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RULE NO. 424(b)(2)
REGISTRATION NO. 33-53779
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 29, 1994)
$500,000,000
ALCO CAPITAL RESOURCE, INC.
MEDIUM-TERM NOTES, SERIES A
WITH MATURITIES OF NINE MONTHS OR MORE FROM DATE OF ISSUE
----------------
Alco Capital Resource, Inc. (the "Company" or "ACR") may offer from time to
time its Medium Term Notes, Series A (the "Notes"), having an aggregate initial
offering price not to exceed $500,000,000 (or the equivalent thereof in foreign
currencies or currency units), subject to reduction under certain circumstances
as a result of the sale of other Securities of the Company under the Prospectus
to which this Prospectus Supplement relates. The Notes will be offered at
varying maturities of nine months or more from their dates of issue and may be
subject to redemption at the option of the Company or repayment at the option
of the Holder, in each case, in whole or in part, prior to the maturity date
(as further defined below, "Stated Maturity") thereof as set forth in a Pricing
Supplement to this Prospectus Supplement (a "Pricing Supplement"). Each Note
will be denominated in United States dollars or in other currencies or currency
units (the "Specified Currency") as may be designated by the Company and set
forth in the applicable Pricing Supplement. See "Important Currency
Information" and "Currency Risks." The Notes may be issued as "Amortizing
Notes," "Original Issue Discount Notes," "Extendible Notes," "Renewable Notes"
or "Indexed Notes." See "Description of Notes." (Continued on next page)
----------------
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, THIS PROSPECTUS SUPPLEMENT OR ANY
SUPPLEMENT THERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
Price to Agent's Commission or Proceeds to
Public(1) Discount(2) Company(2)(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note....... 100% .125%--.750% 99.250%--99.875%
- -------------------------------------------------------------------------------
Total.......... $500,000,000 $625,000--$3,750,000 $499,375,000--$496,250,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Unless otherwise specified in the Pricing Supplement relating thereto, each
Note will be issued at 100% of the principal amount thereof.
(2) The Company will pay Lehman Brothers, Lehman Brothers Inc. (including its
affiliate, Lehman Government Securities Inc.), Chase Securities, Inc.,
Goldman, Sachs & Co., or Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated (each an "Agent," and collectively, the "Agents") a
commission, in the form of a discount ranging from .125% to .750%, of the
principal amount of any Note, depending on its Stated Maturity, sold
through such Agent, except that the commission payable by the Company to
the Agents with respect to Notes with maturities of greater than thirty
years will be negotiated at the time the Company issues such Notes. Any
Agent, acting as principal, may also purchase Notes at a discount for
resale to one or more investors or one or more broker-dealers (acting as
principal for purposes of resale) at varying prices related to prevailing
market prices at the time of resale, as determined by such Agent, or, if so
agreed, at a fixed public offering price. The Company has agreed to
reimburse the Agents for expenses, estimated at $100,000. The Company has
agreed to indemnify the Agents against certain liabilities, including
liabilities under the applicable Federal and state securities laws.
(3) Before deducting offering expenses payable by the Company estimated at
$530,000.
----------------
The Notes are offered on a continuing basis by the Company through the
Agents, each of which has agreed to use its reasonable efforts to solicit
offers to purchase the Notes. The Company has reserved the right to sell Notes
directly to investors on its own behalf, and on such sales no commissions will
be paid. The Notes will not be listed on any securities exchange, and there can
be no assurance that the Notes will be sold or that there will be a secondary
market for the Notes. The Company reserves the right to withdraw, cancel or
modify the offer made hereby without notice. The Company or the Agent that
solicits any offer to purchase Notes may reject any offer to purchase Notes in
whole or in part. See "Plan of Distribution."
----------------
LEHMAN BROTHERS
CHASE SECURITIES, INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JULY 1, 1994.
<PAGE>
(Continued from previous page)
Unless otherwise specified in the applicable Pricing Supplement, Notes
denominated in United States dollars will be issued only in denominations of
$1,000 or any amount in excess thereof which is an integral multiple of $1,000.
If the Notes are to be denominated in a foreign currency or units of a foreign
composite currency, the authorized denominations and currency exchange rate
information will be set forth in the applicable Pricing Supplement. Unless
otherwise specified in the applicable Pricing Supplement, each Note will be
registered and will be issued either in (i) book-entry form and represented by
a global certificate (a "Global Security") registered in the name of a nominee
of The Depository Trust Company, as Depositary (the "Depositary") (each such
Note represented by a Global Security being referred to herein as a "Book-Entry
Note"), or (ii) if specified in the applicable Pricing Supplement, in
certificated form and represented by certificates issued in definitive form
("Certificated Notes") and registered in the name of each Holder. Interests in
Book-Entry Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary (with respect to beneficial
interests of participants) and its participants. Owners of beneficial interests
in Book-Entry Notes will be entitled to physical delivery of Certificated Notes
only under the limited circumstances described herein. See "Description of
Notes--Book-Entry System."
Except as otherwise set forth herein, the interest rate on, or interest rate
formula for, each Note will be established by the Company at the date of
issuance of such Note and will be set forth in the applicable Pricing
Supplement. Interest rates and interest rate formulas are subject to change by
the Company, but, except as otherwise set forth herein, no such change will
affect the interest rate on, or interest rate formula for, any Note theretofore
issued or which the Company has agreed to sell. Unless otherwise located in the
applicable Pricing Supplement, each Note will bear interest at a fixed rate (a
"Fixed Rate Note"), which may be zero in the case of certain Notes issued at a
price representing a discount from the principal amount payable at Stated
Maturity, or at rates determined by reference to the Commercial Paper Rate,
Federal Funds Rate, CD Rate, LIBOR, Prime Rate, Treasury Rate, CMT Rate, 11th
District Cost of Funds Rate, J.J. Kenny Rate (each as defined below) or such
other interest rate formula (a "Floating Rate") as may be designated in an
accompanying Pricing Supplement, as adjusted by the Spread and/or Spread
Multiplier, if any, applicable to such Notes. See "Description of Notes."
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note other than an Amortizing Note will accrue from its
Original Issue Date (as defined below), or the last date to which interest has
been paid or duly provided for, and will be payable semiannually on each June
15 and December 15 and at Maturity.
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IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture, dated as of June 15, 1994 (the
"Indenture"), between the Company and NationsBank of Georgia, National
Association, as trustee (the "Trustee"). The following summaries of certain
provisions of the Notes and the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Notes and the Indenture. Capitalized terms set forth below
that are not otherwise defined herein shall have the meanings specified in the
Indenture and/or the Notes. Unless otherwise specified in the applicable
Pricing Supplement, the Notes will have the terms described below.
GENERAL
The Notes constitute a single series of debt securities for purposes of the
Indenture (the "Debt Securities") and are limited to $500,000,000 (or the
equivalent thereof in foreign currencies or currency units calculated at
issuance of such Notes) aggregate initial offering price, subject to reduction
under certain circumstances as a result of the sale of other Securities of the
Company under the accompanying Prospectus. In this Prospectus Supplement, the
accompanying Prospectus and any Pricing Supplement, reference to "U.S.
dollars", "U.S. $", "$", "dollars" or "cents" are to United States currency,
unless otherwise indicated in the applicable Pricing Supplement. The Company
may from time to time sell additional series of Debt Securities, including
additional series of medium-term notes.
The Notes will be offered on a continuing basis and each Note will mature
nine months or more from its date of issue, as selected by the initial
purchaser and agreed to by the Company, and may be subject to redemption at the
option of the Company or repayment at the option of the Holder prior to Stated
Maturity as set forth below under "Optional Redemption" and "Repayment at the
Noteholders' Option." Each Note will be denominated in U.S. dollars or in such
other Specified Currency as is specified in the applicable Pricing Supplement.
Each Note will be either (i) a Fixed Rate Note, which may bear interest at a
rate of zero in the case of a Note issued at an Issue Price (as defined below)
representing a discount from the principal amount payable at Stated Maturity (a
"Zero Coupon Note"), or (ii) a Floating Rate Note which will bear interest at a
rate determined by reference to the interest rate basis or combination of
interest rate bases specified in the applicable Pricing Supplement, which may
be adjusted by a Spread and/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 System," Book-Entry Notes will not be exchangeable for
Certificated Notes. Unless otherwise specified in the applicable Pricing
Supplement, Notes will be issuable in U.S. dollars in denominations of $1,000
and integral multiples of $1,000 in excess thereof. The authorized
denominations of any Note denominated in other than U.S. dollars will be the
amount of the Specified Currency for such Note equivalent, at the noon buying
rate in The City of New York for cable transfers for such Specified Currency as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Market Exchange Rate") on the first Business Day (as defined below) in The
City of New York and the country issuing such currency (or, in the case of
European Currency Units ("ECUs"), Brussels) next preceding the date on which
the Company accepts the offer to purchase such Note, to U.S. $1,000, or such
other minimum denomination as may be allowed or required from time to time by
any relevant central bank or equivalent governmental body, however designated,
or by any laws or regulations applicable to the Notes or to such Specified
Currency. The Notes will be issued in integral multiples of 1,000 units of any
such Specified Currency in excess of their minimum denominations. If any of the
Notes are to be denominated in
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a Specified Currency other than U.S. dollars, or if the principal of and
premium, if any, and any interest on any of the Notes not denominated in U.S.
dollars is to be payable at the option of the Holder or the Company in U.S.
dollars, the applicable Pricing Supplement will provide additional information,
including applicable exchange rate information, pertaining to the terms of such
notes and other matters of interest to the Holders thereof.
Interest rates offered by the Company with respect to the Notes may differ
depending upon the aggregate principal amount of Notes purchased in any
transaction, and the Company expects generally to distinguish, with respect to
such offered rates, between purchases which are for less than, and purchases
which are equal to or greater than, $200,000. Interest rates, interest rate
formulae and other variable terms of the Notes are subject to change by the
Company from time to time, but no such change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
As used herein, "Business Day" means, unless otherwise specified in the
applicable Pricing Supplement, any Monday, Tuesday, Wednesday, Thursday or
Friday that in the Place of Payment is not a day on which banking institutions
are authorized or required by law, regulation or executive order to close and,
with respect to Notes as to which LIBOR (as defined below) is an applicable
Base Rate (as defined below), is also a London Business Day. As used herein,
"London Business Day" means any day (a) on which dealings in deposits in the
Specified Currency are transacted in the London interbank market, (b) if the
Designated LIBOR Currency is other than the ECU, on which dealings in deposits
in such Designated LIBOR Currency are transacted in the London interbank market
or (c) if the Designated LIBOR Currency is the ECU, that is not designated as
an ECU Non-Settlement Day by the ECU Banking Association in Paris or otherwise
generally regarded in the ECU interbank market as a day on which payments on
ECUs shall not be made.
"Index Maturity" means, with respect to a Floating Rate Note, the period to
maturity of the instrument or obligation on which the interest rate formula is
based, as specified in the applicable Pricing Supplement.
The Pricing Supplement relating to each Note will describe the following
terms, as applicable: (i) the Specified Currency with respect to such Note
(and, if such Specified Currency is other than U.S. dollars, certain other
terms relating to such Note, including the authorized denomination); (ii) the
price (expressed as a percentage of the aggregate principal amount thereof) at
which such Note will be issued (the "Issue Price"); (iii) the date on which
such Note will be issued (the "Original Issue Date"); (iv) the date on which
such Note will mature (the "Stated Maturity") and whether the Stated Maturity
may be extended by the Company, and if so, the Extension Periods and the Final
Maturity Date (each as defined below); (v) whether such Note is a Fixed Rate
Note or a Floating Rate Note; (vi) whether such Note is an Amortizing Note (as
defined below), and if so, the basis or formula for the amortization of
principal and the payment dates for periodic principal payments; (vii) if such
Note is a Fixed Rate Note, the rate per annum at which such Note will bear
interest, if any, the Interest Payment Date or Dates and, if so specified in
the applicable Pricing Supplement, that such rate may be changed by the Company
prior to the Stated Maturity and, if so, the basis or formula for such change,
if any; (viii) if such Note is a Floating Rate Note, the Base Rate, the Initial
Interest Rate, if available, the Interest Reset Date or Dates, the Calculation
Date or Dates, the Maximum Interest Rate, if any, the Minimum Interest Rate, if
any, the Spread, if any, the Spread Multiplier, if any (all as defined below),
the Interest Payment Date or Dates, the Index Maturity, and any other terms
relating to the particular method of calculating the interest rate for such
Note and, if so specified in the applicable Pricing Supplement, that any such
Spread and/or Spread Multiplier may be changed by the Company prior to the
Stated Maturity and, if so, the basis or formula for such change, if any; (ix)
whether such Note is an Original Issue Discount Note (as defined below), and if
so, the yield to maturity; (x) the regular record date or dates (a "Regular
Record Date") if other than as set forth below with respect to Fixed Rate Notes
and Floating Rate Notes; (xi) whether such Note may be redeemed at the option
of the Company, or repaid at the option of the Holder, prior to the Stated
Maturity and, if so, the provisions relating to such redemption or repayment;
(xii) whether such Note is an Indexed Note, and if so, the specific terms
thereof; (xiii) certain specified United States Federal income tax consequences
of the purchase, ownership and disposition of such
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Note, if applicable; and (xiv) any other term of such Note not inconsistent
with the provisions of the Indenture.
The Notes and the Indenture do not limit the aggregate principal amount of
other indebtedness or securities which may be issued by the Company. The Notes
will be unsecured and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Company, provided that such other unsecured
and unsubordinated indebtedness may contain covenants, events of default and
other provisions which are different from or which are not contained in the
Notes.
PAYMENT OF INTEREST AND PRINCIPAL
Payments of interest and principal (and premium, if any) to Beneficial Owners
(as defined below) of Book-Entry Notes are expected to be made in accordance
with the Depositary's and its participants' procedures in effect from time to
time as described below under "Book-Entry System."
Unless otherwise specified in the applicable Pricing Supplement, payments of
interest and, in the case of Amortizing Notes, principal with respect to any
Certificated Note (other than interest and, in the case of Amortizing Notes,
principal payable at Maturity) will be made by mailing a check to the Holder at
the address of such Holder appearing on the security register for the Notes on
the applicable Regular Record Date. Notwithstanding the foregoing, at the
option of the Company, all payments of interest and, in the case of Amortizing
Notes, principal on the Notes may be made by wire transfer of immediately
available funds to an account at a bank located within the United States as
designated by each Holder not less than 15 calendar days prior to the
applicable Interest Payment Date. A Holder of $10 million or more in aggregate
principal amount of Notes of like tenor and terms with the same Interest
Payment Date may demand payment by wire transfer but only if appropriate
payment instructions have been received in writing by the Paying Agent, not
less than 15 calendar days prior to the applicable Interest Payment Date. In
the event that payment is so made in accordance with instructions of the
Holder, such wire transfer shall be deemed to constitute full and complete
payment of such interest and principal on the Notes. Payment of the principal
of (and premium, if any) and interest due with respect to any Certificated Note
at Maturity will be made in immediately available funds upon surrender of such
Note at the principal office of the Paying Agent in Atlanta, Georgia
accompanied by wire transfer instructions, provided that the Certificated Note
is presented to the Paying Agent in time for the Paying Agent to make such
payments in such funds in accordance with its normal procedures.
Unless otherwise specified in the applicable Pricing Supplement, payments of
interest and principal (and premium, if any) with respect to any Note to be
made in a Specified Currency other than U.S. dollars will be made by wire
transfer to such account with a bank located in the country issuing the
Specified Currency (or, with respect to Notes denominated in ECUs, Brussels) or
other jurisdiction acceptable to the Company and the Trustee as shall have been
designated at least 15 days prior to the Interest Payment Date or Maturity, as
the case may be, by the Holder of such Note on the relevant Regular Record Date
or at Maturity, provided that, in the case of payment of principal of (and
premium, if any) and any interest due at Maturity, the Note is presented to the
Paying Agent in time for the Paying Agent to make such payments in such funds
in accordance with its normal procedures. Such designation shall be made by
filing the appropriate information with the Trustee at its Corporate Trust
Office, and, unless revoked, any such designation made with respect to any Note
by a Holder will remain in effect with respect to any further payments with
respect to such Note payable to such Holder. If a payment with respect to any
such Note cannot be made by wire transfer because the required designation has
not been received by the Trustee on or before the requisite date or for any
other reason, a notice will be mailed to the Holder at its registered address
requesting a designation pursuant to which such wire transfer can be made and,
upon the Trustee's receipt of such a designation, such payment will be made
within 15 days of such receipt. The Company will pay any administrative costs
imposed by banks in connection with making payments by wire transfer, but any
tax, assessment or governmental charge imposed upon payments will be borne by
the Holders of the Notes in respect of which such payments are made.
