<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration No. 33-55953
PROSPECTUS SUPPLEMENT
(To Prospectus Dated May 24, 1995)
$700,000,000
Avco Financial Services, Inc.
MEDIUM-TERM NOTES, SERIES G
------------------------
Due From More Than Nine Months to Ten Years From Date of Issue
------------------------
Avco Financial Services, Inc. (the "Company") may from time to time offer
its Medium-Term Notes, Series G (the
"Notes") with an aggregate initial public offering price or purchase price of up
to $700,000,000, (subject to increase from time to time to such larger amount as
may be authorized by the Company).
Each Note will mature on any day from more than nine months to ten years
from its date of issue, as selected by the purchaser and agreed to by the
Company, and may be subject to redemption prior to maturity at the option of the
Company or repayment prior to maturity at the option of the holder. Each Note
will bear interest at a fixed rate (a "Fixed Rate Note"), which may be zero in
the case of certain Original Issue Discount Notes, or at a floating rate (a
"Floating Rate Note") determined by reference to the CD Rate, the Federal Funds
Rate, LIBOR, the Commercial Paper Rate, the Prime Rate, the Treasury Rate or any
other Base Rate, as selected by the purchaser and agreed to by the Company,
adjusted by the Spread or Spread Multiplier, if any, applicable to such Note.
Unless otherwise indicated, interest on each Fixed Rate Note will be payable
semi-annually in arrears on each May 1 and November 1 and at Maturity. The
interest rate or interest rate formula, Issue Price, Maturity Date, Interest
Payment Dates, redemption provisions and certain other terms with respect to
each Note will be established at the time of issuance and set forth in a pricing
supplement to this Prospectus Supplement (a "Pricing Supplement").
Each Note will be represented either by a Global Security registered in the
name of a nominee of The Depository Trust Company, as Depositary (a "Book-Entry
Note"), or by a certificate issued in definitive form (a "Certificated Note"),
as set forth in the applicable Pricing Supplement. Beneficial interests in
Global Securities representing Book-Entry Notes will be shown on and transfers
thereof will be effected only through, records maintained by the Depositary and
its participants. Book-Entry Notes will not be issuable as Certificated Notes
except under the circumstances described herein. Unless otherwise specified in
the applicable Pricing Supplement, the Notes will be issued only in
denominations of $1,000 and any multiple of $1,000.
------------------------
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.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............... 100% .125%-.600% 99.400%-99.875%
Total.................. $700,000,000 $875,000-$4,200,000 $695,800,000-$699,125,000
</TABLE>
- ------------
(1) The Notes will be sold at 100% of their principal amount except as may
be provided in the applicable Pricing Supplement.
(2) The Company will pay to Morgan Stanley & Co. Incorporated, Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, or Salomon
Brothers Inc (each an "Agent," collectively the "Agents"), a commission
ranging from .125% to .600%, depending upon the maturity of the Note, of
the principal amount of any Note sold through such Agent. The Company
may also sell Notes to any Agent, as principal, at a discount for resale
to investors and other purchasers at varying prices related to
prevailing market prices at the time of resale, to be determined by such
Agent, or, if so agreed, at a fixed public offering price.
(3) Before deducting other expenses payable by the Company estimated to be
$997,000, including reimbursement of certain of the Agents' expenses.
The Company has agreed to indemnify each Agent against certain
liabilities, including liabilities under the Securities Act of 1933.
------------------------
The Notes are being offered on a continuous basis by the Company through
the Agents, each of whom has agreed to use its reasonable efforts to solicit
purchases of such Notes. In addition, the Notes may also be sold to the Agents,
as principals, for resale to investors and other purchasers. The Company also
may sell the Notes directly to investors on its behalf. The Notes will not be
listed on any securities exchange, and there can be no assurance that the Notes
offered by this Prospectus Supplement will be sold or that there will be a
secondary market for any of the Notes. The Company reserves the right to
withdraw, cancel or modify the offer made hereby without notice. The Company or
the Agent who solicits any offer may reject such offer in whole or in part. See
"Plan of Distribution".
------------------------
MORGAN STANLEY & CO.
Incorporated
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
June 27, 1995
<PAGE> 2
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus Supplement
(including the accompanying Pricing Supplement) or the Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized. This Prospectus Supplement (including the accompanying Pricing
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 (including the accompanying Pricing
Supplement) or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus Supplement (including the accompanying
Pricing Supplement) or the Prospectus nor any sale made hereunder or thereunder
shall, under any circumstances, create any implication that the information
contained herein or therein is correct as of any time subsequent to the date of
such information.
------------------------
SUMMARY OF FINANCIAL INFORMATION
The following summary of certain financial information of the Company and
its consolidated subsidiaries has been derived principally from information
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and its Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1995 (which are incorporated by reference herein) and is
qualified in its entirety by the detailed information and financial statements
set forth therein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------ --------------------
1990(A) 1991(A) 1992(A) 1993(A) 1994 1994 1995
---------- ---------- ---------- ---------- ---------- -------- --------
(THOUSANDS OF DOLLARS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES AND EARNINGS
Revenues.......................... $1,251,600 $1,321,823 $1,340,834 $1,324,064 $1,388,234 $327,566 $397,595
========== ========== ========== ========== ========== ========= =========
Income Before Income Taxes........ $ 189,052 $ 196,886 $ 203,913 $ 225,784 259,110 61,886 69,678
Income taxes...................... 71,177 72,286 75,887 83,755 96,781 23,061 26,349
---------- ---------- ---------- ---------- ---------- -------- --------
Income before cumulative effect of
changes in accounting
principles...................... 117,875 124,600 128,026 142,029 162,329 38,825 43,329
Cumulative effect of changes in
accounting principles(b)........ (24,328)
---------- ---------- ---------- ---------- ---------- -------- --------
Net Income(c)............ $ 117,875 $ 124,600 $ 103,698 $ 142,029 $ 162,329 $ 38,825 $ 43,329
========== ========== ========== ========== ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
------------ ----------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
FINANCIAL CONDITION
Receivables outstanding................................................................ $6,336,368 $6,912,611
Investments............................................................................ 704,244 760,003
Consolidated assets.................................................................... 7,038,291 7,660,441
Debt (excludes savings deposits)
Commercial paper and banks......................................................... 2,430,291 2,665,392
Notes.............................................................................. 3,168,178 3,539,801
Stockholder's equity................................................................... 893,744 925,394
</TABLE>
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NOTES TO SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<S> <C>
(a) Certain reclassifications have been made to conform with current year presentation.
(b) Effective at the beginning of 1992, the Company adopted Statements of Financial
Accounting Standards numbers 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", and 109, "Accounting for Income Taxes".
(c) The ratios of earnings to fixed charges for the five years ended December 31, 1994 and
the three months ended March 31, 1995 are set forth in the Prospectus under the heading
"The Company -- Ratio of Earnings to Fixed Charges".
</TABLE>
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DESCRIPTION OF THE NOTES
The information herein concerning the Notes should be read in conjunction
with the statements under "Description of Debt Securities" in the Prospectus.
The following description will apply to the Notes unless otherwise specified in
the applicable Pricing Supplement.
GENERAL
The Notes will be issued under an indenture dated as of September 15, 1992
(the "Indenture"), between the Company and The First National Bank of Chicago as
Trustee. The Company has authorized the offering and sale pursuant to this
Prospectus Supplement of Notes having an aggregate initial public offering price
or purchase price of up to $700,000,000, subject to increase from time to time
to such larger amount as may be authorized by the Company, as an extension of
the original offering of the Notes. The Notes will constitute part of the senior
debt of the Company and will rank equally with all other unsecured debt of the
Company except subordinated debt.
The Notes will be offered on a continuous basis and will mature on any
Business Day from more than nine months to ten years from the date of issue, as
selected by the purchaser and agreed to by the Company, and may be subject to
redemption or repayment prior to maturity at the price or prices specified in
the applicable Pricing Supplement. Each Note will bear interest at either (i) a
fixed rate (a "Fixed Rate Note"), which may be zero in the case of certain
Original Issue Discount Notes (as defined below) issued at an Issue Price (as
defined below) representing a discount from the principal amount payable at
maturity, or (ii) a floating rate determined by reference to the interest rate
basis or combination of interest rate bases (the "Base Rate") specified in the
applicable Pricing Supplement (a "Floating Rate Note") that may be adjusted by a
Spread or Spread Multiplier (each as defined below).
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note in fully registered form without coupons. Except as set forth
below under "Book-Entry Notes", Book-Entry Notes will not be issuable in
certificated form.
