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Filed Pursuant to Rule 424(b)(2)
Registration No. 333-45891
PROSPECTUS SUPPLEMENT
(To Prospectus dated April 24, 1998)
$300,000,000
THE TIMKEN COMPANY
MEDIUM-TERM NOTES, SERIES A
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DUE FROM NINE MONTHS TO THIRTY YEARS FROM DATE OF ISSUE
------------------------
The Timken Company (the "Company") may offer from time to time up to
$300,000,000 aggregate principal amount of its Medium-Term Notes, Series A or
the equivalent thereof in other currencies, including composite currencies such
as the European Currency Unit (the "Notes"). The interest rate on each Note will
be either a fixed rate (a "Fixed Rate Note") established by the Company at the
date of issue of such Note, which may be zero in the case of certain Notes
issued at a price representing a substantial discount from the principal amount
payable upon maturity, or a floating rate (a "Floating Rate Note") as set forth
therein and specified in a supplement hereto (a "Pricing Supplement"). Interest
rates are subject to change by the Company but no change will affect any Note
already issued or as to which an offer to purchase has been accepted by the
Company.
Interest on each Fixed Rate Note is payable each February 15 and August 15 and
at maturity. Interest on each Floating Rate Note is payable on the dates set
forth therein and in the applicable Pricing Supplement. Each Note will mature on
any day from nine months to thirty years from the date of issue, as selected by
the purchaser and agreed to by the Company. See "Description of Notes." Unless
otherwise specified in the applicable Pricing Supplement to this Prospectus
Supplement, the Notes may not be redeemed by the Company prior to maturity.
Notes denominated in United States dollars will be issued in fully registered
form in denominations of $1,000 or any amount in excess thereof which is an
integral multiple of $1,000. Any terms relating to Notes being denominated in
foreign currencies or composite currencies will be set forth in the applicable
Pricing Supplement. Each Note will be represented either by a Global Note
registered in the name of a nominee of The Depository Trust Company, as
Depositary (a "Book-Entry Note"), or by a certificate issued in definitive form,
as set forth in the applicable Pricing Supplement. Beneficial interests in
Global Notes representing Book-Entry Notes will be shown on, and transfers
thereof will be effected only through, records maintained by the Depositary and
its participants. Book-Entry Notes will not be issuable in certificated form
except under the circumstances described in the accompanying Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per Note....................... 100% .125% --.750% 99.875% -- 99.250%
Total.......................... $300,000,000(4) $375,000 -- $2,250,000 $299,625,000 -- $297,750,000
</TABLE>
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(1) Unless otherwise specified in the applicable Pricing Supplement, Notes will
be sold at 100% of their principal amount.
(2) The Company will pay a commission to the Agents for each Note sold through
the Agents ranging from .125% to .750% of the principal amount of such Note,
depending upon such Note's maturity. The Company may also sell Notes to the
Agents, as principals, at negotiated discounts, for resale to investors.
(3) Before deducting expenses payable by the Company estimated at $350,000.
(4) Or the equivalent thereof in other currencies, including composite
currencies.
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Offers to purchase the Notes are being solicited from time to time by
Morgan Stanley & Co. Incorporated, Key Capital Markets, Inc., J.P. Morgan
Securities Inc., and NationsBanc Montgomery Securities LLC, as agents (the
"Agents"), on behalf of the Company. Each Agent has agreed to use its reasonable
efforts to solicit purchases of the Notes. The Company may also sell Notes to an
Agent acting as principal for its own account for resale to one or more
investors at varying prices related to prevailing market prices at the time of
resale, to be determined by such Agent. In addition, the Company may sell the
Notes directly to investors in those jurisdictions where such offering by the
Company is authorized. No termination date for the offering of the Notes has
been established. The Company or the Agents may reject any order in whole or in
part. The Notes will not be listed on any securities exchange and there can be
no assurance that the Notes offered hereby will be sold or that there will be a
secondary market for the Notes. See "Plan of Distribution."
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MORGAN STANLEY DEAN WITTER
KEY CAPITAL MARKETS, INC.
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
April 24, 1998
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT, ANY PRICING
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE AGENTS. THIS PROSPECTUS SUPPLEMENT, ANY PRICING
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY SECURITIES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, OR MAY
BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
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IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Notes in U.S. dollars, and payments
of principal, premium, if any, and interest on the Notes will also be made in
U.S. dollars, unless the applicable Pricing Supplement provides that purchasers
are instead required to pay for the Notes in a Specified Currency (as
hereinafter defined), and/or that payments of principal, premium, if any, and
interest on such Notes will be made in a Specified Currency. Currently, there
are limited facilities in the United States for the conversion of U.S. dollars
into foreign currencies and vice versa. In addition, most banks do not currently
offer non-U.S. dollar denominated checking or savings account facilities in the
United States. Accordingly, unless otherwise specified in a Pricing Supplement
or unless alternative arrangements are made, payment of principal, premium, if
any, and interest on Notes in a Specified Currency other than U.S. dollars will
be made to an account at a bank outside the United States. See "Description of
Securities" and "Foreign Currency Risks."
Reference herein to "U.S. dollars" or "U.S. $" or "$" are to the currency
of the United States of America.
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DESCRIPTION OF NOTES
The following description of the particular terms of the Notes (which
represent a series of, and are referred to in the accompanying Prospectus as,
"Offered Securities") supplements the description of the general terms and
provisions of Offered Securities set forth in the accompanying Prospectus, to
which reference is hereby made. The particular terms of the Notes offered by
this Prospectus Supplement and each Pricing Supplement will be described herein
and therein.
If the Company deems it advisable, the Company may reduce the aggregate
principal amount of Notes that may be offered pursuant to this Prospectus
Supplement and offer additional Offered Securities in other series pursuant to
the accompanying Prospectus. Upon any public offering or sale or solicitation of
an offer to buy any other series of Offered Securities covered by the
Prospectus, such series of Offered Securities and the particular terms of such
offer, sale or solicitation will be described in a Prospectus Supplement or
Prospectus Supplements relating thereto.
If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit ("ECU"), in which the principal,
premium, if any, and interest, if any, with respect to such Note are to be paid,
along with any other
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terms relating to the non-U.S. dollar denomination, including exchange rates for
the Specified Currency as against the U.S. dollar at selected times during the
last five years, and any exchange controls affecting such Specified Currency.
See "Foreign Currency Risks."
The following summaries of certain provisions of the Indenture (as defined
below) and the Notes do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the Indenture and
the Notes, including the definitions therein of certain terms. Whenever
particular provisions or defined terms of the Indenture and the Notes are
referred to, such provisions or defined terms are incorporated herein by such
reference.
GENERAL
The Notes are being issued under an Indenture, dated as of April 24, 1998
(the "Indenture"), between the Company and The Bank of New York, as trustee (the
"Trustee"). The Indenture is more fully described in the accompanying
Prospectus. The Notes will be unsecured obligations of the Company and will rank
on a parity with all other unsecured and unsubordinated indebtedness of the
Company. The Indenture does not limit the amount of indebtedness, either secured
or unsecured, which may be incurred by the Company. The Notes will be offered on
a continuing basis, will initially be limited to an aggregate principal amount
of up to $300,000,000 or the equivalent thereof in one or more foreign or
composite currencies and will mature on any day from nine months to thirty years
from the date of issue, as agreed to by the Company and the purchaser prior to
issuance.
Unless otherwise indicated in the Pricing Supplement, the Notes will be
denominated in U.S. dollars and payments of principal of and interest on the
Notes will be made in U.S. dollars. The Notes will be issued only in fully
registered form and except for Notes dominated in foreign or composite
currencies or as otherwise provided in the Pricing Supplement, the Notes will be
issued in denominations of U.S. $1,000 or any amount in excess thereof which is
an integral multiple of U.S. $1,000. If any Note is not to be denominated in
U.S. dollars, certain provisions with respect thereto will be set forth in a
supplement hereto which will specify the currency or currencies, including
composite currencies such as the ECU, in which the principal and interest with
respect to such Note are to be paid (the "Specified Currency"), along with any
other terms relating to the non-U.S. dollar denomination.
Unless otherwise specified in the Pricing Supplement, the Notes will be
issued in book-entry form. If specified in the Pricing Supplement, the Notes may
also be issued in certificated form. Notes issued in certificated form may be
transferred or exchanged at the offices described in the immediately following
paragraph. In the event Notes are issued in book-entry form through the
facilities of the Depositary, transfers or exchanges may be effected only
through a participating member of the Depositary. See "Book-Entry Notes." No
service charge will be made for any registration of transfer or exchange of
Notes issued in certificated form, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charges that may be imposed in
connection therewith.
Payments on Notes issued in book-entry form will be made to the Depositary.
See "Book-Entry Notes." In the case of Notes issued in certificated form,
principal will be payable, the transfer of the Notes will be registrable, and
Notes will be exchangeable for Notes bearing identical terms and provisions, at
the office or agency of the Trustee in The City of New York designated for such
purpose (currently 101 Barclay Street, Floor 21W, New York, New York 10286).