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If so specified in the applicable Pricing Supplement, except as provided
below, payments of interest and principal (and premium, if any) with respect to
any Note denominated in other than U.S. dollars will be made in U.S. dollars if
the Holder of such Note on the relevant Regular Record Date or at Maturity, as
the case may be, has transmitted a written request for such payment in U.S.
dollars to the Paying Agent at its principal office on or prior to such Regular
Record Date or the date 15 days prior to Maturity, as the case may be. Such
request may be delivered by mail, by hand or by cable, telex or any other form
of facsimile transmission. Any such request made with respect to any Note by a
Holder will remain in effect with respect to any further payments of interest
and principal (and premium, if any) with respect to such Note payable to such
Holder, unless such request is revoked by written notice received by the Paying
Agent on or prior to the relevant Regular Record Date or the date 15 days prior
to Maturity, as the case may be (but no such revocation may be made with
respect to payments made on any such Note if an Event of Default has occurred
with respect thereto or upon the giving of a notice of redemption). Holders of
Notes denominated in other than U.S. dollars whose Notes are registered in the
name of a broker or nominee should contact such broker or nominee to determine
whether and how an election to receive payments in U.S. dollars may be made.
The U.S. dollar amount to be received by a Holder of a Note denominated in
other than U.S. dollars who elects to receive payments in U.S. dollars will be
based on the highest indicated bid quotation for the purchase of U.S. dollars
in exchange for the Specified Currency obtained by the Currency Determination
Agent (as defined below) at approximately 11:00 A.M., New York City time, on
the second Business Day next preceding the applicable payment date (the
"Conversion Date") from the bank composite or multicontributor pages of the
Quoting Source for three (or two if three are not available) major banks in The
City of New York. The first three (or two) such banks selected by the Currency
Determination Agent which are offering quotes on the Quoting Source will be
used. If fewer than two such bid quotations are available at 11:00 A.M., New
York City time, on the second Business Day next preceding the applicable
payment date, such payment will be based on the Market Exchange Rate as of the
second Business Day next preceding the applicable payment date. If the Market
Exchange Rate for such date is not then available, such payment will be made in
the Specified Currency. As used herein, the "Quoting Source" means Reuters
Monitor Foreign Exchange Service, or if the Currency Determination Agent
determines that such service is not available, Telerate Monitor Foreign
Exchange Service, or if the Currency Determination Agent determines that
neither service is available, such comparable display or other comparable
manner of obtaining quotations as shall be agreed between the Company and the
Currency Determination Agent. All currency exchange costs associated with any
payment in U.S. dollars on any such Note will be borne by the Holder thereof by
deductions from such payment. The currency determination agent (the "Currency
Determination Agent") with respect to any Notes will be specified in the
applicable Pricing Supplement for such Notes.
If payment in respect of a Note is required to be made in any currency unit
(e.g. ECUs) and such currency unit is unavailable, in the good faith judgment
of the Company, due to the imposition of exchange controls or other
circumstances beyond the Company's control, then all payments in respect of
such Note shall be made in U.S. dollars until such currency unit is again
available. The amount of each payment of U.S. dollars shall be computed on the
basis of the equivalent of the currency unit in U.S. dollars, which shall be
determined by the Currency Determination Agent on the following basis. The
component currencies of the currency unit for this purpose (the "Component
Currencies") shall be the currency amounts that were components of the currency
unit as of the Conversion Date. The equivalent of the currency unit in U.S.
dollars shall be calculated by aggregating the U.S. dollar equivalents of the
Component Currencies. The U.S. dollar equivalent of each of the Component
Currencies shall be determined by the Currency Determination Agent on the basis
of the Market Exchange Rate for each such Component Currency as of the
Conversion Date.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to
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the sum of the amounts of the consolidated Component Currencies expressed in
such single currency. If any Component Currency is divided into two or more
currencies, the amount of the original Component Currency shall be replaced by
the amounts of such two or more currencies, the sum of which shall be equal to
the amount of the original Component Currency.
All determinations referred to above made by the Currency Determination Agent
shall be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on Holders of Notes.
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 this Prospectus Supplement under "Description of
Notes--Events of Default," the amount of principal due and payable with respect
to such Note shall be the Amortized Face Amount of such Note as of the date of
such declaration. The "Amortized Face Amount" of an Original Issue Discount
Note that does not bear stated interest shall be an amount equal to the sum of
(i) the principal amount of such Note multiplied by the Issue Price (expressed,
for this purpose, as a percentage of the principal amount of the Note) set
forth in the applicable Pricing Supplement plus (ii) the portion of the
difference between the dollar amount determined pursuant to the preceding
clause (i) and the principal amount of such Note that has accrued at the yield
to maturity set forth in the Pricing Supplement (computed in accordance with
generally accepted financial practices) to such date of declaration, but in no
event shall the Amortized Face Amount of an Original Issue Discount Note exceed
its principal amount.
INTEREST AND INTEREST RATES
Each Note other than certain Original Issue Discount Notes will bear interest
from its Original Issue Date or from the most recent Interest Payment Date to
which interest on such Note has been paid or duly provided for at a fixed rate
or rates per annum, or at a rate or rates per annum determined pursuant to a
Base Rate or Rates stated therein and in the applicable Pricing Supplement that
may be adjusted by a Spread and/or Spread Multiplier, until the principal
thereof is paid or made available for payment. Interest will be payable on each
Interest Payment Date and at Maturity. "Maturity" means the date on which the
principal of a Note becomes due and payable in full in accordance with its
terms and the terms of the Notes and the Indenture, whether at Stated Maturity
(as defined above) or earlier by declaration of acceleration, call for
redemption, repayment or otherwise. Interest (other than defaulted interest
which may be paid on a special record date, as described above) will be payable
to the Holder at the close of business on the Regular Record Date next
preceding such Interest Payment Date; provided, however, that interest payable
at Maturity will be payable to the person to whom principal shall be payable.
The first payment of interest on any Note originally issued between a Regular
Record Date for such Note and the succeeding Interest Payment Date will be made
on the Interest Payment Date following the next succeeding Regular Record Date
for such Note to the Holder on such next Regular Record Date.
Interest rates, Base Rates, Spreads and Spread Multipliers are subject to
change by the Company from time to time but no such change will affect any Note
theretofore issued or which the Company has agreed to sell. The Interest
Payment Dates and the Regular Record Dates for each Fixed Rate Note shall be as
described below under "Fixed Rate Notes." The Interest Payment Dates for each
Floating Rate Note shall be as described below under "Floating Rate Notes" and
in the applicable Pricing Supplement, and the Regular Record Dates for a
Floating Rate Note will be the fifteenth day (whether or not a Business Day)
next preceding each Interest Payment Date.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its Original Issue Date at the
annual rate or rates stated thereon and in the applicable Pricing Supplement.
Payments of interest on any Fixed Rate Note with respect to any Interest
Payment Date will include interest accrued from and including the Original
Issue Date, or
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the next preceding Interest Payment Date, to but excluding the applicable
Interest Payment Date or the date of Maturity. Fixed Rate Notes may bear one or
more annual rates of interest during the periods or under the circumstances
specified therein and in the applicable Pricing Supplement. Unless otherwise
specified in the applicable Pricing Supplement, interest on the Fixed Rate
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in an applicable Pricing Supplement, the Interest
Payment Dates for the Fixed Rate Notes other than Amortizing Notes will be June
15 and December 15 of each year, and the Regular Record Dates will be May 31
and November 30 (whether or not a Business Day) of each year. Unless otherwise
specified in the applicable Pricing Supplement, the Regular Record Dates with
respect to Fixed Rate Amortizing Notes will be the 15th day (whether or not a
Business Day) next preceding each Interest Payment Date. Unless otherwise
specified in the applicable Pricing Supplement, payments of principal and
interest on Fixed Rate Amortizing Notes will be made either quarterly on each
March 15, June 15, September 15 and December 15 or semiannually on each June 15
and December 15, as set forth in the applicable Pricing Supplement, and at
Maturity. If the Interest Payment Date or Maturity for any Fixed Rate Note
falls on a day that is not a Business Day, payment of principal, premium, if
any, and interest with respect to such Note will be made on the next succeeding
Business Day with the same force and effect as if made on the due date, and no
interest shall be payable on the date of payment for the period from and after
the due date.
Payments with respect to Fixed Rate Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in
respect of each Fixed Rate Amortizing Note will be provided to the original
purchaser thereof and will be available, upon request, to subsequent Holders.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest at a rate determined by reference
to one or more interest rate bases (each a "Base Rate"), which may be adjusted
by adding to or subtracting from the Base Rate a fixed percentage per annum
(the "Spread") and/or by multiplying the Base Rate by a fixed interest factor
(the "Spread Multiplier"). The applicable Pricing Supplement will designate one
or more of the following Base Rates as applicable to each Floating Rate Note:
(a) the Commercial Paper Rate (a "Commercial Paper Rate Note"), (b) the Federal
Funds Rate (a "Federal Funds Rate Note"), (c) the CD Rate (a "CD Rate Note"),
(d) LIBOR (a "LIBOR Note"), (e) the Prime Rate (a "Prime Rate Note"), (f) the
Treasury Rate (a "Treasury Rate Note"), (g) the CMT Rate (a "CMT Rate Note"),
(h) the 11th District Cost of Funds Rate (an "11th District Cost of Funds Rate
Note"), (i) the J.J. Kenny Rate (a "J.J. Kenny Rate Note"), or (j) such other
Base Rate or interest rate formula as is set forth in such Pricing Supplement
and in such Floating Rate Note.
Each Floating Rate Note will bear interest from its Original Issue Date to
the first Interest Reset Date (as defined below) for such Note at the Initial
Interest Rate (the "Initial Interest Rate") set forth on the face thereof and
in the applicable Pricing Supplement. Thereafter, the interest rate on each
Floating Rate Note for each Reset Period (as defined below) will be equal to
the interest rate calculated by reference to the Base Rate or Rates specified
on the face thereof and in the applicable Pricing Supplement plus or minus the
Spread, if any, and/or times the Spread Multiplier, if any. The Spread and/or
Spread Multiplier for a Floating Rate Note may be subject to adjustment during
a Reset Period under circumstances specified therein and in the applicable
Pricing Supplement.
The Company will appoint, and enter into an agreement with, an agent (a
"Calculation Agent") to calculate interest rates on Floating Rate Notes. Unless
otherwise specified in the applicable Pricing Supplement, the Calculation Agent
for each Floating Rate will be the Trustee. All determinations to be made by
the Calculation Agent shall be at its sole discretion and shall, in the absence
of manifest error, be conclusive for all purposes and binding on the Holders of
Notes.
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The interest rate on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such type or period being the
"Reset Period" for such Note, and the first day of each Reset Period being an
"Interest Reset Date"), as specified on the face thereof and in the applicable
Pricing Supplement. Unless otherwise specified in the applicable Pricing
Supplement, the Interest Reset Dates will be, in the case of Floating Rate
Notes that 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, except
as provided below; in the case of Floating Rate Notes that reset monthly, the
third Wednesday of each month (with the exception of monthly reset 11th
District Cost of Funds Rate Notes, which will reset on the first calendar day
of the month); in the case of Floating Rate Notes that reset quarterly, the
third Wednesday of each March, June, September and December; in the case of
Floating Rate Notes that reset semiannually, the third Wednesday of each of two
months of each year specified on the face thereof and in the applicable Pricing
Supplement; and, in the case of Floating Rate Notes that reset annually, the
third Wednesday of the month of each year specified on the face thereof and in
the applicable Pricing Supplement; provided, however, that the interest rate in
effect from the date of issue to the first Interest Reset Date will be the
Initial Interest Rate specified on the face of the Floating Rate Note. If an
Interest Reset Date for a Floating Rate Note would otherwise be a day that is
not a Business Day, the Interest Reset Date for such Floating Rate Note 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 Reset Date shall be the immediately preceding Business Day.
The interest rate for each Reset Period will be the rate determined by the
Calculation Agent on the Calculation Date (as defined below) pertaining to the
Interest Determination Date pertaining to the Interest Reset Date for such
Reset Period. Unless otherwise specified in the applicable Pricing Supplement,
the "Interest Determination Date" pertaining to an Interest Reset Date for (a)
a Commercial Paper Rate Note (the "Commercial Paper Interest Determination
Date"), (b) a Federal Funds Rate Note (the "Federal Funds Interest
Determination Date"), (c) a CD Rate Note (the "CD Interest Determination
Date"), (d) a Prime Rate Note (the "Prime Interest Determination Date"), (e) a
CMT Rate Note (the "CMT Interest Determination Date"), or (f) a J.J. Kenny Rate
Note (the "Kenny Rate Interest Determination Date") will be the second Business
Day prior to such Interest Reset Date. Unless otherwise specified in the
applicable Pricing Supplement, the Interest Determination Date pertaining to an
Interest Reset Date for an 11th District Cost of Funds Rate Note (the "11th
District Interest Determination Date") will be the last business day of the
month immediately preceding such Interest Reset Date on which the Federal Home
Loan Bank of San Francisco (the "FHLB of San Francisco") publishes the Index
(as defined below). Unless otherwise specified in the applicable Pricing
Supplement, the Interest Determination Date pertaining to an Interest Reset
Date for a LIBOR Note (the "LIBOR Interest Determination Date") will be the
second London Business Day immediately preceding each Interest Reset Date.
Unless otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate
Note (the "Treasury Interest Determination Date") will be the day of the week
in which such Interest Reset Date falls on which Treasury bills would normally
be auctioned. Treasury bills are usually sold at auction on Monday of each
week, unless that day is a legal holiday, in which case the auction is usually
held on the following Tuesday, except that such auction may be held on the
preceding Friday. If, as a result of a legal holiday, an auction is so held on
the preceding Friday, such Friday will be the Treasury Interest Determination
Date pertaining to the Reset Period commencing in the next succeeding week. If
an auction date shall fall on any Interest Reset Date for a Treasury Rate Note,
then such Interest Reset Date shall instead be the first Business Day
immediately following such auction date. Unless otherwise specified in the
applicable Pricing Supplement, the "Calculation Date" pertaining to any
Interest Determination Date shall be the earlier of (i) the tenth calendar day
after the Interest Determination Date or, if 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, as the case may be.
Except as provided below or in the applicable Pricing Supplement, interest on
Floating Rate Notes, including Floating Rate Amortizing Notes, will be payable,
(i) in the case of Floating Rate Notes that reset
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daily, weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified on
the face thereof and in the applicable Pricing Supplement; (ii) in the case of
Floating Rate Notes, including Floating Rate Amortizing Notes, that reset
quarterly, on the third Wednesday of March, June, September and December of
each year; (iii) in the case of Floating Rate Notes, including Floating Rate
Amortizing Notes, that reset semiannually, on the third Wednesday of each of
two months of each year specified on the face thereof and in the applicable
Pricing Supplement; and (iv), in the case of Floating Rate Notes, including
Floating Rate Amortizing Notes, that reset annually, on the third Wednesday of
one month of each year specified on the face thereof and in the applicable
Pricing Supplement (each such day being an "Interest Payment Date") and, in
each case, at Maturity. If any Interest Payment Date, other than Maturity, for
any Floating Rate Note would otherwise be a day that is not a Business Day (or,
in the case of any Note denominated in other than U.S. dollars, a Business Day
in the country issuing the Specified Currency (or, in the case of ECUs,
Brussels)), 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 Market Day. If the Maturity for any Floating Rate
Note falls on a day that is not a Business Day, payment of principal, premium,
if any, and interest with respect to such Note will be made on the next
succeeding Business Day with the same force and effect as if made on the due
date, and no interest shall be payable on the date of payment for the period
from and after the due date.
Unless otherwise specified in the applicable Pricing Supplement, payments
with respect to Floating Rate Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in
respect of each Floating Rate Amortizing Note will be provided to the original
purchaser thereof and will be available, upon request, to subsequent Holders.
Each payment of interest on a Floating Rate Note will include interest
accrued from and including the Original Issue Date, or the next preceding
Interest Payment Date to which interest has been paid or duly provided for, to
but excluding the applicable Interest Payment Date or the date of Maturity.
Accrued interest from the Original Issue Date, or from the last date to which
interest has been paid or duly provided for, is calculated by multiplying the
face amount of a Note by an accrued interest factor computed by adding the
interest factor calculated for each day from the Original Issue Date, or from
the last date to which interest has been paid or duly provided for, to but
excluding the date for which accrued interest is being calculated. Unless
otherwise specified in the applicable Pricing Supplement, the interest factor
for each such day is computed by dividing the interest rate applicable to such
date by 360, in the case of Commercial Paper Rate Notes, Federal Funds Rate
Notes, CD Rate Notes, Prime Rate Notes, 11th District Cost of Funds Rate Notes
and LIBOR Notes, or by the actual number of days in the year, in the case of
Treasury Rate Notes or CMT Rate Notes, or by 365 days in the case of a J.J.
