<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 6, 1996
$275,000,000
[LOGO]
THE ST. PAUL COMPANIES, INC.
MEDIUM-TERM NOTES, SERIES C
DUE FROM 9 MONTHS TO 20 YEARS FROM DATE OF ISSUE
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The Company may offer from time to time its Medium-Term Notes, Series C, due
from 9 months to 20 years from the date of issue, as selected by the purchaser
and agreed to by the Company, at an aggregate initial public offering price not
to exceed $275,000,000 or its equivalent in another currency or composite
currency.
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 Notes may also be issued with the principal amount thereof payable
at maturity or upon redemption or repayment, or the amount of interest payable
on an interest payment date, to be determined by reference to an index (e.g.,
currencies, composite currencies, commodities or financial or non-financial
indices), as specified in the applicable Pricing Supplement. The specific
currency, composite currency or any index, 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 Notes".
Unless otherwise specified in the applicable Pricing Supplement, interest on
the Fixed Rate Notes will be payable on each May 15 and November 15 and at
maturity or upon any earlier redemption or repayment dates. Interest on the
Floating Rate Notes may be determined by reference to one or more of the
Commercial Paper Rate, Prime Rate, LIBOR, Treasury Rate, CD Rate, Federal Funds
Rate, the CMT Rate or such other interest rate formula as set forth in the
applicable Pricing Supplement, as adjusted by a Spread and/or Spread Multiplier,
if any, applicable to such Notes. Interest rates and interest rate formulas are
subject to change by the Company, but no such change will affect any Notes
already issued or as to which an offer to purchase has been accepted by the
Company. Zero Coupon Notes will not bear interest. See "Description of Notes".
Unless a Redemption Commencement Date or a Repayment Date is specified in
the applicable Pricing Supplement, the Notes will not be redeemable or repayable
prior to their Stated Maturity. If a Redemption Commencement Date or Repayment
Date is so specified, the Notes will be redeemable at the option of the Company
or repayable at the option of the Holder, or both (as specified therein) at any
time after such date (or for a limited period) as described herein.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
offered hereby will be issued only in global form in a minimum denomination of
U.S. $100,000 or the approximate equivalent thereof in the Specified Currency. A
global Note representing Book-Entry Notes will be registered in the name of the
nominee of The Depository Trust Company, which will act as Depositary.
Beneficial interests in Book-Entry Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depositary (with
respect to participants' interests) and its participants. Except as described
herein under "Description of Notes -- Book-Entry System", owners of beneficial
interests in a global Note will not be considered the Holders thereof and will
not be entitled to receive physical delivery of Notes in definitive form, and no
global Note will be exchangeable except for another global Note of like
denomination and terms to be registered in the name of the Depositary or its
nominee. See "Description of Notes".
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY
PRICING SUPPLEMENT HERETO OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
-------------- ----------------------- ------------------------------
<S> <C> <C> <C>
Per Note............................................ 100% .125% - .750% 99.250% - 99.875%
Total(4)............................................ $275,000,000 $343,750 - $2,062,500 $272,937,500 - $274,656,250
</TABLE>
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(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 (or grant a discount) of from
.125% to .750%, depending on 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). The Company has agreed
to indemnify the Agents against certain liabilities, including liabilities
under the Securities Act of 1933. See "Plan of Distribution".
(3) Before deducting estimated expenses of U.S. $445,000 payable by the Company,
including expenses of the Agents to be reimbursed by the Company.
(4) Or its equivalent in any other currency or composite currency.
----------------
Offers to purchase 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. In addition, 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. No termination date for the offering of the Notes has
been established. The Company or the Agents may reject any order as a whole or
in part. See "Supplemental Plan of Distribution".
GOLDMAN, SACHS & CO. J.P. MORGAN & CO.
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The date of this Prospectus Supplement is August 7, 1996.
<PAGE>
IN CONNECTION WITH THE DISTRIBUTION OF THE NOTES, THE AGENTS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS IN THE NOTES WITH A VIEW TO STABILIZING OR MAINTAINING
THE MARKET PRICE OF THE NOTES AT LEVELS OTHER THAN THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN ANY OVER-
THE-COUNTER MARKET OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
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DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY (REFERRED TO IN THE PROSPECTUS AS "OFFERED DEBT SECURITIES") SUPPLEMENTS,
AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE DESCRIPTION OF THE
GENERAL TERMS AND PROVISIONS OF DEBT SECURITIES SET FORTH IN THE PROSPECTUS, TO
WHICH DESCRIPTION REFERENCE IS HEREBY MADE. UNLESS DIFFERENT OR ADDITIONAL TERMS
ARE SPECIFIED IN THE APPLICABLE PRICING SUPPLEMENT TO THIS PROSPECTUS
SUPPLEMENT, THE NOTES WILL HAVE THE TERMS DESCRIBED BELOW, EXCEPT THAT
REFERENCES TO INTEREST PAYMENTS AND INTEREST RELATED INFORMATION DO NOT APPLY TO
ZERO COUPON NOTES. CAPITALIZED TERMS NOT DEFINED HEREIN HAVE THE MEANINGS
ASSIGNED TO SUCH TERMS IN THE PROSPECTUS.
GENERAL
The Notes constitute a single series for purposes of the Indenture, dated as
of March 31, 1990 (the "Indenture"), between The St. Paul Companies, Inc. (the
"Company") and The Chase Manhattan Bank, as trustee (the "Trustee"), and are
limited in amount as set forth on the cover page hereof, less an amount equal to
the aggregate proceeds to the Company from the sale of any other Debt Securities
(as defined in the Prospectus) issued from time to time, including any other
series of medium-term notes. The foregoing limit, however, may be increased by
the Company if in the future it determines that it may wish to sell additional
Notes. For a description of the rights attaching to different series of Debt
Securities under the Indenture, see "Description of Debt Securities" in the
Prospectus.
Unless previously redeemed or repaid, a Note will mature on the date
("Stated Maturity") from 9 months to 20 years from its date of issue that is
specified on the face thereof and in the applicable Pricing Supplement or, if
such Note is a Floating Rate Note and such specified date is not a Market Day
with respect to such Note, the next succeeding Market Day (or, in the case of a
LIBOR Note, if such next succeeding Market Day falls in the next calendar month,
the next preceding Market Day). The "maturity" of any Note refers herein to the
date on which its principal becomes due and payable, whether at Stated Maturity,
upon redemption or repayment, or otherwise.
Each Note will be denominated in a currency or composite currency
("Specified Currency") as specified on the face thereof and in the applicable
Pricing Supplement, which may include U.S. dollars, European Currency Units
("ECUs") or any other currency set forth in the applicable Pricing Supplement.
Purchasers of the Notes are required to pay for them by delivery of the
requisite amount of the Specified Currency to an Agent, unless other
arrangements have been made. Unless otherwise specified in the applicable
Pricing Supplement, payments on the Notes will be made in the applicable
Specified Currency in the country issuing the Specified Currency (or, in the
case of ECUs, in an ECU account), provided that, at the election of the Holder
thereof and in certain circumstances at the option of the Company, payments on
Notes denominated in other than U.S. dollars may be made in U.S. dollars. See
"Payment of Principal and Interest".
Each Note will be represented by either a global security (a "Global
Security") registered in the name of a nominee of the Depositary (each such Note
represented by a Global Security being herein referred to as a "Book-Entry
Note") or a certificate issued in definitive registered form, without coupons (a
"Certificated Note"), as set forth in the applicable Pricing Supplement. Except
as set forth under
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"Book-Entry System" below, Book-Entry Notes will not be issuable in certificated
form. So long as the Depositary or its nominee is the registered owner of any
Global Security, the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the Book-Entry Note or Notes represented
by such Global Security for all purposes under the Indenture and the Book-Entry
Notes. See "Book-Entry System" below.
Unless otherwise specified in the applicable Pricing Supplement, the
authorized denominations of any Note denominated in U.S. dollars will be
$100,000 and integral multiples of $1,000 in excess thereof. The authorized
denominations of any Note denominated in other than U.S. dollars will be the
amount of the Specified Currency for such Note equivalent, at the noon buying
rate in The City of New York for cable transfers for such Specified Currency
(the "Exchange Rate") on the first Business Day next preceding the date on which
the Company accepts the offer to purchase such Note, to U.S. $100,000 (rounded
down to an integral multiple of 1,000 units of such Specified Currency) and any
greater amount that is an integral multiple of 1,000 units of such Specified
Currency.
Notes will be sold in individual issues of Notes having such interest rate
or interest rate formula, if any, Stated Maturity and date of original issuance
as shall be selected by the initial purchasers and agreed to by the Company.
Unless otherwise indicated in the applicable Pricing Supplement, each Note,
except any zero coupon note (a "Zero Coupon Note"), will bear interest at a
fixed rate or at a variable rate determined by reference to one or more of the
Commercial Paper Rate, the Prime Rate, LIBOR, the Treasury Rate, the CD Rate,
the Federal Funds Rate, the CMT Rate or such other interest rate formula as set
forth in the applicable Pricing Supplement, as adjusted by the Spread and/or
Spread Multiplier, if any, applicable to such Note. See "Interest Rate". Zero
Coupon Notes will be issued at a discount from the principal amount payable at
maturity thereof, but holders of Zero Coupon Notes will not receive periodic
payments of interest thereon.