Payment of interest, other than interest payable at the maturity of a Note (or
on a redemption date, if such Note is redeemed by the Company prior to its
maturity), will be made by check mailed to the address of the person entitled
thereto as shown on the security register. Notwithstanding the foregoing, unless
otherwise specified in the Pricing Supplement, a holder of $10,000,000 or more
in aggregate principal amount of Notes issued in certificated form which pay
interest on the same interest payment date shall be entitled to receive payments
of interest (other than at maturity or the date of redemption) by wire transfer
of immediately available funds if appropriate wire transfer instructions have
been received by the Trustee on or before the regular record date immediately
preceding such interest payment date. In the case of Notes issued in
certificated form, payment of principal and interest at maturity or the date of
redemption will be made upon presentment and surrender of the Note at the office
or agency designated by the Company, in immediately available funds by wire
transfer, if appropriate instructions therefor have been received at least 15
Business Days
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(as defined below) prior to the date of the related payment; otherwise, such
payment shall be made by check. "Business Day" means any day other than a
Saturday or Sunday that is neither a legal holiday nor a day on which banking
institutions are authorized or required by law or regulation to close in The
City of New York and (i) with respect to LIBOR Notes (as defined below), is also
a London Banking Day, (ii) with respect to Notes denominated in a Specified
Currency other than U.S. dollars or ECUs, is also a business day in the
principal financial center of the country of the Specified Currency, and (iii)
with respect to Notes denominated in ECUs, that is an ECU clearing day, as
determined by the ECU Banking Association in Paris.
PAYMENT CURRENCY
Except as set forth below, if the principal of, premium, if any, or
interest on, any Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances beyond
the control of the Company or is no longer used by the government of the country
issuing such currency or for the settlement of transactions by public
institutions within the international banking community, then the Company will
be entitled to satisfy its obligations to holders of such Notes by making such
payments in U.S. dollars on the basis of the Market Exchange Rate on the date of
such payment or, if the Market Exchange Rate is not available on such date, as
of the most recent practicable date. Any payment made under such circumstances
in U.S. dollars where the required payment is in a Specified Currency other than
U.S. dollars will not constitute an Event of Default.
If payment in respect of a Note is required to be made in ECUs and ECUs are
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or are no longer used in the European Monetary
System, then all payments in respect of such Note shall be made in U.S. dollars
until ECUs are again available or so used. The amount of each payment in U.S.
dollars shall be computed on the basis of the equivalent of the ECU in U.S.
dollars, determined as described below, as of the second Business Day prior to
the date on which such payment is due.
The equivalent of the ECU in U.S. dollars as of any date shall be
determined by the Company or its agent on the following basis. The component
currencies of the ECU for this purpose (the "Components") shall be the currency
amounts that were components of the ECU as of the last date on which the ECU was
used in the European Monetary System. The equivalent of the ECU in U.S. dollars
shall be calculated by aggregating the U.S. dollar equivalents of the
Components. The U.S. dollar equivalent of each of the Components shall be
determined by the Company or its agent on the basis of the most recently
available Market Exchange Rates for such Components.
If the official unit of any Component 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 Components are
consolidated into a single currency, the amount of those currencies as
Components shall be replaced by an amount in such single currency equal to the
sum of the amounts of the consolidated component currencies expressed in such
single currency. If any Component 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, each of which shall be equal to the amount of the
original component currency separated into the number of currencies into which
such original currency was divided.
All determinations referred to above made by the Company or its 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.
REDEMPTION
If so provided in the Pricing Supplement, the Notes may be subject to
redemption, in whole or in part, by the Company on and after the initial
redemption date, if any, fixed at the time of sale. If no such date is indicated
with respect to a Note, such Note will not be redeemable prior to maturity. If
so provided in the Pricing Supplement, the Notes will be redeemable at the
option of the Holder on or after a specified date or dates prior to their
maturity, on the terms provided in the Pricing Supplement.
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INTEREST AND PRINCIPAL PAYMENTS
Interest will be payable to the person in whose name the Note is registered
at the close of business on the applicable record date (defined in the Notes as
being the date 15 calendar days prior to such interest payment date, whether or
not such interest payment date shall be a Business Day); provided, that the
interest payable at maturity or upon redemption (whether or not the date of
maturity or redemption is an interest payment date) will be payable to the
person to whom principal is payable. The initial interest payment on a Note will
be made on the first interest payment date falling after the date the Note is
issued; provided, however, that payments of interest on a Note issued less than
15 calendar days before an interest payment date will be paid on the next
succeeding interest payment date to the holder of record on the record date with
respect to such succeeding interest payment date.
Payments of interest on Notes in a Specified Currency other than U.S.
dollars will be made by wire transfer of immediately available funds to an
account maintained by the payee with a bank located outside the United States
and the holder of such Notes shall provide the Trustee with the appropriate wire
transfer instructions.
Certain Notes may be considered to be issued with original issue discount,
which must be included in income for United States federal income tax purposes
at a constant rate. See "United States Taxation -- Tax Consequences to Holders"
below. Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any such Note is declared to be due and payable immediately as
described under "Description of Securities -- Events of Default" in the
Prospectus, the amount of principal due and payable with respect to such Note
shall be limited to the aggregate principal amount of such Note multiplied by
the sum of its "issue price" (expressed as a percentage of the aggregate
principal amount) plus the original issue discount amortized from the date of
issue to the date of declaration, which amortization shall be calculated using
the "interest method" (computed in accordance with generally accepted accounting
principles in effect on the date of declaration). Special considerations
applicable to any such Notes will be set forth in the applicable Pricing
Supplement.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issuance at the
annual rate stated on the face thereof until the principal thereof is paid or
made available for payment. Such interest will be computed on the basis of a
360-day year of twelve 30-day months. Payments of interest on Fixed Rate Notes
will be made semiannually on each February 15 and August 15 and at maturity. If
any interest payment date for any Fixed Rate Note would fall on a day that is
not a Business Day, the interest payment shall be postponed to the next day that
is a Business Day, and no interest on such payment shall accrue for the period
from and after such interest payment date. If the maturity date (or date of
redemption) of any Fixed Rate Note would fall on a day that is not a Business
Day, the payment of interest and principal may be made on the next succeeding
Business Day, and no interest on such payment shall accrue for the period from
and after the maturity date (or date of redemption).
Interest payments for Fixed Rate Notes will include accrued interest from
the date of issue or from the last date in respect of which interest has been
paid, as the case may be, to, but excluding, the interest payment date or the
date of maturity or earlier redemption, as the case may be. The interest rates
the Company will agree to pay on newly-issued Fixed Rate Notes are subject to
change without notice by the Company from time to time, but no such change will
affect any Fixed Rate Notes theretofore issued or as to which an offer to
purchase has been accepted by the Company.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from the date of issuance until
the principal thereof is paid or made available for payment at a rate determined
by reference to an interest rate basis or formula (the "Base Rate"), which may
be adjusted by a Spread or Spread Multiplier (each as defined below). The
applicable Pricing Supplement will designate one of the following Base Rates as
applicable to each Floating Rate Note: (a) the CD Rate (a "CD Rate Note"), (b)
the Commercial Paper Rate (a "Commercial Paper Rate Note"), (c) the Federal
Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a "LIBOR Note"), (e) the
Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate (a "Treasury Rate Note")
or (g) such other Base Rate as is set forth in such Pricing Supplement and in
such Floating Rate Note. The "Index Maturity" for any Floating Rate Note is the
period of
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maturity of the instrument or obligation from which the Base Rate is calculated
and will be specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, or (ii) multiplied by
the Spread Multiplier, if any. The "Spread" is the number of basis points (one
one-hundredth of a percentage point) specified in the applicable Pricing
Supplement to be added to or subtracted from the Base Rate for such Floating
Rate Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement to be applied to the Base Rate for such Floating
Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or ceiling,
on the rate of interest which may accrue during any interest period ("Maximum
Interest Rate"); and (ii) a minimum limitation, or floor, on the rate of
interest which may accrue during any interest period ("Minimum Interest Rate").
In addition to any Maximum Interest Rate which may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on a Floating Rate
Note will in no event be higher than the maximum rate permitted by New York law,
as the same may be modified by United States law of general application. Under
current New York law, the maximum rate of interest, subject to certain
exceptions, for any loan in an amount of $250,000 or more but less than
$2,500,000 is 25% per annum on a simple interest basis. Such limitations may not
apply to loans in excess of $2,500,000.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually or annually (such period being the
"Interest Reset Period" for such Note, and the first day of each Interest Reset
Period being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. Unless otherwise specified in the Pricing Supplement, the Interest
Reset Date will be, in the case of Floating Rate Notes (other than Treasury Rate
Notes) which reset daily, each Business Day; in the case of Floating Rate Notes
(other than Treasury Rate Notes) which reset weekly, the Wednesday of each week;
in the case of Treasury Rate Notes which reset weekly, the Tuesday of each week,
except as provided below; in the case of Floating Rate Notes which reset
monthly, the third Wednesday of each month; in the case of Floating Rate Notes
which reset quarterly, the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes which reset semiannually, the third
Wednesday of two months of each year, as specified in the applicable Pricing
Supplement; and in the case of Floating Rate Notes which reset annually, the
third Wednesday of one month of each year, as specified in the applicable
Pricing Supplement; provided, however, that (a) the interest rate in effect from
the date of issue to the first Interest Reset Date with respect to a Floating
Rate Note will be the initial interest rate set forth in the applicable Pricing
Supplement (the "Initial Interest Rate"); (b) the interest rate in effect for
the fifteen days immediately prior to maturity or redemption will be that in
effect on the fifteenth day preceding such maturity or redemption and (c) if any
Floating Rate Note is issued between a record date and the related interest
payment date, and such Note has daily or weekly Interest Reset Dates, then
notwithstanding the fact that an Interest Reset Date may occur prior to such
interest payment date, the Initial Interest Rate shall remain in effect through
the first Interest Reset Date occurring on or subsequent to such interest
payment date. If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date shall be
postponed to the next succeeding 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 next preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Notes with a daily, weekly or monthly Interest Reset Date, on the third
Wednesday of each month or on the third Wednesday of March, June, September and
December, as specified in the applicable Pricing Supplement; (ii) in the case of
Notes with a quarterly Interest Reset Date, on the third Wednesday of March,
June, September and December, (iii) in the case of Notes with a semiannual
Interest Reset Date, on the third Wednesday of the two months specified in the
applicable Pricing Supplement; and (iv) in the case of Notes with an annual
Interest Reset Date, on the third Wednesday of the month specified in the
applicable Pricing Supplement. If any interest payment date for any Floating
Rate Note would fall on a day that is not a Business Day with respect to such
Note, such interest payment date will be the following day that is a Business
Day with respect to such Note, except that, in the case of a LIBOR Note, if such
Business Day is in the
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next succeeding calendar month, such interest payment date shall be the
immediately preceding day that is a Business Day with respect to such LIBOR
Note.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes (except Floating Rate Notes on which interest
is reset daily or weekly) shall be the amount of interest accrued from the date
of issue or from the last date to which interest has been paid to, but
excluding, the interest payment date. In the case of a Floating Rate Note on
which interest is reset daily or weekly, interest payments shall be the amount
of interest accrued from the date of issue or from the last date to which
interest has been paid, as the case may be, to and including the record date
immediately preceding such interest payment date, except that at maturity or
earlier redemption, the interest payable will include interest accrued to, but
excluding, the maturity date or the date of redemption, as the case may be.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which interest is
being paid. The interest factor for each such day is computed by dividing the
interest rate applicable to such day by 360, in the cases of CD Rate Notes,
Commercial Paper Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime
Rate Notes or by the actual number of days in the year, in the case of Treasury
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point (.0000001), with five
one-millionths of a percentage point rounded upward, 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 rounded upward. The interest rate in effect
on any Interest Reset Date will be the applicable rate as reset on such date.
The interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).
The applicable Pricing Supplement shall specify a calculation agent (the
"Calculation Agent") with respect to any issue of Floating Rate Notes. Upon the
request of the holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate then in effect and, if determined, the interest rate
which will become effective on the next Interest Reset Date with respect to such
Floating Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date for
CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes and Prime
Rate Notes will be the second Business Day next preceding such Interest Reset
Date. The Interest Determination Date pertaining to the Interest Reset Date for
a LIBOR Note will be the second London Banking Day (as defined below) preceding
such Interest Reset Date. "London Banking Day" means any day on which dealings
in deposits in U.S. dollars are transacted in the London interbank market. The
Interest Determination Date pertaining to an Interest Reset Date for a Treasury
Rate Note will be the day of the week in which such Interest Reset Date falls on
which Treasury bills would normally be auctioned. Treasury bills are normally
sold at auction on Monday of each week, unless that day is a legal holiday, in
which case the auction is normally held on the following Tuesday, but such
auction may be held on the preceding Friday. If, as the result of a legal
holiday, an auction is so held on the preceding Friday, such Friday will be the
Interest Determination Date pertaining to the Interest Reset Date occurring in
the next succeeding week. If an auction falls on a day that is an Interest Reset
Date, such Interest Reset Date will be the next following Business Day.
The "Calculation Date," where applicable, pertaining to an Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date or if such day is not a Business Day, the next
succeeding Business Day, or (ii) the Business Day preceding the applicable
Interest Payment Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD RATE NOTES
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any) specified
in the CD Rate Notes and in the applicable Pricing Supplement.
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Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having an Index Maturity designated in
the applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on such Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date, for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement 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; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the CD Rate in effect for the applicable period will be the
same as the CD Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the CD
Rate Notes for which such CD Rate is being determined shall be the Initial
Interest Rate).
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any) specified in the Commercial Paper Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement, as such rate shall be published in H.15(519), under the caption
"Commercial Paper-Nonfinancial." In the event that such rate is not published
prior to 9:00 A.M., New York City time, on the Calculation Date, then the
Commercial Paper Rate shall be the Money Market Yield of the rate on such
Interest Determination Date for commercial paper of the specified Index Maturity
as published in Composite Quotations under the caption "Commercial Paper." If by
3:00 P.M., New York City time, on such Calculation Date such rate is not yet
available in either H.15(519) or Composite Quotations, then the Commercial Paper
Rate 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 Interest Determination Date of
three leading dealers of commercial paper in The City of New York selected by
the Calculation Agent for commercial paper of the specified Index Maturity,
placed for an industrial issuer whose bond rating is "AA," or the equivalent,
from a nationally recognized statistical rating agency; provided, however, that
if the dealers selected as aforesaid by the Calculation Agent are not quoting
offered rates as mentioned in this sentence, the rate of interest in effect for
the applicable period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the Commercial Paper Rate Notes
for which such Commercial Paper Rate is being determined shall be the Initial
Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
Money Market Yield = D X 360 X 100
------------------------
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper
quoted on a bank discount basis and expressed as a decimal, and "M" refers to
the actual number of days for which interest is being calculated.
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FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any) specified in the Federal Funds Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any 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 Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
funds, prior to 9:00 A.M., New York City time, on such Interest Determination
Date 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 set
forth above, the Federal Funds Rate in effect for the applicable period will be
the same as the Federal Funds Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of interest
payable on the Federal Funds Rate Notes for which such Federal Funds Rate is
being determined shall be the Initial Interest Rate).
LIBOR NOTES
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any, and subject to
the Minimum Interest Rate and Maximum Interest Rate, if any) specified in the
LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
for each Interest Determination Date will be determined by the Calculation Agent
as follows:
(i) As of the Interest Determination Date, LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the 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 Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, that appear on the Designated
LIBOR Page as of 11:00 A.M., London time, on that 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 applicable Pricing Supplement, the rate for
deposits in the Index Currency having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, that appears on the
Designated LIBOR Page as of 11:00 A.M., London time, on that Interest
Determination Date. If fewer than two offered rates appear (if "LIBOR
Reuters" is specified in the applicable Pricing Supplement) or no rate
appears (if "LIBOR Telerate" is specified in the applicable Pricing
Supplement), LIBOR in respect of the related Interest Determination Date
will be determined as if the parties had specified the rate described in
clause (ii) below.
(ii) With respect to an Interest Determination Date on which fewer
than two offered rates appear (if "LIBOR Reuters" is specified in the
applicable Pricing Supplement) or no rate appears (if "LIBOR Telerate" is
specified in the applicable Pricing Supplement), the Calculation Agent will
request the principal London offices of each of four major reference banks
in the London interbank market, as selected by the Calculation Agent, to
provide the Calculation Agent with its offered quotation for deposits in
the Index Currency for the period of the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, to prime banks in
the London interbank market at approximately 11:00 A.M., London time, on
such Interest Determination Date and in a principal amount of not less than
$1,000,000 (or the equivalent in the Index
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<PAGE> 10
Currency, if the Index Currency is not the U.S. dollar) that is
representative of a single transaction in such Index Currency in such
market at such time. If at least two such quotations are provided, LIBOR
determined on such Interest Determination Date will be the arithmetic mean
of such quotations. If fewer than two quotations are provided, LIBOR
determined on such Interest Determination Date will be the arithmetic mean
of the rates quoted at approximately 11:00 A.M. (or such other time
specified in the applicable Pricing Supplement), in the applicable
principal financial center for the country of the Index Currency on such
Interest Determination Date, by three major banks in such principal
financial center selected by the Calculation Agent for loans in the Index
Currency to leading European banks, having the Index Maturity designated in
the applicable Pricing Supplement and in a principal amount of not less
than $1,000,000 commencing on the second London Banking Day immediately
following such Interest Determination Date (or the equivalent in the Index
Currency, if the Index Currency is not the U.S. dollar) that is
representative for a single transaction in such Index Currency in such
market at such time; provided, however, that if the banks so selected by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
in effect for the applicable period will be the same as LIBOR for the
immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the LIBOR Notes for
which such LIBOR is being determined shall be the Initial Interest Rate).
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated
in the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Telerate Service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency. If neither LIBOR Reuters nor
LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for the
applicable Index Currency will be determined as if LIBOR Telerate (and, if the
U.S. dollar is the Index Currency, Page 3750) had been specified.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and Maximum Interest Rate, if any)
specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 (as defined below)
as such bank's prime rate or base lending rate as in effect for such Interest
Determination Date as quoted on the Reuters Screen USPRIME1 on such Interest
Determination Date, or, if fewer than four such rates appear on the Reuters
Screen USPRIME1 for such Interest Determination Rate, the rate shall be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by 360 as of the close of business on such Interest
Determination Date by at least two of the three major money center banks in The
City of New York selected by the Calculation Agent from which quotations are
requested. If fewer than two quotations are provided, the Prime Rate shall be
calculated by the Calculation Agent and shall be determined as the arithmetic
mean on the basis of the prime rates in The City of New York by the appropriate
number of substitute banks or trust companies organized and doing business under
the laws of the United States, or any State thereof, in each case having total
equity capital of at least U.S. $500 million and being subject to supervision or
examination by federal or state authority, selected by the Calculation Agent to
quote such rate or rates; provided, however, that if the banks or trust
companies selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the "Prime Rate" in effect for the applicable period will be the
same as the Prime Rate for the immediately preceding Interest Reset Period (or,
if there was no such Interest Reset Period, the rate of interest payable on the
Prime Rate Notes for which such Prime Rate is being determined shall be the
Initial Interest Rate).