Kenny Rate Note.
All percentages resulting from any calculation on Floating Rate Notes will be
rounded upward, if necessary, to the nearest one hundred-thousandth of a
percentage point with five one-millionths of one percentage point being rounded
upward (e.g., 9.876545% or .09876545, being rounded to 9.87655% or .0987655,
respectively), and all dollar amounts used in or resulting from such
calculation on Floating Rate Notes will be rounded to the nearest cent (with
one-half cent being rounded upward).
The Calculation Agent will, upon the request of the Holder of any Floating
Rate Note, provide the interest rate then in effect.
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
that may accrue during any Reset Period (the "Maximum Interest Rate") and (ii)
a minimum numerical interest rate limitation, or floor, on the rate of interest
that may accrue during any Reset Period (the "Minimum Interest Rate"). The
interest rate on any Note will in no event be higher than the maximum rate
permitted by New York law or other applicable law. Under present
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New York law, the maximum rate of interest 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, including Notes purchased by an Agent or Agents in such
aggregate principal amount or more for resale to investors.
Commercial Paper Rate Notes
Each Commercial Paper Rate Note will bear interest at the rate (calculated
with reference to the Commercial Paper Rate and the Spread and/or Spread
Multiplier, if any) specified in such Commercial Paper Rate Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Commercial Paper Interest Determination
Date, the Money Market Yield (calculated as described below) of the rate on
such date for commercial paper having the Index Maturity designated in the
applicable Pricing Supplement as such rate is 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 ("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 Commercial Paper Interest Determination
Date, then the Commercial Paper Rate shall be the Money Market Yield of the
rate on such Commercial Paper Interest Determination Date for commercial paper
having 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 "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, then the Commercial Paper Rate for such Commercial Paper
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 as
of 11:00 A.M., New York City time, on such Commercial Paper Interest
Determination Date of three leading dealers of commercial paper in The City of
New York selected by the Calculation Agent for commercial paper 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 securities 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 with respect to such
Commercial Paper Interest Determination Date will be the Commercial Paper Rate
in effect on such Commercial Paper Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage rounded to the
nearest one hundred-thousandth of a percentage point) calculated in accordance
with the following formula:
D x 360
Money Market Yield = ------------- X 100
360 - (D x M)
where "D" refers to the per annum rate for the 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
Each Federal Funds Rate Note will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate Note and the Spread and/or
Spread Multiplier, if any) specified in such Federal Funds Rate Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Federal Funds Interest Determination
Date, the rate on such date 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 Federal Funds
Interest Determination Date,
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the Federal Funds Rate will be the rate on such Federal Funds Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Federal Funds
Interest Determination Date, then the Federal Funds Rate for such Federal Funds
Interest Determination Date will be calculated by the Calculation Agent and
will be the arithmetic mean of the rates as of 9:00 A.M., New York City time,
on such Federal Funds Interest Determination Date for the last transaction in
overnight Federal Funds arranged by three leading brokers of Federal Funds
transactions in The City of New York selected by the Calculation Agent;
provided, however, that if the brokers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
with respect to such Federal Funds Interest Determination Date will be the
Federal Funds Rate in effect on such Federal Funds Interest Determination Date.
CD Rate Notes
Each CD Rate Note will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any),
specified in such CD Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, with respect to any CD 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 in 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 CD Interest
Determination Date, the CD Rate will be the rate on such CD Interest
Determination Date for negotiable certificates of deposit having the Index
Maturity designated in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Certificates of Deposit." If such rate
is not published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such CD Interest Determination Date, then the CD Rate for such CD
Interest Determination Date will be calculated by the Calculation Agent and
will be the arithmetic mean of the secondary market offered rates as of 10:00
A.M., New York City time, on such CD 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
applicable 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 as mentioned in this sentence, the CD Rate with respect to such CD
Interest Determination Date will be the CD Rate in effect on such CD Interest
Determination Date.
11th District Cost of Funds Rate Notes
11th District Cost of Funds Rate Notes will bear interest at the rates
(calculated with reference to the 11th District Cost of Funds Rate and the
Spread and/or Spread Multiplier, if any) specified in the applicable 11th
District Cost of Funds Rate Note and in the Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "11th
District Cost of Funds Rate" means, with respect to any 11th District Interest
Determination Date, the rate equal to the monthly weighted average cost of
funds for the calendar month preceding such 11th District Cost of Funds Rate
Interest Determination Date as set forth under the caption "11th District" on
Telerate Page 7058 as of 11:00 A.M., San Francisco time, on such 11th District
Interest Determination Date. If such rate does not appear on Telerate Page 7058
on any related 11th District Interest Determination Date, the 11th District
Cost of Funds Rate for such 11th District Interest Determination Date shall be
the monthly weighted average cost of funds paid by member institutions of the
Eleventh Federal Home Loan Bank District that was most recently announced (the
"Index") by the FHLB of San Francisco as such cost of funds for the calendar
month
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preceding the date of such announcement. If the FHLB of San Francisco fails to
announce such rate for the calendar month next preceding such 11th District
Interest Determination Date, then the 11th District Cost of Funds Rate for such
11th District Interest Determination Date will be the 11th District Cost of
Funds Rate then in effect on such 11th District Interest Determination Date.
Kenny Rate Notes
Kenny Rate Notes will bear interest at the rates (calculated with reference
to the Kenny Rate and the Spread and/or Spread Multiplier, if any) specified in
the applicable Kenny Rate Note and in the Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Kenny Rate"
means, with respect to any Kenny Rate Interest Determination Date, the high
grade weekly index (the "Weekly Index") on such date made available by Kenny
Information Systems ("Kenny") to the Calculation Agent. The Weekly Index is,
and shall be, based upon 30 day yield evaluations at par of bonds, the interest
on which is exempt from Federal income taxation under the Internal Revenue Code
of 1986, as amended, of not less than five high grade component issuers
selected by Kenny which shall include, without limitation, issuers of general
obligation bonds. The specific issuers included among the component issuers may
be changed from time to time by Kenny in its discretion. The bonds on which the
Weekly Index is based shall not include any bonds on which the interest is
subject to a minimum tax or similar tax under the Internal Revenue Code of
1986, as amended, unless all tax-exempt bonds are subject to such tax. In the
event Kenny ceases to make available such Weekly Index, a successor indexing
agent will be selected by the Calculation Agent, such index to reflect the
prevailing rate for bonds rated in the highest short-term rating category by
Moody's Investors Service, Inc. and Standard & Poor's Corporation in respect of
issuers most closely resembling the high grade component issuers selected by
Kenny for its Weekly Index, the interest on which is (A) variable on a weekly
basis, (B) exempt from Federal income taxation under the Internal Revenue Code
of 1986, as amended, and (C) not subject to a minimum tax or similar tax under
the Internal Revenue Code of 1986, as amended, unless all tax-exempt bonds are
subject to such tax. If such successor indexing agent is not available, the
rate for any J.J. Kenny Rate Interest Determination Date shall be 67% of the
rate determined if the Treasury Rate option had been originally selected.
LIBOR Notes
Each LIBOR Note will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any) specified
in such LIBOR Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "LIBOR"
means, with respect to any LIBOR Interest Determination Date, the rate
determined in accordance with the following provisions:
(i) With respect to any LIBOR Interest Determination Date, LIBOR will be
either: (a) if "LIBOR Reuters" is specified in the Note and the applicable
Pricing Supplement, the arithmetic mean of the offered rates (unless the
specified designated LIBOR Page (as defined below) by its terms provides
only for a single rate, in which case such single rate shall be used) for
deposits in the Designated LIBOR Currency (as defined below) having the
Index Maturity designated in the Note and the applicable Pricing
Supplement, commencing on the second London Business Day immediately
following the LIBOR Interest Determination Date, which appear on the
Designated LIBOR Page specified in the Note and the applicable Pricing
Supplement as of 11:00 A.M., London time, on that LIBOR Interest
Determination Date, if at least two such offered rates appear (unless, as
aforesaid, only a single rate is required) on such Designated LIBOR Page,
or (b) if "LIBOR Telerate" is specified in the Note and the applicable
Pricing Supplement, the rate for deposits in the Designated LIBOR Currency
(as defined below) having the Index Maturity designated in the Note and the
applicable Pricing Supplement, commencing on the second London Business Day
immediately following such LIBOR Interest
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Determination Date, which appears on the Designated LIBOR Page specified in
the Note and the applicable Pricing Supplement as of 11:00 A.M. London time
on that LIBOR Interest Determination Date. Notwithstanding the foregoing,
if fewer than two offered rates appear on the Designated LIBOR Page with
respect to LIBOR Reuters (unless the specified Designated LIBOR Page with
respect to LIBOR Reuters by its terms provides only for a single rate, in
which case such single rate shall be used), or if no rate appears on the
Designated LIBOR Page with respect to LIBOR Telerate, whichever may be
applicable, LIBOR in respect of the related LIBOR Interest Determination
Date will be determined as if the parties had specified the rate described
in clause (ii) below.
(ii) With respect to any LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Designated LIBOR Page with respect to
LIBOR Reuters (unless the Designated LIBOR Page by its terms provides only
for a single rate, in which case such single rate shall be used), or if no
rate appears on the Designated LIBOR Page with respect to LIBOR Telerate,
as the case may be, the Calculation Agent will request the principal London
office of each of four major banks in the London interbank market selected
by the Calculation Agent to provide the Calculation Agent with its offered
rate quotation for deposits in the Designated LIBOR Currency (as defined
below) for the period of the Index Maturity designated in the Note and the
applicable Pricing Supplement, commencing on the second London Business Day
immediately following such LIBOR Interest Determination Date, to prime
banks in the London interbank market as of 11:00 A.M., London time, on such
LIBOR Interest Determination Date and in a principal amount that is
representative for a single transaction in such Designated LIBOR Currency
in such market at such time. If at least two such quotations are provided,
LIBOR determined on such LIBOR Interest Determination Date will be the
arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR determined on such LIBOR Interest Determination Date will
be the arithmetic mean of the rates quoted as of 11:00 A.M. in the
applicable Principal Financial Center (as defined below), on such LIBOR
Interest Determination Date by three major banks in such Principal
Financial Center selected by the Calculation Agent for loans in the
Designated LIBOR Currency to leading banks, having the Index Maturity
designated in the Note and the applicable Pricing Supplement in a principal
amount that is representative for a single transaction in such Designated
LIBOR Currency in such market at such time; provided, however, that if the
banks so selected by the Calculation Agent are not quoting as mentioned in
this sentence, LIBOR determined on such LIBOR Interest Determination Date
will be LIBOR in effect on such LIBOR Interest Determination Date.
"Designated LIBOR Currency" means, as with respect to any LIBOR Note, the
currency (including a composite currency), if any, designated in the Note and
the applicable Pricing Supplement as the Designated LIBOR Currency. If no such
currency is designated in the Note and the applicable Pricing Supplement, the
Designated LIBOR Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) the display on the Reuters Monitor
Money Rates Service for the purpose of displaying the London interbank rates of
major banks for the applicable Designated LIBOR Currency (if "LIBOR Reuters" is
designated in the Note and the applicable Pricing Supplement), or (b) the
display on the Dow Jones Telerate Service for the purpose of displaying the
London interbank rates of major banks for the applicable designated LIBOR
Currency (if "LIBOR Telerate" is designated in the Note and the applicable
Pricing Supplement). If neither LIBOR Reuters nor LIBOR Telerate is specified
in the Note and applicable Pricing Supplement, LIBOR for the applicable
Designated LIBOR Currency will be determined as if LIBOR Telerate (and, if the
U.S. dollar is the Designated LIBOR Currency, page 3750) had been chosen.
"Principal Financial Center" means, as with respect to any LIBOR Note, unless
otherwise specified in the Note and the applicable Pricing Supplement, the
capital city of the country that issues as its legal tender the Designated
LIBOR Currency of such Note, except that with respect to U.S. dollars and ECUS,
the Principal Financial Center shall be The City of New York and Brussels,
respectively.
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Prime Rate Notes
Each Prime Rate Note will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any)
specified in such Prime Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime Rate"
means, with respect to any Prime Interest Determination Date, the rate set
forth in H.15(519) for such date opposite the caption "Bank Prime Loan," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Prime Interest Determination Date, the Prime Rate will be
calculated by the Calculation Agent and will be the arithmetic mean of the
rates of interest publicly announced by each bank named on the Reuters Screen
NYMF Page as such bank's prime rate or base lending rate as in effect for such
Prime Interest Determination Date as quoted on the Reuters Screen NYMF Page on
such Prime Interest Determination Date, or, if fewer than four such rates
appear on the Reuters Screen Page for such Prime 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 Prime 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
quoted as aforesaid, the Prime Rate for such Prime Interest Determination Date
shall be calculated by the Calculation Agent and shall be the arithmetic mean
of the prime rates quoted in The City of New York on such date 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, having
total equity capital of at least U.S. $500 million and being subject to
supervision or examination by a Federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if the
Prime Rate is not published in H.15(519) and the banks or trust companies
selected as aforesaid are not quoting as mentioned in this sentence, the Prime
Rate with respect to such Prime Interest Determination Date will be the
interest rate otherwise in effect on such Prime Interest Determination Date.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on the
Reuters Monitor Money Rates Service (or such other page as may replace page
NYMF on that service for the purpose of displaying prime rates or base lending
rates of major United States banks).
Treasury Rate Notes
Each Treasury Rate Note will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any) specified in such Treasury Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, the
"Treasury Rate" for each such Interest Reset Date will be determined as of the
Treasury Interest Determination Date and will be the rate applicable to the
most recent auction of direct obligations of the United States (herein called
"Treasury bills") having the Index Maturity specified on the Note and Pricing
Supplement set forth in H.15(519) under the heading "Treasury Bills--auction
average (Investment)" or, if not so made available by 3:00 P.M., New York City
time, on the Calculation Date pertaining to such Treasury 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 specified Index Maturity are not published or reported as provided above by
3:00 P.M., New York City time, on such Calculation Date or if no such auction
is held 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 Treasury
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 applicable Index Maturity;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned above, the Treasury
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Rate with respect to such Treasury Interest Determination Date shall be the
Treasury Rate in effect on such date.
CMT Rate Notes
Each CMT Rate Note will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in the CMT Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any CMT Interest Determination Date, the rate displayed
on the Designated CMT Telerate Page (as defined below) under the caption
". . . Treasury Constant Maturities . . . Federal Reserve Board Release H. 15
. . . Mondays Approximately 3:45 P.M.," under the column for the Designated CMT
Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page
is 7055, the rate on such CMT Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the week, or the month, as applicable,
ended immediately preceding the week in which the applicable CMT Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 P.M., New York City time, on the Calculation
Date pertaining to such CMT Interest Determination Date, then the CMT Rate for
such CMT Interest Determination Date will be such treasury constant maturity
rate for the Designated CMT Maturity Index as published in the relevant H.
15(519). If such rate is no longer published, or if not published by 3:00 P.M.,
New York City time, on the Calculation Date pertaining to such CMT Interest
Determination Date, then the CMT Rate for such CMT Interest Determination Date
will be such treasury constant maturity rate for the Designated CMT Maturity
Index (or other United States Treasury rate for the Designated CMT Maturity
Index) for the CMT Interest Determination Date with respect to such Interest
Reset Date as may then be published by either the Board of Governors of the
Federal Reserve System or the United States Department of the Treasury that the
Calculation Agent determines to be comparable to the rate formerly displayed on
the Designated CMT Telerate Page and published in the relevant H.15(519). If
such information is not provided by 3:00 P.M., New York City time, on the
Calculation Date pertaining to such CMT Interest Determination Date, then the
CMT Rate for the CMT Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30
P.M., New York City time, on the CMT Interest Determination Date reported,
according to their written records, by three leading primary United States
government securities dealers (each, a "Reference Dealer") in The City of New
York selected by the Calculation Agent (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury Notes") with
an original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury Note
quotations, the CMT Rate for such CMT Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 P.M., New York City time, on the CMT Interest Determination
Date of three Reference Dealers in The City of New York (from five such
Reference Dealers selected by the Calculation Agent and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the lowest
quotation (or, in the event of equality, one of the lowest)), for Treasury
Notes with an original maturity of the number of years that is the next highest
to the Designated CMT Maturity Index and a remaining term to maturity closest
to the Designated CMT Maturity Index and in an amount of at least $100,000,000.