The Notes may be issued as Original Issue Discount Notes. An "Original Issue
Discount Note" is a Note, including any Zero Coupon Note, which is issued at a
price lower than the principal amount thereof and which provides that upon
redemption, repayment or acceleration of the maturity thereof an amount less
than the principal thereof shall become due and payable. In the event of
redemption, repayment or acceleration of the maturity of an Original Issue
Discount Note, the amount payable to the Holder of such Note upon such
redemption, repayment or acceleration will be determined in accordance with the
terms of the Note, but will be an amount less than the amount payable at the
Stated Maturity of such Note. In addition, a Note issued at a discount may, for
United States federal income tax purposes, be considered an original issue
discount note, regardless of the amount payable upon redemption, repayment or
acceleration of maturity of such Note. See "United States Taxation--Original
Issue Discount".
Notes may be issued from time to time as Indexed Notes. "Indexed Notes" are
Notes issued with the principal amount payable at maturity or upon redemption or
repayment, or the amount of interest payable on an interest payment date, to be
determined by reference to a currency exchange rate, a composite currency,
commodity price or other financial or non-financial 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 of such
Notes depending upon the value at maturity of the applicable index. Information
as to the methods for determining the principal amount payable at maturity or
the amount of interest payable on an interest payment date, as the case may be,
any currency or commodity market to which principal or interest is indexed,
foreign exchange risks and certain additional tax considerations with respect to
Indexed Notes will be set forth in the applicable Pricing Supplement.
Notes may be issued from time to time as Amortizing Notes. "Amortizing
Notes" are Notes for which payments of principal and interest are made in
installments over the life of the 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
S-3
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thereof. Further information concerning additional terms and provisions of
Amortizing Notes will be specified in the applicable Pricing Supplement,
including a table setting forth repayment information for such Amortizing Notes.
Unless otherwise specified in the applicable Pricing Supplement the Notes
will not be subject to any sinking fund and, unless an initial date on which a
Note may be redeemed by the Company (a "Redemption Commencement Date") or a date
on which a Note may be repayable at the option of a Holder thereof (a "Repayment
Date") is specified in the applicable Pricing Supplement, will not be redeemable
or repayable prior to their Stated Maturity. If a Redemption Commencement Date
or Repayment Date is so specified with respect to any Note, the applicable
Pricing Supplement will also specify one or more redemption or repayment prices
(expressed as a percentage of the principal amount of such Note) ("Redemption
Prices" or "Repayment Prices", respectively) and the redemption or repayment
period or periods ("Redemption Periods" or "Repayment Periods", respectively)
during which such Redemption Prices or Repayment Prices shall apply. Unless
otherwise specified in the Pricing Supplement, any such Note shall be redeemable
at the option of the Company or repayable at the option of the Holder thereof
(as specified in such Pricing Supplement) at any time on or after such specified
Redemption Commencement Date or Repayment Date, as the case may be, for a
limited period (as specified in such Pricing Supplement) at the specified
Redemption Price or Repayment Price applicable to the Redemption Period or
Repayment Period during which such Note is to be redeemed or repaid, together
with interest accrued to the redemption date or repayment date.
Only the Depositary may exercise the repayment option in respect of
Book-Entry Notes. Accordingly, beneficial owners of Book-Entry Notes that desire
to have all or any portion of the Book-Entry Notes repaid must instruct the
participant through which they own their interest to direct the Depositary to
exercise the repayment option on their behalf by delivering the related global
Note and duly completed election form to the Trustee. In order to ensure that
such global Note 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 Book-Entry Notes 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 Book-Entry Note, on the Depositary's records, to the Trustee.
In the event that the option of the Holder to elect repayment as described
above is deemed to be a "tender offer" within the meaning of Rule 14e-1 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Company will comply with Rule 14e-1 as then in effect to the extent applicable.
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.
The Pricing Supplement relating to each Note will describe the following
terms; (i) the Specified Currency with respect to such Note (and, if such
Specified Currency is other than U.S. dollars, certain other terms relating to
such Note, including the authorized denominations and the Exchange Rate Agent
(as defined below); (ii) the price (expressed as a percentage of the aggregate
principal amount thereof) at which such Note will be issued; (iii) the date on
which such Note will be issued; (iv) the date on which such Note will mature;
(v) whether such Note is Fixed Rate Note or a Floating Rate Note (each term, as
defined below); (vi) if such Note is a Fixed Rate Note, the rate per annum at
which such Note will bear interest, if any, and the interest payment date or
dates, if different from those set forth below; (vii) if such Note is a Floating
Rate Note, the interest rate basis (the "Interest Rate Basis") for each such
Floating Rate Note and, if applicable, the Calculation Agent, the Index
Maturity, the Spread or Spread Multiplier, the Maximum Rate, the Minimum Rate,
the Initial Interest Rate, the Interest Payment Dates, the Regular
S-4
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Record Dates, the Calculation Date, the Interest Determination Date and the
Interest Reset Date (each term, as defined below) with respect to such Floating
Rate Note; (viii) whether such Note is an Original Issue Discount Note, and if
so, the yield to maturity; (ix) whether such Note is an Indexed Note, and if so,
the principal amount thereof payable at Stated Maturity, or the amount of
interest payable on an Interest Payment Date, as determined by reference to the
applicable index, in addition to certain other information relating to the
Indexed Note; (x) whether such Note is an Amortizing Note, and if so, repayment
information with respect to installments of principal and interest; (xi) whether
such Note may be redeemed at the option of the Company, or repaid at the option
of the Holder, prior to the Stated Maturity and, if so, the provisions relating
to such redemption or repayment; (xii) whether such Note will be issued
initially as a Book-Entry Note or a Certificated Note; and (xiii) any other
terms of such Note not inconsistent with the provisions of the Indenture.
Certificated Notes may be presented for registration of transfer or exchange
at the Corporate Trust Office of The Chase Manhattan Bank in the Borough of
Manhattan, The City of New York.
The defeasance and covenant defeasance provisions of the Indenture described
under "Description of Debt Securities--Defeasance" in the Prospectus will apply
to the Notes. Under current federal income tax law, such defeasance and
discharge of the Company's payment obligations with respect to the Notes would
be treated as a taxable exchange of the Notes for an issue of obligations of the
defeasance trust or a direct interest in the cash and securities deposited in
such trust. In that case, beneficial owners of the Notes would recognize gain or
loss as if the trust obligations or the cash or securities deposited, as the
case may be, had actually been received by them in exchange for their Notes. A
beneficial owner thereafter would be required to include in income an amount
that might be different from what would be includible in the absence of
defeasance and discharge. Under current federal income tax law, unless
accompanied by other changes in the terms of the Notes, covenant defeasance
would not be treated as a taxable exchange.
Unless otherwise indicated in a Pricing Supplement, neither the covenants of
the Company under the Indenture nor those contained in the Notes will
necessarily afford Holders of the Notes protection in the event of a highly
leveraged transaction involving the Company, such as a leveraged buyout.
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 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.
FIXED RATE NOTES
Each Fixed Rate Note (except any Zero Coupon Note) will bear interest from
and including its date of issue or from and including the most recent Payment
Date to which interest on such Note has been paid or duly provided for at the
fixed rate per annum stated on the face thereof and in the applicable Pricing
Supplement until the principal thereof is paid or made available for payment.
Unless otherwise specified in the Pricing Supplement, interest on such Fixed
Rate Note will be payable semiannually each May 15 and November 15 (each an
"Interest Payment Date") and at maturity or upon earlier redemption or
repayment. Each payment of interest in respect of an Interest Payment Date will
include interest accrued to but excluding such Interest Payment Date. Interest
on Fixed Rate Notes will be computed on the basis of a 360-day year of twelve
30-day months. Interest will be payable on each Interest Payment Date and at
maturity or upon earlier redemption or repayment as specified below under
"Payment of Principal and Interest".
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from its date of issue, at the
rate per annum determined pursuant to the interest rate formula stated therein
and in the applicable Pricing Supplement until the principal thereof is paid or
made available for payment. Interest will be payable on each Interest Payment
Date and at maturity as specified below under "Payment of Principal and
Interest".
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The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis (the "Interest Rate Basis") for such Floating
Rate Note. The Interest Rate Basis for each Floating Rate Note will be
determined by reference to an Interest Rate Basis which may be adjusted by
adding or subtracting the Spread and/or multiplying by the Spread Multiplier
(each term as defined below). A Floating Rate Note may also have either or both
of the following: (a) a maximum numerical interest rate limitation, or ceiling,
on the rate of interest which may accrue during any interest period (a "Maximum
Rate"); and (b) a minimum numerical interest rate limitation, or floor, on the
rate of interest which may accrue during any interest period (a "Minimum Rate").
The "Spread" is the number of basis points specified in the applicable Pricing
Supplement as being applicable to the interest rate for such Note and the
"Spread Multiplier" is the percentage specified in the applicable Pricing
Supplement as being applicable to the interest rate for such Note. "Index
Maturity" means, with respect to a Floating Rate Note, the period to maturity of
the instrument or obligation on which the interest rate formula is based, as
specified in the applicable Pricing Supplement. Unless otherwise provided in the
applicable Pricing Supplement, The Chase Manhattan Bank will be the calculation
agent (the "Calculation Agent") with respect to the Floating Rate Notes.
