other Event of Default provided with
respect to Debt Securities of that series. (Section 501)
Except as defined in the Prospectus Supplement relating thereto and except
as specified in clauses (d) and (e) of the preceding paragraph, no Event of
Default with respect to Debt Securities of a particular series shall necessarily
constitute an Event of Default with respect to Debt Securities of any other
series. (Section 501). The Holders of a majority in aggregate principal amount
of the Outstanding Debt Securities of any series shall have the right, subject
to such provisions for
8
<PAGE> 44
indemnification of the Trustee, 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 Debt Securities of that series. (Section 512)
If an Event of Default (other than an Event of Default specified in clause
(e) of the second preceding paragraph) with respect to Debt Securities of any
series at the time Outstanding shall occur and be continuing, either the Trustee
or the Holders of at least 25% in principal amount of the Outstanding Debt
Securities of that series may, by a notice in writing to the Company (and to the
Trustee if given by the Holders), declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that series) of all
Debt Securities of that series to be due and payable immediately; provided,
however, that under certain circumstances the Holders of a majority in aggregate
principal amount of Outstanding Debt Securities of that series may rescind or
annul such declaration and its consequences. (Section 502). If an Event of
Default specified in clause (e) of the next preceding paragraph occurs, the
outstanding Debt Securities automatically will become immediately payable
without any declaration or other act on the part of the Trustee or any Holder.
(Section 502). For information as to waiver of defaults, see "Modification and
Waiver" herein.
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to the principal amount of such Original Issue
Discount Securities due on acceleration upon the occurrence of an Event of
Default and the continuation thereof.
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice of
a continuing Event of Default with respect to Debt Securities of that series and
unless also the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of the same series shall have made written request,
and offered reasonable indemnity to the Trustee, to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Debt Securities of the same
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. (Section 507). However, such
limitations do not apply to a suit instituted by a Holder of any Debt Security
for enforcement of payment of the principal of (or premium, if any) or interest,
if any, on such Debt Security on or after the respective due dates expressed in
such Debt Security. (Section 508)
Subject to the provisions of the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any of the
Holders of Debt Securities unless they shall have offered to the Trustee
security or indemnity in form and substance reasonably satisfactory to the
Trustee against the costs, expenses and liabilities which might be incurred by
it in compliance with such request. (Section 603)
The Company will be required to furnish to the Trustee annually a statement
by certain officers of the Company as to whether the Company is in default in
the performance and observance of any of the terms, provisions and conditions of
the Indenture. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee, with the consent of the Holders of not less than a majority of
principal amount of each series of the Outstanding Debt Securities of each
series affected by the modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
such Outstanding Debt Security affected thereby: (a) change the Stated Maturity
of the principal of (or premium, if any) or any installment of principal or
interest, if any, on any such Debt Security; (b) reduce the principal amount of
(or premium, if any) or the interest rate, if any, on any such Debt
9
<PAGE> 45
Security or the principal amount due upon acceleration of an Original Issue
Discount Security; (c) adversely affect any right of repayment at the option of
the Holder of any such Debt Security; (d) reduce the amount of, or postpone the
date fixed for, the payment of any sinking fund or analogous obligation; (e)
change the place or currency of payment of principal of (or premium, if any) or
the interest, if any, on any such Debt Security; (f) impair the right to
institute suit for the enforcement of any such payment on or with respect to any
such Debt Security on or after the Stated Maturity (or, in the case of
redemption, on or after the Redemption Date); (g) reduce the percentage of the
principal amount of Outstanding Debt Securities of any series, the consent of
the Holders of which is necessary to modify or amend the Indenture; or (h)
modify the foregoing requirements or reduce the percentage of Outstanding Debt
Securities necessary to waive compliance with certain provisions of the
Indenture or for waiver of certain defaults. (Section 902)
The holders of at least a majority of the aggregate principal amount of the
Outstanding Debt Securities of any series may, on behalf of all Holders of that
series, waive compliance by the Company with certain restrictive provisions of
the Indenture and waive any past default under the Indenture, except a default
in the payment of principal, premium or interest or in the performance of
certain covenants. (Sections 101 and 513)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities of any series have
given or taken any direction, notice, consent, waiver or other action under the
Indenture as of any date, (i) the principal amount of an Original Issue Discount
Debt Security that will be deemed to be Outstanding will be the amount of the
principal thereof that would be due and payable as of such date upon
acceleration of the Maturity thereof to such date; (ii) if, as of such date, the
principal amount payable at the Stated Maturity of a Debt Security is not
determinable (for example, because it is based on an index), the principal
amount of such Debt Security deemed to be Outstanding as of such date will be an
amount determined in the manner prescribed for such Debt Security; and (iii) the
principal amount of a Security denominated in one or more foreign currencies or
currency units that will be deemed to be Outstanding will be the United States
dollar equivalent, determined as of such date in the manner prescribed for such
Debt Security, of the principal amount of such Debt Security (or, in the case of
a Debt Security described in clause (i) or (ii) above, of the amount described
in such clause). Certain Debt Securities, including those for which payment or
redemption money has been deposited or set aside in trust for the Holders and
those that have been fully defeased pursuant to Section 1302, will not be deemed
to be Outstanding. (Section 101). For purposes of the Indenture, the Debt
Securities of any series "Outstanding" thereunder are deemed to exclude persons
that control, are controlled by or are under common control with the Company.