Unless otherwise specified in the applicable Pricing Supplement, the
authorized denominations of the Notes will be $1,000 or any multiple of $1,000.
"Business Day" means any day, other than a Saturday or Sunday, that is (a)
not a day on which banking institutions are authorized or required by law or
regulation to be closed in The City of New York and (b) with respect to LIBOR
Notes, a London Banking Day. "London Banking Day" means any day on which
dealings in deposits in U.S. dollars are transacted in the London interbank
market.
"Original Issue Discount Note" means (i) a Note, including any Note whose
interest rate is zero, that has a stated redemption price at maturity that
exceeds its Issue Price (as defined below) by at least 0.25% of its principal
amount, multiplied by the number of full years from the Original Issue Date (as
defined below) to the Maturity Date (as defined below) for such Note and (ii)
any other Note designated by the Company as issued with original issue discount
for United States federal income tax purposes.
The Pricing Supplement relating to each Note will describe the following
terms: (1) whether such Note is a Fixed Rate Note or a Floating Rate Note; (2)
the price at which such Note will be issued (the "Issue Price"); (3) the date on
which such Note will be issued (the "Original Issue Date"); (4) the date on
which such Note will mature (the "Maturity Date"); (5) if such Note is a Fixed
Rate Note, the rate per annum at which such Note will bear interest, if any; (6)
if such Note is a Floating Rate Note, the Base Rate, the Initial Interest Rate,
the Interest Reset Period, the Interest Reset Dates, the Interest Payment
Period, the Interest Payment Dates, the Index Maturity, the Maximum Interest
Rate and the Minimum Interest Rate, if any, and the Spread or Spread Multiplier,
if any, (all as defined below) and any other terms relating to the particular
method of calculating the interest rate for such Note; (7) if such Note is an
Indexed Note (as defined below), the manner in which the principal amount of
such Note payable at stated maturity will be determined; (8) whether such Note
may be redeemed at the option of the Company or repaid at the option of the
holder prior to the Maturity Date and, if so, the provisions relating to such
redemption or repayment; (9) whether
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<PAGE> 5
such Note will be issued initially as a Book-Entry Note or a Certificated Note;
and (10) any other terms of such Note not inconsistent with the provisions of
the Indenture.
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, payments
of interest on Notes (other than interest payable at maturity or upon earlier
redemption or repayment) will be made, except as provided below, in the case of
Certificated Notes, by mailing a check to the holder at the address of such
holder appearing on the Securities Register on the applicable record date or, in
the case of Global Securities representing Book-Entry Notes, by wire transfer to
a nominee of The Depository Trust Company, New York, New York, as Depositary
(the "Depositary"); provided, however, that in the case of a Note issued between
a Record Date and the related Interest Payment Date, interest for the period
beginning on the Original Issue Date for such Note and ending on such Interest
Payment Date shall be paid on the next succeeding Interest Payment Date to the
registered Holder of such Note on the related Record Date. A holder of
$10,000,000 or more in aggregate principal amount of Certificated Notes of like
tenor and terms shall be entitled to receive such payments by wire transfer of
immediately available funds, but only if appropriate payment instructions have
been received in writing by the Paying Agent not less than fifteen days prior to
the applicable Interest Payment Date. Interest payable at maturity or upon
earlier redemption or repayment will be payable to the person to whom principal
shall be payable. Unless otherwise specified in the applicable Pricing
Supplement, principal and any premium and interest payable at maturity or upon
earlier redemption or repayment in respect of a Note will be paid in immediately
available funds upon presentation and surrender of such Note at the office of
the Paying Agent. The Company has initially appointed The First National Bank of
Chicago, as Paying Agent for the Notes. Presentation and surrender of Notes to
the Paying Agent may be made by mail addressed to The First National Bank of
Chicago, One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126, or
at the option of the holder, at the office or agency of the Company maintained
for such purpose, initially at the corporate trust facility of the Trustee in
the Borough of Manhattan, The City of New York, located at 14 Wall Street, 8th
Floor -- Window 2, New York, New York 10005, Attention: Corporate Trust
Administration.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Original Issue Discount Note is declared to be due and payable
immediately as described in the accompanying Prospectus under "Description of
Debt Securities -- Events of Default, Notice and Waiver", the amount of
principal due and payable with respect to such Note shall be limited to the sum
of the aggregate principal amount of such Note multiplied by the Issue Price
(expressed as a percentage of the aggregate principal amount) plus the original
issue discount accrued from the date of issue to the date of declaration, which
accrual shall be calculated using the "interest method" (computed in accordance
with generally accepted accounting principles) in effect on the date of
declaration.
The Record Date with respect to any Interest Payment Date for a Floating
Rate Note shall be the date (whether or not a Business Day) fifteen calendar
days immediately preceding such Interest Payment Date. For a Fixed Rate Note
(unless otherwise specified in the applicable Pricing Supplement) the applicable
Record Date shall be the April 15 or October 15 (whether or not a Business Day)
immediately preceding such Interest Payment Date.
All percentages resulting from any calculations will be rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point, with
five one-millionths of a percentage point being rounded upwards, and all dollar
amounts used and resulting from such calculations on the Notes will be rounded
to the nearest one-hundredth of a dollar (with .005 of a dollar being rounded
upwards).
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its Original Issue Date at the
rate per annum stated on the face thereof until the principal amount thereof is
paid or made available for payment. Unless otherwise set forth in an applicable
Pricing Supplement, interest on each Fixed Rate Note will be payable
semi-annually each May 1 and November 1 (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 shall include interest accrued
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<PAGE> 6
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. Any payment
required to be made in respect of a Fixed Rate Note on a date that is not a
Business Day need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on such date,
and no additional interest shall accrue as a result of such delayed payment.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from its Original Issue Date at
rates determined by reference to the Base Rate plus or minus the Spread, if any,
or multiplied by the Spread Multiplier, if any (each as specified in the
applicable Pricing Supplement), until the principal thereof is paid or made
available for payment. The "Spread" is the number of basis points (one basis
point equals one-hundredth of a percentage point) specified in the applicable
Pricing Supplement as being applicable to such Floating Rate Note, and the
"Spread Multiplier" is the percentage specified in the applicable Pricing
Supplement as being applicable to such Note. Any Floating Rate Note may also
have either or both of the following: (i) a maximum numerical interest rate
limitation, or ceiling, on the rate of interest which may accrue during any
interest period (the "Maximum Interest Rate"); and (ii) a minimum numerical
interest rate limitation, or floor, on the rate of interest which may accrue
during any interest period (the "Minimum Interest Rate"). The applicable Pricing
Supplement will designate one of the following Base Rates as applicable to each
Floating Rate Note: (a) the CD Rate (a "CD Rate Note"), (b) the Commercial Paper
Rate (a "Commercial Paper Rate Note"), (c) the Federal Funds Rate (a "Federal
Funds Rate Note"), (d) LIBOR (a "LIBOR Note"), (e) the Prime Rate (a "Prime
Rate" Note), (f) the Treasury Rate (a "Treasury Rate Note"), or (g) such other
Base Rate as is set forth in the Pricing Supplement.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semi-annually or annually (the "Interest Reset
Period"), as specified in the applicable Pricing Supplement. Unless otherwise
specified in the applicable Pricing Supplement, the date or dates on which
interest will be reset (each an "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) that reset weekly,
Wednesday of each week; in the case of Treasury Rate Notes that reset weekly,
Tuesday of each week; in the case of Floating Rate Notes that reset monthly, the
third Wednesday of each month; in the case of Floating Rate Notes that reset
quarterly, the third Wednesday of March, June, September and December; in the
case of Floating Rate Notes that reset semi-annually, the third Wednesday of the
two months specified in the applicable Pricing Supplement; and in the case of
Floating Rate Notes that reset annually, the third Wednesday of the month
specified in the applicable Pricing Supplement. If any Interest Reset Date for
any Floating Rate Note is not a Business Day, such Interest Reset Date shall be
postponed to the next day that is a Business Day, except, in the case of a LIBOR
Note, if such Business Day is in the next succeeding calendar month, such
Interest Reset Date shall be the immediately preceding Business Day. If an
auction falls on a day that is an Interest Reset Date for Treasury Rate Notes,
the Interest Reset Date shall be the following day that is a Business Day.
Interest on each Floating Rate Note will be payable monthly, quarterly,
semi-annually or annually (the "Interest Payment Period"). Except as provided
below or in the applicable Pricing Supplement, the date or dates on which
interest will be payable (each an "Interest Payment Date") will be, in the case
of Floating Rate Notes with a monthly Interest Payment Period, the third
Wednesday of each month; in the case of Floating Rate Notes with a quarterly
Interest Payment Period, on the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes with a semi-annual Interest Payment
Period, on the third Wednesday of the two months specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes with an annual
Interest Payment Period, on the third Wednesday of the month specified in the
applicable Pricing Supplement.