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each an "Interest Reset Date"),
as specified in the applicable Pricing Supplement. The Interest Reset Date will
be, in the case of Floating Rate Notes which reset daily, each Business Day; in
the case of Floating Rate Notes (other than Treasury Rate Notes) which reset
weekly, the Wednesday of each week; in the case of Treasury Rate Notes which
reset weekly, the Tuesday of each week (except as provided below); in the case
of Floating Rate Notes which reset monthly, the third Wednesday of each month;
in the case of Floating Rate Notes which reset quarterly, the third Wednesday of
March, June, September and December; in the case of Floating Rate Notes which
reset semi-annually, the third Wednesday of two months of each year as specified
in the applicable Pricing Supplement; and in the case of Floating Rate Notes
which reset annually, the third Wednesday of one month of each year as specified
in the applicable Pricing Supplement; PROVIDED, HOWEVER, that the interest rate
in effect from the date of issue to the first Interest Reset Date with respect
to a Floating Rate Note will be the Initial Interest Rate (as set forth in the
applicable Pricing Supplement). If any Interest Reset Date for any Floating Rate
Note would otherwise be a day that is not a Market Day (as defined below) with
respect to such Floating Rate Note, the Interest Reset Date for such Floating
Rate Note shall be postponed to the next day that is a Market Day with respect
to such Floating Rate Note, except that in the case of a LIBOR Note, if such
Market Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Market Day. As used herein, the term "Market
Day" means (a) with respect to any Note (other than any LIBOR Note), any
Business Day, and (b) with respect to any LIBOR Note, any such Business Day
which is also a London Business Day. The term "London Business Day" means (i) if
the Specified Currency is other than ECU, any day on which dealings in such
Specified Currency are transacted in the London Interbank Market or (ii) if the
Specified 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. The term "Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is (i) not a day on which banking institutions in The
City of New York generally are authorized or obligated by law, regulation or
executive order to close, and (ii) if the Note is denominated in a Specified
Currency (as defined below) other than U.S. dollars, not a day on which banking
institutions are authorized or obligated by law, regulation or executive order
to close in the financial center of the country issuing the Specified Currency
(which in the case of ECUs shall be Luxembourg, in which case "Business Day"
shall not include any day that is a non-ECU clearing day as determined by the
ECU Banking Association in Paris).
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination Date"),
for a Prime Rate Note (the "Prime Rate Interest Determination Date"), for a CD
Rate Note (the "CD Rate Interest Determination Date"), for a Federal Funds Rate
Note (the "Federal Funds Rate Interest Determination Date") and for a CMT Rate
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Note (the "CMT Rate Interest Determination Date") will be the second Market Day
preceding such Interest Reset Date. The Interest Determination Date pertaining
to an Interest Reset Date for a LIBOR Note (the "LIBOR Interest Determination
Date") will be the second London Business Day preceding such Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for a
Treasury Rate Note (the "Treasury Interest Determination Date") will be the day
of the week in which such Interest Reset Date falls on which Treasury bills
would normally be auctioned. Treasury bills are usually sold at auction on the
Monday of each week, unless that day is a legal holiday, in which case the
auction is usually held on the following Tuesday, except that such auction may
be held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the Treasury
Interest Determination Date pertaining to the Interest Reset Date occurring in
the next succeeding week. If an auction date shall fall on any Interest Reset
Date for a Treasury Rate Note, then such Interest Reset Date shall instead be
the first Market Day immediately following such auction date.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upward (e.g., 9.876541% (or .09876541) being rounded to
9.87655% (or .0987655)), and all U.S. dollar amounts used in or resulting from
such calculations will be rounded to the nearest cent (with one half cent being
rounded upwards).
In addition to any maximum interest rate which may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on the
Floating Rate Notes will in no event be higher than the maximum rate permitted
by New York law, as the same may be modified by United States law of general
application. Under present New York law the maximum rate of interest is 25% per
annum on a simple interest basis, with certain exceptions. The limit may not
apply to Floating Rate Notes in which U.S. $2,500,000 or more has been invested.
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.
Upon the request of the Holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect, and, if determined, the
interest rate which will become effective on the next Interest Reset Date with
respect to such Floating Rate Note. The Calculation Agent's determination of any
interest rate will be final and binding in the absence of manifest error.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Commercial Paper Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Interest Reset Date, the Money Market
Yield (calculated as described below) of the per annum rate (quoted on a bank
discount basis) for the relevant Commercial Paper Interest Determination Date
for commercial paper having the specified Index Maturity as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication of the Board of
Governors of the Federal Reserve System ("H.15(519)") under the heading
"Commercial Paper". In the event that such rate is not published prior to 9:00
A.M., New York City time, on the relevant Calculation Date, then the Commercial
Paper Rate with respect to such Interest Reset Date shall be the Money Market
Yield of such rate on such Commercial Paper Interest Determination Date for
commercial paper having the specified Index Maturity as published by the Federal
Reserve Bank of New York in its daily statistical release, "Composite 3:30 P.M.
Quotations for U.S. Government Securities" or any successor publication
published by the Federal Reserve Bank of New York ("Composite Quotations") under
the heading "Commercial Paper". If by 3:00 P.M., New York
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City time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, the Commercial Paper Rate with respect to
such Interest Reset Date shall be calculated by the Calculation Agent and shall
be the Money Market Yield of the arithmetic mean of the offered per annum rates
(quoted on a bank discount basis), as of 11:00 A.M., New York City time, on such
Commercial Paper Interest Determination Date, of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent for
commercial paper of the specified Index Maturity placed for an industrial issuer
whose bond rating is "AA", or the equivalent, from a nationally recognized
rating agency; PROVIDED, HOWEVER, that if fewer than three dealers selected as
aforesaid by the Calculation Agent are quoting as mentioned in this sentence,
the Commercial Paper Rate with respect to such Interest Reset Date will be the
Commercial Paper Rate in effect on such Commercial Paper Interest Determination
Date.
"Money Market Yield" shall be a yield (expressed as a percentage) calculated
in accordance with the following formula:
<TABLE>
<S> <C>
360 X D
Money Market Yield = 100 X
--------------
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 from the Interest Reset Date to but excluding the next
Interest Reset Date, or the maturity, redemption or repayment date, as
appropriate.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the Prime Rate Note and
in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Reset Date, the rate set forth for the
relevant Prime Rate Interest Determination Date in H.15(519) under the heading
"Bank Prime Loan". In the event that such rate is not published prior to 9:00
A.M., New York City time, on the relevant Calculation Date, then the Prime Rate
with respect to such Interest Reset Date will be the arithmetic mean of the
rates of interest publicly announced by each bank that appears on the display
designated as page "USPRIME1" on the Reuters Monitor Money Rates Service (or
such other page as may replace the USPRIME1 page on that service for the purpose
of displaying prime rates or base lending rates of major United States banks)
("Reuters Screen USPRIME1 Page") as such bank's prime rate or base lending rate
as in effect for such Prime Rate Interest Determination Date as quoted on the
Reuters Screen USPRIME1 Page on such Prime Rate Interest Determination Date. If
fewer than four such rates appear on the Reuters Screen NYMF Page on such Prime
Rate Interest Determination Date, the Prime Rate with respect to such Interest
Reset Date will be the arithmetic mean of the prime rates or base lending rates
(quoted on the basis of the actual number of days in the year divided by a
360-day year) as of the close of business on such Prime Rate Interest
Determination Date by three major banks in The City of New York selected by the
Calculation Agent; PROVIDED, HOWEVER, that if fewer than three banks selected as
aforesaid by the Calculation Agent are quoting as mentioned in this sentence,
the Prime Rate with respect to such Interest Reset Date will be the Prime Rate
in effect on such Prime Rate Interest Determination Date.
LIBOR NOTES
LIBOR Notes will bear interest at the interest rates (calculated with
reference to the London interbank offered rate ("LIBOR") and the Spread or
Spread Multiplier, if any), and will be payable on the dates, specified on the
face of the LIBOR Note and in the applicable Pricing Supplement.
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Unless otherwise indicated in the applicable Pricing Supplement, LIBOR, with
respect to any Interest Reset Date, will be determined by the Calculation Agent
in accordance with the following provisions:
(i) With respect to 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 (as defined below) by its terms provides only for a single rate,
in which case such single rate shall be used) for deposits in the Index
Currency 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 of 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 of 11:00 A.M., London time, on such
LIBOR Interest Determination Date. If fewer than two such offered rates
appear, or if it 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) if LIBOR with respect to a LIBOR Interest Determination Date is to
be determined pursuant to this clause (ii), 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 designated in the
applicable Pricing Supplement, commencing on the 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
provided, LIBOR determined on such LIBOR Interest Determination Date will be
the arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR determined on such LIBOR Interest Determination Date will be
the arithmetic mean of the rates quoted at approximately 11:00 A.M., or such
other time specified in the applicable Pricing Supplement, 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 designated 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 on such LIBOR Interest Determination Date
will be LIBOR in effect on such LIBOR Interest Determination Date.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuters Monitor Money Rates
Service (or any successor service) 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.
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
"Principal Financial Center" means the capital city of the country issuing
the currency or composite currency in which any payment in respect of the
relevant Notes is to be made or, solely with respect to
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the calculation of LIBOR, the Index Currency, except that with respect to U.S.
dollars, Deutsche marks, Italian lira, Swiss francs, Dutch guilders and ECUs,
the Principal Financial Center shall be The City of New York, Frankfurt, Milan,
Zurich, Amsterdam and Luxembourg, respectively.
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if any)
and will be payable on the dates specified on the face of the Treasury Rate Note
and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Interest Reset Date, the rate for the auction
on the relevant Treasury Interest Determination Date of direct obligations of
the United States ("Treasury bills") having the specified Index Maturity as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Auction Average (Investment)" or, if not so published by 9:00 A.M., New
York City time, on the relevant Calculation Date, the auction average rate
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) for such auction as otherwise
announced by the United States Department of the Treasury. In the event that the
results of such auction of Treasury bills having the specified Index Maturity
are not published or reported as provided above by 3:00 P.M., New York City
time, on such Calculation Date, or if no such auction is held during such week,
then the Treasury Rate shall be the rate set forth in H.15(519) for the relevant
Treasury Rate Interest Determination Date for the specified Index Maturity under
the heading "U.S. Government Securities/Treasury Bills/ Secondary Market". In
the event such rate is not so published by 3:00 P.M., New York City time, on the
relevant Calculation Date the Treasury Rate with respect to such Interest Reset
Date shall be calculated by the Calculation Agent and shall be a yield to
maturity (expressed as a bond equivalent, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates as of approximately 3:30 P.M., New York City time, on
such Treasury Interest Determination Date, of three primary United States
government securities dealers in The City of New York selected by the
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; PROVIDED, HOWEVER, that if fewer than
three dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the Treasury Rate with respect to such Interest
Reset Date will be the Treasury Rate in effect on such Treasury Interest
Determination Date.
CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any), and will
be payable on the dates, specified on the face of the CD Rate Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Reset Date, the rate for the relevant CD
Interest Determination Date for negotiable certificates of deposit having the
specified Index Maturity as published in H.15(519) under the heading "CDs
(Secondary Market)". In the event that such rate is not published prior to 9:00
A.M., New York City time, on the relevant Calculation Date, then the CD Rate
with respect to such Interest Reset Date shall be the rate on such CD Rate
Interest Determination Date for negotiable certificates of deposit having the
specified Index Maturity as published in Composite Quotations under the heading
"Certificates of Deposit". If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, the CD Rate with respect to such Interest Reset Date shall be
calculated by the Calculation Agent and shall 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 of negotiable
U.S. dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major United States
money market banks with a remaining maturity closest to the specified Index
Maturity in a denomination of U.S. $5,000,000; PROVIDED, HOWEVER, that if fewer
than three dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the CD Rate with respect to such Interest Reset Date
will be the CD Rate in effect on such CD Rate Interest Determination Date.
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FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Federal Funds Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Reset Date, the rate on the
relevant Federal Funds Interest Determination Date for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)". In the
event that such rate is not published prior to 9:00 A.M., New York City time, on
the relevant Calculation Date, then the Federal Funds Rate with respect to such
Interest Reset Date will be the rate on such Federal Funds Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate". If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, the Federal Funds Rate with respect to such Interest Reset Date
shall be calculated by the Calculation Agent and shall be the arithmetic mean of
the rates, as of 9:00 A.M., New York City time, on such Federal Funds Interest
Determination Date, for the last transaction in overnight Federal Funds arranged
by three leading brokers of Federal Funds transactions in The City of New York
selected by the Calculation Agent; PROVIDED, HOWEVER, that if fewer than three
brokers selected as aforesaid by the Calculation Agent are quoting as mentioned
in this sentence, the Federal Funds Rate with respect to such Interest Reset
Date will be the Federal Funds Rate in effect on such Federal Funds Interest
Determination Date.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rates (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any) and
will be payable on the dates specified on the face of the CMT Rate Note and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any CMT Interest Reset Date, the rate displayed on the
Designated CMT Telerate Page (as defined below) 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
(as defined below) for (i) if the Designated CMT Telerate Page is 7055, the rate
on the related CMT Interest Determination Date and (ii) if the Designated CMT
Telerate Page is 7052, the week or the month, as specified in the applicable
Pricing Supplement, ended immediately preceding the week or month (as
applicable) in which the related CMT Interest Determination Date occurs. If such
rate is no longer displayed on the relevant page, or is not displayed prior to
3:00 p.m., New York City time, on the relevant Calculation Date, then the CMT
Rate with respect to such CMT Interest Determination Date will be such Treasury
Constant Maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If such rate is no longer published, or, is not published by
3:00 p.m., New York City time, on such Calculation Date, then the CMT Rate for
such CMT 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 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 for the CMT
Interest Determination Date will be calculated by the Calculation Agent and will
be a yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 p.m., New York City time on
the CMT 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 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
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Maturity Index and a remaining term to maturity of not less than such Designated
CMT Maturity Index minus one year. If the Calculation Agent cannot obtain three
such Treasury notes quotations, the CMT Rate for such CMT Interest Determination
Date will be calculated by the Calculation Agent and will be a yield to maturity
based on the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 p.m., New York City time, on the CMT Interest Determination
Date of three Reference Dealers in The City of New York (from five such
Reference Dealers selected by the Calculation Agent and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the lowest
quotation (or, in the event of equality, one of the lowest)), for Treasury notes
with an original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index and in an amount of at least $100,000,000. If
three or four (and not five) of such Reference Dealers are quoting as described
above, then the CMT Rate will be based on the arithmetic mean of the offer
prices obtained and neither the highest nor the lowest of such quotes will be
eliminated; PROVIDED, HOWEVER, that if fewer than three Reference Dealers
selected by the Calculation Agent are quoting as described herein, the CMT Rate
will be the CMT Rate in effect on such CMT 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 quotes for the Treasury note with the shorter remaining term
to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in 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)), 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 two years.
PAYMENT OF PRINCIPAL AND INTEREST
Payments of principal of (and payment of premium, if any) and interest on
all Book-Entry Notes will be payable in accordance with the procedures described
below under "Book-Entry System". Unless otherwise specified in the applicable
Pricing Supplement, payments of principal (and premium, if any) and interest on
all Fixed Rate Certificated Notes and Floating Rate Certificated Notes will be
made in the applicable Specified Currency; PROVIDED, HOWEVER, that payments of
principal (and premium, if any) and interest on Notes denominated in other than
U.S. dollars will nevertheless be made in U.S. dollars (i) with respect to
Certificated Notes at the option of the Holders thereof under the procedures
described in the two following paragraphs and (ii) with respect to any Notes at
the option of the Company in the case of imposition of exchange controls or
other circumstances beyond the control of the Company as described in the last
paragraph under this heading. If specified in the applicable Pricing Supplement,
the amount of principal payable on the Notes therein described will be
determined by reference to an index or formula described in such Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, and except
as provided in the next paragraph, payments of interest and principal (and
premium, if any) with respect to any Note denominated in other than U.S. dollars
will be made in U.S. dollars if the registered Holder of such Note on the
relevant Regular Record Date or at maturity, redemption or repayment, as the
case may be, has transmitted a written request for such payment in U.S. dollars
to the Trustee at its Corporate Trust Office in The City of New York on or prior
to such Regular Record Date or the date 15 days prior to maturity, redemption or
repayment, as the case may be. Such request may be in writing (mailed or hand
delivered) or by cable, telex or other form of facsimile transmission. Any such
request made with respect to any Note by a registered Holder will remain in
effect with respect to any further payments of interest and principal (and
premium, if any) with respect to such Note payable to such Holder, unless such
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request is revoked on or prior to the relevant Regular Record Date or the date
15 days prior to maturity, redemption or repayment, as the case may be. Holders
of Certificated Notes denominated in other than U.S. dollars whose Notes are
registered in the name of a broker or nominee should contact such broker or
nominee to determine whether and how an election to receive payments in U.S.
dollars may be made.
Unless otherwise specified in the applicable Pricing Supplement, the U.S.
dollar amount to be received by a Holder of a Note (including a Book-Entry Note)
denominated in other than U.S. dollars who elects to receive payment in U.S.
dollars will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent (as defined below) as of 11:00 A.M., New
York City time on the second Business Day next preceding the applicable payment
date from three recognized foreign exchange dealers (one of which may be the
Exchange Rate Agent) for the purchase by the quoting dealer of the Specified
Currency for U.S. dollars for settlement on such payment date in the aggregate
amount of the Specified Currency payable to all Holders of Notes electing to
receive U.S. dollar payments and at which the applicable dealer commits to
execute a contract. If three such bid quotations are not available on the second
Business Day preceding the date of payment of principal (and premium, if any) or
interest with respect to any Note, such payment will be made in the Specified
Currency. All currency exchange costs associated with any payment in U.S.
dollars on any such Note will be borne by the Holder thereof by deductions from
such payment. Unless otherwise provided in the applicable Pricing Supplement,
The Chase Manhattan Bank will be the Exchange Rate Agent (the "Exchange Rate
Agent") with respect to the Notes.
Interest and, in the case of Amortizing Notes, principal will be payable to
the person in whose name a Note is registered (which in the case of Global
Securities representing Book-Entry Notes will be the Depositary or a nominee of
the Depositary) at the close of business on the Regular Record Date next
preceding each Interest Payment Date; PROVIDED, HOWEVER, that interest payable
at maturity, redemption or repayment will be payable to the person to whom
principal shall be payable (which in the case of Global Securities representing
Book-Entry Notes will be the Depositary or a nominee of the Depositary). The
first payment of interest and in the case of Amortizing Notes, principal, on any
Note originally issued between a Regular Record Date and an Interest Payment
Date will be made on the Interest Payment Date following the next succeeding
Regular Record Date to the registered owner on such next succeeding Regular
Record Date. Unless otherwise indicated in the applicable Pricing Supplement,
the "Regular Record Date" with respect to any Floating Rate Note shall be the
date 15 calendar days prior to each Interest Payment Date, whether or not such
date shall be a Market Day, and the "Regular Record Date" with respect to any
Fixed Rate Note shall be the 14 calendar days prior to each Interest Payment
Date, whether or not such date shall be a Market Day.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate Notes
which reset daily, weekly or monthly, on the third Wednesday of each month or on
the third Wednesday of March, June, September and December of each year (as
indicated in the applicable Pricing Supplement); in the case of Floating Rate
Notes which reset quarterly, on the third Wednesday of March, June, September
and December of each year; in the case of Floating Rate Notes which reset
semi-annually, on the third Wednesday of the two months of each year specified
in the applicable Pricing Supplement; and in the case of Floating Rate Notes
which reset annually, on the third Wednesday of the month specified in the
applicable Pricing Supplement (each an "Interest Payment Date"), and in each
case, at maturity, redemption or repayment. If an Interest Payment Date (other
than at maturity, redemption or repayment) with respect to any Floating Rate
Note would otherwise fall on a day that is not a Market Day with respect to such
Note, such Interest Payment Date will be the next succeeding Market Day with
respect to such Note and interest will accrue to such Market Date (or, in the
case of a LIBOR Note, if such day falls in the next calendar month, the next
preceding Market Day). If the maturity date (or date of redemption or repayment)
of any Floating Rate Note falls on a day that is not a Market Day, the required
payment of principal, premium, if any, and interest will be made on the next
succeeding Market Day (or, in the case of a LIBOR Note, if such day falls
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in the next calendar month, the next preceding Market 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 (or date of redemption or repayment) to
the date of such payment on the next succeeding Market Day.