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"Reuters Screen USPRIME1" means the display designated as Page "USPRIME1" on the
Reuters Monitor Money Rates Services (or such other page as may replace the
USPRIME1 on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if any)
specified in the Treasury Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury Bills
- -- auction average (investment)," or, if not so published by 9:00 A.M., New York
City time, on the Calculation Date pertaining to such Interest Determination
Date, the auction average rate on such Interest Determination Date (expressed as
a bond equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) as otherwise announced by the United States Department
of the Treasury. In the event that the results of the auction of Treasury Bills
having the Index Maturity designated in the applicable Pricing Supplement are
not published or reported as provided above by 3:00 P.M., New York City time, on
such Calculation Date or if no such auction is held on such Interest
Determination Date, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 P.M., New York City time, on such Interest
Determination Date, of three leading primary United States government securities
dealers selected by the Calculation Agent for the issue of Treasury Bills with a
remaining maturity closest to the Index Maturity designated in the applicable
Pricing Supplement; provided, however, that if the dealers selected as aforesaid
by the Calculation Agent are not quoting as mentioned in this sentence, the
Treasury Rate for such Interest Reset Date will be the same as the Treasury Rate
for the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the Treasury Rate Notes
for which the Treasury Rate is being determined shall be the Initial Interest
Rate).
BOOK-ENTRY NOTES
The Depositary has advised the Company and the Agents that it is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934
(the "Exchange Act"). The Depositary was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers (including certain of the Agents), banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own the Depositary. Access to the
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by the Depositary only
through participants.
For a more complete description of Book-Entry Notes, see "Description of
Securities -- Global Securities" in the accompanying Prospectus.
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FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
Any investment in Notes that are denominated in 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. Such risks
include, without limitation, the possibility of significant changes in rates of
exchange between the U.S. dollar and the various foreign currencies or composite
currencies and the possibility of the imposition or modification of exchange
controls by either the U.S. or a foreign government. Such risks generally depend
on economic and political events over which the Company has no control. In
recent years, rates of exchange between U.S. dollars and certain foreign
currencies have been highly volatile and such volatility may be expected to
continue in the future. Fluctuations in any particular exchange rate that have
occurred in the past are not necessarily indicative, however, of fluctuations in
such rate that may occur during the term of any Note. Depreciation against the
U.S. dollar of the currency in which a Note is payable would result in a
decrease in the effective yield of such Note below its coupon rate and, in
certain circumstances, could result in a loss to the investor on a U.S. dollar
basis.
THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY PRICING
SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED
IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, A FOREIGN CURRENCY OR A
COMPOSITE CURRENCY AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE
PROSPECTIVE PURCHASERS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS
ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED IN SPECIFIED CURRENCIES OTHER
THAN U.S. DOLLARS. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS
WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, premium, if
any, and interest on, the Notes. Such persons should consult their own counsel
with regard to such matters.
Governments have imposed from time to time, and may in the future impose,
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency at the time of payment of principal of, premium,
if any, or interest on, a Note. Even if there are actual exchange controls, it
is possible that the Specified Currency for any particular Note not denominated
in U.S. dollars would not be available when payments on such Note are due. In
that event, the Company would make required payments in U.S. dollars on the
basis of the Market Exchange Rate on the date of such payment, or if such rate
of exchange is not then available, on the basis of the Market Exchange Rate as
of the most recent practicable date.
With respect to any Note denominated in a foreign currency or currency
unit, the applicable Pricing Supplement will include information with respect to
applicable current exchange controls, if any, and historic exchange rate
information on such currency or currency unit. The information contained therein
shall constitute a part of this Prospectus Supplement and is furnished as a
matter of information only and should not be regarded as indicative of the range
of or trends in fluctuations in currency exchange rates that may occur in the
future.
GOVERNING LAW AND JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. In the event an action based on Notes denominated in a
Specified Currency other than U.S. dollars were commenced in a court in the
United States, it is likely that such court would grant judgment relating to the
Notes only in U.S. dollars.
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UNITED STATES TAXATION
In the opinion of Jones, Day, Reavis & Pogue, tax counsel to the Company,
the following are the material United States federal income tax consequences to
initial holders purchasing Notes at the "issue price" (as defined below) of
ownership and disposition of the Notes. This summary is based on the Internal
Revenue Code of 1986, as amended to the date hereof (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, including regulations concerning the treatment of debt instruments
issued with original issue discount (the "OID Regulations"), changes to any of
which subsequent to the date of this Prospectus Supplement may affect the tax
consequences described herein, possibly with retroactive effect. This summary
discusses only Notes held as capital assets within the meaning of Section 1221
of the Code. It does not discuss all of the tax consequences that may be
relevant to a holder in light of its particular circumstances or to holders
subject to special rules, such as certain financial institutions, insurance
companies, dealers in securities or foreign currencies, persons holding Notes as
a hedge against, or which are hedged against, currency risks, that are part of a
straddle, conversion or other integrated transaction, persons who are not
"Holders" (as defined below) or holders whose functional currency (as defined in
Code Section 985) is not the U.S. dollar. Finally, this summary does not discuss
Original Issue Discount Notes (as defined below) that qualify as "applicable
high-yield discount obligations" under Section 163(i) of the Code. Holders of
Original Issue Discount Notes that are "applicable high-yield discount
obligations" may be subject to special rules. Persons considering the purchase
of Notes should consult their tax advisors with regard to the application of the
United States federal income tax laws to their particular situations as well as
any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction.
As used herein, the term "Holder" means a beneficial owner of a Note that
is for United States federal income tax purposes (i) a citizen or resident of
the United States, (ii) a corporation created in or under the laws of the United
States or any State thereof, (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source, (iv) a trust if
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantive decisions of the trust, or (v) a
partnership or other entity created or organized in or under the laws of the
United States or any State thereof and properly classified as a U.S. entity.
TAX CONSEQUENCES TO HOLDERS
Payments of Interest on Notes
Qualified stated interest (as defined below under " -- Original Issue
Discount Notes") paid on a Note will generally be taxable to a Holder as
ordinary interest income at the time it accrues or is received in accordance
with the Holder's method of accounting for federal income tax purposes. Under
the OID Regulations, all payments of interest on a Note that matures one year or
less from its date of issuance will be included in the stated redemption price
at maturity of that Note and will be taxed in the manner described below under
"--Original Issue Discount Notes." Special rules governing the treatment of
interest paid with respect to Original Issue Discount Notes, including certain
Floating Rate Notes and Foreign Currency Notes, are discussed below. Any other
special United States federal income tax considerations, not otherwise discussed
herein, which are applicable to any particular issue of Notes will be discussed
in the applicable Pricing Supplement.
Original Issue Discount Notes
A Note that is issued for an amount less than its stated redemption price
at maturity will generally be considered to have been issued at an original
issue discount for United States federal income tax purposes (an "Original Issue
Discount Note"). The issue price of a Note will equal the first price at which a
substantial amount of the Notes is sold to the public (not including 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 will equal the sum of all payments required under the Note
other than payments of qualified stated interest. "Qualified stated interest" is
stated interest unconditionally payable as a series of payments in cash or
property (other than debt instruments of the issuer) at least annually during
the entire term of the Note and equal to the outstanding principal balance of
the Note multiplied by a single fixed rate or certain variable rates of
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<PAGE> 14
interest, or certain combinations thereof. Special tax considerations (including
possible original issue discount) may arise with respect to Floating Rate Notes
providing for (i) one Base Rate followed by one or more Base Rates, (ii) a
single fixed rate followed by a floating rate or (iii) a Qualifying Spread
Multiplier.
Purchasers of Floating Rate Notes subject to any of the special tax
considerations described in the preceding paragraph should carefully examine the
applicable Pricing Supplement and should consult their tax advisors with respect
to such considerations since the tax consequences will depend, in part, on the
particular terms of the purchased Notes. Special rules may also apply if a
Floating Rate Note is subject to a cap, floor, governor or similar restriction
that is not fixed throughout the term of the Note and is reasonably expected as
of the issue date to cause the yield on the Note to be significantly less or
more than the expected yield determined without the restriction. Floating Rate
Notes that do not qualify as variable rate debt instruments may be treated as
contingent payment debt instruments. See "-- Contingent Payment Debt
Instruments."
If the difference between a Note's stated redemption price at maturity and
its issue price is less than a de minimis amount, i.e., 1/4 of 1 percent of the
Note's stated redemption price at maturity multiplied by the number of complete
years to maturity, then the Note will not be considered to have original issue
discount. Holders of Notes with a de minimis amount of original issue discount
will generally include such original issue discount in income, as capital gain,
on a pro rata basis as principal payments are made on the Note.
A Holder of Original Issue Discount Notes will be required to include any
qualified stated interest payments in income in accordance with the Holder's
method of accounting for federal income tax purposes. Holders of Original Issue
Discount Notes that mature more than one year from their date of issuance will
be required to include original issue discount in income for United States
federal income tax purposes as it accrues, in accordance with a constant yield
method based on a compounding of interest, before the receipt of some or all of
the cash payments attributable to such income. Under this method, Holders of
Original Issue Discount Notes generally will be required to include in income
increasingly greater amounts of original issue discount in successive accrual
periods. The amount of original issue discount includible in income by a Holder
of an Original Issue Discount Note is the sum of the daily portions of original
issue discount with respect to the Original Issue Discount Note for each day
during the taxable year or portion of the taxable year on which the Holder holds
such Original Issue Discount Note ("accrued original issue discount"). The daily
portion is determined by allocating to each day in any accrual period a pro rata
portion of the original issue discount allocable to that accrual period.
"Accrual periods" with respect to a Note may be of any length selected by the
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 date of an
accrual period. The amount of original issue discount allocable to an accrual
period equals the excess of (a) the product of the Original Issue 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 an Original Issue
Discount Note at the beginning of any accrual period is the issue price of the
Note increased by (x) the amount of accrued original issue discount 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 original issue discount 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 original
issue discount 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 original issue discount
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.