If three or four (and not five) of such Reference Dealers are quoting as
described above, then the CMT Rate will be based on the arithmetic mean of the
offer prices obtained and neither the highest nor the lowest of such quotes
will be eliminated; provided however, that if fewer than three Reference
Dealers selected by the Calculation Agent are quoting as described herein, the
CMT Rate will be the CMT Rate in effect on such CMT Interest Determination
Date. If two Treasury Notes with an original maturity as described in the third
preceding sentence, have
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remaining terms to maturity equally close to the Designated CMT Maturity Index,
the quotes for the Treasury Note with the shorter remaining term to maturity
will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page specified in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as published in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as published in H.15(519).
If no such page is specified in the applicable Pricing Supplement, the
Designated CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
Treasury Notes (either one, two, three, five, seven, ten, twenty or thirty
years) specified in the applicable Pricing Supplement with respect to which the
CMT Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
INDEXED NOTES
General
The Company may from time to time offer Notes, the principal amount payable
at Maturity and/or the interest rate of which is determined by a formula which
makes reference to the rate of exchange between one currency ("Currency I") and
another currency ("Currency II"; together with Currency I, the "Selected
Currencies," both as specified in the applicable Pricing Supplement), neither
of which need be the Specified Currency of such Notes (the "Currency Indexed
Notes"). Unless otherwise specified in the applicable Pricing Supplement,
Holders of Currency Indexed Notes will be entitled to receive (i) an amount in
respect of principal equal to the principal amount of the Currency Indexed
Notes plus an adjustment, which may be negative or positive, based on the
change in the relationship between Selected Currencies or (ii) an amount of
interest calculated at the stated rate of interest on their Currency Indexed
Note plus an adjustment, which may be negative or positive, based on the change
in the relationship between the Selected Currencies, in each case determined as
described below under "Payment of Principal and Interest." As specified in the
Pricing Supplement, the exchange rate designated as the base exchange rate (the
"Base Exchange Rate") will be the initial rate at which Currency I can be
exchanged for Currency II and from which the change in such exchange rate will
be measured.
Payment of Principal and Interest
Unless otherwise specified in the applicable Pricing Supplement, the payment
of principal at Maturity and interest on each Interest Payment Date (until the
payment thereof is paid or made available for payment) will be payable in the
Specified Currency in amounts calculated in the manner described below.
Unless otherwise specified in the applicable Pricing Supplement, principal at
Maturity, if indexed, will be payable in an amount equal to the principal
amount of the Currency Indexed Note, plus or minus an amount determined by
reference to the difference between the Base Exchange Rate specified in the
applicable Pricing Supplement and the rate at which Currency I can be exchanged
for Currency II on the second Business Day prior to the Maturity (the
"Determination Date") of such Currency Indexed Note, as determined by the
determination agent specified in the applicable Pricing Supplement (the
"Determination Agent"). Unless otherwise specified in the applicable Pricing
Supplement, the interest payable on any Interest Payment Date, if indexed, will
be payable in an amount equal to the stated interest rate of the Currency
Indexed Note, plus or minus a rate adjustment determined by reference to the
difference between the Base Exchange Rate specified in the applicable Pricing
Supplement and the rate at which Currency I can be exchanged for Currency II on
the second Business Day prior to the Interest Payment Date (the "Indexed
Interest Determination Date") of such Currency Indexed Note, as determined by
the Determination Agent, applied to the average principal amount outstanding of
such Note for the period being measured. For the purpose of this section, such
rate of exchange on the Determination Date or the Indexed Interest
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Determination Date, as the case may be,will be the average of quotations for
settlement on the Maturity Date or the relevant Interest Payment Date, as the
case may be, obtained by the Determination Agent from three Reference Dealers
in The City of New York at approximately 11:00 A.M., New York City time, on
either the Determination Date or the relevant Indexed Interest Determination
Date, as the case may be.
The formulas to be used by the Determination Agent to determine the principal
amount and/or the stated interest rate of a Currency Indexed Note payable at
Maturity or any Interest Payment Date will be specified in the applicable
Pricing Supplement by reference to the appropriate formula and will be as
follows:
Principal
A. If principal is to increase when the Spot Rate exceeds the Base Exchange
Rate, and if principal is to decrease when the Spot Rate is less than the Base
Exchange Rate, the formula to determine the principal amount of a Currency
Indexed Note payable at Maturity shall equal:
Principal Amount + (Principal Amount X F X [Spot Rate--Base Exchange Rate])
--------------------------------
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference Dealer's
quotation will be the rate at which such Reference Dealer will sell Currency I
in exchange for a single unit of Currency II.
B. If principal is to increase when the Base Exchange Rate exceeds the Spot
Rate, and if principal is to decrease when the Base Exchange Rate is less than
the Spot Rate, the formula to determine the principal amount of a Currency
Indexed Note payable at Maturity shall equal:
Principal Amount + (Principal Amount X F X [Base Exchange Rate--Spot Rate])
--------------------------------
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference Dealer's
quotation will be the rate at which such Reference Dealer will purchase
Currency I in exchange for a single unit of Currency II.
Interest
A. If interest is to increase when the Spot Rate exceeds the Base Exchange
Rate, and if interest is to decrease when the Spot Rate is less than the Base
Exchange Rate, the formula to determine the interest rate payable on any
Interest Payment Date on a Currency Indexed Note shall equal:
Stated Interest Rate + F X (Spot Rate--Base Exchange Rate)
-------------------------------
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference Dealer's
quotation will be the rate at which such Reference Dealer will sell Currency I
in exchange for a single unit of Currency II.
B. If interest is to increase when the Base Exchange Rate exceeds the Spot
Rate, and if interest is to decrease when the Base Exchange Rate is less than
the Spot Rate, the formula to determine the interest rate payable on any
Interest Payment Date on a Currency Indexed Note shall equal:
Stated Interest Rate + F X (Base Exchange Rate--Spot Rate)
-------------------------------
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference Dealer's
quotation will be the rate at which such Reference Dealer will purchase
Currency I in exchange for a single unit of Currency II.
In each of the above formulas "F" will be the leverage factor, if any, used
in such formula.
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An investment in Notes indexed, as to principal or interest or both, to one
or more values of currencies indices (including exchange rates between
currencies) entails significant risks that are not associated with similar
investments in a conventional fixed-rate debt security. If the interest rate of
such a Note is so indexed, it may result in an interest rate that is less than
that payable on a conventional fixed-rate debt security issued at the same
time, including the possibility that no interest will be paid, and, if the
principal amount of such a Note is so indexed, the principal amount payable at
Maturity may be less than the original purchase price of such Note if allowed
pursuant to the terms of such Note, including the possibility that no principal
will be paid. The secondary market for such Notes will be affected by a number
of factors, independent of the creditworthiness of the Company and the value of
the applicable currency index, including the volatility of the applicable
currency index, the time remaining to the maturity of such Notes, the amount
outstanding of such Notes and market interest rates. The value of the
applicable currency index depends on a number of interrelated factors,
including economic, financial and political events, over which the Company has
no control. Additionally, if the formula used to determine the principal amount
or interest payable with respect to such Notes contains a multiple or leverage
factor, the effect of any change in the applicable currency index may be
increased. The historical experience of the relevant currencies indices should
not be taken as an indication of future performance of such currencies indices
during the term of any Note. Accordingly, prospective investors should consult
their own financial and legal advisors as to the risks entailed by an
investment in such Notes and the suitability of such Notes in light of their
particular circumstances.
FORM, REGISTRATION, TRANSFER AND EXCHANGE
Certificated Notes will be exchangeable for other Certificated Notes of any
authorized denominations and of a like aggregate principal amount and tenor.
Certificated Notes may be presented to the Trustee for registration of
transfer or exchange at NationsBank of Georgia, National Association, 600
Peachtree Street, Suite 900, Atlanta, Georgia 30308, Attn: Corporate Trust
Administration (the "Corporate Trust Office"). Certificated Notes may be
presented for exchange and transfer in the manner, at the places and subject to
the restrictions set forth in the Indenture and the Notes. No service charge
will be made for any transfer or exchange of Certificated Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Certificated Notes may be presented for exchange as provided above, and may
be presented for registration of transfer (duly endorsed or accompanied by a
duly executed written instrument of transfer), at the office of any Note
registrar designated by the Company for such purpose with respect to the Notes,
without service charge and upon payment of any taxes and other governmental
charges as described in the Indenture. Such transfer or exchange will be
effected upon such Note registrar being satisfied with the documents of title
and identity of the person making the request. The Company may at any time
rescind the designation of any Note registrar except that the Company will be
required to maintain a Note registrar in The City of New York for the Notes.
In the event of any redemption of Notes, the Company will not be required to
(i) register the transfer of or exchange the Notes during a period of 15 days
next preceding the mailing of the relevant notice of redemption; or (ii)
register the transfer or exchange the Notes, or portion thereof, called for
redemption, except the unredeemed portion of any of the Notes being redeemed in
part.
The Trustee will initially act as paying agent pursuant to the Indenture
("Paying Agent"). The Company may at any time designate additional Paying
Agents or rescind the designation of any Paying Agent.
ORIGINAL ISSUE DISCOUNT NOTES
The Company may from time to time offer Original Issue Discount Notes. The
applicable Pricing Supplement to certain Original Issue Discount Notes may
provide that the Holders of such Notes will not
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receive periodic payments of interest. For the purpose of determining whether
Holders of the requisite principal amount of Notes outstanding under the
Indenture have made a demand or given a notice or waiver or taken any other
action, the outstanding principal amount of Original Issue Discount Notes shall
be deemed to be the amount of the principal that would be due and payable upon
declaration of acceleration of the Stated Maturity thereof as of the date of
such determination.
Notwithstanding anything in this Prospectus to the contrary, unless otherwise
specified in the applicable Pricing Supplement, if a Note is an Original Issue
Discount Note, the amount payable on such Note in the event of Maturity prior
to the Stated Maturity shall be the Amortized Face Amount of such Note as of
such Maturity.
"Original Issue Discount Note" means, (i) a Note, including any Zero Coupon
Note, that has a stated redemption price at Maturity that exceeds its Issue
Price (as defined for U.S. Federal income tax purposes) 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 Stated Maturity 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.
INTEREST RATE RESET
If the Company has the option with respect to any Note to reset the interest
rate, in the case of a Fixed Rate Note, or to reset the Spread and/or Spread
Multiplier, in the case of a Floating Rate Note, the Pricing Supplement
relating to such Note will indicate such option, and, if so, (i) the date or
dates on which such interest rate or such Spread and/or Spread Multiplier, as
the case may be, may be reset (each an "Optional Reset Date") and (ii) the
basis or formula, if any, for such resetting.
The Company may exercise such option with respect to a Note by notifying the
Paying Agent of such exercise at least 45 but not more than 60 days prior to an
Optional Reset Date for such Date for such Note. Not later than 40 days prior
to such Optional Reset Date, the Paying Agent will mail to the Holder of such
Note a notice (the "Reset Notice"), first class, postage prepaid, setting forth
(i) the election of the Company to reset the interest rate, in the case of a
Fixed Rate Note, or the Spread and/or Spread Multiplier, in the case of a
Floating Rate Note, (ii) such new interest rate or such new Spread and/or
Spread Multiplier, as the case may be, and (iii) the provisions, if any, for
redemption during the period from such Optional Reset Date to the next Optional
Reset Date or, if there is no such next Optional Reset Date, to the Stated
Maturity Date of such Note (each period a "Subsequent Interest Period"),
including the date or dates on which or the period or periods during which and
the price or prices at which such redemption may occur during such Subsequent
Interest Period.
Notwithstanding the foregoing, not later than 20 days prior to an Optional
Reset Date for a Note, the Company may, at its option, revoke the interest
rate, in the case of a Fixed Rate Note, or the Spread and/or Spread Multiplier,
in the case of a Floating Rate Note, in either case provided for in the Reset
Notice and establish a higher interest rate, in the case of a Fixed Rate Note,
or a higher Spread and/or Spread Multiplier, in the case of a Floating Rate
Note, for the Subsequent Interest Period commencing on such Optional Reset Date
by mailing or causing the Paying Agent to mail notice of such higher interest
rate or higher Spread and/or Spread Multiplier, as the case may be, first
class, postage prepaid, to the Holder of such Note. Such notice shall be
irrevocable. All Notes with respect to which the interest rate or Spread and/or
Spread Multiplier is reset on an Optional Reset Date will bear such higher
interest rate, in the case of a Fixed Rate Note, or higher Spread and/or Spread
Multiplier, in the case of a Floating Rate Note.
If the Company elects to reset the interest rate or the Spread and/or Spread
Multiplier of a Note, the Holder of such Note will have the option to elect
repayment of such Note by the Company on any Optional Reset Date at a price
equal to the principal amount thereof plus any accrued interest to such
Optional Reset Date. In order for a Note to be so repaid on an Optional Reset
Date on which the interest rate is reset, the Holder thereof must follow the
procedures set forth below under "Repayment at the Noteholder's Option"
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for optional repayment, except that the period for delivery of such Note or
notification to the Paying Agent shall be at least 25 but not more than 35 days
prior to such Optional Reset Date and except that a Holder who has tendered a
Note for repayment pursuant to a Reset Notice may, by written notice to the
Paying Agent, revoke any such tender for repayment until 5:00 p.m. New York
City time on the tenth day, whether or not a Business Day, prior to such
Optional Reset Date.
EXTENDIBLE NOTES
The Company may from time to time offer Notes whose interest rate or interest
rate formula may be adjusted on specified dates and which may be subject to
repayment at certain times at the option of the holder or to redemption at
certain times at the option of the Company ("Extendible Notes"). The applicable
Pricing Supplement will indicate whether the Company has the option to extend
the maturity of such Note for one or more periods up to but not beyond a date
set forth in such Pricing Supplement. If the Company has such option with
respect to any such Notes, the procedures relating thereto will be as set forth
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
Extendible Notes will be repayable in whole or in part on the day immediately
following the end of the initial interest period, as specified in the
applicable Pricing Supplement, and on the day immediately following the end of
each Extension Period, at the option of the holder, at 100% of the principal
amount to be repaid, in each case plus accrued interest, if any, to the
repayment date. The applicable Pricing Supplement will specify the procedures
that must be followed in order to effect such a repayment. An "Extension
Period" will be a period of one or more whole calendar periods (e.g., weeks,
months, or years) commencing on the day following the last day of the initial
interest period or any subsequent Extension Period.
RENEWABLE NOTES
The applicable Pricing Supplement will indicate whether a Note (other than an
Amortizing Note) will mature unless the term of all or any portion of any such
Note is renewed in accordance with the procedures described in such Supplement.
COMBINATION OF PROVISIONS
If so specified in the applicable Pricing Supplement, any Note may be subject
to all of the provisions, or any combination of the provisions, described above
under "Interest Rate Reset," "Extendible Notes" and "Renewable Notes."
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the Stated Maturity only if an Initial
Redemption Date is specified in the applicable Pricing Supplement ("Initial
Redemption Date"). If so specified, the Notes will be subject to redemption at
the option of the Company on any date on and after the applicable Initial
Redemption Date in whole or from time to time in part in increments of $1,000
or the minimum denomination specified in such Pricing Supplement (provided that
any remaining principal amount thereof shall be at least $1,000 or such minimum
denomination), at the applicable Redemption Price (as defined below) on notice
given not more than 60 nor less than 30 days prior to the date of redemption
and in accordance with the provisions of the Indenture. "Redemption Price,"
with respect to a Note, means an amount equal to the sum of (i) the Initial
Redemption Percentage specified in such Pricing Supplement (as adjusted by the
Annual Redemption Percentage Reduction, if applicable (as specified in such
Pricing Supplement)) multiplied by the unpaid principal amount or the portion
to be redeemed plus (ii) accrued interest to the date of redemption. The
Initial Redemption Percentage, if any, applicable to a Note shall decline at
each anniversary of the Initial Redemption Date by an amount equal to the
applicable Annual
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Redemption Percentage Reduction, if any, until the Redemption Price is equal to
100% of the unpaid principal amount thereof or the portion thereof to be
redeemed.
REPAYMENT AT THE OPTION OF THE HOLDER
If so specified in the applicable Pricing Supplement, the Notes will be
repayable by the Company in whole or in part at the option of the Holders
thereof on their respective optional repayment dates ("Optional Repayment
Dates") specified in such Pricing Supplement. If no Optional Repayment Date is
specified with respect to a Note, such Note will not be repayable at the option
of the Holder thereof prior to the Stated Maturity. Any repayment in part will
be increments of $1,000 or the minimum denomination specified in the applicable
Pricing Supplement (provided that any remaining principal amount thereof shall
be at least $1,000 or such minimum denomination). Unless otherwise specified in
the applicable Pricing Supplement, the repayment price for any Note to be
repaid means an amount equal to the sum of (i) 100% of the unpaid principal
amount thereof or the portion thereof plus (ii) accrued interest to the date of
repayment. For any Note to be repaid, such Note must be received, together with
the form thereon entitled "Option to Elect Repayment" duly completed, by the
Trustee at its Corporate Trust Office (or such other address of which the
Company shall from time to time notify the Holders) not more than 60 nor less
than 30 days prior to the date of repayment. Exercise of such repayment option
by the Holder will be irrevocable.