Payments of interest on any Fixed Rate Note or Floating Rate Note with
respect to any Interest Payment Date will include interest accrued to but
excluding such Interest Payment Date or date of maturity, redemption or
repayment, as the case may be.
With respect to a Floating Rate Note, accrued interest from the date of
issue or from the last date to which interest has been paid is calculated by
multiplying the face amount of such Floating Rate Note by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factor
calculated for each day from the date of issue, or from the last date to which
interest has been paid, to but excluding the date for which accrued interest is
being calculated. The interest factor (expressed as a decimal) for each such day
is computed by dividing the interest rate (expressed as a decimal) applicable to
such date by 360, in the case of Commercial Paper Rate Notes, Prime Rate Notes,
LIBOR Notes, CD Rate Notes or Federal Funds Rate Notes, or by the actual number
of days in the year, in the case of Treasury Rate Notes or CMT Rate Notes.
Interest on Fixed Rate Notes will be computed on the basis of a 360-day year of
twelve 30-day months.
If any Interest Payment Date or the maturity date (or the date of redemption
or repayment) 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 (or date of redemption or repayment),
as the case may be, to the date of such payment on the next succeeding Business
Day.
Payment of the principal of (and premium, if any) and any interest due with
respect to any Certificated Note at maturity or upon redemption or repayment to
be made in U.S. dollars will be made in immediately available funds upon
surrender of such Note at the Corporate Trust Office of The Chase Manhattan Bank
in the Borough of Manhattan, The City of New York, provided that the Note is
presented to the Paying Agent in time for the Paying Agent to make such payments
in such funds in accordance with its normal procedures. Payments of interest
with respect to Certificated Notes other than at maturity or upon earlier
redemption or repayment will be made by check mailed to the address of the
Person entitled thereto as it appears in the Security Register or by wire
transfer to such account as may have been appropriately designated by such
Person.
The total amount of any principal, premium, if any, and interest due on any
Global Security representing one or more Book-Entry Notes on any Interest
Payment Date or at maturity or upon a redemption or repayment date will be made
available to the Trustee on such date. As soon as possible thereafter, the
Trustee will make such payments to The Depository Trust Company, New York, New
York (the "Depositary"). The Depositary will allocate such payments to each
Book-Entry Note represented by such Global Security and make payments to the
owners of holders thereof in accordance with its existing operating procedures.
Neither the Company nor the Trustee shall have any responsibility or liability
for such payments by the Depositary. So long as the Depositary or its nominee is
the registered owner of any Global Security, the Depositary or its nominee, as
the case may be, will be considered the sole owner or holder of the Book-Entry
Note or Notes represented by such Global Security for all purposes under the
Indenture and the Book-Entry Notes. The Company understands, however, that under
existing industry practice, the Depositary will authorize the persons on whose
behalf it holds a Global Security to exercise certain rights of holders of
Securities. For a description of payment of principal of and any premium or
interest on Book-Entry Notes, see "Book-Entry System" below.
Unless otherwise specified in the applicable Pricing Supplement, payments of
interest and principal (and premium, if any) with respect to any Certificated
Note to be made in a Specified Currency other than U.S. dollars will be made by
wire transfer in immediately available funds to such account with a bank located
in the country issuing the Specified Currency (or with respect to Notes
denominated in ECUs, in an ECU account) or other jurisdiction acceptable to the
Company and the Trustee as shall have been
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designated at least five days prior to the Interest Payment Date or maturity,
redemption or repayment date, as the case may be, by the registered Holder of
such Note on the relevant Regular Record Date or maturity, redemption or
repayment date, as the case may be, provided that, in the case of payment of
principal of (and premium, if any) and any interest due at maturity, the
Certificated Note is presented to the Paying Agent in time for the Paying Agent
to make such payments in such funds in accordance with its normal procedures.
Such designation shall be made by filing the appropriate information with the
Trustee at its Corporate Trust Office in The City of New York, and, unless
revoked, any such designation made with respect to any Note by a registered
Holder will remain in effect with respect to any further payments with respect
to such Note payable to such Holder. If a payment with respect to any such Note
cannot be made by wire transfer because the required designation has not been
received by the Trustee on or before the requisite date or for any other reason,
a notice will be mailed to the Holder at its registered address requesting a
designation pursuant to which such wire transfer can be made and, upon the
Trustee's receipt of such a designation, such payment will be made within five
days of such receipt. The Company will pay any administrative costs imposed by
banks in connection with making payments by wire transfer, but any tax,
assessment or governmental charge imposed upon payments will be borne by the
Holders of the Notes in respect of which payments are made.
If the principal of (and premium, if any) or interest on any Note (including
any Book-Entry Note) is payable in other than U.S. dollars and such Specified
Currency is not available due to the imposition of exchange controls or other
circumstances beyond the control of the Company, the Company will be entitled to
satisfy its obligations to Holders of the Notes by making such payment in U.S.
dollars on the basis of the most recently available Exchange Rate. Any payment
made under such circumstances in U.S. dollars where the required payment is in
other than U.S. dollars will not constitute an Event of Default under the
Indenture.
BOOK-ENTRY SYSTEM
Upon issuance, all Book-Entry Notes of the same series bearing interest (if
any) at the same rate or pursuant to the same formula, having the same date of
issuance, redemption or repayment provisions, if any, Specified Currency, Stated
Maturity and other terms will be represented by a single Global Security. Each
Global Security representing Book-Entry Notes will be deposited with, or on
behalf of, the Depositary, and will be registered in the name of the Depositary
or a nominee of the Depositary.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit the accounts of persons held with it with
the respective principal or face amount of the Book-Entry Notes represented by
such Global Security. Such accounts shall be designated initially by the Agents
through which the Notes were sold, or by the Company if such Notes are offered
and sold directly by the Company. Ownership of beneficial interests in a Global
Security will be limited to persons that have accounts with the Depositary
("participants") or persons that may hold interests through such participants.
Ownership of beneficial interests by participants in a Global Security will be
shown on, and the transfer of that ownership interest will be effected only
through, records maintained by the Depositary for such Global Security (with
respect to a participant's interest) and records maintained by participants
(with respect to interests of persons other than participants).
Payment of principal of and any premium and interest on Book-Entry Notes
represented by any such Global Security will be made to the Depositary or its
nominee, as the case may be, as the sole registered owner and the sole Holder of
the Book-Entry Notes represented thereby for all purposes under the Indenture.
Neither the Company, the Trustee nor any agent of the Company or the Trustee
will have any responsibility or liability for any aspect of the Depositary's
records relating to or payments made on account of beneficial ownership
interests in a Global Security representing any Book-Entry Notes or for
maintaining, supervising or reviewing any of the Depositary's records relating
to such beneficial ownership interests.
With respect to any Book-Entry Note denominated in a Specified Currency
other than U.S. dollars, the Depositary currently has elected to have payments
of principal (and premium, if any) and interest on such Note made in U.S.
dollars unless notified by any of its participants through which an interest in
such
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Note is held that it elects to receive such payment of principal (or premium, if
any) or interest in such Specified Currency. Unless otherwise specified in the
applicable Pricing Supplement, a beneficial owner of Book-Entry Notes
denominated in a Specified Currency other than U.S. dollars electing to receive
payments of principal or any premium or interest in a currency other than U.S.
dollars must notify the participant through which its interest is held on or
prior to the applicable Record Date, in the case of a payment of interest, and
on or prior to the sixteenth day prior to the maturity, redemption or repayment
date, in the case of principal or premium, of such beneficial owner's election
to receive all or a portion of such payment in such Specified Currency. Such
participant must notify the Depositary of such election on or prior to the third
Business Day in The City of New York after such Record Date or after such
sixteenth day. The Depositary will notify the Trustee of such election on or
prior to the fifth Business Day in The City of New York after such Record Date
or after such sixteenth day. If complete instructions are received by the
participant and forwarded by the participant to the Depositary and by the
Depositary to the Trustee, on or prior to such dates, the beneficial owner will
receive payments in the Specified Currency.
The Company has been advised by the Depositary that upon receipt of any
payment of principal of or any premium or interest on any Global Security, the
Depositary will immediately credit, on its book-entry registration and transfer
system, the accounts of participants with payments in amounts proportionate to
their respective beneficial interests in the principal or face amount of such
Global Security as shown on the records of the Depositary. Payments by
participants to owners of beneficial interests in a Global Security held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for customer accounts
registered in "street name", and will be the sole responsibility of such
participants.
No Global Security may be transferred except as a whole by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor of the Depositary or a nominee of
such successor.