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Acquisition Premium. A 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 "-- Constant Yield Election" is permitted to
reduce the daily portions of original issue discount by a fraction, the
numerator of which is the excess of the 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 Note with a fixed maturity date not
exceeding one year from the date of issue, will be treated as purchased at a
market discount (a "Market Discount Note") if the Note's stated redemption price
at maturity or, in the case of an Original Issue Discount Note, the Note's
revised issue price, exceeds the amount for which the 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, as the case may be, multiplied by the number of complete
years remaining from the time of acquisition 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 "revised issue price"
of a Note generally equals its issue price increased by the amount of any
original issue discount 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 Holder of a
Market Discount Note may elect to include market discount in income currently
over the life of such Note. Such an election shall apply to all debt instruments
with market discount acquired by the electing 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 Internal Revenue Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the Holder makes the election described below under "- Constant
Yield Election." A 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 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.
Short-Term Notes. Under the OID Regulations, an Original Issue Discount
Note that matures one year or less from its date of issuance will be treated as
"short-term." In general, a cash method Holder of a short-term Original Issue
Discount Note is not required to accrue original issue discount 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.
Holders who report income for United States federal income tax purposes on the
accrual method and certain other Holders, including banks, regulated investment
companies, common trust funds, Holders who hold Notes as part of certain
identified hedging transactions, certain pass-through entities and dealers in
securities, are required to include original issue discount in income on such
short-term Original Issue Discount Notes as it accrues on a straight-line basis,
unless the Holder makes the Constant Yield Election described below. In the case
of a Holder who is not required and who does not elect to include original issue
discount in income currently, any gain realized on the sale, exchange or
retirement of a short-term Original Issue Discount Note will be ordinary income
to the extent of the original issue discount accrued on a straight-line basis
(or, if the Holder makes the Constant Yield Election described below) through
the date of sale, exchange or retirement. In addition, such Holders will be
required to defer deductions for any interest paid on indebtedness incurred to
purchase or carry short-term Original Issue Discount Notes in an amount not
exceeding the deferred interest income, until such deferred interest income is
recognized.
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For purposes of determining the amount of original issue discount subject
to these rules, all interest payments on a short-term Original Issue Discount
Note, including stated interest, are included in the short-term Original Issue
Discount Note's stated redemption price at maturity.
Constant Yield Election. Under the OID Regulations, a Holder may make an
election (the "Constant Yield Election") to include in gross income all interest
that accrues on a Note (including stated interest, acquisition discount,
original issue discount, de minimis original issue discount, market discount, de
minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium) in accordance with a constant yield method
based on the compounding of interest.
In applying the constant yield method to a Note with respect to which the
Constant Yield Election has been made, the issue price of the Note will equal
the electing 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 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 Internal Revenue Service. If this election is made with respect to a Note
with amortizable bond premium, then the electing Holder will be deemed to have
elected to apply amortizable bond premium (as defined below) 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 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
during such taxable year. The deemed election with respect to amortizable bond
premium may not be revoked without the consent of the Internal Revenue Service.
If the Constant Yield Election is made with respect to a Market Discount
Note, the electing Holder will be treated as having made the election discussed
above under "-- Market Discount" to include market discount in income currently
over the life of all debt instruments held or thereafter acquired by such
Holder.
If a Holder makes a Constant Yield Election for a Note having amortizable
bond premium (as defined below), such election will result in a deemed election
to amortize bond premium for all of the Holder's debt instruments having
amortizable bond premium and may be revoked only with the permission of the
Internal Revenue Service with respect to debt instruments acquired after
revocation.
Redemptions. Original Issue Discount Notes containing a redemption
provision may be subject to rules that differ from the general rules discussed
above. Purchasers of Original Issue Discount Notes with such a feature should
carefully examine the applicable Pricing Supplement and should consult their tax
advisors with respect to such a feature since the tax consequences with respect
to original issue discount will depend, in part, on the particular terms and the
particular features of the purchased Note.
Aggregation Rules. The OID Regulations provide that, in certain
circumstances, if more than one debt instrument is issued in connection with the
same transaction or related transactions, some or all of such debt instruments
may be aggregated and treated as a single debt instrument with a single issue
price, maturity date, yield to maturity and stated redemption price at maturity
for purposes of calculating and accruing any original issue discount. This rule
ordinarily applies only to instruments of a single issuer issued to a single
holder. Unless otherwise provided in the related Pricing Supplement, the Company
does not expect to treat any of the Notes as being subject to the aggregation
rules for purposes of computing original issue discount.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Except as otherwise described herein, upon the sale, exchange or retirement
of a Note, a Holder will recognize taxable gain (or loss) equal to the amount by
which the amount realized on the sale, exchange or retirement exceeds (or is
exceeded by) such Holder's adjusted tax basis in the Note. For these purposes,
the amount realized does not include any amount attributable to accrued interest
on the Note. Amounts attributable to accrued interest are treated as interest as
described under "-- Payments of Interest on Notes" above, in accordance with the
Holder's method of accounting for United States federal income tax purposes as
described therein. A Holder's adjusted tax basis in a Note will generally equal
the cost of the Note to such Holder, increased by the amount of any original
issue discount previously included in income by the Holder with respect
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to such Note and reduced by any amortized premium and any principal payments
received by the Holder and, in the case of an Original Issue Discount Note, by
the amounts of any other payments that do not constitute qualified stated
interest (as defined above).
Subject to the discussion under "-- Foreign Currency Notes" below, gain or
loss realized on the sale, exchange or retirement of a Note will be capital gain
or loss (except in the case of a short-term Original Issue Discount Note, to the
extent of any original issue discount, or in the case of a Market Discount Note,
to the extent of any accrued market discount, not previously included in the
Holder's taxable income). Such capital gain or loss will be long-term capital
gain or loss if at the time of sale, exchange or retirement the Note has been
held for more than one year, and for non-corporate taxpayers will be subject to
a maximum tax rate of 20% (in the case of a Note held for longer than 18 months)
or 28% (in the case of a Note held for longer than one year but not longer than
18 months). See "-- Original Issue Discount Notes" above. The distinction
between long-term capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses and limitations on the deductibility of investment interest
expense.
AMORTIZABLE BOND PREMIUM
If a Holder purchases a Note for an amount that is greater than the amount
payable at maturity, such Holder will be considered to have purchased such Note
with "amortizable bond premium" equal in amount to such excess, and may elect to
amortize such premium, using a constant yield method, over the remaining term of
the Note (where such Note is not optionally redeemable prior to its maturity
date). If such Note may be optionally redeemed prior to maturity after the
Holder has acquired it, the amount of amortizable bond premium is determined
with reference to the amount payable on maturity or, if it results in a smaller
premium attributable to the period of earlier redemption date, with reference to
the amount payable on the earlier redemption date. A Holder that elects to
amortize bond premium must reduce his tax basis in the Note by the amount of the
premium amortized in any year. An election to amortize bond premium applies to
all taxable debt obligations then owned and thereafter acquired by the taxpayer
and may be revoked only with the consent of the Internal Revenue Service.
Under Regulations effective for debt instruments acquired on or after March
2, 1998, the amount of bond premium allocable to an accrual period that exceeds
the amount of qualified stated interest allocable to that period may be
deducted, but only to the extent the Holder's prior income inclusions on the
Note exceed the total amount treated by the Holder as a bond premium deduction
in prior periods. Any such disallowed deductions may be carried forward and
treated as bond premium in subsequent periods.
FOREIGN CURRENCY NOTES
The following summary relates to Notes that are denominated in a currency
or currency unit other than the U.S. dollar ("Foreign Currency Note").
A Holder that uses the cash method of accounting and that receives a payment of
qualified stated interest in a foreign currency with respect to a Foreign
Currency Note will be required to include in income the U.S. dollar value of the
foreign currency payment upon receipt (determined on the date of receipt)
regardless of whether the payment is in fact converted to U.S. dollars at that
time, and such U.S. dollar value will be the Holder's tax basis in the foreign
currency.
In the case of accrual method taxpayers and Holders of Original Issue
Discount Notes, a Holder will be required to include in income the U.S. dollar
value of the amount of interest income (including original issue discount, but
reduced by amortizable bond premium to the extent applicable) that has accrued
and is otherwise required to be taken into account with respect to a Foreign
Currency Note during an accrual period. The U.S. dollar value of such accrued
income will be determined by translating such income at the average rate of
exchange for the accrual period or, with respect to an accrual period that spans
two taxable years, at the average rate for the partial period within each
taxable year. Such Holder will recognize ordinary income or loss with respect to
accrued interest income on the date such income is actually received. The amount
of ordinary income or loss recognized will equal the difference between the U.S.
dollar value of the foreign currency payment received (determined on the date
such payment is received) in respect of such accrual period and the U.S. dollar
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value of interest income that has accrued during such accrual period (as
determined above). A Holder may elect to translate interest income (including
original issue discount) into U.S. dollars at the spot rate on the last day of
the interest accrual period (or, in the case of a partial accrual period, the
spot rate on the last date of the taxable year) or, if the date of receipt is
within five business days of the last day of the interest accrual period, the
spot rate on the date of receipt. A Holder that makes such an election must
apply it consistently to all debt instruments from year to year and cannot
change the election without the consent of the Internal Revenue Service.
Original issue discount and amortizable bond premium with respect to a
Foreign Currency Note are to be determined in the relevant foreign currency.
Any loss realized on the sale, exchange or retirement of a Foreign Currency
Note with amortizable bond premium by a Holder who has not elected to amortize
such premium will be a capital loss to the extent of such bond premium. If such
an election is made, amortizable bond premium taken into account on a current
basis shall reduce interest income in units of the relevant foreign currency.
Exchange gain or loss is realized on such amortized bond premium with respect to
any period by treating the bond premium amortized in such period as a return of
principal.