While the Book-Entry Notes are represented by the Global Securities held by
or on behalf of the Depositary, and registered in the name of the Depositary or
the Depositary's nominee, the option for repayment may be exercised by the
applicable Participant (as defined herein) that has an account with the
Depositary, on behalf of the beneficial owners of the Global Security or
Securities representing such Book-Entry Notes, by delivering a written notice
substantially similar to the above mentioned form to the Trustee at its
Corporate Trust Office (or such other address of which the Company shall from
time to time notify the Holders), not more than 60 nor less than 30 days prior
to the date of repayment. Notices of elections from Participants on behalf of
beneficial owners of the Global Security or Securities representing such Book-
Entry Notes to exercise their option to have such Book-Entry Notes repaid must
be received by the Trustee by 5:00 P.M., New York City time, on the last day
for giving such notice. In order to ensure that a notice is received by the
Trustee on a particular day, the beneficial owner of the Global Security or
Securities representing such Book-Entry Notes must so direct the applicable
Participant before such Participant's deadline for accepting instructions for
that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, beneficial owners of the Global
Security or Securities representing Book-Entry Notes should consult the
Participants through which they own their interest therein for the respective
deadlines for such Participants. All notices shall be executed by a duly
authorized officer of such Participant (with signatures guaranteed) and shall
be irrevocable. In addition, beneficial owners of the Global Security or
Securities representing Book-Entry Notes shall effect delivery at the time such
notices of election are given to the Depositary by causing the applicable
Participant to transfer such beneficial owner's interest in the Global Security
or Securities representing such Book-Entry Notes, on the Depositary's records,
to the Trustee. See "Book-Entry System."
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended, and any other securities
laws or regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the open
market or otherwise. Notes so purchased by the Company may be held or resold
or, at the discretion of the Company, may be surrendered to the Trustee for
cancellation.
REPURCHASE
The Company may at any time purchase Notes at any price or prices in the open
market or otherwise. Notes so purchased by the Company may be held or resold
or, at the discretion of the Company, may be
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surrendered to the Trustee for cancellation. If an issue of Notes and any
applicable Pricing Supplement provide for mandatory sinking fund payments with
respect to such Notes, the Indenture provides that in lieu of making all or any
part of any mandatory sinking fund payment in cash, the Company may deliver to
the Trustee Notes previously purchased or otherwise acquired by the Company (to
the extent not previously credited).
AMORTIZING NOTES
The Company may from time to time offer Notes for which payments of principal
and interest are made in installments over the life of the Note ("Amortizing
Notes"). Interest on each Amortizing Note will be computed as set forth in a
Pricing Supplement or in the Book-Entry Note representing such Amortizing Note.
Unless otherwise provided in such Pricing Supplement or in such Book-Entry
Note, payments with respect to Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information with
respect to each Amortizing Note will be provided to the original purchaser of
such Note and will be available upon request to the subsequent holders thereof.
OTHER PROVISIONS
Any provisions with respect to the determination of an interest rate basis,
the specifications of interest rate basis, calculation of the interest rate
applicable to, or the principal payable at Maturity on, any Note, its Interest
Payment Dates or any other matter relating thereto may be modified by the terms
as specified under "Other Provisions" on the face of such Note, or in an
addendum relating thereto if so specified on the face thereof, and in the
applicable Pricing Supplement.
BOOK-ENTRY SYSTEM
The Depositary will act as securities depositary for the Book-Entry Notes.
The Book-Entry Notes will be issued as fully-registered securities registered
in the name of Cede & Co. (the Depositary's partnership nominee). One fully-
registered Global Security will be issued for each issue of the Notes, each in
the aggregate principal amount of such issue, and will be deposited with the
Depositary. If, however, the aggregate principal amount of any issue exceeds
$150 million, one Global Security will be issued with respect to each $150
million of principal amount and an additional Global Security will be issued
with respect to any remaining principal amount of such issue.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The Depositary also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
("Direct Participants") include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. The
Depositary is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the Depositary's system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Participants are on file with
the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be made by
or through Direct Participants, which will receive a credit for the Book-Entry
Notes on the Depositary's records. The ownership
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interest of each actual purchaser of each Book-Entry Note ("Beneficial Owner")
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Book-Entry Notes are to be accomplished by entries made on the
books of Participants acting on behalf of the Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
Book-Entry Notes, except in the event that use of the book-entry system for one
or more Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities deposited by
Participants with the Depositary are registered in the name of the Depositary's
partnership nominee, Cede & Co. The deposit of Global Securities with the
Depositary and their registration in the name of Cede & Co. effect no change in
beneficial ownership. The Depositary has no knowledge of the actual Beneficial
Owners of the Book-Entry Notes; the Depositary's records reflect only the
identity of the Direct Participants to whose accounts such Book-Entry Notes are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the Book-
Entry Notes within an issue are being redeemed, the Depositary's current
practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
Book-Entry Notes. Under its usual procedures, the Depositary will mail an
"Omnibus Proxy" to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Book-Entry Notes are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Book-Entry Notes will be made to the
Depositary. The Depositary's practice is to credit Direct Participants'
accounts on the payable date in accordance with their respective holdings shown
on the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on the payable date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as in the case of securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of the Depositary, or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to the Depositary is the responsibility of
the Company, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
A Beneficial Owner shall give notice to elect to have its Book-Entry Notes
purchased or tendered, through its Participant, to the Paying Agent, and shall
effect delivery of such Book-Entry Notes by causing the Direct Participant to
transfer the Participant's interest in the Book-Entry Notes, on the
Depositary's records, to the Paying Agent. The requirement for physical
delivery of Book-Entry Notes in connection with a demand for purchase or a
mandatory purchase will be deemed satisfied when the ownership rights in the
Book-Entry Notes are transferred by a Direct Participant on the Depositary's
records.
The Depositary may discontinue providing its services as securities
depositary with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Company or the Agents. Under such
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circumstances, in the event that a successor securities depository is not
obtained, Certificated Notes will be printed and delivered in exchange for the
Book-Entry Notes represented by the Global Securities held by the Depositary.
The Company may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered in exchange for
the Book-Entry Notes represented by the Global Securities held by the
Depositary.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
Neither the Company, the Trustee, any Paying Agent nor the registrar for the
Notes will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for each Note in the Specified Currency for
such Note. Currently, there are limited facilities in the United States for
conversion of U.S. dollars into foreign currencies and vice versa, and banks
generally do not offer non-U.S. dollar checking or savings account facilities
in the United States. However, if requested by a prospective purchaser of Notes
denominated in a Specified Currency other than U.S. dollars, the Agent
soliciting the offer to purchase will arrange for the conversion of U.S.
dollars into such Specified Currency to enable the Purchaser to pay for such
Notes. Such requests must be made on or before the fifth Business Day preceding
the date of delivery of the Notes, or by such other date as determined by the
Agent which presents the offer to the Company. Each such conversion will be
made by the relevant Agent on such terms and subject to such conditions,
limitations and charges as such Agent may from time to time establish in
accordance with its regular foreign exchange practice. All costs of exchange
will be borne by the relevant purchaser of the Notes.
CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in, or the payment of which is
determined with reference to, a Specified Currency other than U.S. dollars
entails significant risks that are not associated with a similar investment in
a security denominated in U.S. dollars. Similarly, an investment in an Indexed
Note entails significant risks that are not associated with an investment in
non-Indexed Notes. Such risks include, without limitation, the possibility of
significant changes in rates of exchange between U.S. dollars and the Specified
Currency (or, in the case of each Indexed Note, the rate of exchange between
the denominated currency and the indexed currency for such Indexed Note),
including changes resulting from official redenomination with respect to such
Specified Currency (or, in the case of each Indexed Note, with respect to the
denominated currency or the indexed currency therefor) and the possibility of
the imposition or modification of foreign exchange controls with respect to the
Specified Currency. Such risks generally depend on factors over which the
Company has no control, such as economic and political events and the supply of
and demand for the relevant currencies. In recent years, rates of exchange
between Specified Currencies have been highly volatile, and such volatility may
be expected in the future. Fluctuations in any particular exchange rate that
have occurred in the past are not necessarily indicative, however, of
fluctuations in the rate that may occur during the term of any Note.
Depreciation of a foreign currency or units of a foreign composite currency in
which a Note is denominated against the U.S. dollar would result in a decrease
in the effective yield of such Note below its coupon rate, and in certain
circumstances could result in a loss to the investor on a U.S. dollar
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basis. Similarly, depreciation of the denominated currency with respect to an
Indexed Note against the applicable indexed currency would result in the
principal amount payable with respect to such Indexed Note at the Stated
Maturity being less than the Face Amount of such Indexed Note which, in turn,
would decrease the effective yield of such Indexed Note below its applicable
interest rate and could also result in a loss to the investor.
The Notes will provide that, in the event of an official redenomination of a
foreign currency (including, without limitation, an official redenomination of
a foreign currency that is a composite currency) the obligations of the Company
with respect to payments on Notes denominated in such currency shall, in all
cases, be deemed immediately following such redenomination to provide for the
payment of that amount of redenomination currency representing the amount of
such obligations immediately before such redenomination. The Notes do not
provide for any adjustment to any amount payable under the Notes as a result of
(a) any change in the value of a foreign currency relative to any other
currency due solely to fluctuations in exchange rates or (b) any redenomination
of any component currency of any composite currency (unless such composite
currency is itself officially redenominated).
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a foreign currency for making payments with respect to a Note denominated in
such currency. There can be no assurances that exchange controls will not
restrict or prohibit payments of principal or interest in any currency or
currency unit. Even if there are not actual exchange controls, it is possible
that, with respect to any particular Note, the foreign currency for such Note
will not be available to the Company to make payments of interest and principal
then due because of circumstances beyond the control of the Company. In that
event, the Company will make such payment in the manner set forth below under
"Payment Currency."
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT, AND THE
APPLICABLE PRICING SUPPLEMENT WILL NOT, DESCRIBE ALL THE RISKS OF AN INVESTMENT
IN NOTES DENOMINATED IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, A
CURRENCY (INCLUDING ANY COMPOSITE CURRENCY) OTHER THAN U.S. DOLLARS, AND THE
COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS OF SUCH
RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE DATE OF
THE APPLICABLE PRICING SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO
TIME. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED IN AN INVESTMENT IN SUCH NOTES. SUCH AN
INVESTMENT IS NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED
WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The Pricing Supplement relating to Notes denominated in a Specified Currency
other than U.S. dollars or relating to Indexed Notes will contain information
concerning historical exchange rates for such Specified Currency or denominated
currency against the U.S. dollar or other relevant currency (including, in the
case of Indexed Notes, the applicable indexed currency), a description of such
currency or currencies and any exchange controls affecting such currency or
currencies. Information concerning exchange rates is furnished as a matter of
information only and should not be regarded as indicative of the range of or
trend in fluctuations in currency exchange rates that may occur in the future.
PAYMENT CURRENCY
Except as set forth in the applicable Pricing Supplement, if payment on a
Note is required to be made in a Specified Currency other than U.S. dollars and
such currency is unavailable due to the imposition of exchange controls or
other circumstances beyond the Company's control or is no longer used by the
government of the country issuing such currency or for the settlement of
transactions by public institutions of or within the international banking
community, then any payment with respect to such Note shall be made
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in U.S. dollars until such currency is again available or so used. The amount
so payable on any date in such Specified Currency will be converted into U.S.
dollars on the basis of the Market Exchange Rate on the last date such
Specified Currency was available. See "Description of Notes--Payment of
Principal and Interest."
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as components shall be replaced by an amount in such single
currency. If any component currency is divided into two or more currencies, the
amount of the original component currency as a component shall be replaced by
the amounts of such two or more currencies having an aggregate value on the
date of division equal to the amount of the former component currency
immediately before such division.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York applicable to instruments made to be performed wholly
within such jurisdiction. Courts in the United States customarily have not
rendered judgments for money damages denominated in any currency other than
U.S. dollars. If a Note is denominated in a Specified Currency other than U.S.
dollars, any judgment under New York law will be rendered in the foreign
currency of the underlying obligation and converted into U.S. dollars at a rate
of exchange prevailing on the date of entry of the judgment or decree.
INFORMATION LIMITED TO UNITED STATES HOLDERS
The information set forth in this Prospectus Supplement (except for certain
tax information) is directed to prospective purchasers of Notes who are United
States Holders (as defined below), and the Company disclaims any responsibility
to advise prospective purchasers who are residents of countries other than the
United States with respect to any matters that may affect the purchase or
holding of, or receipt of payments of principal, premium or interest in respect
of, Notes. Such persons should consult their own counsel with regard to such
matters.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of ownership of Notes. It deals only with Notes held as capital
assets by initial purchasers, and not with special classes of holders, such as
dealers in securities or currencies, banks, tax-exempt organizations, life
insurance companies, persons that hold Notes that are a hedge or that are
hedged against currency risks or that are part of a straddle or conversion
transaction, persons that are not "United States Holders," as defined below, or
persons whose functional currency is not the U.S. dollar. Moreover, the summary
deals only with Notes that are due to mature 30 years or less from the date on
which they are issued. The United States federal income tax consequences of
ownership of Notes that are due to mature more than 30 years from their date of
issue will be discussed in an applicable Prospectus Supplement. The summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as currently in effect and all subject to
change at any time, perhaps with retroactive effect.
Prospective purchasers of Notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of ownership of Notes.
UNITED STATES HOLDERS
Payments of Interest
Interest on a Note, whether payable in U.S. dollars or a currency, composite
currency or basket of currencies other than U.S. dollars (a "foreign
currency"), other than interest on a "Discount Note" that is
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not "qualified stated interest" (each as defined below under "Original Issue
Discount--General"), will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A United States Holder is a beneficial owner
who or that is (i) a citizen or resident of the United States, (ii) a domestic
corporation or (iii) otherwise subject to United States federal income taxation
on a net income basis in respect of the Note.
If an interest payment is denominated in, or determined by reference to, a
foreign currency, the amount of income recognized by a cash basis United States
Holder will be the U.S. dollar value of the interest payment, based on the
exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a foreign currency in accordance with either of two methods.
Under the first method, the amount of income accrued will be based on the
average exchange rate in effect during the interest accrual period (or, with
respect to an accrual period that spans two taxable years, the part of the
period within the taxable year). Upon receipt of the interest payment
(including a payment attributable to accrued but unpaid interest upon the sale
or retirement of a Note) denominated in, or determined by reference to, a
foreign currency, the United States Holder will recognize ordinary income or
loss measured by the difference between the average exchange rate used to
accrue interest income and the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars.
Under the second method, the United States Holder may elect to determine the
amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all
debt instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service (the "Service").
ORIGINAL ISSUE DISCOUNT
General
A Note, other than a Note with a term of one year or less (a "short-term
Note"), will be treated as issued at an original issue discount (a "Discount
Note") if the excess of the Note's "stated redemption price at maturity" over
its issue price is more than a "de minimis amount" (as defined below).
Generally, the issue price of a Note will be the first price at which a
substantial amount of Notes included in the issue of which the Note is a part
is sold to other than bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers. The
stated redemption price at maturity of a Note is the total of all payments
provided by the Note that are not payments of "qualified stated interest". A
qualified stated interest payment is generally any one of a series of stated
interest payments on a Note that are unconditionally payable at least annually
at a single fixed rate (with certain exceptions for lower rates paid during
some periods) applied to the outstanding principal amount of the Note. Special
rules for "Variable Rate Notes" (as defined below under "Original Issue
Discount--Variable Rate Notes") are described below under "Original Issue
Discount--Variable Rate Notes."
In general, if the excess of a Note's stated redemption price at maturity
over its issue price is less than 1/4 of 1 percent of the Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity (the "de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount Note. Unless
the election described below under "Election to
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Treat All Interest as Original Issue Discount" is made, a United States Holder
of a Note with de minimis original issue discount must include such de minimis
original issue discount in income as stated principal payments on the Note are
made. The includible amount with respect to each such payment will equal the
product of the total amount of the Note's de minimis original issue discount
and a fraction, the numerator of which is the amount of the principal payment
made and the denominator of which is the stated principal amount of the Note.