If any Interest Payment Date for any Floating Rate Note would otherwise be
a day that is not a Business Day, such Interest Payment Date shall be postponed
to the next day that is a Business Day, except that in the case of a LIBOR Note,
if such Business Day is in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding Business Day. If the Maturity
Date (or date of redemption or repayment) of any Floating Rate Note would fall
on a day that is not a Business Day, the payment of interest
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and principal (and premium, if any) may be made on the next succeeding Business
Day, and no interest on such payment will accrue for the period from and after
the Maturity Date (or the date of redemption or repayment).
Interest payments on each Interest Payment Date for Floating Rate Notes
(except in the case of Floating Rate Notes which reset daily or weekly) will
include accrued interest from and including the Issue Date or from and including
the last date in respect of which interest has been paid, as the case may be,
to, but excluding, such Interest Payment Date. In the case of Floating Rate
Notes that reset daily or weekly, interest payments will include accrued
interest from and including the Original Issue Date or from but excluding the
last date in respect of which interest has been paid, as the case may be, to,
and including the Record Date immediately preceding the applicable Interest
Payment Date, except that at maturity the interest payable will include interest
accrued from and including the Original Issue Date or from but excluding the
last date in respect of which interest has been paid, as the case may be, to,
but excluding, the Maturity Date. Accrued interest will be calculated by
multiplying the principal amount of a Floating Rate Note by an accrued interest
factor. This accrued interest factor will be computed by adding the interest
factors calculated for each day in the period for which accrued interest is
being calculated. The interest factor (expressed as a decimal) for each such day
will be computed by dividing the interest rate applicable to such day by 360, in
the case of CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate
Notes, LIBOR Notes and Prime Rate Notes, or by the actual number of days in the
year, in the case of Treasury Rate Notes. The interest rate in effect on each
day will be (a) if such day is an Interest Reset Date, the interest rate with
respect to the Interest Determination Date (as defined below) pertaining to such
Interest Reset Date or (b) if such day is not an Interest Reset Date, the
interest rate with respect to the Interest Determination Date pertaining to the
next preceding Interest Reset Date, subject in either case to any Maximum or
Minimum Interest Rate limitation referred to above and to any adjustment by a
Spread or a Spread Multiplier referred to above; provided, however, that, unless
otherwise specified in the applicable Pricing Supplement, the interest rate in
effect for the period from the Original Issue Date to the first Interest Reset
Date set forth in the Pricing Supplement with respect to a Floating Rate Note
(the "Initial Interest Rate") will be determined as if the Original Issue Date
were an Interest Reset Date. The interest rate on the Floating Rate Notes will
in no event be higher than the maximum rate permitted by New York law. Under
present New York law, the maximum interest rate is 25% per annum on a simple
interest basis. This limit may not apply to Notes in which $2,500,000 or more
has been invested.
The "Interest Determination Date" pertaining to an Interest Reset Date for
CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes and Prime
Rate Notes will be the second Business Day next preceding such Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for a
LIBOR Note will be the second London Banking Day next preceding such Interest
Reset Date. The Interest Determination Date pertaining to an Interest Reset Date
for a Treasury Rate Note will be the day of the week in which such Interest
Reset Date falls on which Treasury bills of the Index Maturity specified on the
face of the Treasury Rate Notes are auctioned. Treasury bills are normally sold
at auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, 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
Interest Determination Date pertaining to the Interest Reset Date occurring in
the next succeeding week.
The "Calculation Date", where applicable, pertaining to an Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date or if any such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day preceding the applicable
Interest Payment Date or Maturity Date (or date of redemption or repayment), as
the case may be.
Unless otherwise specified in the applicable Pricing Supplement, The First
National Bank of Chicago shall be the calculation agent (the "Calculation
Agent") with respect to the Floating Rate Notes. Upon 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.
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CD Rate Notes
CD Rate Notes will bear interest for each Interest Reset Period at the
interest rates (calculated with reference to the CD Rate and the Spread or
Spread Multiplier, if any) specified in the CD Rate Notes and in the applicable
Pricing Supplement.
"CD Rate" means, with respect to any Interest Determination Date, the rate
on such date for negotiable certificates of deposit having the Index Maturity
designated in the applicable Pricing Supplement as published by the Board of
Governors of the Federal Reserve System in "Statistical Release H.15(519)
Selected Interest Rates", or any successor publication of the Board of Governors
of the Federal Reserve System ("H.15(519)") under the heading "CDs (Secondary
Market)" or, if not so published by 9:00 a.m. New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the CD Rate
will be the rate on such Interest Determination Date for negotiable certificates
of deposit of the Index Maturity designated in the applicable Pricing Supplement
as published by the Federal Reserve Bank of New York in its daily statistical
release, "Composite 3:30 p.m. Quotations for U.S. Government Securities"
("Composite Quotations") under the heading "Certificates of Deposit." If such
rate is not yet published by 3:00 p.m., New York City time, on the Calculation
Date pertaining to such Interest Determination Date, then the CD Rate on such
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the secondary market offered rates as of 10:00 a.m.,
New York City time, on such Interest Determination Date, of three leading
nonbank dealers in negotiable U.S. dollar certificates of deposit in The City of
New York selected by the Calculation Agent for negotiable certificates of
deposit of major United States money center banks of the highest credit standing
(in the market for negotiable certificates of deposit) with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement in a
denomination of $5,000,000; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting offered rates as mentioned in
this sentence, the CD Rate will be the CD Rate in effect on such Interest
Determination Date.
CD Rate Notes, as other Notes, are not deposit obligations of a bank and
are not insured by the Federal Deposit Insurance Corporation.
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest for each Interest Reset
Period at the interest rates (calculated with reference to the Commercial Paper
Rate and the Spread or Spread Multiplier, if any) specified in the Commercial
Paper Rate Notes and in the applicable Pricing Supplement.
"Commercial Paper Rate" means with respect to any Interest Determination
Date, the Money Market Yield (as defined below) of the rate on that date for
commercial paper having the Index Maturity designated in the applicable Pricing
Supplement as such rate shall be published in H.15(519), under the heading
"Commercial Paper." In the event that such rate is not published by 9:00 a.m.,
New York City time, on the Calculation Date pertaining to such Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate on that Interest Determination Date for commercial paper
having the Index Maturity designated in the applicable Pricing Supplement as
published in Composite Quotations under the heading "Commercial Paper." If by
3:00 p.m., New York City time, on such Calculation Date such rate is not yet
published in Composite Quotations, the Commercial Paper Rate for that Interest
Determination Date shall be calculated by the Calculation Agent and shall be the
Money Market Yield of the arithmetic mean of the offered rates of three leading
dealers of commercial paper in The City of New York selected by the Calculation
Agent as of 11:00 a.m., New York City time, on that Interest Determination Date,
for commercial paper having the Index Maturity designated in the applicable
Pricing Supplement placed for an industrial issuer whose bond rating is "AA", or
the equivalent, from a nationally recognized statistical rating agency;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Commercial Paper Rate
will be the Commercial Paper Rate in effect on such Interest Determination Date.
S-8
<PAGE> 9
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = -------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the 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 interest period for which interest is being calculated.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest for each Interest Reset Period
at the interest rates (calculated with reference to the Federal Funds Rate and
the Spread or Spread Multiplier, if any) specified in the Federal Funds Rate
Notes and in the applicable Pricing Supplement.
"Federal Funds Rate" means, with respect to any Interest Determination
Date, the rate on that day for Federal Funds as published in H.15(519) under the
heading "Federal Funds (Effective)" or, if not so published by 9:00 a.m., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the Federal Funds Rate will be the rate on such Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not yet published by 3:00 p.m.,
New York City time, on the Calculation Date pertaining to such Interest
Determination Date, the Federal Funds Rate for such Interest Determination Date
will be calculated by the Calculation Agent and will be the arithmetic mean of
the rates for the last transaction in overnight Federal Funds arranged by three
leading brokers of Federal Funds transactions in The City of New York selected
by the Calculation Agent as of 11:00 a.m., New York City time, on such Interest
Determination Date; provided, however, that if the brokers selected as aforesaid
by the Calculation Agent are not quoting as mentioned in this sentence, the
Federal Funds Rate will be the Federal Funds Rate in effect on such Interest
Determination Date.