(Section 101)
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Debt Securities of any series entitled to give or take any
direction, notice, consent, waiver or other action under the Indenture, in the
manner and subject to the limitations provided in the Indenture. In certain
limited circumstances, the Trustee will be entitled to set a record date for
action by Holders. If a record date is set for any action to be taken by Holders
of a particular series, such action may be taken only by persons who are Holders
of Outstanding Debt Securities of that series on the record date. To be
effective, such action must be taken by Holders of the requisite principal
amount of such Debt Securities within a specified period following the record
date. For any particular record date, this period will be 180 days or such
shorter period as may be specified by the Company (or the Trustee, if it set the
record date), and may be shortened or lengthened (but not beyond 180 days) from
time to time. (Section 104)
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides, if such provision is made applicable to the Debt
Securities of any series pursuant to Section 301 of the Indenture (which will be
indicated in the Prospectus Supplement applicable thereto), that the Company may
elect either (A) to defease and be discharged from any
10
<PAGE> 46
and all obligations with respect to such Debt Securities then outstanding
(except for the obligations to exchange or register the transfer of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of the Debt Securities,
and to hold monies for payments in trust) ("defeasance"), or (B) to be released
from its obligations with respect to such Debt Securities concerning the
restrictions described under "Restriction on Merger and Sale of Assets" (Section
801 ) and any other covenants applicable to such Debt Securities which are
subject to covenant defeasance ("covenant defeasance"), and the occurrence of an
event described and notice thereof in clauses (c) and (d) under "Events of
Default and Notice Thereof" (with respect to covenants determined, pursuant to
Section 301 of the Indenture, to be subject to covenant defeasance) shall no
longer be an Event of Default, in each case, upon the irrevocable deposit with
the Trustee (or other qualifying trustee), in trust for such purpose, of money,
and/or U.S. Government Obligations (as defined in the Indenture) which through
the payment of principal and interest in accordance with their terms will
provide money in an amount sufficient without reinvestment to pay the principal
of (and premium, if any) and interest, if any, on such Debt Securities, and any
mandatory sinking fund or analogous payments thereon, on the scheduled due dates
therefor. Such a trust may only be established if, among other things, (i) the
Company has delivered to the Trustee an opinion of counsel (as specified in the
Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to Federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, (ii) no
Event of Default or event which with the giving of notice or lapse of time, or
both, would become an Event of Default under the Indenture shall have occurred
and be continuing on the date of such deposit and (iii) certain other customary
conditions precedent are satisfied. In the case of defeasance under clause (A)
above, the opinion of counsel referred to in clause (i) above must refer to and
be based on a ruling of the Internal Revenue Service issued to the Company or
published as a revenue ruling or on a change in applicable Federal income tax
law, in each case after the date of the Indenture. (Article Thirteen)
The Company may exercise the defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of the covenant defeasance option.