Unless otherwise specified in the applicable Pricing Supplement, a Global
Security representing Book-Entry Notes is exchangeable for Certificated Notes of
the same series and bearing interest (if any) at the same rate or pursuant to
the same formula, having the same rate of issuance, redemption or repayment (if
any), stated maturity and other terms and of differing authorized denominations
aggregating a like amount, only if (x) the Depositary notifies the Company that
it is unwilling or unable to continue as Depositary for such Global Security or
if at any time the Depositary ceases to be a clearing agency registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (y) the
Company in its sole discretion determines that all such Global Securities shall
be exchangeable for Certificated Notes in registered form or (z) there shall
have occurred and be continuing an Event of Default or an event which, with the
giving of notice or lapse of time, or both, would constitute an Event of Default
with respect to the Notes represented by such Global Security. Any Global
Security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for Certificated Notes issuable in denominations of $100,000 and
integral multiples of $1,000 in excess thereof and registered in such names as
the Depositary holding such Global Security shall direct. Such Certificated
Notes shall be registered in the names of the owners of the beneficial interests
in such Global Security as provided by the Depositary's relevant participants
(as identified by the Depositary holding such Global Security). Subject to the
foregoing, the Global Security is not exchangeable, except for a Global Security
of like denomination to be registered in the name of the Depositary or its
nominee.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Book-Entry
Notes represented by such Global Security for the purposes of receiving payment
on the Notes, receiving notices and for all other purposes under the Indenture
and the Notes. Beneficial interests in Book-Entry Notes will be evidenced only
by, and transfers thereof will be effected only through, records maintained by
the Depositary and its participants. Except as provided above, owners of
beneficial interests in a Global Security will not be entitled to and will not
be considered the Holders thereof for any purpose under the Indenture.
Accordingly, each person owning a beneficial
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interest in such a Global Security must rely on the procedures of the Depositary
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a Holder
under the Indenture. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and such laws may impair the ability to transfer beneficial
interests in a Global Security. The Indenture provides that the Depositary may
grant proxies and otherwise authorize participants to give or take any request,
demand, authorization, direction, notice, consent, waiver of other action which
a Holder is entitled to give or take under the Indenture. The Company
understands that under existing industry practices, in the event that the
Company requests any action of Holders or that an owner of a beneficial interest
in such a Global Security desires to give or take any action which a Holder is
entitled to give or take under the Indenture, the Depositary would authorize the
participants holding the relevant beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered under
the Exchange Act. The Depositary was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's 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 Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
UNITED STATES TAXATION
The following summary of the principal United States federal income tax
consequences of ownership of Notes is based upon the opinion of Sullivan &
Cromwell, special United States tax counsel to the Company. It 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, 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. 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.
Additionally, the discussions below under "Original Issue Discount--Notes
Subject to Contingencies Including Optional Redemption" and "Original Issue
Discount--Variable Rate Notes" take into account Treasury regulations that were
issued as final regulations on June 11, 1996 and that will apply to Notes issued
on or after August 13, 1996.
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 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
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the holder's method of accounting for tax purposes. A United States Holder is a
beneficial owner who or that is (i) a citizen or resident of the United States,
(ii) a domestic corporation or (iii) otherwise subject to United States federal
income taxation on a net income basis in respect of the Note.
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. The
applicable Pricing Supplement will contain a discussion of the determination of
the de minimis amount for Amortizing Notes. Unless the election described below
under "Election to Treat All Interest as Original Issue Discount" is made, a
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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 (any such excess being "acquisition premium") and
that does not make the election described below under "Election to Treat All
Interest as Original Issue Discount" is permitted to 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,
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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". 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, the timing and amounts of the
payments that comprise each payment schedule are known as of the issue date, and
one of such schedules is significantly more likely than not to occur, the yield
and maturity of the Note are determined according to that schedule.
Notwithstanding this rule, 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. 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 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.
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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 the electing
United States Holder's adjusted basis in the Note immediately after its
acquisition, 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".
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 zero (.65 for a Note issued on or after
August 13, 1996) but not more than 1.35, or (b) a fixed multiple greater than
zero (.65 for a Note issued on or after August 13, 1996) but not more than 1.35,
increased or decreased by a fixed 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. Under these rules, Commercial Paper Rate Notes, Prime Rate Notes, LIBOR
Notes, Treasury Rate Notes, CD Rate Notes, Federal Funds Rate Notes and CMT Rate
Notes will generally be treated as Variable Rate Notes.
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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 objective rate or 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 substitute 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 (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.
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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, 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".
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" or described in the next
succeeding paragraph or attributable to accrued but unpaid interest, gain or
loss recognized on the sale or retirement of a Note will be capital gain or loss
and will be long-term capital gain or loss if the Note was held for more than
one year.
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. Any 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 be ordinary income or loss.
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INDEXED 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.
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 which is 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 proposed Internal Revenue Service Treasury regulations (the
"Proposed Regulations") would provide alternative methods for satisfying the
certification requirement described in clause (i)(c) above. The Proposed
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. The Proposed Regulations are proposed to be effective for payments
made after December 31, 1997. There can be no assurance that the Proposed
Regulations will be adopted or as to the provisions that they will include if
and when adopted in temporary or final form.
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
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"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.
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 Proposed Regulations for a
description of proposed changes to the certification procedures.
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.
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 OR 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 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
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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
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 depend on economic and
political events 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
other than U.S. dollars against the U.S. dollar would result in a decrease in
the effective yield of such Note below its coupon rate, and in certain
circumstances could result in a loss to the investor on a U.S. dollar basis.
Governments have imposed from time to time and may in the future impose
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency at a Note's maturity. Even if there are no
actual exchange controls, it is possible that the Specified Currency for any
particular Note would not be available at such Note's maturity. In that event,
the Company will repay in U.S. dollars on the basis of the most recently
available Exchange Rate. See "Description of Notes-- Payment of Principal and
Interest".
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Currently, there are limited facilities in the United States for conversion
of U.S. dollars into foreign currencies, and vice versa. Accordingly, payments
on Notes made in a Specified Currency other than U.S. dollars are likely to be
made 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).
See "Description of Notes--Payment of Principal and Interest".
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 in which particular
Notes are denominated. THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS
AND 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 THE 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 INTEREST
ON THE NOTES. SUCH PERSONS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS
WITH REGARD TO SUCH MATTERS.
GOVERNING LAW AND 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 the Notes were commenced in a court
in the United States, it is likely that such court would grant judgment relating
to the Notes only in U.S. dollars. It is not clear, however, whether, in
granting such judgment, the rate of conversion into U.S. dollars would be
determined with reference to the date of default, the date judgment is rendered
or some other date. New York statutory law provides, however, that a court shall
render a judgment in the foreign currency of the underlying obligations and that
the judgment shall be converted into U.S. dollars at the rate of exchange
prevailing on the date of the entry of the judgment.
EXCHANGE RATE AND CONTROLS FOR SPECIFIED CURRENCIES
With respect to any Note denominated in other than U.S. dollars, a Pricing
Supplement including a currency supplement with respect to the applicable
Specified Currency (which supplement shall include information with respect to
applicable current foreign exchange controls, if any), and the relevant
historical exchange rates for the Specified Currency shall constitute a part of
this Prospectus Supplement. The information therein concerning exchange rates is
furnished as a matter of information only and should not be regarded as
indicative of the range of or trends in fluctuations in currency exchange rates
that may occur in the future.
If payment on a Note is required to be made in ECUs and on a payment date
with respect to such Note ECUs are unavailable due to the imposition of exchange
controls or other circumstances beyond the Company's control or are no longer
used in the European Monetary System, then all payments due on such payment date
shall be made in U.S. dollars. The amount so payable on any payment date in ECUs
shall be converted into U.S. dollars at a rate determined by the Exchange Rate
Agent as of the second Business Day prior to the date on which such payment is
due on the following basis: The component currencies of the ECUs for this
purpose (the "Components") shall be the currency amounts that were components of
the ECUs as of the last date on which ECUs were used in the European Monetary
System. The equivalent of ECUs in U.S. dollars shall be calculated by
aggregating the U.S. dollar equivalents of the Components. The U.S. dollar
equivalent of each of the Components shall be determined by the Exchange Rate
Agent on the basis of the most recently available Market Exchange Rate for the
Components, or as otherwise indicated in the applicable Pricing Supplement.
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If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
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 Components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any component currency is divided into two
or more currencies, the amount of that currency as a Component shall be replaced
by amounts of such two or more currencies, each of which shall have a value on
the date of division equal to the amount of the former component currency
divided by the number of currencies into which that currency was divided.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion (except to the extent expressly provided herein or in
the applicable Pricing Supplement that any determination is subject to approval
by the Company) and, in the absence of manifest error, shall be conclusive for
all purposes and binding on Holders of the Notes and the Company, and the
Exchange Rate Agent shall have no liability therefor.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Distribution Agreement,
dated August 7, 1996 (the "Distribution Agreement"), the Notes are being offered
on a continuing basis by the Company through Goldman, Sachs & Co. and J.P.
Morgan Securities 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 as
a whole or in part. The Agents shall have the right, in their discretion
reasonably exercised, to reject any offer to purchase Notes, as a whole or in
part. The Company will pay the Agents a commission of from .125% to .750% of the
principal amount of Notes, depending upon maturity, for sales made through them
as Agents.
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. The Notes may also be sold by the Agents to or through
dealers who may resell to investors. The Agents may reallow all or part of their
commission or discount to such dealers. Such dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 (the "Act"). The
Company reserves the right to sell Notes directly on its own behalf. No
commission will be payable on any Notes sold directly by the Company.
The Agents, as agents or principals, may be deemed to be "underwriters"
within the meaning of the Act. The Company has agreed to indemnify the Agents
against certain liabilities, including liabilities under the Act. The Company
has agreed to reimburse the Agents for certain expenses.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of the Notes shall be made in immediately available funds in
The City of New York.
Goldman, Sachs & Co. performs various investment banking services for the
Company. In the ordinary course of their respective businesses, affiliates of
J.P. Morgan Securities Inc. have engaged, and will in the future engage, in
commercial banking and investment banking transactions with the Company or its
affiliates.