LIBOR Notes
LIBOR Notes will bear interest for each Interest Reset Period at the
interest rates (calculated with reference to LIBOR and the Spread or Spread
Multiplier, if any) specified in the LIBOR Notes and in the applicable Pricing
Supplement.
With respect to LIBOR Notes indexed to the offered rates for U.S. dollar
deposits, "LIBOR" will be determined by the Calculation Agent in accordance with
the following provisions:
(i) With respect to an Interest Determination Date, LIBOR will be
determined as follows: (A) if the method of calculation of LIBOR for a
LIBOR Note is specified on the face thereof to be "LIBOR-Reuters", LIBOR
for such Interest Determination Date will be determined on the basis of the
offered rates for deposits in U.S. dollars having the Index Maturity
designated in the applicable Pricing Supplement, commencing on the second
London Banking Day immediately following that Interest Determination Date,
which appear on the Reuters Screen LIBO Page (as defined below) as of 11:00
a.m., London time, on that Interest Determination Date. If at least two
such offered rates appear on the Reuters Screen LIBO Page, the rate in
respect of that Interest Determination Date will be the arithmetic mean of
such offered rates as determined by the Calculation Agent, or (B) if the
method of calculation of LIBOR for a LIBOR Note is specified on the face
thereof to be "LIBOR-Telerate" or if no method of calculation of LIBOR is
specified, LIBOR for such Interest Determination Date will be the rate for
deposits in U.S. dollars having the Index Maturity specified in the
applicable Pricing Supplement which appears on the Telerate Page 3750 or
such other page as may replace Telerate Page 3750 on that service for the
purpose of displaying London interbank offered rates of major banks (the
"Telerate Page") as of 11:00 A.M., London time, on the Interest
Determination Date. If fewer than two offered rates appear, in the case of
alternative (A) above, or if such rate does not appear on the Telerate
Page, in the case of alternative (B) above, the rate for that Interest
Determination Date will be determined as if the parties
S-9
<PAGE> 10
had specified the rate described in (ii) below. "Reuters Screen LIBO Page"
means the display designated as Page "LIBO" on the Reuters Monitor Money
Rates Service (or such other page as may replace the LIBO page on that
service for the purposes of displaying London interbank offered rates of
major banks).
(ii) With respect to an Interest Determination Date on which fewer
than two offered rates appear on the Reuters Screen LIBO Page or if the
rate for deposits does not appear on the Telerate Page, as applicable and
as specified in (i) above, LIBOR will be determined on the basis of the
rates at which deposits in U.S. dollars are offered by four major banks in
the London interbank market selected by the Calculation Agent at
approximately 11:00 a.m., London time, on that Interest Determination Date
to prime banks in the London interbank market having the Index Maturity
designated in the Pricing Supplement commencing on the second London
Banking Day immediately following that Interest Determination Date and in a
principal amount equal to an amount of not less than U.S. $1,000,000 that
is representative for a single transaction in such market at such time. The
Calculation Agent will request the principal London office of each of such
banks to provide a quotation of its rate. If at least two such quotations
are provided, LIBOR in respect of that Interest Determination Date will be
the arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR in respect of that Interest Determination Date will be the
arithmetic mean of the rates quoted by three major banks in The City of New
York selected by the Calculation Agent at approximately 11:00 a.m., New
York City time, on that Interest Determination Date for loans in U.S.
dollars to leading European banks, having the Index Maturity designated in
the applicable Pricing Supplement commencing on the second London Banking
Day immediately following that Interest Determination Date and in a
principal amount equal to an amount of not less than U.S. $1,000,000 that
is representative for a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR will
be LIBOR in effect on such Interest Determination Date.
Prime Rate Notes
Prime Rate Notes will bear interest for each Interest Reset Period at the
interest rates (calculated with reference to the Prime Rate and the Spread or
Spread Multiplier, if any) specified in the Prime Rate Notes and in the
applicable Pricing Supplement.
"Prime Rate" means, with respect to any Interest Determination Date, the
rate set forth in H.15(519) for such date opposite the caption "Bank Prime
Loan." If such rate is not yet published by 9:00 A.M., New York City time, on
the Calculation Date pertaining to such Interest Determination Date, the Prime
Rate for such Interest Determination Date will be the arithmetic mean of the
rates of interest publicly announced by each bank named on the Reuters Screen
NYMF Page (as defined below) as such bank's prime rate or base lending rate as
in effect for such Interest Determination Date as quoted on the Reuters Screen
NYMF Page on such Interest Determination Date, or, if fewer than four such rates
appear on the Reuters Screen NYMF Page for such Interest Determination Date, the
rate shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by 360 as of the close of business on
such Interest Determination Date by at least two of the three major money center
banks in The City of New York selected by the Calculation Agent from which
quotations are requested. If fewer than two quotations are provided, the Prime
Rate shall be calculated by the Calculation Agent and shall be determined as the
arithmetic mean on the basis of the prime rates in The City of New York by the
appropriate number of substitute banks or trust companies organized and doing
business under the laws of the United States, or any State thereof, in each case
having total equity capital of at least U.S. $500 million and being subject to
supervision or examination by federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if the
banks or trust companies selected as aforesaid by the Calculation Agent are not
quoting as set forth above, the "Prime Rate" in effect for the applicable period
will be the same as the Prime Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of interest
payable on the Prime Rate Notes for which such Prime Rate is being determined
shall be the Initial Interest Rate). "Reuters Screen NYMF Page" means the
display designated as Page "NYMF" on the
S-10
<PAGE> 11
Reuters Monitor Money Rates Services (or such other page as may replace the NYMF
Page on that service for the purpose of displaying prime rates or base lending
rates of major United States banks).
Treasury Rate Notes
Treasury Rate Notes will bear interest for each Interest Reset Period at
the interest rates (calculated with reference to the Treasury Rate and the
Spread or Spread Multiplier, if any) specified in the Treasury Notes and in the
applicable Pricing Supplement.
"Treasury Rate" means, with respect to any Interest Determination Date, the
rate for the auction held on such Interest Determination Date of direct
obligations of the United States ("Treasury bills") having the Index Maturity
designated in the applicable Pricing Supplement as such rate shall be 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 Calculation Date pertaining to such Interest Determination
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) as
otherwise announced by the United States Department of the Treasury. In the
event that the results of the auction of Treasury bills having the Index
Maturity designated in the applicable Pricing Supplement are not published or
reported as provided above by 3:00 p.m., New York City time, on such Calculation
Date or if no such auction is held in a particular week, then the Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 p.m., New York City time,
on such Interest Determination Date, of three leading primary United States
government securities dealers selected by the Calculation Agent for the issue of
Treasury bills with a remaining maturity closest to the Index Maturity
designated in the applicable Pricing Supplement; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the Treasury Rate will be the Treasury Rate in
effect on such Interest Determination Date.
INDEXED NOTES
The Notes may be issued, from time to time, as Notes the principal amount
of which, payable at maturity, and/or the interest payable on each Interest
Payment Date will be determined by reference to currencies, currency units,
commodity prices, financial or non-financial indices or other factors (the
"Indexed Notes"), as indicated 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 fluctuation of the
relative value, rate or price of the specified index. Specific information
pertaining to the method for determining the principal amount payable at
maturity, a historical comparison of the relative value, rate or price of the
specified index and the face amount of the Indexed Note and certain additional
United States federal tax considerations will be described in the applicable
Pricing Supplement.
REDEMPTION
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be redeemed prior to maturity or that such Note will be redeemable
at the option of the Company on a date or dates specified prior to maturity at a
price or prices set forth in the applicable Pricing Supplement, together with
accrued interest to the date of redemption. The Notes will not be subject to any
sinking fund. The Company may redeem any of the Notes which are redeemable and
remain outstanding either in whole or from time to time in part, upon not less
than 30 nor more than 60 days' notice. If less than all of the Notes with like
tenor and terms are to be redeemed, the Notes to be redeemed shall be selected
by the Trustee by such method as the Trustee shall deem fair and appropriate.
REPAYMENT AND REPURCHASE
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be repaid prior to maturity or that the Note will be repayable at
the option of the holder on a date or dates specified prior to
S-11
<PAGE> 12
maturity at a price or prices set forth in the applicable Pricing Supplement,
together with accrued interest to the date of repayment.