If the Company exercises the defeasance option, payment of such Debt Securities
may not be accelerated because of an Event of Default. If the Company exercises
the covenant defeasance option, payment of such Debt Securities may not be
accelerated by reference to the covenants noted under clause (B) above. In the
event the Company omits to comply with the remaining obligations with respect to
such Debt Securities under the Indenture after exercising its covenant
defeasance option and such Debt Securities are declared due and payable because
of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations on deposit with the Trustee may be insufficient to pay
amounts due on the Debt Securities of such series at the time of the
acceleration resulting from such Event of Default, because the required deposit
in the defeasance trust is based upon scheduled cash flows, rather than market
values, which will vary depending on prevailing interest rates and other
factors. However, the Company will remain liable in respect of such payments.
(Article Thirteen)
The Prospectus Supplement may further describe the provisions, if any,
applicable to defeasance or covenant defeasance with respect to the Debt
Securities of a particular series.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture with respect to any particular
series of Debt Securities for the full definition of all such terms, as well as
any other terms used herein for which no definition is provided. (Section 101)
"Attributable Value" in respect of any Sale and Leaseback Transaction
means, as of the time of determination, the lesser of (i) the sale price of the
Principal Property so leased multiplied by a
11
<PAGE> 47
fraction the numerator of which is the remaining portion of the base term of the
lease included in such Sale and Leaseback Transaction and the denominator of
which is the base term of such lease, and (ii) the total obligation (discounted
to present value at the highest rate of interest specified by the terms of any
series of Debt Securities then Outstanding compounded semi-annually) of the
lessee for rental payments (other than amounts required to be paid on account of
property taxes as well as maintenance, repairs, insurance, water rates and other
items which do not constitute payments for property rights) during the remaining
portion of the base term of the lease included in such Sale and Leaseback
Transaction.
"Consolidated Net Tangible Assets" of the Company means the aggregate
amount of assets (less applicable reserves and other properly deductible items)
after deducting therefrom (a) all current liabilities (excluding any
indebtedness for money borrowed having a maturity of less than 12 months from
the date of the most recent consolidated balance sheet of the Company but which
by its terms is renewable or extendable beyond 12 months from such date at the
option of the borrower) and (b) all goodwill, trade names, patents, unamortized
debt discount and expense and any other like intangibles, all as set forth on
the most recent consolidated balance sheet of the Company and computed in
accordance with generally accepted accounting principles.
"Indebtedness" of any Person means (without duplication), with respect to
any Person, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person and (iv) every obligation of the type referred to in
clauses (i) through (iii) of another Person the payment of which such Person has
guaranteed or is responsible or liable for, directly or indirectly, as obligor,
guarantor or otherwise (but only, in the case of clause (iv), to the extent such
Person has guaranteed or is responsible or liable for such obligations).
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien,
encumbrance, or other security arrangement of any kind or nature whatsoever on
or with respect to such property or assets (including any conditional sale or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Available Proceeds" from any Sale Transaction by any Person means cash
or readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiree of
Indebtedness or obligations relating to the properties or assets that are the
subject of such Sale Transaction or received in any other noncash form)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
as a consequence of such Sale Transaction; (ii) all payments made by such Person
or its Subsidiaries on any Indebtedness which is secured in whole or in part by
any such properties and assets in accordance with the terms of any Lien upon or
with respect to any such properties and assets or which must, by the terms of
such Lien, or in order to obtain a necessary consent to such Sale Transaction or
by applicable law, be repaid out of the proceeds from such Sale Transaction; and
(iii) all distributions and other payments made to minority interest holders in
Subsidiaries of such Person or joint ventures as a result of such Sale
Transaction; provided, however, that for purposes of clause (ii) of "Limitations
on Sale and Leaseback Transactions," the amount of Net Available Proceeds to be
applied to any acquisition of Principal Properties or retirement of Debt
Securities or other Indebtedness shall be reduced by an amount equal to the sum
of (A) an amount equal to the redemption price with respect to such Debt
Securities delivered within 180 days after the effective date of such Sale and
Leaseback Transaction to the Trustee for retirement and cancellation and (B) the
principal amount, plus any premium or fee paid in connection with a redemption
in accordance with the terms, of such other Indebtedness voluntarily retired by
the
12
<PAGE> 48
Company within such 180-day period, excluding in each case retirements pursuant
to mandatory sinking fund or prepayment provisions and payments at maturity.