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.
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VALIDITY OF NOTES
Certain legal matters relating to the validity of the Notes will be passed
upon for the Company by Andrew Ian Douglass, Senior Vice President and General
Counsel of the Company, and for the Agents by Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004. As of July 31, 1996, Mr. Douglass owned,
directly and indirectly, 13,099 shares of the Company's common stock,
exercisable options to purchase 17,000 additional shares and the right to
acquire 297 shares of the Company's common stock upon conversion of 350 Monthly
Income Preferred Securities issued by a subsidiary of the Company. The opinions
of Mr. Douglass and Sullivan & Cromwell will be based upon, and subject to,
certain assumptions as to future actions required to be taken in connection with
the issuance and sale of Notes and as to other events which may affect the
validity of Notes but which cannot be ascertained on the date of such opinions.
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THE ST. PAUL COMPANIES, INC.
DEBT SECURITIES
-----------
The St. Paul Companies, Inc. 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
$275,000,000 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 (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 and the initial
public offering price and any other terms in connection with the offering and
sale of such 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. See
"Plan of Distribution". Such underwriters may include Goldman, Sachs & Co. and
J. P. Morgan Securities Inc., or may be a group of underwriters represented by
firms including Goldman, Sachs & Co. and J. P. Morgan Securities Inc. Goldman,
Sachs & Co. and J. P. Morgan Securities Inc. may also act as agents. 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.
This Prospectus may not be used to consummate the sale of these Debt
Securities unless accompanied by a Prospectus Supplement.
--------------
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. J. P. MORGAN & CO.
---------
The date of this Prospectus is August 6, 1996.
<PAGE>
AVAILABLE INFORMATION
The St. Paul Companies, Inc. (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 and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements and other information may also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, on which exchange the common stock of the Company is
traded.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"). This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement.
--------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus:
1. The Annual Report on Form 10-K for the year ended December 31, 1995;
2. The Current Reports on Form 8-K dated January 29, 1996, June 18, 1996
and July 29, 1996; and
3. The Quarterly Report on Form 10-Q for the period ended March 31, 1996.
All documents filed by the Company pursuant to Section 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 Debt Securities shall be deemed to be
incorporated by reference into this Prospectus and to be part hereof from the
respective dates of filing of such documents. Any statement contained herein or
in a document all or any portion of which is incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (not
including exhibits to the documents incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
the Registration Statement incorporates). Requests for such copies should be
directed to Bruce A. Backberg, Vice President and Corporate Secretary, The St.
Paul Companies, Inc., 385 Washington Street, St. Paul, Minnesota 55102,
telephone number (612) 310-7916.
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$" or "dollars").
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<PAGE>
THE COMPANY
The St. Paul Companies, Inc. (the "Company") is a management company
principally engaged, through its subsidiaries, in three industry segments:
property-liability insurance and reinsurance underwriting (primarily through its
wholly-owned subsidiary, St. Paul Fire and Marine Insurance Company), insurance
brokerage (primarily through its brokerage subsidiary, Minet) and investment
banking-asset management (through its 78 percent interest in The John Nuveen
Company). As a management company, the Company oversees the operations of its
subsidiaries and provides them with capital and management and administrative
services. According to industry statistics published by A.M. Best relating to
property liability insurers doing business in the United States, the Company's
underwriting operations ranked 14th on the basis of 1995 written premiums. At
May 31, 1996, the Company and its subsidiaries employed approximately 12,300
persons. The Company's primary business is insurance underwriting, which
accounted for 89% of consolidated revenues in 1995. Insurance brokerage and
investment banking-asset management operations accounted for approximately 7%
and 4% of consolidated revenues, respectively, in 1995.
The Company's principal and registered executive offices are located at 385
Washington Street, St. Paul, Minnesota 55102, and its telephone number is (612)
310-7911. Unless the context otherwise indicates, the term "Company" means The
St. Paul Companies, Inc. and its consolidated subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES OF THE COMPANY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
THREE MONTHS ENDED -----------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................ 10.58 10.64 9.99 8.96 --* 9.06
</TABLE>
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* The 1992 loss was inadequate to cover fixed charges by $229.6 million.
Earnings consist of income before income taxes plus fixed charges, net of
capitalized interest. Fixed charges consist of interest expense before reduction
for capitalized interest and one-third of rental expense, which is considered to
be representative of an interest factor.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying Prospectus Supplement, the net
proceeds from the sale of the Debt Securities will be used for general corporate
purposes, which may include working capital, capital expenditures, the
repurchase of shares of common stock, the repayment of short-term borrowings or
acquisitions.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of March
31, 1990 (the "Indenture"), between the Company and The Chase Manhattan Bank, as
Trustee (the "Trustee"), which is an exhibit to the Registration Statement. The
following summaries of certain provisions of the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indenture, including the definitions therein of
certain terms. Wherever particular Sections or defined terms of the Indenture
are referred to, such Sections or defined terms are incorporated herein by
reference.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement (the "Offered Debt Securities") will be described
in the Prospectus Supplement relating to such Offered Debt Securities (the
"Applicable Prospectus Supplement").
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<PAGE>
GENERAL
The Indenture will not limit the amount of Debt Securities which may be
issued thereunder and Debt Securities may be issued thereunder from time to time
in one or more series. The Debt Securities will be unsecured and unsubordinated
obligations of the Company and will rank equally and ratably with other
unsecured unsubordinated obligations of the Company.
Unless otherwise indicated in the Applicable Prospectus Supplement,
principal of, premium, if any, and interest on the Debt Securities will be
payable, and the transfer of Debt Securities will be registrable, at the office
or agency of the Company in the Borough of Manhattan, The City of New York,
maintained for such purpose and at any other office or agency maintained by the
Company for such purpose, except that, at the option of the Company, interest
may be paid by mailing a check to the address of the Person entitled thereto as
it appears on the Security Register. (Sections 301, 305 and 1002) The Debt
Securities will be issued only in fully registered form without coupons and,
unless otherwise indicated in the Applicable Prospectus Supplement, in
denominations of $1,000 or integral multiples thereof. (Section 302) No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith. (Section 305)
The Applicable Prospectus Supplement will describe the following terms 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 date or dates on which the Offered Debt Securities will mature; (4) the rate
or rates (which may be fixed or variable) per annum at which the Offered Debt
Securities will bear interest, if any, and the date or dates from which such
interest, if any, will accrue; (5) the dates on which such interest, if any, on
the Offered Debt Securities will be payable and the Regular Record Dates for
such Interest Payment Dates; (6) any mandatory or optional sinking funds or
analogous provisions or provisions for redemption at the option of the Holder;
(7) the date, if any, after which and the price or prices at which the Offered
Debt Securities may, pursuant to any optional or mandatory redemption
provisions, be redeemed and the other detailed terms and provisions of any such
optional or mandatory redemption provision; (8) if other than denominations of
$1,000 and any integral multiple thereof, the denominations in which the Offered
Debt Securities will be issuable; (9) if other than the principal amount
thereof, the portion of the principal amount of the Offered Debt Securities
which will be payable upon the declaration of acceleration of the Maturity
thereof; (10) the currency of payment of principal, premium, if any, and
interest on the Offered Debt Securities; (11) any index used to determine the
amount of payment of principal of, premium, if any, and interest on the Offered
Debt Securities; (12) the applicability of the provisions described under
"Defeasance"; (13) if the Offered Debt Securities will be issuable only in the
form of a Global Security as described under "Book-Entry Debt Securities", the
Depository or its nominee with respect to the Offered Debt Securities and the
circumstances under which the Global Security may be registered for transfer or
exchange in the name of a Person other than the Depository or its nominee; and
(14) any other terms of the Offered Debt Securities. (Section 301)
The Debt Securities may be issued as Original Issue Discount Debt Securities
to be offered and sold at a substantial discount below their stated principal
amount. Federal income tax consequences and other special considerations
applicable to any such Original Issue Discount Debt Securities will be described
in the Applicable Prospectus Supplement. "Original Issue Discount Debt
Securities" means any security which provides for an amount less than the
principal amount thereof to be due and payable upon the declaration of
acceleration of the Maturity thereof upon the occurrence of an Event of Default
and the continuation thereof. (Section 101)
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities that will be deposited with a Depository or its nominee
identified in the Applicable Prospectus Supplement. 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. Unless and until it is exchanged in whole or in part for
4
<PAGE>
Debt Securities in definitive registered form, a Global Security may not be
registered for transfer or exchange except as a whole by the Depository for such
Global Security to a nominee of such Depository and 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 Global Security will be
described in the Applicable Prospectus Supplement.
LIMITATION ON LIENS
The Indenture will contain a covenant that the Company will not, and will
not permit any Designated Subsidiary to, directly or indirectly, create, issue,
assume, incur or guarantee any indebtedness for money borrowed which is secured
by a mortgage, pledge, lien, security interest or other encumbrance of any
nature on any of the Voting Stock of a Designated Subsidiary unless the
Outstanding Securities (together with, if the Company so elects, any other
indebtedness of the Company or such Designated Subsidiary then existing or
thereafter created which is not subordinate to the Outstanding Securities) shall
be secured equally and ratably with (or prior to) such secured indebtedness for
money borrowed so long as such secured indebtedness for money borrowed shall be
so secured. (Section 1007) This covenant will not prevent the sale or other
disposition of a Designated Subsidiary.