United States Holders of Discount Notes having a maturity of more than one
year from their date of issue must include original issue discount ("OID") in
income calculated on a constant-yield method before the receipt of cash
attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Note. The amount of
OID includible in income by a United States Holder of a Discount Note is the
sum of the daily portions of OID with respect to the Discount Note for each day
during the taxable year or portion of the taxable year on which the United
States Holder holds such Discount Note ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. Accrual periods with respect to a
Note may be of any length selected by the United States Holder and may vary in
length over the term of the Note as long as (i) no accrual period is longer
than one year and (ii) each scheduled payment of interest or principal on the
Note occurs on either the final or first day of an accrual period. The amount
of OID allocable to an accrual period equals the excess of (a) the product of
the Discount Note's adjusted issue price at the beginning of the accrual period
and such Note's yield to maturity (determined on the basis of compounding at
the close of each accrual period and properly adjusted for the length of the
accrual period) over (b) the sum of the payments of qualified stated interest
on the Note allocable to the accrual period. The "adjusted issue price" of a
Discount Note at the beginning of any accrual period is the issue price of the
Note increased by (x) the amount of accrued OID for each prior accrual period
and decreased by (y) the amount of any payments previously made on the Note
that were not qualified stated interest payments. For purposes of determining
the amount of OID allocable to an accrual period, if an interval between
payments of qualified stated interest on the Note contains more than one
accrual period, the amount of qualified stated interest payable at the end of
the interval (including any qualified stated interest that is payable on the
first day of the accrual period immediately following the interval) is
allocated pro rata on the basis of relative lengths to each accrual period in
the interval, and the adjusted issue price at the beginning of each accrual
period in the interval must be increased by the amount of any qualified stated
interest that has accrued prior to the first day of the accrual period but that
is not payable until the end of the interval. The amount of OID allocable to an
initial short accrual period may be computed using any reasonable method if all
other accrual periods other than a final short accrual period are of equal
length. The amount of OID allocable to the final accrual period is the
difference between (x) the amount payable at the maturity of the Note (other
than any payment of qualified stated interest) and (y) the Note's adjusted
issue price as of the beginning of the final accrual period.
Acquisition Premium
A United States Holder that purchases a Note for an amount less than or equal
to the sum of all amounts payable on the Note after the purchase date other
than payments of qualified stated interest but in excess of its adjusted issue
price (any such excess being "acquisition premium") and that does not make the
election described below under "Election to Treat All Interest as Original
Issue Discount" is permitted to reduce the daily portions of OID by a fraction,
the numerator of which is the excess of the United States Holder's adjusted
basis in the Note immediately after its purchase over the adjusted issue price
of the Note, and the denominator of which is the excess of the sum of all
amounts payable on the Note after the purchase date, other than payments of
qualified stated interest, over the Note's adjusted issue price.
Market Discount
A Note, other than a short-term Note, will be treated as purchased at a
market discount (a "Market Discount Note") if (i) the amount for which a United
States Holder purchased the Note is less than the Note's
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issue price (as determined above under "Original Issue Discount--General") and
(ii) the Note's stated redemption price at maturity or, in the case of a
Discount Note, the Note's "revised issue price," exceeds the amount for which
the United States Holder purchased the Note by at least 1/4 of 1 percent of
such Note's stated redemption price at maturity or revised issue price,
respectively, multiplied by the number of complete years to the Note's
maturity. If such excess is not sufficient to cause the Note to be a Market
Discount Note, then such excess constitutes "de minimis market discount." The
Code provides that, for these purposes, the "revised issue price" of a Note
generally equals its issue price, increased by the amount of any OID that has
accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount Note
will be treated as ordinary income to the extent that such gain does not exceed
the accrued market discount on such Note. Alternatively, a United States Holder
of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such an election shall apply to all debt
instruments with market discount acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on
a constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked without the consent of the
Service. A United States Holder of a Market Discount Note that does not elect
to include market discount in income currently generally will be required to
defer deductions for interest on borrowings allocable to such Note in an amount
not exceeding the accrued market discount on such Note until the maturity or
disposition of such Note.
Pre-Issuance Accrued Interest
If (i) a portion of the initial purchase price of a Note is attributable to
pre-issuance accrued interest, (ii) the first stated interest payment on the
Note is to be made within one year of the Note's issue date and (iii) the
payment will equal or exceed the amount of pre-issuance accrued interest, then
the United States Holder may elect to decrease the issue price of the Note by
the amount of pre-issuance accrued interest. In that event, a portion of the
first stated interest payment will be treated as a return of the excluded pre-
issuance accrued interest and not as an amount payable on the Note.
Notes Subject to Contingencies Including Optional Redemption
In general, if a Note provides for an alternative payment schedule or
schedules applicable upon the occurrence of a contingency or contingencies and
the timing and amounts of the payments that comprise each payment schedule are
known as of the issue date, the yield and maturity of the Note are determined
by assuming that the payments will be made according to the Note's stated
payment schedule. If, however, based on all the facts and circumstances as of
the issue date, it is more likely than not that the Note's stated payment
schedule will not occur, then, in general, the yield and maturity of the Note
are computed based on the payment schedule most likely to occur.
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Company has an unconditional
option or options to redeem a Note, or the Holder has an unconditional option
or options to cause a Note to be repurchased, prior to the Note's stated
maturity, then (i) in the case of an option or options of the Company, the
Company will be deemed to exercise or not exercise an option or combination of
options in the manner that minimizes the yield on the Note and (ii) in the case
of an option or options of the Holder, the Holder will be deemed to exercise or
not exercise an option or combination of options in the manner that maximizes
the yield on the Note. For purposes of those calculations, the yield on the
Note is determined by using any date on which the Note may be redeemed or
repurchased as the maturity date and the amount payable on such date in
accordance with the terms of the Note as the principal amount payable at
maturity.
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If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the
Note is repaid as a result of a change in circumstances and solely for purposes
of the accrual of OID, the yield and maturity of the Note are redetermined by
treating the Note as reissued on the date of the change in circumstances for an
amount equal to the Note's adjusted issue price on that date.
Election to Treat All Interest as Original Issue Discount
A United States Holder may elect to include in gross income all interest that
accrues on a Note using the constant-yield method described above under the
heading "Original Issue Discount--General," with the modifications described
below. For purposes of this election, interest includes stated interest, OID,
de minimis original issue discount, market discount, de minimis market discount
and unstated interest, as adjusted by any amortizable bond premium (described
below under "Notes Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the electing
United States Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing United States Holder, and no payments on the Note will be treated
as payments of qualified stated interest. This election will generally apply
only to the Note with respect to which it is made and may not be revoked
without the consent of the Service. If this election is made with respect to a
Note with amortizable bond premium, then the electing United States Holder will
be deemed to have elected to apply amortizable bond premium against interest
with respect to all debt instruments with amortizable bond premium (other than
debt instruments the interest on which is excludible from gross income) held by
the electing United States Holder as of the beginning of the taxable year in
which the Note with respect to which the election is made is acquired or
thereafter acquired. The deemed election with respect to amortizable bond
premium may not be revoked without the consent of the Service.
If the election to apply the constant-yield method to all interest on a Note
is made with respect to a Market Discount Note, the electing United States
Holder will be treated as having made the election discussed above under
"Original Issue Discount--Market Discount" to include market discount in income
currently over the life of all debt instruments held or thereafter acquired by
such United States Holder.
Variable Rate Notes
A "Variable Rate Note" is a Note that: (i) has an issue price that does not
exceed the total noncontingent principal payments by more than the lesser of
(1) the product of (x) the total noncontingent principal payments, (y) the
number of complete years to maturity from the issue date and (z) .015, or (2)
15 percent of the total noncontingent principal payments, and (ii) provides for
stated interest compounded or paid at least annually at (1) one or more
"qualified floating rates", (2) a single fixed rate and one or more qualified
floating rates, (3) a single "objective rate" or (4) a single fixed rate and a
single objective rate that is a "qualified inverse floating rate."
A qualified floating rate or objective rate in effect at any time during the
term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no
earlier than 3 months prior to the first day on which that value is in effect
and no later than 1 year following that first day.
A variable rate is a "qualified floating rate" if (i) variations in the value
of the rate can reasonably be expected to measure contemporaneous variations in
the cost of newly borrowed funds in the currency in which the Note is
denominated or (ii) it is equal to the product of such a rate and either (a) a
fixed multiple that is greater than zero but not more than 1.35, or (b) a fixed
multiple greater than zero but not more than 1.35, increased or decreased by a
fixed rate. A rate is not a qualified floating rate, however, if the rate is
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subject to certain restrictions (including caps, floors, governors, or other
similar restrictions) unless such restrictions are fixed throughout the term of
the Note or are not reasonably expected to significantly affect the yield on
the Note.
An "objective rate" is a rate, other than a qualified floating rate, that is
determined using a single, fixed formula and that is based on (i) one or more
qualified floating rates, (ii) one or more rates each of which would be a
qualified floating rate for a debt instrument denominated in a currency other
than the currency in which the debt instrument is denominated, (iii) the yield
or changes in the price of one or more actively traded items of personal
property other than stock or debt of the issuer or a related party, or (iv) a
combination of objective rates. A variable rate is not an objective rate,
however, if it is reasonably expected that the average value of the rate during
the first half of the Note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Note's term. An objective rate is a "qualified inverse floating rate" if
(i) the rate is equal to a fixed rate minus a qualified floating rate, and (ii)
the variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds. Under these
rules, Commercial Paper Rate Notes, Prime Rate Notes, LIBOR Notes, Treasury
Rate Notes, CD Rate Notes, Federal Funds Rate Notes, CMT Rate Notes, 11th
District Cost of Funds Rate Notes and J.J. Kenny Rate Notes will generally be
treated as Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a single
qualified floating rate or objective rate, all stated interest on the Note is
qualified stated interest and the amount of OID, if any, is determined by
using, in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or
qualified inverse floating rate, or, in the case of any other objective rate, a
fixed rate that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or objective rate, or at a single fixed rate (other
than at a single fixed rate for an initial period), the amount of interest and
OID accruals on the Note are generally determined by (i) determining a fixed
rate substitute for each variable rate provided under the Variable Rate Note
(generally, the value of each variable rate as of the issue date or, in the
case of an objective rate that is not a qualified inverse floating rate, a rate
that reflects the reasonably expected yield on the Note), (ii) constructing the
equivalent fixed rate debt instrument (using the fixed rate substitute
described above), (iii) determining the amount of qualified stated interest and
OID with respect to the equivalent fixed rate debt instrument, and (iv) making
the appropriate adjustments for actual variable rates during the applicable
accrual period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provided for a qualified floating
rate (or a qualified inverse floating rate, as the case may be) rather than the
fixed rate. The qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value of the
Variable Rate Note as of the issue date would be approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
the qualified floating rate (or qualified inverse floating rate) rather than
the fixed rate.
Short-Term Notes
In general, an individual or other cash basis United States Holder of a
short-term Note is not required to accrue OID (as specially defined below for
the purposes of this paragraph) for United States federal income tax purposes
unless it elects to do so (but may be required to include any stated interest
in income as the interest is received). Accrual basis United States Holders and
certain other United States Holders, including banks, regulated investment
companies, dealers in securities, common trust funds, United States Holders who
hold Notes as part of certain identified hedging transactions, certain pass-
thru entities and cash basis United
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States Holders who so elect, are required to accrue OID on short-term Notes on
either a straight-line basis or under the constant-yield method (based on daily
compounding), at the election of the United States Holder. In the case of a
United States Holder not required and not electing to include OID in income
currently, any gain realized on the sale or retirement of the short-term Note
will be ordinary income to the extent of the OID accrued on a straight-line
basis (unless an election is made to accrue the OID under the constant-yield
method) through the date of sale or retirement. United States Holders who are
not required and do not elect to accrue OID on short-term Notes will be
required to defer deductions for interest on borrowings allocable to short-term
Notes in an amount not exceeding the deferred income until the deferred income
is realized.
For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Note, including stated interest, are included
in the short-term Note's stated redemption price at maturity.
Foreign Currency Discount Notes
OID for any accrual period on a Discount Note that is denominated in, or
determined by reference to, a foreign currency will be determined in the
foreign currency and then translated into U.S. dollars in the same manner as
stated interest accrued by an accrual basis United States Holder, as described
under "Payments of Interest." Upon receipt of an amount attributable to OID
(whether in connection with a payment of interest or the sale or retirement of
a Note), a United States Holder may recognize ordinary income or loss.
NOTES PURCHASED AT A PREMIUM
A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium",
in which case the amount required to be included in the United States Holder's
income each year with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's yield to
maturity) to such year. In the case of a Note that is denominated in, or
determined by reference to a foreign currency, bond premium will be computed in
units of foreign currency, and amortizable bond premium will reduce interest
income in units of the foreign currency. At the time amortized bond premium
offsets interest income, exchange gain or loss (taxable as ordinary income or
loss) is realized measured by the difference between exchange rates at that
time and at the time of the acquisition of the Notes. Any election to amortize
bond premium shall apply to all bonds (other than bonds the interest on which
is excludible from gross income) held by the United States Holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States Holder, and is irrevocable without the consent of
the Service. See also "Original Issue Discount--Election to Treat All Interest
as Original Issue Discount."
PURCHASE, SALE AND RETIREMENT OF THE NOTES
A United States Holder's tax basis in a Note will generally be its U.S.
dollar cost (as defined below), increased by the amount of any OID or market
discount included in the United States Holder's income with respect to the Note
and the amount, if any, of income attributable to de minimis original issue
discount and de minimis market discount included in the United States Holder's
income with respect to the Note, and reduced by (i) the amount of any payments
that are not qualified stated interest payments, and (ii) the amount of any
amortizable bond premium applied to reduce interest on the Note. The U.S.
dollar cost of a Note purchased with a foreign currency will generally be the
U.S. dollar value of the purchase price on the date of purchase or, in the case
of Notes traded on an established securities market, as defined in the
applicable Treasury Regulations, that are purchased by a cash basis United
States Holder (or an accrual basis United States Holder that so elects), on the
settlement date for the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. The amount realized on a sale
or retirement for an amount in foreign currency will be the U.S. dollar value
of such amount
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on the date of sale or retirement or, in the case of Notes traded on an
established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis United States Holder (or an accrual basis
United States Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue Discount--Short-Term
Notes" or "Original Issue Discount--Market Discount" or described in the next
succeeding paragraph or attributable to accrued but unpaid interest, gain or
loss recognized on the sale or retirement of a Note will be capital gain or
loss and will be long-term capital gain or loss if the Note was held for more
than one year.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Note that is attributable to changes in exchange rates will be treated as
ordinary income or loss. However, exchange gain or loss is taken into account
only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on a Note or on the sale or retirement
of a Note will have a tax basis equal to its U.S. dollar value at the time such
interest is received or at the time of such sale or retirement. Foreign
currency that is purchased will generally have a tax basis equal to the U.S.
dollar value of the foreign currency on the date of purchase. Any gain or loss
recognized on a sale or other disposition of a foreign currency (including its
use to purchase Notes or upon exchange for U.S. dollars) will be ordinary
income or loss.
INDEXED NOTES, RENEWABLE NOTES AND EXTENDIBLE NOTES
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Notes that are not
subject to the rules governing Variable Rate Notes payments on which are
determined by reference to any index and with respect to any Renewable or
Extendible Notes.
AMORTIZING NOTES
The applicable Pricing Supplement will contain a discussion of special United
States federal income tax rules applicable to Notes, such as Amortizing Notes,
that provide for partial principal payments prior to Stated Maturity.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any holder
who or that is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership or estate or trust, in either case not subject to
United States Federal income tax on a net income basis in respect of a Note.
Under present United States federal income and estate tax law and subject to
the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest (including OID)
by the Company or any of its paying agents to any holder of a Note who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax if, in the case of interest or OID, (a) the
beneficial owner of the Note does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote, (b) the beneficial owner of the Note is not a
controlled foreign corporation that is related to the Company through stock
ownership, (c) the interest on the Note is not contingent interest to which
Section 871(h)(4)(A) of the Code is applicable, and (d) either (A) the
beneficial owner of the Note certifies to the Company or its agent, under
penalties of perjury, that it is not a United States Holder and provides
its name and address or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and
holds the Note certifies to the Company or its agent under penalties of
perjury that such statement has been received from the beneficial owner by
it or by a financial institution between it and the beneficial owner and
furnishes the payor with a copy thereof;
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(ii) a United States Alien Holder of a Note will not be subject to United
States federal withholding tax on any gain realized on the sale or exchange
of a Note; and
(iii) a Note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's
gross estate for purposes of the United States federal estate tax as a
result of the individual's death if the individual did not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, the income on the Note
would not have been effectively connected with a United States trade or
business of the individual at the individual's death and in the case of a
Note on which all or a portion of the interest payments are contingent
interest to which Section 871(h)(4)(A) is applicable, only to the extent
that the value of such Note is not allocable to such interest.