In order for a Note to be repaid, the Paying Agent must receive at least 30
days but not more than 45 days prior to the repayment date (i) the Note with the
form entitled "Option to Elect Repayment" on the reverse of the Note duly
completed or (ii) a telegram, telex, facsimile transmission or a letter from a
member of a national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the United
States setting forth the name of the holder of the Note, the principal amount of
the Note, the principal amount of the Note to be repaid, the certificate number
or a description of the tenor and terms of the Note, a statement that the option
to elect repayment is being exercised thereby and a guarantee that the Note to
be repaid with the form entitled "Option to Elect Repayment" on the reverse of
the Note duly completed will be received by the Paying Agent not later than five
Business Days after the date of such telegram, telex, facsimile transmission or
letter and such Note and form duly completed are received by the Paying Agent by
such fifth Business Day. Exercise of the repayment option by the holder of a
Note shall be irrevocable. The repayment option may be exercised by the holder
of a Note for less than the entire principal amount of the Note provided that
the principal amount of the Note remaining outstanding after repayment is an
authorized denomination.
If a Note is represented by a Global Security, the Depositary's nominee
will be the holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a Note in
order to ascertain the cut-off time by which such an instruction must be given
in order for timely notice to be delivered to the Depositary.
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes so purchased by the Company may be held or resold or, at the
discretion of the Company, may be surrendered to the Trustee for cancellation.
BOOK-ENTRY NOTES
The Notes may be issued in whole or in part in the form of one or more
Global Securities registered in the name of a nominee of the Depositary. Upon
issuance, all Book-Entry Notes having the same Issue Date, Maturity Date,
redemption provisions, repayment provisions, Interest Payment Period and Dates
and, in the case of Fixed Rate Notes, the interest rate, or, in the case of
Floating Rate Notes, Base Rate, Initial Interest Rate, Index Maturity, Interest
Reset Period and Dates, Spread or Spread Multiplier, if any, Minimum Interest
Rate, if any, and Maximum Interest Rate, if any, 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 or such other depositary as is
specified in the Pricing Supplement. Book-Entry Notes will not be exchangeable
for Certificated Notes and, except under the circumstances described below, will
not otherwise be issuable as Certificated Notes. Unless and until it is
exchanged in whole or in part for the individual Notes represented thereby, a
Global Security may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or 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.
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 amounts of the Notes represented by such Global
Security. Such accounts shall be designated by the Agents with respect to such
Notes 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 or its nominee
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests in such Global Security will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depositary or its nominee (with respect to interests of participants) for
such Global
S-12
<PAGE> 13
Security and on the records of participants (with respect to interests of
persons other than participants). The laws of some states require that certain
purchasers of securities take physical delivery of such securities. Such limits
and such laws may impair the ability to transfer beneficial interests in a
Global Security.
So long as the Depositary, or its nominee, is the registered owner of such
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by such Global
Security for all purposes under the Indenture. Except as provided below, owners
of beneficial interests in a Global Security will not be entitled to have any of
the individual Notes represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Notes and
will not be considered the owners or Holders thereof under the Indenture.
Principal, premium, if any, and interest payments on Notes registered in
the name of the Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Security
representing such Notes. Neither the Company, the Trustee, any Paying Agent nor
the Securities Registrar for such Notes will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the Global Security for such Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that the Depositary for any Notes or its nominee, upon
receipt of any payment of principal, premium or interest, will credit
immediately participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the Global
Security for such Notes as shown on the records of the Depositary or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in such Global Security held through such participants will
be governed by standing instructions and customary practices, as is now the case
with securities registered in "street name", and will be the responsibility of
such participants.
If the Depositary for any Notes is at any time unwilling or unable to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will issue individual Notes in exchange for
the Global Security representing such Notes. In addition, the Company may at any
time and in its sole discretion determine not to have the Notes represented by a
Global Security and, in such event, will issue individual Notes in exchange for
the Global Security representing such Notes. Further, an owner of a beneficial
interest in a Global Security may, on terms acceptable to the Company and the
Depositary, receive individual Notes. (The Depositary has advised the Company
that it does not currently intend to accept any such terms.) In any such
instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery of individual Notes with the same terms as such
represented by such Global Security equal in principal amount to such beneficial
interest and to have such Notes registered in its name. Unless otherwise
specified in the applicable Pricing Supplement, individual Notes so issued will
be issued in denominations of $1,000 and any multiple of $1,000.
The Depositary has advised the Company and the Agents as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. The Depositary was created to hold 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.
CONCERNING THE TRUSTEES
The First National Bank of Chicago serves as trustee with respect to one
other series of Debt Securities previously issued under the Indenture. The
Company and certain of its affiliates maintain bank accounts, borrow money and
have other customary banking relationships with The First National Bank of
Chicago in the ordinary course of business.
S-13
<PAGE> 14
TAXATION OF ORIGINAL ISSUE DISCOUNT NOTES
The following is a summary of certain federal income tax considerations
that may be relevant to a holder of an Original Issue Discount Note. This
summary is based on laws, regulations, rulings and decisions now in effect, all
of which are subject to change. This summary deals only with holders that will
hold Original Issue Discount Notes as capital assets, and does not address tax
considerations applicable to investors that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities or currencies,
tax-exempt organizations, foreign investors, persons that will hold Notes as a
position in a "straddle" for tax purposes or subsequent holders. Investors
should consult their own tax advisers in determining the tax consequences to
them of the purchase, ownership and disposition of Original Issue Discount
Notes, including the application to their particular situation of the tax
considerations discussed below, as well as the application of other federal,
state, local or other tax laws.
Holders of Original Issue Discount Notes generally will be subject to the
special tax accounting rules for original issue discount obligations provided by
the Internal Revenue Code of 1986 and certain Treasury regulations promulgated
thereunder. Holders of such Notes should be aware that, as described in greater
detail below, they generally must include OID (as defined below) in ordinary
gross income for federal income tax purposes as it accrues, in advance of the
receipt of cash attributable to that income.
An Original Issue Discount Note possesses original issue discount ("OID")
to the extent its "stated redemption price at maturity" exceeds its "issue
price," which is, generally, the original purchase price paid to the Company.
For this purpose, the stated redemption price of a Note at maturity equals the
total of all payments provided for under the Note other than "qualified stated
interest." "Qualified stated interest" is taxable as paid or accrued to or by a
Holder in accordance with such Holder's method of accounting. As described
below, except with respect to Notes bearing de minimus amounts of OID, OID is
treated as accruing on a constant yield basis throughout the term of a Note and
is taxed currently, regardless of when paid.
Pursuant to Treasury regulations (the "Regulations"), "qualified stated
interest" includes interest payable at a fixed rate. In the case of a "variable
rate debt instrument", such qualified stated interest is specially computed. A
variable rate debt instrument is one that meets certain criteria and that
provides for interest at (i) one or more qualified floating rates (described
below), (ii) a single fixed rate and one or more qualified floating rates, (iii)
a single objective rate (described below), or (iv) a single fixed rate and a
single objective rate that is a qualified inverse floating rate. A "qualified
floating rate" includes a floating rate, variations of which can be expected to
measure contemporaneous variations in the cost of newly borrowed funds, but does
not generally include a multiple of a qualified floating rate. An "objective
rate" includes a rate based on the price of actively traded property or on an
index of the prices of such property, and, in addition, includes a rate that is
based on a qualified floating rate but that is not itself a qualified floating
rate (for instance, a multiple of a qualified floating rate). Restrictions on
the maximum or minimum stated interest rate will not generally result in a rate
failing to be a qualified floating rate or an objective rate, as the case may
be, but may do so under certain circumstances. If interest on such an instrument
is payable at a single qualified floating rate or a single objective rate, then
all such interest payments are payments of qualified stated interest. The
Company believes that current payments of interest on Floating Rate Notes for
which the applicable Pricing Supplement specifies an interest rate contained in
clause (a), (b), (c), (d), (e) or (f) of page S-6 under "Description of the
Notes -- Floating Rate Notes" constitute payments of qualified stated interest
pursuant to the Regulations. Such Notes may nevertheless have OID to the extent
that the stated redemption price thereof at maturity exceeds the issue price
thereof.
The OID to be reported as taxable income each year with respect to Fixed
Rate Notes is determined in the following manner under Section 1272 of the
Internal Revenue Code of 1986, as amended (the "Code"). The amount of OID
attributable to each "accrual period" (a period that may be of any length not
longer than one year and that may vary during the term of the Note, provided
that each scheduled payment of principal or interest occurs at the end of an
accrual period) is computed by multiplying the "adjusted issue price" of the
Note at the beginning of the accrual period by the yield of such Note and
subtracting the amount of any qualified stated interest allocable to the accrual
period. The yield is determined on the basis of compounding at
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<PAGE> 15
the close of each accrual period and properly adjusted for the length of the
accrual period. The "adjusted issue price" of the Note at the beginning of any
accrual period is the Note's issue price increased by the amount of OID
attributable to all prior accrual periods and decreased by the amount of any
payments previously made on the Note other than payments of qualified stated
interest. For purposes of computing the amount of OID to be included in the
taxable income of a holder for a taxable year, the total amount of OID computed
for each accrual period is allocated ratably on a daily basis over the accrual
period. The daily portions attributable to the period of time the Note is owned
by the holder during the tax year are includible in the holder's gross income
for the year. Similarly, the OID to be reported as taxable income each year with
respect to Floating Rate Notes is allocated to an accrual period under Code
Section 1272 according to the constant yield method described above with respect
to Fixed Rate Notes, except that the allocation of OID to an accrual period must
be made by assuming that the Note provides for qualified stated interest
payments at the end of each accrual period based on a reasonable fixed rate.