"Principal Property" means any real property or any permanent improvement
thereon owned by the Company or any of its Subsidiaries including, without
limitation, any office, store, warehouse, manufacturing facility or plant or any
portion thereof, and any equipment located at or comprising a part of any such
property, having a net book value, as of the date of determination, in excess of
1% of Consolidated Net Tangible Assets of the Company.
"Principal Subsidiary" means any Subsidiary which owns a Principal
Property.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any Principal Property that, more than 12
months after (i) the completion of the acquisition, construction, development or
improvement of such Principal Property or (ii) the placing in operation of such
Principal Property or of such Principal Property as so constructed, developed or
improved, has been or is being sold, conveyed, transferred or otherwise disposed
of by such Person to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender on the security of such Principal
Property. The term of such arrangement, as of any date (the "measurement date"),
shall end on the date of the last payment of rent or any other amount due under
such arrangement on or prior to the first date after the measurement date on
which such arrangement may be terminated by the lessee, at its sole option
without payment of a penalty. "Sale Transaction" means any such sale,
conveyance, transfer or other disposition.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding voting stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
PERMANENT GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
permanent Global Securities that will be deposited with a Depositary or its
nominee. In such a case, one or more Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of Outstanding Debt Securities of the series to be represented
by such Global Security or Securities. The Prospectus Supplement relating to
such series of Debt Securities will describe the circumstances, if any, under
which beneficial owners of interests in any such permanent Global Security may
exchange such interests for Debt Securities of such series and of like tenor and
principal amount in any authorized form and denomination. Unless and until it is
exchanged in whole or in part for Debt Securities in definitive registered form,
a permanent Global Security may not be registered for transfer or exchange
except in the circumstances described in the applicable Prospectus Supplement.
(Sections 204 and 305)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a permanent Global
Security and a description of the Depositary will be contained in the applicable
Prospectus Supplement.
THE TRUSTEE
The Trustee may be deemed to have a conflicting interest and may be
required to resign as Trustee if at the time of a default under the Indenture it
is a creditor of the Company.
13
<PAGE> 49
GOVERNING LAW
The Indenture and the Debt Securities are governed by and shall be
construed in accordance with the laws of the State of New York. (Section 112)
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters and also
may sell Debt Securities directly to other purchasers or through agents. Such
underwriters may include Goldman, Sachs & Co. and Deutsche Morgan Grenfell, or a
group of underwriters represented by firms including Goldman, Sachs & Co. and
Deutsche Morgan Grenfell. Goldman, Sachs & Co. and Deutsche Morgan Grenfell may
also act as agents.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on the
resale of Debt Securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933 (the "Act"). Any such underwriter
or agent will be identified, and any such compensation received from the Company
will be described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Debt Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase Debt Securities from the Company pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Company. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the Offered Debt Securities shall
not at the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect of the validity or performance of such
contracts.
VALIDITY OF THE DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
validity of the Offered Debt Securities will be passed upon for the Company by
Coolidge, Wall, Womsley & Lombard, Dayton, Ohio, and for any underwriters or
agents by Sullivan & Cromwell, New York, New York. Sullivan & Cromwell will rely
on the opinion of Coolidge, Wall, Womsley & Lombard as to matters of Ohio law.
14
<PAGE> 50
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
15
<PAGE> 51
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY PRICING SUPPLEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS AND ANY PRICING
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY
PRICING SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Description of the Notes............. S-5
Risks Relating to Indexed Notes...... S-20
Foreign Currency Risks............... S-21
Certain United States Federal Income
Tax Considerations................. S-25
Supplemental Plan of Distribution.... S-34
Validity of the Notes................ S-35
PROSPECTUS
Available Information................ 2
Incorporation of Certain Information
by Reference....................... 2
The Company.......................... 3
Use of Proceeds...................... 4
Ratio of Earnings to Fixed Charges... 4
Description of Debt Securities....... 4
Plan of Distribution................. 14
Validity of the Debt Securities...... 14
Experts.............................. 15
</TABLE>
======================================================
======================================================
$200,000,000
THE REYNOLDS AND
REYNOLDS COMPANY
MEDIUM-TERM NOTES
---------------------
LOGO
---------------------
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS
DEUTSCHE MORGAN GRENFELL
FIRST CHICAGO CAPITAL MARKETS, INC.
======================================================