A Holder's tax basis in a Foreign Currency Note, and the amount of any
subsequent adjustment to such Holder's tax basis, will be the U.S. dollar value
of the foreign currency amount paid for such Foreign Currency Note, or of the
foreign currency amount of the adjustment, determined on the date of such
purchase or adjustment. A Holder that purchases a Foreign Currency Note with
previously owned foreign currency will recognize ordinary income or loss in an
amount equal to the difference, if any, between such Holder's tax basis in the
foreign currency and the U.S. dollar fair market value of the Foreign Currency
Note on the date of purchase.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss that will not be treated as interest income or
expense. Gain or loss attributable to fluctuations in exchange rates will equal
the difference between (i) the U.S. dollar value of the foreign currency
principal amount of such Note, and any payment with respect to accrued interest
determined on the date such payment is received or the Note is disposed of, and
(ii) the U.S. dollar value of the foreign currency principal amount of such
Note, determined on the date such Holder acquired such Note, and the U.S. dollar
value of the accrued interest received, determined by translating such interest
at the average exchange rate for the accrual period. Such foreign currency gain
or loss will be recognized only to the extent of the total gain or loss realized
by a Holder on the sale, exchange or retirement of the Foreign Currency Note.
The source of such foreign currency gain or loss will be determined by reference
to the residence of the Holder or the "qualified business unit" of the Holder on
whose books the Note is properly reflected. Any gain or loss realized by such a
Holder in excess of such foreign currency gain or loss will be capital gain or
loss except in the case of a short-term Original Issue Discount Note, to the
extent of any original issue discount not previously included in the Holder's
income, or in the case of a Market Discount Note, to the extent of accrued
market discount.
A Holder will have a tax basis in any foreign currency received on the
sale, exchange or retirement of a Foreign Currency Note equal to the U.S. dollar
value of such foreign currency, determined at the time of such sale, exchange or
retirement. Under a special rule for purchases and sales of publicly traded
Foreign Currency Notes by a cash method taxpayer, units of foreign currency paid
or received are translated into U.S. dollars at the spot rate on the settlement
date of the purchase or sale; accordingly, no exchange gain or loss will result
from currency fluctuations between the trade date and the settlement of such a
purchase or sale. An accrual method taxpayer may elect the same treatment
required of cash-method taxpayers with respect to the purchase and sale of
publicly traded Foreign Currency Notes provided the election is applied
consistently. Such election cannot be changed without the consent of the
Internal Revenue Service. Any gain or loss realized by a Holder on a sale or
other disposition of foreign currency (including its exchange for U.S. dollars
or its use to purchase Foreign Currency Notes) will be ordinary income or loss.
Extension of Maturity
In general, whether the extension of the maturity of a Note not occurring
by operation of the original terms of the Note will result in a taxable exchange
depends on the changes in the yield, if any, in the timing and amounts of
payments, and on any changes in other relevant terms. The alteration of the
terms of a debt instrument
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(a "modification") will, if significant, result in a deemed exchange of the
original debt instrument for a modified debt instrument. In addition, certain
changes that occur by operation of the original terms of a debt instrument, such
as an option exercisable by a holder that results in a deferral or reduction of
any scheduled payment, are considered "modifications" and, if significant, will
result in a deemed exchange of the original debt instrument for a "modified"
debt instrument.
The determination of whether a modification is significant is made based on
all relevant facts and circumstances. A modification that changes the timing of
payments due under a debt instrument is a significant modification if it results
in the "material deferral" of scheduled payments. The materiality of the
deferral depends upon all the relevant facts and circumstances, including the
length of the deferral, the original term of the instrument, the amounts of the
payments that are deferred, and the time period between the modification and the
actual deferral of payments. However, deferral will not be material if a
deferred payment is unconditionally payable no later than the earlier of the
expiration of five years or 50 percent of the original term of the instrument.
The extension of the maturity of a Note not occurring by operation of the
original terms of the Note will result in an exchange for United States federal
income tax purposes if the extension results in the material deferral of a
scheduled payment or payments. If the terms of a debt instrument are modified to
defer one or more payments, then for purposes of the original issue discount
provisions the debt instrument will be treated as retired and reissued on the
date of the modification for an amount equal to the instrument's adjusted issue
price on that date. This result obtains even though the modification does not
otherwise cause an exchange for United States federal income tax purposes under
the principles discussed above.
Contingent Payment Debt Instruments
Floating Rate Notes that do not qualify as variable rate debt instruments
may be treated as contingent payment debt instruments for United States federal
income tax purposes. The treatment of such Notes will vary depending on their
exact terms. Under the OID Regulations, the amount of interest included in a
Holder's income for any year with respect to a Note deemed to be a contingent
payment debt instrument generally will be determined by projecting the amounts
of fixed and contingent payments and the yield on the instrument, with variances
between actual and projected amounts ultimately increasing or decreasing the
Holder's taxable income. The payment schedule consists of all fixed payments on
the debt instrument and a projected amount for each contingent payment.
The yield of a Note deemed to be a contingent payment debt instrument that
is issued for money or publicly traded property is first determined by reference
to comparable yields at which the issuer would issue a fixed rate debt
instrument having similar terms and conditions, with the payment schedule then
set to fit the yield. Projected payments are generally based on the forward
price of payments where price quotes are readily available for contingencies.
Where price quotes are not readily available for contingencies, projected
payments will be based on the expected amount of the payment as of the issue
date, set in some cases by reference to the comparable yield.
Anti-Abuse Regulation
If a principal purpose in structuring a debt instrument or engaging in a
transaction is to achieve a result that is unreasonable in light of the purposes
of Section 163(e) or Sections 1271 through 1275 of the Code (relating to, inter
alia, original issue discount, amortizable bond premium, acquisition premium,
market discount, and pre-issuance accrued interest) or any related Section of
the Code, the Internal Revenue Service may apply or depart from the Regulations
under the applicable Sections as necessary or appropriate to achieve a
reasonable result. Whether a result is reasonable is determined based on all the
facts and circumstances, giving significant attention to whether the treatment
of a particular debt instrument is expected to have a substantial effect on the
U.S. tax liability of the issuer or holder.
Backup Withholding and Information Reporting
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
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original issue discount on an Original Issue Discount Note with respect to,
non-corporate Holders, and such Holders may be subject to backup withholding at
a rate of 31% on such payments. Backup withholding will apply only if the Holder
(i) fails to furnish its Taxpayer Identification Number ("TIN") which, for an
individual, would be his Social Security number, (ii) furnishes an incorrect
TIN, (iii) is notified by the Internal Revenue Service that it has failed to
properly report payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct TIN and has not been notified by the Internal Revenue Service that it
is subject to backup withholding for failure to report interest and dividend
payments. Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations"), which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company through
the Agents, who have agreed to use their reasonable efforts to solicit offers to
purchase the Notes. Unless otherwise specified in the applicable Pricing
Supplement, the Company will pay each Agent a commission which, depending upon
the maturity, will range from .125% to .750% of the purchase price of such Note
sold through such Agent. The Company may also sell Notes to an Agent, as
principal, for resale to investors at varying prices related to prevailing
market prices at the time of resale, as determined by such Agent. The Company
reserves the right to sell Notes directly to investors on its own behalf in
those jurisdictions where it is authorized to do so. In the case of such sales
made directly by the Company, no commission will be payable to the Agents. The
Company has agreed to reimburse the Agents for certain expenses.
The Company may also sell Notes to an Agent as principal for its own
account at discounts to be agreed upon at the time of sale. Such Notes may be
resold to investors and other purchasers at prevailing market prices, or prices
related thereto at the time of such resale, as determined by the Agent or, if so
agreed, at a fixed public offering price. In addition, the Agents may offer the
Notes they have purchased as principal to other dealers. The Agents may sell
Notes to any dealer at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not be
in excess of the discount to be received by such Agent from the Company. After
the initial public offering of Notes to be resold to investors and other
purchasers, the public offering price (in the case of Notes to be resold at a
fixed public offering price), concession and discount may be changed.
In order to facilitate the offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Agents may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may bid
for, and purchase, the Notes in the open market. Finally, the Agents may reclaim
selling concessions allowed to any agent or a dealer for distributing the Notes
in the offering, if the
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Agents repurchase previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Agents are not required to engage in these
activities and may end any of these activities at any time.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject any proposed purchase of Notes in whole or
in part whether placed directly with the Company or through one of the Agents.
An Agent will have the right to reject any offer to purchase Notes solicited by
it in whole or in part.
Payment of the purchase price of the Notes will be required to be made in
immediately available funds in The City of New York on the date of settlement.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Securities Act"). The Company has agreed to
indemnify each Agent against certain liabilities, including certain liabilities
under the Securities Act or to contribute to payments the Agents may be required
to make in respect of such liabilities. Each of the Agents may engage in
transactions with, or perform services for, the Company in the ordinary course
of business.
Unless otherwise provided in the Pricing Supplement, the Notes will not be
listed on any securities exchange, but the Agents presently intend to make a
market in the Notes, as permitted by applicable laws and regulations. The Agents
are not obligated, however, to make a market in the Notes and any such market
making may be discontinued at any time at the sole discretion of the Agents. No
assurance can be given as to the liquidity of any trading in the Notes.
Morgan Stanley & Co. Incorporated acts as financial advisor to the Company
from time to time. In the ordinary course of their respective businesses,
affiliates of Key Capital Markets, Inc., J.P. Morgan Securities Inc. and
NationsBanc Montgomery Securities LLC have engaged, and will in the future
engage, in normal commercial banking and investment banking transactions with
the Company. In addition, an affiliate of Key Capital Markets, Inc. acts in a
fiduciary capacity on behalf of the Company in connection with a certain benefit
plan for certain employees of the Company. The Agents and/or certain of their
affiliates have provided, and will in the future continue to provide, investment
banking and other financial services for the Company and certain of its
affiliates in the ordinary course of business for which they have received and
will receive customary compensation.