For purposes of such covenant, "Voting Stock" will mean all classes of stock
(including any and all shares, interests, participations or other equivalents
(however designated) of corporate stock) then outstanding of a Designated
Subsidiary normally entitled to vote in elections of directors. For purposes of
such covenant, "Designated Subsidiary" will mean St. Paul Fire and Marine
Insurance Company and any other Subsidiary the assets of which, determined as of
the last day of the most recent calendar quarter ended at least 30 days prior to
the date of such determination and in accordance with generally accepted
accounting principles as in effect on the last day of such calendar quarter,
exceed 20% of the Consolidated Assets of the Company. As of the date of this
Prospectus, there were no Subsidiaries of the Company, other than St. Paul Fire
and Marine Insurance Company, with assets, determined in accordance with
generally accepted accounting principles as in effect on that date, in excess of
20% of the Consolidated Assets of the Company. For purposes of such covenant,
"Consolidated Assets of the Company" will mean the assets of the Company and its
consolidated subsidiaries, to be determined as of the last day of the most
recent calendar quarter ended at least 30 days prior to the date of such
determination and in accordance with generally accepted accounting principles as
in effect on the last day of such calendar quarter. (Section 1007)
Additional restrictive covenants may be included in the terms of any series
of Securities.
EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the Indenture with respect to Securities of any series: (1) failure to pay
principal of or any premium on any Debt Security of that series when due; (2)
failure to pay any interest on any Debt Security of that series when due,
continued for 30 days; (3) failure to deposit any sinking fund payment, when
due, in respect of any Debt Security of that series; (4) failure to perform any
other covenants or warranties of the Company in the Indenture (other than a
covenant included in the Indenture solely for the benefit of a series of Debt
Securities thereunder other than that series) continued for 60 days after
written notice as provided in the Indenture; (5) acceleration of any
indebtedness for money borrowed in excess of $10,000,000 by the Company
(including an acceleration with respect to the Debt Securities of any series
other than that series), if such indebtedness is not discharged, or such
acceleration is not annulled, within 10 days after written notice as provided in
the Indenture; (6) certain events of bankruptcy, insolvency or reorganization of
the Company; and (7) any other Event of Default provided with respect to Debt
Securities of that series. (Section 501)
If any Event of Default with respect to the Debt Securities of any series at
the time Outstanding occurs and is continuing, either the Trustee or the Holders
of at least 25 percent in aggregate principal amount of the Outstanding Debt
Securities of that series may declare the principal amount (or, if the Debt
5
<PAGE>
Securities of that series are Original Issue Discount Debt Securities, such
portion of the principal amount as may be specified in the terms thereof) of all
the Debt Securities of that series to be due and payable immediately. At any
time after a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree based on acceleration has
been obtained, the Holders of a majority in aggregate principal amount of
Outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. (Section 502)
Reference is made to the Applicable Prospectus Supplement relating to any
series of Offered Debt Securities that are Original Issue Discount Debt
Securities for the particular provisions relating to acceleration of the Stated
Maturity of a portion of the principal amount of such series of Original Issue
Discount Debt Securities upon the occurrence of an Event of Default and the
continuation thereof.
The Indenture will provide that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. (Section 603) Subject to such
provisions for the indemnification of the Trustee and to certain other
conditions, the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Securities of that series. (Section 512)
No Holder of any series of Debt Securities 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 and unless the Holders of at least 25 percent in
aggregate principal amount of the Outstanding Debt Securities of that 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 that 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 a Debt Security for enforcement of payment of the principal of and
premium, if any, or interest on such Debt Security on or after the respective
due dates expressed in such Debt Security. (Section 508)
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 1008)
MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than two-thirds in
aggregate principal amount of the Outstanding Debt Securities of each series
issued under the Indenture and affected by the modification or amendments;
provided, however, that no such modification or amendment may, without the
consent of the Holders of all Debt Securities affected thereby, (1) change the
Stated Maturity of the principal of, or any installment of principal of or
interest on, any Debt Security; (2) reduce the principal amount of, or the
premium, if any, or interest on, any Debt Security (including in the case of an
Original Issue Discount Debt Security the amount payable upon acceleration of
the maturity thereof); (3) change the place or currency of payment of principal
of or interest on any Debt Security; (4) impair the right to institute suit for
the enforcement of any payment on any Debt Security on or at the Stated Maturity
thereof (or in the case of redemption, on or after the Redemption Date); or (5)
reduce the percentage in principal amount of Outstanding Debt Securities of any
series, the consent of whose Holders is required for modification or amendment
of the Indenture or for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults. (Section 902)
The Holders of at least a majority in 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
6
<PAGE>
restrictive provisions of the Indenture. (Section 1009) The Holders of a
majority in aggregate principal amount of the Outstanding Debt Securities of any
series may, on behalf of all Holders of that series, waive any past default
under the Indenture, except a default in the payment of principal, premium or
interest and in respect of a covenant or provision of the Indenture that cannot
be modified or amended without the consent of the Holder of each Outstanding
Debt Security of such series affected thereby. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the Debt
Securities under the Indenture, may consolidate with or merge into any other
Person or transfer or lease its assets substantially as an entirety to any
Person or may permit any Person to merge into or consolidate with the Company if
(1) any such successor or purchaser is a corporation, partnership or trust
organized under the laws of any domestic jurisdiction, (2) any such successor or
purchaser assumes the Company's obligations on the Debt Securities and under the
Indenture, (3) after giving effect to the transaction no Event of Default, and
no event which, after notice or lapse of time, would become an Event of Default,
shall have occurred and be continuing, and (4) certain other conditions are met.
(Section 801)
DEFEASANCE
The Indenture will provide that the Company, at the Company's option, (1)
will be discharged from any and all obligations in respect of the Debt
Securities of any series (except for certain obligations to register the
transfer or exchange of Debt Securities of such series, replace stolen, lost or
mutilated Debt Securities of such series, maintain paying agencies and hold
moneys for payment in trust) or (2) need not comply with certain restrictive
covenants of the Indenture, including that described under "Limitation on
Liens", in each case if the Company deposits in trust with the Trustee money or
U.S. Government Obligations which, through the payment of interest thereon and
principal thereof in accordance with their terms, will provide money in an
amount sufficient to pay all the principal of (and premium, if any) and interest
on the Debt Securities of such series on the dates such payments are due (which
may include one or more redemption dates designated by the Company) in
accordance with the terms of the Debt Securities of such series. Such a trust
may only be established if, among other things, (i) 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, (ii) such deposit will not cause the Trustee to have any
conflicting interest with respect to other securities of the Company, and (iii)
the Company shall have delivered an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for Federal income tax purposes
as a result of such deposit or defeasance and will be subject to Federal income
tax in the same manner as if such defeasance had not occurred. In the event the
Company omits to comply with its remaining obligations under the Indenture after
a defeasance of the Indenture with respect to the Debt Securities of any series
as described under clause (2) above and the Debt Securities of such series 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. However, the
Company will remain liable in respect of such payments. (Article Thirteen)
CONCERNING THE TRUSTEE
The Chase Manhattan Bank, the Trustee under the Indenture, has a $40 million
participation under a Credit Agreement among the Company and certain banks named
therein providing for aggregate borrowings by the Company thereunder of a
maximum of $400 million, none of which was outstanding at July 31, 1996.
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<PAGE>
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 J. P. Morgan Securities Inc.
or a group of underwriters represented by firms including Goldman, Sachs & Co.
and J. P. Morgan Securities Inc. Goldman, Sachs & Co. and J. P. Morgan
Securities Inc. may also act as agents. Goldman, Sachs & Co. and J. P. Morgan
Securities Inc. have from time to time acted as financial advisers to the
Company and received customary fees for those services.
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 Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the Applicable 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.
The Debt Securities, when first issued, will have no established trading
market. Any underwriters or agents to or through whom Debt Securities are sold
by the Company for public offering and sale may make a market in such Debt
Securities, but such underwriters or agents will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for any Debt Securities.
VALIDITY OF DEBT SECURITIES
The validity of the Debt Securities will be passed upon for the Company by
Andrew Ian Douglass, Senior Vice President and General Counsel of the Company,
St. Paul, Minnesota, and for the underwriters or agents, as the case may be, by
Sullivan & Cromwell, New York, New York. Sullivan & Cromwell may rely as to
matters of Minnesota law upon the opinion of Mr. Douglass. Sullivan & Cromwell
have from time to time rendered certain legal services to the Company.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1994, and for each of the years in the three-year period ended December 31,
1995, and the related financial statement schedules, are incorporated by
reference herein from the Company's Annual Report on Form 10-K. Such
consolidated financial statements and related financial statement schedules have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
as stated in their reports incorporated by reference herein, and have been
incorporated by reference herein in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing. The reports of KPMG
Peat Marwick LLP on the December 31, 1995 consolidated financial statements and
the related financial statement schedules refer to a change in the method of
accounting for certain investments.
8
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN ANY PRICING SUPPLEMENT, THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. ANY
PRICING SUPPLEMENT, THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS 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 ANY PRICING SUPPLEMENT, THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
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 THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Description of Notes.......................... S-2
United States Taxation........................ S-17
Risks Relating to Indexed Notes............... S-25
Foreign Currency Risks........................ S-26
Supplemental Plan of Distribution............. S-28
Validity of Notes............................. S-29
PROSPECTUS
Available Information......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
The Company................................... 3
Ratio of Earnings to Fixed Charges of the
Company...................................... 3
Use of Proceeds............................... 3
Description of Debt Securities................ 3
Plan of Distribution.......................... 8
Validity of Debt Securities................... 8
Experts....................................... 8
</TABLE>
$275,000,000
THE ST. PAUL COMPANIES, INC.
MEDIUM-TERM NOTES, SERIES C
DUE FROM 9 MONTHS TO 20 YEARS
FROM DATE OF ISSUE
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[LOGO]
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GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
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