Floating Rate Notes that do not constitute variable rate debt instruments
under the Regulations will be subject to special tax treatment. Certain payments
of interest on such Notes may constitute "contingent" payments and could be
treated as interest accruable by the holder in accordance with a projected
payment schedule required to be computed under the non-contingent bond method
set forth in certain proposed Treasury regulations which are not yet effective.
If any Notes specify an interest rate under clause (g) of page S-6 under
"Description of the Notes -- Floating Rate Notes", the federal income tax
consequences to holders will be described in the applicable Pricing Supplement.
The above rules do not apply to Notes with a maturity of one year or less
("Short Term Notes"). If the holder of a Short Term Note is a cash basis
taxpayer and if the Short Term Note is not subject to Code Section 1281 (which
requires current inclusion in income of "acquisition discount" on certain
short-term obligations), there will be no OID, and the holder will have taxable
interest income in the year in which the Short Term Note matures. If the Short
Term Note is an obligation to which Code Section 1281 applies (as described
below), the holder must accrue the OID attributable to such Short Term Note. For
a Short Term Note, the OID is equal to the excess of the total amount payable at
maturity over the holder's tax basis for such Note. Current inclusion in income
is required of an amount equal to the daily portions of the OID for each day
during the taxable year during which the Note is held. Such daily portion is to
be determined on the basis of ratable accrual of the OID or on a constant
interest basis compounded daily. A holder of a Short Term Note subject to Code
Section 1281 can, with respect to nongovernment obligations, elect to accrue
acquisition discount instead of OID, under the rules of Code Section 1281.
A Short Term Note will be subject to the provisions of Code Section 1281 if
the Note is (1) held by a taxpayer using an accrual method of accounting, (2)
held primarily for sale to customers in the ordinary course of a taxpayer's
trade or business, (3) held by a bank (as defined in Code Section 581), (4) held
by a regulated investment company or a common trust fund, (5) identified by a
taxpayer under Code Section 1256(e)(2) as being part of a hedging transaction,
or (6) a stripped bond or stripped coupon held by the person who stripped the
bond or coupon (or by any other person whose basis is determined by reference to
the basis in the hands of such person). In addition, there are special rules
which apply to "pass-through entities" such as a partnership, S corporation, or
trust.
The tax basis of any Note in the hands of a holder will be increased by
amounts of OID included in the income of the holder under Code Sections 1272 and
1281 and decreased by the amount of any payment to a holder other than a payment
of qualified stated interest.
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PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the Company through
Morgan Stanley & Co. Incorporated, Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Salomon Brothers Inc, (the "Agents"), each of
whom has agreed to use its reasonable efforts to solicit purchases of the Notes.
The Company will pay each Agent a commission of .125% to .600% of the principal
amount of each Note sold through such Agent, depending upon maturity of the
Note. The Company may sell Notes to any of the Agents, as principal, at a
discount for resale to investors and other purchasers at varying prices related
to prevailing market prices at the time of resale, to be determined by such
Agent, or, if so agreed, at a fixed public offering price. In addition, the
Agents may offer the Notes they have purchased as principal to other dealers.
The Agents may sell Notes to any dealer at a discount and, unless otherwise
specified in the applicable Pricing Supplement, such discount allowed to any
dealer will not be in excess of the discount to be received by such Agent from
the Company. Unless otherwise indicated in the applicable Pricing Supplement,
any Note sold to an Agent as principal will be purchased by such Agent at a
price equal to 100% of the principal amount thereof less a percentage equal to
the commission applicable to any agency sale of a Note of identical maturity,
and may be resold by the Agent to investors and other purchasers, as described
above. After the initial public offering of Notes to be resold to investors and
other purchasers, the public offering price, concession and discount may be
changed.
The Company has reserved the right to appoint additional agents to solicit
offers to purchase the Notes. The Company may also sell the Notes directly to
investors on its behalf. In the case of sales made directly by the Company no
commission will be payable. The Company has agreed to reimburse the Agents for
certain expenses.
The Company will have the sole right to accept offers to purchase Notes and
may, in its absolute discretion, reject any proposed purchase of Notes in whole
or in part. Each Agent will have the right, in its discretion reasonably
exercised, to reject any offer to purchase Notes received by it in whole or in
part.
No Note will have an established trading market when issued. The Notes will
not be listed on any securities exchange. Each Agent may make a market in the
Notes, but such Agent is not obligated to do so and may discontinue any
market-making at any time without notice. There can be no assurance of a
secondary market for any Notes, or that the Notes will be sold.
The Company has agreed to indemnify each Agent against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments such Agent may be required to make in respect thereof. Each Agent may
be deemed to be an "underwriter" within the meaning of such Act.
S-16
<PAGE> 17
AVCO FINANCIAL SERVICES, INC.
DEBT SECURITIES
WARRANTS TO PURCHASE DEBT SECURITIES
------------------
The Company from time to time may issue in one or more series its unsecured
debt securities ("Debt Securities") and warrants ("Warrants") to purchase Debt
Securities (the Debt Securities and the Warrants being herein collectively
called the "Securities") for proceeds up to $1,747,205,000, or the equivalent
thereof if any of the Securities are denominated in a foreign currency or a
foreign currency unit. The Debt Securities of each series will be offered on
terms determined at the time of sale. The Debt Securities and Warrants may be
sold for U.S. dollars, foreign currencies or foreign currency units, and the
principal of and any interest on the Debt Securities may be payable in U.S.
dollars, foreign currencies or foreign currency units. The specific designation,
aggregate principal amount, the currency or currency unit for which the
Securities may be purchased, the currency or currency unit in which the
principal and any interest is payable, the rate (or method of calculation) and
time of payment of any interest, authorized denominations, maturity, offering
price, any redemption terms, any exchange or conversion terms or other specific
terms of the series of Debt Securities in respect of which this Prospectus is
being delivered are set forth in the accompanying Prospectus Supplement
("Prospectus Supplement"). With regard to the Warrants, if any, in respect of
which this Prospectus is being delivered, the Prospectus Supplement sets forth a
description of the Debt Securities for which each Warrant is exercisable and the
offering price, if any, exercise price, duration, detachability and other terms
of the Warrants.
The Securities may be sold through underwriters or dealers or may be sold
by the Company directly or through agents designated from time to time. The
names of any underwriters or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered and their compensation are
set forth in the 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.
------------------
The date of this Prospectus is May 24, 1995
<PAGE> 18
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
---------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the offices of the
Commission at 450 Fifth Street N.W., Washington, D.C. 20549; 500 West Madison
Street, Chicago, Illinois 60661-2511; and 7 World Trade Center, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. This Prospectus does not contain all information set forth in
the Registration Statements and Exhibits thereto which the Company has filed
with the Commission under the Securities Act of 1933 and to which reference is
hereby made.
The Company intends to publish annual reports with financial information
that has been audited and reported upon, with an opinion expressed, by
independent auditors. These reports will not be distributed to holders of the
Securities but will be available to them upon request.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994, its Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
and its Current Report on Form 8-K dated May 1, 1995, heretofore filed with the
Commission pursuant to the Securities Exchange Act of 1934, are incorporated
herein by reference. All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
hereof and prior to the termination of the offering of the Securities offered
hereby shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus 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 or in
the accompanying Prospectus Supplement modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST BY SUCH PERSON, A COPY OF
ANY OR ALL OF THE DOCUMENTS DESCRIBED ABOVE, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS. REQUESTS SHOULD BE ADDRESSED TO: AVCO FINANCIAL SERVICES, INC., 600
ANTON BOULEVARD, P.O. BOX 5011, COSTA MESA, CALIFORNIA 92628-5011, ATTENTION:
SECRETARY (714-445-7860).