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PROSPECTUS
$300,000,000
THE TIMKEN COMPANY
DEBT SECURITIES
------------------------
The Timken Company ("Timken" or the "Company") may offer from time to time
in one or more series its debentures, notes or other evidence of indebtedness
(the "Securities"), up to an aggregate principal amount not to exceed the
equivalent of $300,000,000, on terms to be determined at the time of sale by
market conditions. As used herein, Securities shall include Securities
denominated in U.S. dollars or, at the option of the Company if so specified in
a Prospectus Supplement (the "Prospectus Supplement"), in any other currency,
including composite currencies such as the European Currency Unit. The specific
designation, aggregate principal amount, maturity, rate and time of payment of
any interest, purchase price, any terms for mandatory or optional redemption
(including any sinking fund), any modification of the covenants and any other
specific terms in connection with the sale of the Securities in respect of which
this Prospectus is being delivered (the "Offered Securities"), together with the
terms of the offering of such Securities, will be set forth in an accompanying
Prospectus Supplement or an accompanying Pricing Supplement (each, a "Pricing
Supplement"). The Company presently expects that any Securities issued hereunder
will be in the form of its Medium-Term Notes, Series A. To the extent that such
Notes are issued and sold, the Company's ability to issue other Securities
hereunder will be correspondingly reduced.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
The Securities may be offered directly, through agents designated from time
to time, through dealers or through underwriters. Such agents, dealers or
underwriters may include Morgan Stanley & Co. Incorporated, Key Capital Markets,
Inc., J.P. Morgan Securities Inc., NationsBanc Montgomery Securities LLC and/or
other parties, acting alone or with other parties. See "Plan of Distribution."
Any such agents, dealers or underwriters are set forth in the Prospectus
Supplement. If an agent of the Company or a dealer or underwriter is involved in
the offering of the Offered Securities, the agent's commission, dealer's
purchase price, underwriter's discount and net proceeds to the Company will be
set forth in, or may be calculated from, the Prospectus Supplement and the net
proceeds to the Company from such sale will be the purchase price of such
Securities less such commission in the case of an agent, the purchase price of
such Securities in the case of a dealer, and the public offering price less such
discount in the case of an underwriter and less, in each case, the other
expenses of the Company. See "Plan of Distribution" for possible indemnification
arrangements for agents, dealers and underwriters.
------------------------
The date of this Prospectus is April 24, 1998
<PAGE> 23
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT OR PRICING SUPPLEMENT IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT OR PRICING
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE AGENTS. THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT OR PRICING SUPPLEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Seven World Trade Center, 13th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a Web site located at
http://www.sec.gov., that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission. As the Company's equity securities are
listed on the New York Stock Exchange ("NYSE"), such material can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933 (the "Act") with respect to the Securities. The Prospectus and any
Prospectus Supplement and Pricing Supplement omit certain information set forth
in the Registration Statement in accordance with the rules and regulations of
the Commission. For further information, reference is made to the Registration
Statement, including the exhibits filed therewith. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
following documents (Commission File No. 1-01169), heretofore filed with the
Commission, pursuant to the Exchange Act, to which reference hereby is made:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997.
2. The Company's Current Report on Form 8-K as filed with the Commission on
April 15, 1997.
3. The Company's Current Report on Form 8-K as filed with the Commission on
February 6, 1998.
4. The Company's Current Report on Form 8-K as filed with the Commission on
April 21, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of Securities shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is
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<PAGE> 24
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
Any person to whom a copy of this Prospectus is delivered may obtain
without charge, upon written or oral request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents
which are not specifically incorporated by reference into such documents.
Requests should be directed to Larry R. Brown, Senior Vice President and General
Counsel, The Timken Company, 1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798;
telephone (330) 438-3000.
FORWARD-LOOKING STATEMENTS
The statements set forth in this document that are not historical in nature
are forward-looking statements. The Company cautions readers that actual results
may differ materially from those projected or implied in forward-looking
statements made by or on behalf of the Company due to a variety of important
factors, such as: (a) changes in world economic conditions. This includes, but
is not limited to, the potential instability of governments and legal systems in
countries in which the Company conducts business, and significant changes in
currency valuations; (b) changes in customer demand on sales and product mix.
This includes the effect of customer strikes and the impact of changes in
industrial business cycle; (c) competitive factors, including changes in market
penetration and the introduction of new products by existing and new
competitors; (d) changes in operating costs, which includes the effect of
changes in the Company's manufacturing processes; changes in costs associated
with varying levels of operations, changes resulting from inventory management,
initiatives and different levels of customer demands; the effects of unplanned
work stoppages; changes in the cost of labor and benefits, and the cost and
availability of raw materials and energy; (e) the success of the Company's
operating plans, including its ability to achieve the benefits from its on-going
continuous improvement programs, its ability to integrate acquisitions into
Company operations, the ability of recently acquired companies to achieve
satisfactory operating results and the Company's ability to maintain appropriate
relations with unions that represent Company associates in certain locations in
order to avoid disruptions of business; (f) unanticipated litigation, claims or
assessments, which includes, but is not limited to, claims or problems related
to product warranty and environmental issues; and (g) changes in worldwide
financial markets to the extent they affect the Company's ability to raise
capital, have an impact on the overall performance of the Company's pension fund
investments and cause changes in the economy which affect customer demand.
THE COMPANY
Timken, an outgrowth of a business originally founded in 1899 by Henry
Timken, was incorporated in 1904 under the laws of the State of Ohio as The
Timken Roller Bearing Company. Timken's products are divided into two industry
segments. The first includes anti-friction bearings; the second industry segment
is steel.
Sales of the Company's bearings are made predominantly to manufacturers in
the automotive, machinery, railroad, aerospace and agricultural industries, and
to service replacement markets. The Company's tapered roller bearings are used
in a wide variety of products including passenger cars, trucks, railroad cars
and locomotives, aircraft wheels, machine tools, rolling mills and farm and
construction equipment. Super precision bearings, in the general ball and
straight roller bearing segment, are used in aircraft, missile guidance systems,
computer peripherals and medical instruments.
Steel products include steels of intermediate alloy, low alloy and carbon
grades, vacuum processed alloys, tool steel and other custom-made steel products
including parts made from specialty steel. These are available in a wide range
of solid and tubular sections with a variety of finishes. A significant portion
of the Company's steel products is consumed in its bearing operations. In
addition, sales are made to other antifriction bearing companies and to
aircraft, automotive, forging, tooling and oil and gas drilling industries.
Sales are also made to steel service centers. Tool steels increasingly are being
sold through newly acquired distribution facilities.
The Company's principal executive offices are located at 1835 Dueber
Avenue, S.W., Canton, Ohio 44706-2798, telephone (330) 438-3000.
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<PAGE> 25
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for each of the last five fiscal years ended December 31, 1997. For
the purpose of calculating the ratio of earnings to fixed charges, "earnings"
consist of income (loss) before income taxes, extraordinary item, cumulative
effects of accounting changes, amortization of capitalized interest and fixed
charges excluding capitalized interest. "Fixed charges" consist of interest
(both expensed and capitalized), and the portion of rentals deemed to represent
an interest factor.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
1997 1996 1995(1) 1994(1) 1993(1)
----- ----- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges........ 10.92 11.10 8.31 4.62 .38
</TABLE>
- ---------------
(1) Restated to include portions of capitalized interest as part of fixed
charges.
USE OF PROCEEDS
Except as otherwise described in a Prospectus Supplement or Pricing
Supplement, the Company intends to use the net proceeds from the sale of the
Securities for general corporate purposes, including capital expenditures,
additions to working capital, possible acquisitions and reduction of
indebtedness, including short-term debt. Pending such application, such net
proceeds may be invested in short-term marketable securities. The Company may
raise additional funds from time to time through equity or debt financings.
DESCRIPTION OF SECURITIES
The Securities will be issued under an Indenture (the "Indenture") dated as
of April 24, 1998, between the Company and The Bank of New York, as trustee (the
"Trustee"). The Indenture, which is an exhibit to the Registration Statement, is
incorporated by reference herein. The following summaries of certain provisions
of the Indenture and the Securities describe all material terms of such
provisions. Such provisions, however do not purport to be complete and are
subject to and are qualified in their entirety by reference to the Indenture and
the Securities. Whenever a defined term is used, its definition is set forth
herein or in the Indenture or in the Securities. Further terms of the Offered
Securities are set forth in the Prospectus Supplement and the Pricing
Supplement.
The provisions of the Indenture described below under "Certain Restrictions
on the Company" are the only provisions contained in the Indenture that restrict
the ability of the Company to incur additional debt, including debt in the event
of a highly leveraged transaction involving the Company. While such covenants
give the Board of Directors of the Company some discretion to exclude from
Principal Manufacturing Property, as defined below, properties which are not of
material importance to the Company and its subsidiaries, taken as a whole, the
Board has no ability to waive the applicability of these covenants.