BACKUP WITHHOLDING AND INFORMATION REPORTING
United States Holders
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of a
Note before maturity within the United States to, and to the accrual of OID on
a Discount Note with respect to, non-corporate United States Holders, and
"backup withholding" at a rate of 31% will apply to such payments and to
payments of OID if the United States Holder fails to provide an accurate
taxpayer identification number or to report all interest and dividends required
to be shown on its federal income tax returns.
United States Alien Holders
Information reporting and backup withholding will not apply to payments of
principal, premium (if any) and interest (including OID) made by the Company or
a paying agent to a United States Alien Holder on a Note if the certification
described in clause (i)(c) under "United States Alien Holders" above is
received, provided that the payor does not have actual knowledge that the
holder is a United States person.
Payments of the proceeds from the sale by a United States Alien Holder of a
Note made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Note to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are offered on a continuing basis by the Company through the
Agents, each of which has agreed to use its reasonable efforts to solicit
purchases of the Notes. The Company will pay each Agent a commission of from
0.125% to 0.750% of the principal amount of each Note, depending upon its
Stated Maturity, sold through such Agent, except that the commission payable by
the Company to the Agents with respect to Notes with maturities of greater than
thirty years will be negotiated at the time the Company issues such Notes. The
Company will have the sole right to accept offers to purchase Notes and may
reject any such offer in whole or in part. Each Agent will have the right, in
its discretion reasonably exercised, to reject in whole or in part any offer to
purchase Notes received by such Agent. The Company also may sell Notes to any
Agent, acting as principal, at a discount to be agreed upon at the time of
sale, for resale to one or more investors or to one or more broker-dealers
(acting as principal for purposes of resale) at varying prices related to
prevailing market prices at the time of resale, as determined by such Agent,
or, if so agreed, at a fixed public offering price. Unless otherwise indicated
in the applicable Pricing Supplement, if any Note is resold
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by an Agent to any broker-dealer at a discount, such discount will not be in
excess of the discount or commission received by such Agent from the Company.
In addition, unless otherwise indicated in the applicable Pricing Supplement,
any Note purchased by an Agent as principal will be purchased at 100% of the
principal amount thereof less a percentage equal to the commission applicable
to an agency sale of a Note having an identical Stated Maturity. After the
initial public offering of the Notes, the public offering price (in the case of
Notes to be resold on a fixed public offering price basis), the concession and
the discount may be changed. The Company also reserves the right to sell the
Notes directly to investors on its own behalf in those jurisdictions where it
is authorized to do so or as otherwise provided in the applicable Pricing
Supplement. In such circumstances, the Company will have the sole right to
accept offers to purchase Notes and may reject any proposed purchase of Notes
in whole or in part. In the case of sales made directly by the Company, no
commission will be payable.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Act"). The Company has agreed to
indemnity each Agent against certain liabilities, including liabilities under
the Act, or to contribute to payments each Agent may be required to make in
respect thereof. The Company has agreed to reimburse the Agents for certain of
the Agents' expenses, including, but not limited to, the fees and expenses of
counsel to the Agents.
The Company has been advised by each Agent that it may from time to time
purchase and sell Notes in the secondary market, but that it is not obligated
to do so. There can be no assurance that there will be a secondary market for
the Notes or liquidity in the secondary market if one develops. From time to
time, each Agent may make a market in the Notes.
In the normal course of business, certain affiliates of Chase Securities,
Inc. engage in commercial lending transactions with the Company and its
affiliates.
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$500,000,000
ALCO CAPITAL RESOURCE, INC.
DEBT SECURITIES
-----------
Alco Capital Resource, Inc. (the "Company" or "ACR") may from time to time
offer its Debt Securities consisting of debentures, notes and/or other
unsecured evidences of indebtedness in one or more series at an aggregate
initial offering price not to exceed $500,000,000. The terms of the Debt
Securities, including, where applicable, the specific designation, aggregate
principal amount, denominations, which may include securities denominated in
U.S. dollars, in any other currency or in composite currencies such as the
European Currency Unit, date or dates on which principal is payable, interest
rate or rates (which may be fixed or variable) and time of payment of interest,
if any, terms for redemption at the option of the Company, terms for any
repayment of principal amount at the option of the holder (which option may be
conditional), terms for any sinking fund payments, the initial public offering
price, the names of any underwriters or agents, the principal amounts, if any,
to be purchased by underwriters and the compensation of such underwriters or
agents and the other terms in connection with the offering and sale of the Debt
Securities in respect of which this Prospectus is being delivered, are set
forth in the accompanying Prospectus Supplement. The Debt Securities are solely
the obligations of the Company and are not guaranteed by the Company's parent
corporation, Alco Standard Corporation. This Prospectus may not be used to
consummate the sale of Debt Securities unless accompanied by a Prospectus
Supplement.
The Company may sell Debt Securities to or through one or more underwriters
for public offering and sale by them or may sell Debt Securities to investors
directly or through agents. See "Plan of Distribution." Such underwriters or
agents may include one or more of Lehman Brothers Inc., Chase Securities, Inc.,
Goldman, Sachs & Co. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated or a group represented by one or more of such firms or by
one or more other firms.
-----------
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 June 29, 1994.
<PAGE>
AVAILABLE INFORMATION
The Company and Alco Standard Corporation ("Alco Standard"), which owns 100%
of the outstanding common stock of the Company, are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and in accordance therewith file reports, proxy material
(Alco Standard only) and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy material and other
information can be inspected and copied at the offices of the Commission at 450
Fifth Street, N.W., Washington, D.C., as well as Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois, and 7 World Trade Center, Suite
1300, New York, New York, and copies can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Reports, proxy material and other information
concerning Alco Standard can also be inspected at the offices of the New York,
Philadelphia and Chicago Stock Exchanges.
The Company is not required to deliver an annual report to its security
holders pursuant to Section 14 of the 1934 Act, nor does it currently intend to
deliver to holders of its debt securities any other report that contains
financial information relating to the Company that has been examined and
reported upon, with an opinion expressed by, an independent accountant. Such
information, however, is contained in the Company's Registration Statement on
Form 10 and in other periodic reports filed with the Securities and Exchange
Commission that the Company will provide without charge (without exhibits),
upon request, to any such security holder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Report on Form 10 filed with the Commission pursuant to the
1934 Act (as amended by its Form 10-12G/A filed on May 27, 1994, its Form 10-
12G/A filed on June 16, 1994, its Form 10-12G/A filed on June 17, 1994, and its
Form 10-12G/A filed on June 29, 1994), is hereby incorporated in this
Prospectus by reference.
All other documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the 1934 Act after the date of this Prospectus and prior to the
termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference in this Prospectus. This Prospectus does not contain
all information set forth in the Registration Statement and Exhibits thereto
which the Company has filed with the Commission and to which reference is
hereby made.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any or all of the documents referred to above
which have been or may be incorporated in this Prospectus by reference, other
than exhibits to such documents. Requests for such copies should be directed to
Investor Relations Department, Alco Standard Corporation, P.O. Box 834, Valley
Forge, PA, 19482; telephone number 610-296-8000.
THE COMPANY
The Company's principal executive offices are located at 1738 Bass Road,
Macon, Georgia 31210; telephone number: 912-471-2300.
RELATIONSHIP WITH ALCO STANDARD CORPORATION
The Company, as the captive finance subsidiary of Alco Standard, derives its
customer base from the business sourced by its affiliates within Alco Standard
(the AOP dealers). There are several agreements and programs between the
Company and Alco Standard, which are described below.
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SUPPORT AGREEMENTS
The Company and Alco Standard are parties to a Maintenance Agreement, dated
August 15, 1991 (the "1991 Maintenance Agreement"), and an Operating Agreement,
dated August 15, 1991 (the "1991 Operating Agreement" and together with the
1991 Maintenance Agreement, the "1991 Maintenance and Operating Agreements"),
which are further described below. The Company has agreed with its lenders
pursuant to loan agreements entered into before June 1, 1994 that it will not
amend or terminate the 1991 Maintenance and Operating Agreements without each
such lender's consent until all outstanding debt under such loan agreements
shall have been paid.
The Company and Alco Standard have entered into a new agreement (the "1994
Support Agreement") dated as of June 1, 1994. The Company intends to covenant
with noteholders and other lenders after June 1, 1994 that it will not amend
the 1994 Support Agreement except under certain circumstances (See "1994
Support Agreement" below).
THE 1991 MAINTENANCE AND OPERATING AGREEMENTS
The terms of the 1991 Maintenance Agreement provide that Alco Standard will
make a cash payment to the Company (or an investment in the form of equity or
subordinated notes) as needed in amounts sufficient to meet a specified minimum
fixed charge coverage ratio and a maximum debt-to-equity ratio. The fixed
charge coverage ratio requirement is defined as earnings before fixed charges
(primarily interest) and must be at least 1.3 times fixed charges. The Company
has satisfied this requirement independently (without requiring payment or an
investment from Alco Standard) for the last three fiscal years. The Company's
debt-to-equity ratio is limited to 6 to 1 according to the terms of the 1991
Maintenance Agreement. The Company must also maintain minimum tangible net
worth of not less than $1.00.
Pursuant to the terms of the 1991 Maintenance Agreement, the Company received
capital contributions from Alco Standard of $3,900,000 in the first six months
of 1994, $2,615,000 in 1993 and none in 1992. In 1991, the Company received
capital contributions from Alco of $13,250,000 as a result of the combined
effect of rapid lease portfolio growth in 1991, compliance with a more
conservative debt-to-equity ratio and payment of an intercompany dividend.
The 1991 Operating Agreement requires the AOP dealers to repurchase all
defaulted lease contracts. A default is defined in the 1991 Operating Agreement
as any receivable which is past due for 120 days or is otherwise reasonably
declared uncollectible by the Company. The repurchase amount is identified as
the net book value of a lease on the default date.
The 1991 Maintenance and Operating Agreements provide for modification or
amendment with both parties' consent and provide for cancellation by either
party upon 90 days' written notice.
THE 1994 SUPPORT AGREEMENT
The 1994 Support Agreement between the Company and Alco Standard provides
that Alco Standard will make a cash payment to the Company (or an investment in
the form of equity or subordinated notes) as needed to comply with two
requirements: i) that the Company will maintain a pre-tax interest coverage
ratio (income before interest expense and taxes divided by interest expense) so
that the Company's pre-tax income plus interest expense (together with cash
payments from Alco Standard) will not be less than 1.25 times interest expense,
and ii) that the Company will maintain a minimum tangible net worth of $1.00.
The 1994 Support Agreement further provides that Alco Standard may not assign
the 1994 Support Agreement unless: (a) all the outstanding debt of the Company
is repaid or (ii) both Moody's Investors Service and Standard & Poor's Ratings
Group confirm in writing prior to the effectiveness of any such assignment that
the Company's debt rating would not be downgraded as a result of any such
assignment.
Unlike the 1991 Operating Agreement, the 1994 Support Agreement does not
contain a requirement that the AOP dealers repurchase all defaulted lease
contracts. The 1994 Support Agreement does not include
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the repurchase requirement because the Company and Alco wish to preserve the
flexibility, on a prospective basis, to allow the credit risk for defaulted
contracts to remain with the Company. In such event, the credit decision and
reserves for defaulted contracts would become the responsibility of the
Company. If the Company were responsible for the credit risk and costs
associated with defaulted contracts, the Company would increase its current
lease rates in order to offset these increased costs. Consequently, the Company
believes that the impact of any future shift of the credit risk from the AOP
dealers to the Company would not be material to the Company's future results of
operations. The Company's (and Alco's) present intention, however, is to
continue the repurchase arrangement with the AOP dealers as currently in
effect.
The Company will provide in the Indenture or other documentation governing
future debt that the 1994 Support Agreement cannot be amended or terminated
without the consent of noteholders or other lenders unless either i) all the
outstanding debt of the Company is repaid, or ii) both Moody's Investor Service
and Standard & Poor's Ratings Group confirm in writing prior to the
effectiveness of any such amendment or termination that the Company's debt
rating would not be downgraded as a result of such amendment or termination.
CASH MANAGEMENT PROGRAM
The Company participates in Alco Standard's domestic Cash Management program.
Under this program, the Company has an account with Alco Standard through which
cash in excess of current operating requirements is temporarily placed on
deposit. Similarly, amounts are periodically borrowed from Alco Standard.
Interest is paid (or charged) by Alco Standard on these amounts. The Company
was a net borrower in 1993, 1992, and 1991 incurring net interest costs of
$579,000, $1,090,000, and $510,000, respectively, under this program.
MANAGEMENT FEE
The Company is charged a management fee by Alco Standard to cover certain
corporate overhead expenses. These charges are included as general and
administrative expenses in the Company's financial statements and amounted to
$360,000 in 1993, $192,000 in 1992, and $180,000 in 1991.
FEDERAL INCOME TAX ALLOCATION AGREEMENT
Alco Standard and the Company participate in a Federal Income Tax Allocation
Agreement dated June 30, 1989, in which the Company consents to the filing of
consolidated federal income tax returns with Alco Standard. Alco Standard
agrees to collect from or pay to the Company its allocated share of any
consolidated federal income tax liability or refund applicable to any period
for which the Company is included in Alco Standard's consolidated federal
income tax return.
INTEREST ON INCOME TAX DEFERRALS
The Company provides substantial tax benefits to Alco Standard through the
use of the installment sales method on equipment financed through the Company.
Taxes deferred by Alco Standard due to this tax treatment totalled a cumulative
amount of approximately $67,000,000 at the end of fiscal 1993. Alco Standard
pays the Company interest on the portion of these tax deferrals (approximately
$53,000,000 at the end of fiscal 1993) which arise from tax deferrals on
intercompany sales. In fiscal 1993, interest was earned by the Company at a
rate of 6% and totalled $2,926,000. In fiscal 1992 and 1991, the interest
earned amounted to $3,050,000 and $1,800,000, respectively, and was computed at
a 9% rate.
LEASE BONUS PROGRAM
In January 1992, a lease bonus subsidy program was initiated which provides
incentives to AOP dealers when AOP customers lease equipment from the Company.
The payments under this program can be reduced or eliminated by the Company at
any time. In fiscal 1992, the program was nine months in duration, and
4
<PAGE>
$3,300,000 in bonus payments were made to the AOP dealers for leases of certain
higher industry segment equipment. Fiscal 1993 bonus payments were calculated
on the basis of the AOP dealer's increase in the percentage of equipment sales
leased through the Company, and totalled $5,900,000. Fiscal year 1994 lease
bonus payments are calculated on the same basis as the 1993 payments; the lease
bonus payments were $3,600,000 for the first six months of fiscal 1994.
ALCO CAPITAL RESOURCE, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED --------------------------------------
MARCH 31, 1994 1993 1992 1991 1990 1989
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges................... 1.8 1.7 1.5 1.6 1.5 1.9
</TABLE>
ALCO STANDARD CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED --------------------------------------
MARCH 31, 1994 1993 1992 1991 1990 1989
---------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges.................. 3.5 1.3* 3.5 2.8 2.7 2.9
</TABLE>
- --------
* Including the effect of a pre-tax restructuring charge in the amount of $175
million for fiscal 1993, further described in Alco Standard Corporation's
1993 Annual Report on Form 10-K (as amended by Form 10-K/A), as filed with
the Securities and Exchange Commission.
ALCO STANDARD CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(EXCLUDING CAPTIVE FINANCE SUBSIDIARIES)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED --------------------------------------
MARCH 31, 1994 1993 1992 1991 1990 1989
---------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges.................. 4.3 1.4* 4.2 3.3 3.0 3.3
</TABLE>
- --------
* Including the effect of a pre-tax restructuring charge in the amount of $175
million for fiscal 1993, further described in Alco Standard Corporation's
1993 Annual Report on Form 10-K (as amended by Form 10-K/A), as filed with
the Securities and Exchange Commission.
For purposes of computing the ratio of earnings to fixed charges, earnings
represent pretax income from continuing operations plus fixed charges (net of
capitalized interest). Fixed charges represent interest (whether expensed or
capitalized) and one-third (the proportion deemed representative of the
interest factor) of rents of continuing operations.
USE OF PROCEEDS
The net proceeds from the sale of the Debt Securities offered hereby will be
used by the Company for the financing of future sales and leasing transactions
with AOP customers, and for other corporate purposes. The Company expects to
incur additional indebtedness in connection with its financing operations.
However, the amount, timing and precise nature of such indebtedness have not
yet been determined and will depend upon the volume of the Company's business,
the availability of credit and general market conditions.
5
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description sets forth the material terms and provisions of the
Debt Securities to which any Prospectus Supplement may relate. The particular
terms of the Debt Securities offered by any Prospectus Supplement and the
extent, if any, to which the general provisions described below may apply to
the Debt Securities so offered will be described in the Prospectus Supplement
relating to such Debt Securities.