2
<PAGE> 19
THE COMPANY
Avco Financial Services, Inc. (the "Company"), organized under the laws of
Delaware on July 17, 1964, is the successor to the finance business of Seaboard
Finance Company, originally established in 1927, and the finance business of
Delta Acceptance Corporation Limited, originally established in 1954. All the
Company's outstanding capital stock is owned by Textron Inc., a Delaware
corporation. Unless the context otherwise requires, the term "Company" herein
refers to Avco Financial Services, Inc. and its consolidated subsidiaries.
The Company is principally engaged in consumer finance and insurance
activities. The Company's finance operations mainly involve loans made by the
Avco Financial Services Group consisting of consumer loans, which are unsecured
or secured by personal property and are in relatively small amounts and for
relatively short periods; real estate loans, which are secured by real property
and are in larger amounts and for considerably longer periods; and retail
installment contracts, principally covering personal property. As of December
31, 1994 the Company operated 1,198 finance offices located in all states of the
United States (except Arkansas, Kansas, Maine, Michigan, Mississippi, Oklahoma,
Texas and Vermont), the Commonwealth of Puerto Rico, the Virgin Islands, all
Canadian provinces and the Yukon Territory, six Australian states and the
Australian Capital Territory, Hong Kong, New Zealand, Spain and the United
Kingdom. The Company's insurance business consists primarily of the sale of
credit life, credit disability and casualty insurance offered by various
subsidiaries (Avco Insurance Services Group), a significant part of which is
directly related to its finance activities.
The Company's principal executive offices are located at 600 Anton
Boulevard, P.O. Box 5011, Costa Mesa, California 92628-5011 (tel. 714-553-1200
or, after July 1, 1995, 714-435-1200).
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ------------
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
1.5 1.5 1.5 1.7 1.7 1.6
</TABLE>
The ratios of earnings to fixed charges represent the number of times fixed
charges (interest and debt expense [without adjustments for discounts or
premiums from the repurchase of debt securities] and one-third of all rent and
related costs, considered to represent an appropriate interest factor, charged
to income) are covered by earnings from operations before income taxes,
extraordinary item, cumulative effect of changes in accounting principles and
fixed charges.
APPLICATION OF PROCEEDS
Unless otherwise specified in the Prospectus Supplement which accompanies
this Prospectus, the net proceeds from the sale of the Securities will be added
to the general funds of the Company and will be applied initially to the
reduction of short-term commercial paper borrowings incurred in the ordinary
course of the financing activities of the Company. Additional financing which
may be required from time to time will be effected through such means as the
Company deems appropriate at the time. The amount of further financing, as well
as the purposes for which the proceeds thereof will be used, cannot now be
determined.
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<PAGE> 20
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute senior debt of the Company and will be
issued under one or more separate indentures described below (each an
"Indenture"), in each case between the Company and a banking institution
organized under the laws of the United States of America or of any State thereof
(each a "Trustee"). The following summary of certain provisions of the
Indentures does not purport to be complete and is qualified in its entirety by
reference to the applicable Indenture, a copy of which is filed as an exhibit to
the Registration Statement. All article and section references appearing herein
are to articles and sections of the applicable Indenture, and all capitalized
terms have the meanings specified in the applicable Indenture.
GENERAL
The Debt Securities will be unsecured obligations of the Company. None of
the Indentures limits the amount of Debt Securities which may be issued
thereunder and each Indenture provides that Debt Securities may be issued
thereunder up to the aggregate principal amount which may be authorized from
time to time by the Company. (Article Three) The Indentures do not contain any
covenant or other provision that is specifically intended to afford any Holder
special protection in the event of a highly leveraged transaction. Reference is
made to the Prospectus Supplement which accompanies this Prospectus for the
following terms and other information with respect to the Debt Securities being
offered thereby: (i) the title of the Debt Securities; (ii) the designation,
aggregate principal amount and authorized denominations of such Debt Securities;
(iii) the percentage of their principal amount at which such Debt Securities
will be issued; (iv) the currency, currencies or currency units for which the
Debt Securities may be purchased and the currency, currencies or currency units
in which the principal of and any interest on such Debt Securities may be
payable; (v) the date on which such Debt Securities will mature; (vi) the rate
per annum at which such Debt Securities will bear interest, if any, or the
method of determination of such rate; (vii) the dates on which such interest, if
any, will be payable and the record dates for such payment dates; (viii) the
Trustee under the Indenture pursuant to which the Debt Securities are to be
issued; (ix) any redemption terms; and (x) any exchange or conversion terms or
other specific terms.
If any of the Securities are sold for foreign currencies or foreign
currency units or if the principal of or any interest on any series of Debt
Securities is payable in foreign currencies or foreign currency units, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such issue of Securities and such currencies or currency units
will be set forth in the Prospectus Supplement relating thereto.
Unless otherwise specified in the Prospectus Supplement which accompanies
this Prospectus, principal, premium, if any, and interest, if any, are to be
payable at the Corporate Trust Office of the Trustee or its successors in The
City of New York, or at the office or agency of the Company maintained for such
purposes in the Borough of Manhattan, The City of New York, provided that
payment of interest, if any, may be made at the option of the Company by check
mailed to the persons in whose names the Debt Securities are registered at the
close of business on the day specified in the Prospectus Supplement accompanying
this Prospectus. (sec. 3.12)
The Debt Securities will be issued only in fully registered form without
coupons. (sec. 3.02) Such Debt Securities will be exchangeable for other Debt
Securities of the same series, registered in the same name, for a like aggregate
principal amount in authorized denominations and will be transferable at any
time or from time to time at the Corporate Trust Office of the Trustee or at any
other office or agency of the Company maintained for that purpose. No charge
will be made to the Holder for any such exchange or transfer except for any tax
or governmental charge incidental thereto. (sec. 3.05) If so specified in the
Prospectus Supplement which accompanies this Prospectus, the Company may provide
for the issuance of uncertificated Debt Securities in addition to or in place of
certificated Debt Securities and for the issuance of one or more Global
Securities denominated in an amount equal to all or a portion of the aggregate
principal amount of the series of Debt Securities.
Debt Securities of a single series may be issued at various times with
different maturity dates, may bear interest at different rates and may otherwise
vary.
4
<PAGE> 21
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series will be
described in the Prospectus Supplement relating thereto.
None of the Company's outstanding debt is, and the Debt Securities will not
be, guaranteed by Textron Inc.
CERTAIN RESTRICTIVE PROVISIONS
None of the Indentures limits the amount of indebtedness which may be
incurred by the Company or its Subsidiaries but each Indenture contains a
covenant that neither the Company nor any of its Domestic Finance Subsidiaries
or Domestic Insurance Subsidiaries will suffer to exist any lien upon its assets
or acquire assets subject to any lien, except (i) liens for taxes and
governmental charges not yet due or being contested in good faith; (ii)
incidental liens other than in connection with the borrowing of money or
obtaining of credit; (iii) liens securing obligations of a Domestic Finance
Subsidiary or Domestic Insurance Subsidiary to the Company or another Domestic
Finance Subsidiary or Domestic Insurance Subsidiary; (iv) certain liens on
acquired property; and (v) conditional sales or title retention agreements and
other security devices affecting certain acquired property. (sec. 12.08) In
addition, each Indenture provides that neither the Company nor any Subsidiary
will make any loan to, or enter into any other transaction with, an Affiliate on
terms and conditions less favorable to the Company or such Subsidiary than the
terms and conditions which would apply in a similar transaction with an
unaffiliated party, provided that this covenant will not apply to transactions
involving the Company and its Subsidiaries exclusively. (sec. 12.09) The Holders
of 66 2/3% in principal amount of the Debt Securities at the time Outstanding of
each series which is affected thereby, may waive from time to time compliance by
the Company with the foregoing restrictive covenants. (sec. 12.11)
MODIFICATION OF THE INDENTURES
Modifications and amendments of any Indenture may be made by the Company
and the applicable Trustee with the consent of the Holders of 66 2/3% in
principal amount of each series of the Debt Securities at the time Outstanding
under such Indenture which is affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each Debt
Security affected thereby: (i) modify the terms of payment of principal,
premium, if any, or interest; (ii) reduce the above stated percentage of Holders
of Debt Securities necessary to modify or amend such Indenture or waive
compliance by the Company with any restrictive covenant; or (iii) subordinate
the indebtedness evidenced by the Debt Securities to any indebtedness of the
Company. (sec. 11.02)
EVENTS OF DEFAULT, NOTICE AND WAIVER
Except as may otherwise be set forth in the Prospectus Supplement, each
Indenture provides that the following are Events of Default thereunder with
respect to any series of Debt Securities issued thereunder; default in the
payment of the principal of (or premium, if any, on) any Debt Security of such
series at its Maturity; default in making a sinking fund payment, if any, when
and as the same shall be due and payable by the terms of the Debt Securities of
such series; default for 30 days in the payment of any installment of interest
on any Debt Security of such series; default for 60 days after written notice in
the performance of any other covenant in respect of the Debt Securities of such
series contained in such Indenture; certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Company or its property; an event of default with respect to any other series of
Debt Securities outstanding under such Indenture or as defined in any other
indenture or instrument evidencing or under which the Company has outstanding
any indebtedness for borrowed money, as a result of which indebtedness of the
Company shall have been accelerated and such acceleration shall not have been
annulled within 10 days after written notice thereof; and any other Event of
Default provided in the applicable resolution of the Board of Directors or
supplemental indenture under which such series of Debt Securities is issued.
(sec. 7.01) An Event of Default with respect to a particular series of Debt
Securities does not necessarily constitute an Event of Default with respect to
any other series of Debt Securities issued under the same or another Indenture.
The
5
<PAGE> 22
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except in the payment of principal,
premium or interest) if it considers such withholding in the interests of such
Holders. (sec. 8.02)
If an Event of Default with respect to any series of Debt Securities shall
have occurred and be continuing, the Trustee or the Holders of 25% in aggregate
principal amount of the Debt Securities of such series may declare the
principal, or in the case of discounted Debt Securities, such portion thereof as
may be described in the Prospectus Supplement accompanying this Prospectus, of
all the Debt Securities of such series to be due and payable immediately. (sec.
7.02)
Each Indenture contains a provision entitling the Trustee to be indemnified
by the Holders of Debt Securities issued thereunder before proceeding to
exercise any right or power under such Indenture at the request of any Holders.
(sec. 8.03) Each Indenture provides that the Holders of a majority in principal
amount of the Outstanding Debt Securities of any series issued thereunder may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred upon the
Trustee, with respect to the Debt Securities of such series. (sec. 7.12) The
right of the Holder to institute a proceeding with respect to the applicable
Indenture is subject to certain conditions precedent including notice and
indemnity to the applicable Trustee, but each Holder has an absolute right to
receipt of principal, premium, if any, and interest at the respective Stated
Maturities (or, in the case of redemption, on the Redemption Date) or to
institute suit for the enforcement thereof. (sec.sec. 7.07 and 7.08)
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
the Debt Securities of such series waive any past defaults except (a) a default
in payment of the principal of (or premium, if any) or interest, if any, or
sinking fund payments, if any, on any Debt Security of such series and (b) a
default in respect of a covenant or provision of the applicable Indenture which
cannot be amended or modified without the consent of the Holder of each
Outstanding Debt Security affected. (sec. 7.13)
Each Indenture requires the Company to furnish to the applicable Trustee
annual statements as to the fulfillment by the Company of its obligations under
such Indenture. (sec. sec. 9.04 and 12.06)
CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between the
Company and its affiliates and each Trustee under any Indenture pursuant to
which any of the Debt Securities to which the Prospectus Supplement accompanying
this Prospectus relates are described in such Prospectus Supplement.
DESCRIPTION OF WARRANTS
The following statements with respect to the Warrants are summaries of, and
subject to, the detailed provisions of one or more separate Warrant Agreements
(each a "Warrant Agreement") between the Company and one or more banking
institutions organized under the laws of the United States of America or any
State thereof, as Warrant Agent (each a "Warrant Agent"), a form of which is
filed as an exhibit to the Registration Statement.
GENERAL
The Warrants, evidenced by Warrant Certificates (the "Warrant
Certificates") may be issued under a Warrant Agreement independently or together
with any Debt Securities offered by any Prospectus Supplement and may be
attached to or separate from such Debt Securities. If Warrants are offered, the
Prospectus Supplement will describe the terms of the Warrants, including the
following: (i) the offering price, if any; (ii) the designation, aggregate
principal amount, and terms of the Debt Securities purchasable upon exercise of
the Warrants; (iii) if applicable, the designation and terms of the Debt
Securities with which the Warrants are issued and the number of Warrants issued
with each such Debt Security; (iv) if applicable, the date on and after which
the Warrants and the related Debt Securities will be separately transferable;
(v) the principal amount of Debt Securities purchasable upon exercise of one
Warrant and the price at which such principal
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<PAGE> 23
amount of Debt Securities may be purchased upon such exercise; (vi) the date on
which the right to exercise the Warrants shall commence and the date on which
such right shall expire; (vii) federal income tax consequences; (viii) whether
the Warrants represented by the Warrant Certificates will be issued in
registered or bearer form; and (ix) any other terms of the Warrants.
Warrant Certificates may be exchanged for new Warrant Certificates of
different denominations and may (if in registered form) be presented for
registration of transfer at the corporate trust office of the Warrant Agent or
any Co-Warrant Agent, which will be listed in the Prospectus Supplement, or at
such other office as may be set forth therein. Warrantholders do not have any of
the rights of holders of Debt Securities (except to the extent that the consent
of Warrantholders may be required for certain modifications of the terms of an
Indenture and the series of Debt Securities issuable upon exercise of the
Warrants) and are not entitled to payments of principal and interest, if any, on
such Debt Securities.
EXERCISE OF WARRANTS
Warrants may be exercised by surrendering the Warrant Certificate at the
corporate trust office of the Warrant Agent or at the corporate trust office of
the Co-Warrant Agent, if any, with the form of election to purchase on the
reverse side of the Warrant Certificate properly completed and executed, and by
payment in full of the exercise price, as set forth in the Prospectus
Supplement. Upon exercise of Warrants, the Warrant Agent will, as soon as
practicable, deliver the Debt Securities in authorized denominations in
accordance with the instructions of the exercising Warrantholder and at the sole
cost and risk of such holder. If less than all of the Warrants evidenced by the
Warrant Certificate are exercised, a new Warrant Certificate will be issued for
the remaining amount of Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Securities (i) through underwriters or dealers;
(ii) directly to one or more institutional purchasers; or (iii) through agents.
The Prospectus Supplement with respect to the Securities being offered thereby
sets forth the terms of the offering of such Securities, including the name or
names of any underwriters, the purchase price of such Securities and the
proceeds to the Company from such sale, any underwriting discounts and other
items constituting underwriters' compensation, any initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers and
any securities exchanges on which such Securities may be listed. Only
underwriters so named in the Prospectus Supplement are deemed to be underwriters
in connection with the Securities offered thereby.
If underwriters are used in the sale, the Securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase such Securities will be subject to
certain conditions precedent, and the underwriters will be obligated to purchase
all the Securities of the series offered by the Company's Prospectus Supplement
if any of such Securities are purchased. Any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
Securities may also be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offering
and sale of the Securities in respect of which this Prospectus is delivered is
named, and any commissions payable by the Company to such agent are set forth,
in the Prospectus Supplement. Unless otherwise indicated in the Prospectus
Supplement, any such agent is acting on a best efforts basis for the period of
its appointment.
As one of the means of direct issuance of the Debt Securities, the Company
may utilize the services of another entity to conduct an electronic "dutch
auction" of the Debt Securities among potential purchasers who are eligible to
participate in the auction of such Securities, as described in the Prospectus
Supplement.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers by certain institutional
investors to purchase Securities providing for payment and delivery on a future
date specified in the Prospectus Supplement. There may be limitations on the
minimum amount which
7
<PAGE> 24
may be purchased by any such institutional investor or on the portion of the
aggregate principal amount of the particular Securities which may be sold
pursuant to such arrangements. Institutional investors to which such offers may
be made, when authorized, include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and such other institutions as may be approved by the Company. The
obligations of any such purchasers pursuant to such delayed delivery and payment
arrangements will not be subject to any conditions except (i) the purchase by an
institution of the particular Securities shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject, and (ii) if the particular Securities are being sold to
underwriters, the Company shall have sold to such underwriters the total
principal amount of such Securities less the principal amount thereof covered by
such arrangements. Underwriters will not have any responsibility in respect of
the validity of such arrangements or the performance of the Company or such
institutional investors thereunder.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, or to contribution with
respect to payments which the agents or underwriters may be required to make in
respect thereof. Agents and underwriters may engage in transactions with, or
perform services for, the Company in the ordinary course of business.
LEGAL AND AUDIT OPINIONS
Certain legal matters in connection with the Securities being offered
hereby will be passed upon for the Company by its Senior Vice President,
Secretary and General Counsel, Herbert F. Smith, Esq., 600 Anton Boulevard, P.O.
Box 5011, Costa Mesa, California 92628-5011, and for any underwriters or agents
by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, 125 West 55th Street, New York, New York
10019.
The consolidated financial statements and schedules of the Company
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such financial statements and schedules are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
8