Offered Debt Securities (as defined below) are to be issued under an
Indenture (the "Indenture") dated as of June 15, 1994, as supplemented, between
the Company and NationsBank of Georgia, National Association, as Trustee. The
statements under this caption relating to the Debt Securities and the Indenture
are summaries and do not purport to be complete. Such summaries make use of
terms defined in the Indenture and are qualified in their entirety by express
reference to the Indenture and the cited provisions thereof, a copy of which is
filed as an exhibit to the Registration Statement.
GENERAL
The Debt Securities will be unsecured obligations of the Company. The
Indenture does not limit the aggregate principal amount of Debt Securities
which may be issued thereunder and provides that Debt Securities may be issued
thereunder from time to time in one or more series.
Reference is made to the Prospectus Supplement relating to the particular
Debt Securities offered thereby (the "Offered Debt Securities") for the
following terms of the Offered Debt Securities: (1) the title of the Offered
Debt Securities; (2) any limit on the aggregate principal amount of the Offered
Debt Securities; (3) the person to whom any interest shall be payable, if other
than the person in whose name the Offered Debt Security is registered on the
regular record date for such interest; (4) the date or dates on which the
principal of the Offered Debt Securities will be payable; (5) the rate or rates
per annum at which the Offered Debt Securities will bear interest, if any, or
the formula pursuant to which such rate or rates shall be determined, and the
date or dates from which such interest will accrue; (6) the dates on which such
interest, if any, will be payable and the regular record dates for such
interest payment dates; (7) the place or places where principal of (and
premium, if any) and interest on Offered Debt Securities shall be payable; (8)
any mandatory or optional sinking fund or analogous provisions; (9) if
applicable, the price at which, the periods within which, and the terms and
conditions upon which the Offered Debt Securities may, pursuant to any optional
or mandatory redemption provisions, be redeemed at the option of the Company;
(10) if applicable, the terms and conditions upon which the Offered Debt
Securities may be repayable prior to final maturity at the option of the holder
thereof (which option may be conditional); (11) the portion of the principal
amount of the Offered Debt Securities, if other than the principal amount
thereof, payable upon acceleration of maturity thereof; (12) the currency or
currencies, including composite currencies, in which principal of (and premium,
if any) and interest may be payable (which may be other than those in which the
Offered Debt Securities are stated to be payable); (13) any index pursuant to
which the amount of payments of principal of (and premium, if any) or interest
may be determined; (14) whether all or any part of the Offered Debt Securities
will be issued in the form of a Global Security or Securities and, if so, the
Depositary for, and other terms relating to, such Global Security or
Securities; and (15) any other terms of the Offered Debt Securities. (Section
301)
Unless otherwise indicated in the Prospectus Supplement relating thereto, the
Offered Debt Securities are to be issued as registered securities without
coupons in denominations of $1,000 or any integral multiple of $1,000. (Section
302) No service charge will be made for any transfer or exchange of such
Offered Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
The applicable Prospectus Supplement will describe any special United States
federal tax consequences and any other special considerations with respect to
the Offered Debt Securities.
6
<PAGE>
CERTAIN RESTRICTIONS
1994 Support Agreement. The Indenture provides that the Company (1) will
observe and perform in all material respects all covenants or agreements of the
Company contained in the 1994 Support Agreement; (2) to the extent possible,
will cause Alco Standard to observe and perform in all material respects all
covenants or agreements of Alco Standard contained in the 1994 Support
Agreement; and (3) will not waive compliance under, amend in any material
respect or terminate the 1994 Support Agreement; provided, however, that the
1994 Support Agreement may be amended or terminated if either (i) all the
outstanding debt of the Company is repaid or (ii) two nationally recognized
securities rating organizations confirm in writing prior to the effectiveness
of any such amendment or termination that the Company's debt rating would not
be downgraded as a result of any such amendment or termination. (Section 1004)
Restrictions on Liens and Encumbrances. The Company will not create, assume
or guarantee any Secured Debt (as defined below) without making effective
provision for securing the Debt Securities (and, if the Company shall so
determine, any other indebtedness of or guaranteed by the Company), equally and
ratably with such Secured Debt. The term "Secured Debt" shall mean indebtedness
for money borrowed which is secured by a mortgage, pledge, lien, security
interest or encumbrance on any property of any character of the Company. This
covenant does not apply to debt secured by (i) certain mortgages, pledges,
liens, security interests or encumbrances in connection with the acquisition,
construction or improvement of any fixed asset or other physical or real
property by the Company, (ii) mortgages, pledges, liens, security interests or
encumbrances on property existing at the time of acquisition thereof, whether
or not assumed by the Company, (iii) mortgages, pledges, liens, security
interests or encumbrances on property of a corporation existing at the time
such corporation is merged into or consolidated with the Company or at the time
of sale, lease or other disposition of the properties of a corporation or firm
as an entirety or substantially as an entirety to the Company, (iv) mortgages,
including mortgages, pledges, liens, security interests or encumbrances, on
property of the Company in favor of the United States of America, any state
thereof, or any other country, or any agency, instrumentality or political
subdivision thereof, to secure certain payments pursuant to any contract or
statute or to secure indebtedness incurred for the purpose of financing all or
any part of the purchase price or the cost of construction or improvement of
the property subject to such mortgages, (v) any extension, renewal or
replacement (or successive extensions, renewals or replacements), in whole or
in part, of any mortgage, pledge, lien or encumbrance referred to in the
foregoing clauses (i) to (iv), inclusive or (vi) any mortgage, pledge, lien,
security interest, or encumbrance securing indebtedness owing by the Company to
one or more wholly owned Subsidiaries. Notwithstanding the above, the Company
may, without securing the Debt Securities, create, assume or guarantee Secured
Debt which would otherwise be subject to the foregoing restrictions, provided
that, after giving effect thereto, the aggregate amount of all Secured Debt
then outstanding (not including Secured Debt permitted under the foregoing
exceptions) at such time does not exceed 5% of the Consolidated Net Tangible
Assets. (Sections 101 and 1005)
The Indenture provides that no consolidation or merger of the Company and no
sale, conveyance or lease of the property of the Company, substantially as an
entirety, shall be made with or to another corporation if as a result thereof
any properties or assets of the Company would become subject to a lien or
mortgage not permitted by the terms of the Indenture unless effective provision
shall be made to secure the Debt Securities equally and ratably with (or prior
to) all indebtedness thereby secured. (Section 801)
The term "Consolidated Net Tangible Assets" shall mean as of any particular
time the aggregate amount of assets after deducting therefrom (a) all current
liabilities (excluding any such liability that by its terms is extendable or
renewable at the option of the obligor thereon to a time more than 12 months
after the time as of which the amount thereof is being computed) and (b) all
goodwill, excess of cost over assets acquired, patents, copyrights, trademarks,
trade names, unamortized debt discount and expense and other like intangibles,
all as shown in the most recent consolidated financial statements of the
Company and its Subsidiaries prepared in accordance with generally accepted
accounting principles. The term "Subsidiary" with respect to any Person means
any corporation of which more than 50% of the outstanding stock having ordinary
voting power to elect directors is owned directly or indirectly by such Person
or by one or more other corporations more than 50% of such stock of which is
similarly owned or controlled. (Section 101)
7
<PAGE>
THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee, as a
creditor of the Company, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security
or otherwise. (Section 613) In addition, the Trustee may be deemed to have a
conflicting interest and may be required to resign as Trustee if at the time of
a default under the Indenture it is a creditor of the Company.
NationsBank of Georgia, National Association, the Trustee under the
Indenture, maintains a banking relationship with the Company and Alco Standard.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following events are defined in the Indenture as "Events of Default" with
respect to Debt Securities of any series: (a) failure to pay principal of or
premium, if any, on any Debt Security of that series when due; (b) failure to
pay any interest on any Debt Security of that series when due, continued for 30
days; (c) failure to deposit any sinking fund payment, when due, in respect of
any Debt Security of that series; (d) default in the performance, or breach, of
any term or provision of the covenant described under "Certain Restrictions--
1994 Support Agreement;" (e) failure to perform any other covenant of the
Company in the Indenture (other than a covenant included in the Indenture
solely for the benefit of a series of Debt Securities other than that series),
continued for 60 days after written notice given to the Company by the Trustee
or the holders of at least 10% in the principal amount of the Debt Securities
outstanding and affected thereby; (f) default in payment of principal in excess
of $15,000,000 or acceleration of any indebtedness for money borrowed in excess
of $15,000,000 by the Company (including a default with respect to Debt
Securities of any series other than that series), if such indebtedness has not
been discharged or become no longer due and payable or such acceleration has
not been rescinded or annulled, within 10 days after written notice given to
the Company by the Trustee or the holders of at least 10% in principal amount
of the outstanding Debt Securities of such series; (g) certain events in
bankruptcy, insolvency or reorganization of the Company; (h) certain events in
bankruptcy, insolvency or reorganization of Alco Standard or one of its
subsidiaries if such event affects any significant part of the assets of the
Company or any of its subsidiaries; and (i) any other Event of Default provided
with respect to Debt Securities of such series. (Section 501)
If an Event of Default with respect to Debt Securities of any series at the
time outstanding shall occur and be continuing, either the Trustee or the
holders of at least 25% in principal amount of the outstanding Debt Securities
of that series may declare the principal amount (or, if the Debt Securities of
that series are Original Issue Discount Securities (as defined in the
Indenture), such portion of the principal amount as may be specified in the
terms of that series) of all Debt Securities to be due and payable immediately;
provided, however, that under certain circumstances the holders of a majority
in aggregate principal amount or outstanding Debt Securities of that series may
rescind and annul such declaration and its consequences. (Section 502)
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to the principal amount of such Original Issue
Discount Securities due on acceleration upon the occurrence of an Event of
Default and the continuation thereof.
The Indenture provides that the Trustee, within 90 days after the occurrence
of a default with respect to any series of Debt Securities, shall give to the
holders of Debt Securities of that series notice of all uncured defaults known
to it (the term default to mean the events specified above without grace
periods), provided that, except in the case of default in the payment of
principal of (or premium, if any) or interest, if any, on any Debt Security,
the Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interest of the
holders of Debt Securities. (Section 602)
The Company will be required to furnish to the Trustee annually a statement
by certain officers of the Company to the effect that to the best of their
knowledge the Company is not in default in the fulfillment of
8
<PAGE>
any of its obligations under the Indenture or, if there has been a default in
the fulfillment of any such obligation, specifying each such default. (Section
1006)
The holders of a majority in principal amount of the outstanding Debt
Securities of any series affected will have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, exercising any trust or power
conferred on the Trustee with respect to the Debt Securities of such series,
and to waive certain defaults. (Sections 512 and 513)
Under the Indenture, record dates may be set for Acts of the holders with
respect to Events of Default, declaring an acceleration, or rescission and
annulment thereof, the direction of the time, method and place of conducting
any proceeding for any remedy available to the Trustee, exercising any trust or
power conferred on the Trustee, or waiving any default. (Sections 501, 502, 512
and 513)
The Indenture provides that in determining whether the holders of the
requisite principal amount of the outstanding Debt Securities have given any
request, demand, authorization, direction, notice, consent or waiver thereunder
(i) the principal amount of an Original Issue Discount Security that shall be
deemed to be outstanding shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon acceleration
of the maturity thereof, and (ii) the principal amount of a Debt Security
denominated in a foreign currency or a composite currency shall be the U.S.
dollar equivalent, determined on the basis of the rate of exchange on the
business day immediately preceding the date of original issuance of such Debt
Security by the Company in good faith, of the principal amount of such Debt
Security (or, in the case of an Original Issue Discount Security, the U.S.
dollar equivalent, determined based on the rate of exchange prevailing on the
business day immediately preceding the date of original issuance of such Debt
Security, of the amount determined as provided in (i) above). (Section 101)
The Indenture provides that in case an Event of Default shall occur and be
continuing, the Trustee shall exercise such of its rights and powers under the
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. (Section 601) Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of Debt Securities unless they shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request. (Section 603)
The covenants contained in the Indenture and the Debt Securities would not
necessarily afford Holders of the Debt Securities protection in the event of a
highly leveraged or other transaction involving Alco that may adversely affect
Holders.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made by the Company and
the Trustee, with the consent of the holders of not less than 66 2/3% in
aggregate principal amount of each series of the outstanding Debt Securities
issued under the Indenture which are affected by the modification or amendment,
provided that no such modification or amendment may, without a consent of each
holder of such Debt Securities affected thereby: (1) change the stated maturity
date of the principal of (or premium, if any) or any installment of interest,
if any, on any such Debt Security; (2) reduce the principal amount of (or
premium, if any) or the interest, if any, on any such Debt Security or the
principal amount due upon acceleration of an Original Issue Discount Security;
(3) change the place or currency of payment of principal of (or premium, if
any) or interest, if any, on any such Debt Security; (4) impair the right to
institute suit for the enforcement of any such payment on or with respect to
any such Debt Security; (5) reduce the above-stated percentage of holders of
Debt Securities necessary to modify or amend the Indenture; or (6) modify the
foregoing requirements or reduce the percentage of outstanding Debt Securities
necessary to waive compliance with certain provisions of the Indenture or for
waiver of certain defaults. A record date may be set for any Act of the holders
with respect to consenting to any amendment. (Section 902)
9
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through one or more underwriters
or dealers and also may sell Debt Securities to other investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Debt Securities will be named in the Prospectus Supplement. The
underwriters or agents may include one or more of Lehman Brothers Inc., Chase
Securities, Inc., Goldman, Sachs & Co. and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated or a group of underwriters represented by
one or more of such firms or may be one or more other firms.
Underwriters or agents may offer and sell the Debt Securities at a fixed
price or prices, which may be changed, or from time to time at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. In connection with the sale of the Debt
Securities, underwriters or agents may be deemed to have received compensation
from the Company in the form of underwriting discounts or commissions and may
also receive commissions from purchasers of the Debt Securities for whom they
may act as agent. Underwriters or agents may sell the Debt Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for whom they may act as agent.
The Company does not expect to list the Debt Securities. The Debt Securities,
when first issued, will have no established trading market. Any underwriters or
agents to or through whom Debt Securities are sold by the Company for public
offering and sale may make a market in such Debt Securities, but such
underwriters or agents will not be obligated to do so and may discontinue any
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for any Debt Securities.
Any underwriters or agents participating in the distribution of the Debt
Securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Debt
Securities may be deemed to be underwriting discounts and commissions, under
the Securities Act of 1933, as amended. Underwriters or agents may be entitled,
under agreements entered into with the Company, to indemnification against or
contribution toward certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for, the Company in the
ordinary course of business.
VALIDITY OF DEBT SECURITIES
The validity of the Debt Securities will be passed upon for the Company by J.
Kenneth Croney, General Counsel of Alco Standard, and for any underwriters or
agents by Sullivan & Cromwell, 125 Broad Street, New York, New York 10004. As
of June 1, 1994, Mr. Croney beneficially owned 31,321 shares of Common Stock of
Alco Standard, including 16,860 shares over which he has the right to acquire
beneficial ownership through the exercise of stock options granted under Alco
Standard's 1981 Stock Option Plan or 1986 Stock Option Plan. Sullivan &
Cromwell from time to time performs legal services for Alco Standard.
EXPERTS
The financial statements of Alco Capital Resource, Inc. for the three years
in the period ended September 30, 1993 appearing in Alco Capital Resource
Inc.'s Registration Statement on Form 10 (as amended by its Form 10-12G/A filed
on May 27, 1994, its Form 10-12G/A filed on June 16, 1994, its Form 10-12G/A
filed on June 17, 1994, and its Form 10-12G/A filed on June 29, 1994), have
been audited by Ernst & Young, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
10
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUER, BY
THE AGENTS OR BY ANY OTHER PERSON. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPA-
NYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OF-
FER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY STATE IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR ANY PROSPECTUS NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAD BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUER SINCE THE DATE HERE-
OF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Description of Notes....................................................... S-3
Important Currency Information............................................. S-25
Currency Risks............................................................. S-25
Certain United States Federal Income Tax Consequences...................... S-27
Supplemental Plan of Distribution.......................................... S-35
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 2
Relationship with Alco Standard Corporation................................ 2
Ratios..................................................................... 5
Use of Proceeds............................................................ 5
Description of Debt Securities............................................. 6
Plan of Distribution....................................................... 10
Validity of Debt Securities................................................ 10
Experts.................................................................... 10
</TABLE>
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$500,000,000
ALCO CAPITAL
RESOURCE, INC.
MEDIUM-TERM NOTES, SERIES A
WITH MATURITIES OF NINE
MONTHS OR MORE FROM
DATE OF ISSUE
----------------
PROSPECTUS
DATED JUNE 29, 1994
AND
PROSPECTUS SUPPLEMENT
DATED JULY 1, 1994
----------------
LEHMAN BROTHERS
CHASE SECURITIES, INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
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