GENERAL
The Indenture does not limit the aggregate principal amount of Securities
which may be issued thereunder and provides that Securities may be issued from
time to time in one or more series and may be denominated and payable in foreign
currencies or units based on or relating to foreign currencies, including
European Currency Units. The Securities will be unsecured obligations of the
Company and will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company. As of March 31, 1998, the Company had approximately
(i) $70.7 million of outstanding secured indebtedness that would rank senior to
the Securities to the extent of the assets secured thereby, and (ii) $223.4
million of outstanding unsecured indebtedness, that would rank on parity with
the Securities, of which $27.5 million is the obligation of certain foreign
subsidiaries of the Company that has been guaranteed by the Company. In
addition, various subsidiaries (both domestic and foreign) of the Company have
incurred indebtedness in the aggregate principal amount outstanding of
approximately $30.4 million as of March 31, 1998, none of which has been
guaranteed by the Company. All such subsidiary indebtedness would rank senior to
the Securities to the extent of the assets of the applicable
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<PAGE> 26
subsidiary. Further, as of such date, the Company had approximately $119.0
million aggregate principal amount outstanding in short-term commercial paper
borrowings, all of which would rank on parity with the Securities. Finally, as
of such date, the Company had approximately $1.2 million in outstanding
capitalized lease obligations. See "Certain Restrictions on the Company" which
describes certain provisions restricting the Company from incurring additional
debt.
The Prospectus Supplement and any applicable Pricing Supplement will
describe the following terms of the Offered Securities, to the extent such terms
are applicable to such Offered Securities: (a) the designation of the Offered
Securities; (b) any limit on the aggregate principal amount of the Offered
Securities; (c) the date or dates on which the Offered Securities will mature;
(d) the rate or rates or method of determination thereof at which the Offered
Securities will bear any interest and the date or dates from which such interest
will accrue; (e) the date or dates on which any interest on the Offered
Securities will be payable and the regular record dates for the interest payable
on such interest payment dates; (f) the place or places where the principal of
and any interest on the Offered Securities shall be payable; (g) the price or
prices at which, the period or periods within which and the terms and conditions
upon which the Offered Securities may be redeemed, in whole or in part, pursuant
to any optional or mandatory redemption, sinking fund, or analogous provisions;
(h) whether the Offered Securities will be issuable as Registered Securities or
Unregistered Securities, or both, and any terms or restrictions applicable to
the offer, sale, delivery and exchange of Unregistered Securities; (i) the
extent to which any of the Securities will be issued in temporary or permanent
Global form, or the manner in which any interest payable on a temporary or
permanent Global Security will be paid; (j) if the Offered Securities are
Original Issue Discount Securities, the portion of the principal amount payable
upon declaration of acceleration of the maturity of the Offered Securities; (k)
the coin or currency, which may include a composite currency such as the
European Currency Unit, in which the Offered Securities are denominated and in
which payment of the principal of and interest on the Offered Securities will be
payable, if other than the coin or currency of the United States; (l) the manner
in which the amount of payments of principal of and interest on the Offered
Securities is to be determined if such determination is to be made with
reference to an index based on a coin or currency other than that in which the
Offered Securities are denominated; (m) whether and under what circumstances the
Company will pay additional amounts on Offered Securities held by a person who
is not a U.S. person in respect of any tax, assessment or governmental charge
withheld or deducted and, if so, whether the Company will have the option to
redeem such Offered Securities rather than pay such additional amounts; (n)
information with respect to book-entry procedures, if applicable; (o) any
trustees or other agents with respect to the Offered Securities; and (p) any
other specific terms of the Offered Securities, including any terms which may be
required by or advisable under United States laws or regulations.
If so provided in the Prospectus Supplement, Securities may be issued as
Original Issue Discount Securities (bearing either no interest or bearing
interest at a rate which at the time of issuance is below the prevailing market
rate) to be sold at a substantial discount below their principal amount. If any
Security is not to be denominated in U.S. dollars, certain provisions with
respect thereto will be set forth in a foreign currency Prospectus Supplement,
which will specify the currency or currencies, including composite currencies
such as the European Currency Unit, in which the principal and any related
interest with respect to such Security are to be paid, along with any other
terms relating to the non-U.S. dollar denomination. In such cases, special
federal income tax and other considerations applicable to such Offered
Securities will be described in the Prospectus Supplement.
REGISTRATION AND TRANSFER
Unless otherwise indicated in the applicable Prospectus Supplement,
Securities will be issued only as Registered Securities. If Unregistered
Securities are issued, the United States federal income tax consequences and
other special considerations, procedures and limitations applicable to such
Unregistered Securities will be described in the Prospectus Supplement relating
thereto.
Securities issued as Registered Securities will be without coupons.
Securities issued as Unregistered Securities will have interest coupons
attached, unless issued as zero coupon securities.
Registered Securities (other than a Global Security) may be presented for
transfer (with the form of transfer endorsed thereon duly executed or
accompanied by a duly executed written instrument or instruments of transfer
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<PAGE> 27
in form satisfactory to the Company and the Trustee) or exchange for other
Securities of the same series bearing identical terms and provisions at the
office of the Registrar specified according to the terms of the Indenture. With
respect to Registered Securities having The City of New York as a place of
payment, the Company will appoint the Trustee as agent for such transfer or
exchange. Such transfer or exchange will be made without service charge, but the
Company may require payment of any taxes or other governmental charges arising
therefrom. Provisions relating to the exchange of Unregistered Securities for
other Securities of the same series bearing identical terms and provisions
(including, if applicable, Registered Securities) will be described in the
applicable Prospectus Supplement.
GLOBAL SECURITIES
The Securities of a series may be issued in whole or in part in the form of
one or more Global Securities that will be deposited with, or on behalf of, a
depositary (the "Depositary") identified in the Prospectus Supplement, relating
to such series. Global Securities may be issued as either Registered Securities
or Unregistered Securities and in either temporary or permanent form. Unless the
terms of a Global Security expressly permit such Global Security to be exchanged
in whole or in part for individual Securities represented thereby, a Global
Security may not be transferred except as a whole by the Depositary for such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any such nominee to a successor Depositary selected or approved by
the Company or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series
of Securities, and certain limitations and restrictions relating to a series of
Unregistered Securities in the form of one or more Global Securities, will be
described in the Prospectus Supplement relating to such series. Unless otherwise
indicated in the applicable Prospectus Supplement, the following provisions will
apply to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit, on its book-entry registration and transfer
system, the respective principal amounts represented by such Global Security to
the accounts of persons that have accounts with such Depositary. Such accounts
shall be designated by the underwriters or agents for the transaction or by the
Company if such Securities are offered and sold directly by the Company.
Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with the applicable Depositary ("participants") or
persons that may hold interests through participants. Ownership of beneficial
interests in such Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depositary or
its nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants). The
laws of some states may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Securities
represented by such Global Security for all purposes under the Indenture. Except
as provided below, owners of beneficial interests in a Global Security will not
be entitled to have any of the individual Securities of the series represented
by such Global Security registered in their names, will not receive or be
entitled to receive physical delivery of such Securities of such series in
definitive form and will not be considered the owners or Holders thereof under
the Indenture.
Payments of principal of and interest, if any, on individual Securities
represented by a Global Security registered in the name of a Depositary or its
nominee will be made to the Depositary or its nominee, as the case may be, as
the registered owner of the Global Security representing such Securities. None
of the Company, the Trustee, any paying agent or any authenticating agent for
such Securities will have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests of a Global Security for such Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
6
<PAGE> 28
Subject to certain restrictions relating to Unregistered Securities, the
Company expects that the Depositary for a series of Securities or its nominee,
upon receipt of any payment of principal or interest in respect of a permanent
Global Security representing any of such Securities will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Security
as shown on the records of such Depositary or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in such
Global Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such participants. With respect to
owners of beneficial interests in a temporary Global Security representing
Unregistered Securities, receipt by such beneficial owners of payments of
principal or interest in respect thereof will be subject to additional
restrictions.
If at any time the Depositary for a Global Security notifies the Company
that it is at any time unwilling or unable to continue as depositary (or if at
any time such Depositary shall no longer be eligible or in good standing under
certain laws) and a successor depositary is not appointed by the Company within
90 days after the receipt of such notice or after becoming aware of such
ineligibility, the Company will issue individual Securities of such series in
definitive form in exchange for the Global Security representing such series of
Securities. In addition, the Company may at any time and in its sole discretion
determine that all Outstanding (but not less than all) Securities of a series
issued or issuable in the form of one or more Global Securities shall no longer
be represented by such Global Security. In such event, the Company will issue
individual Securities of such series in definitive form in exchange for the
Global Security or Securities representing such series of Securities. In any
such instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery in definitive form of Securities of the series
represented by such Global Security equal in principal amount to such beneficial
interest and to have such Securities registered in its name (if the Securities
of such series are issuable as Registered Securities). Securities of such series
so issued in definitive form will be issued (a) as Registered Securities in
denominations, unless otherwise specified by the Company, of $1,000 and integral
multiples of $1,000 in excess thereof if the Securities of such series are
issuable as Registered Securities, (b) as Unregistered Securities in
denominations, unless otherwise specified by the Company, of $1,000 and integral
multiples of $1,000 in excess thereof if the Securities of such series are
issuable as Unregistered Securities or (c) as either Registered or Unregistered
Securities, if the Securities of such series are issuable in either form.
Certain restrictions may apply, however, on the issuance of an Unregistered
Security in definitive form in exchange for an interest in a Global Security.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal on Registered Securities will be made at the offices of the
Trustee. Payment of any interest on Registered Securities will be made by check
mailed to the address of the person entitled thereto at such address shall
appear in the security register. In the case of Global Securities, such payment
will be made to the Depositary or its nominee in accordance with the
then-existing arrangements between the paying agent and the Depositary. See
"Global Securities" above. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of any installment of interest on Registered
Securities will be made to the person in whose name such Security is registered
at the close of business on the regular record date for such payment.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal and any interest on Unregistered Securities will be payable,
subject to any applicable laws and regulations, at the offices of such paying
agents outside the United States as the Company may designate from time to time.
Unless otherwise indicated in an applicable Prospectus Supplement, payment of
interest on Unregistered Securities will be made only against surrender of the
Coupon relating to such interest payment date. No payment with respect to any
Unregistered Security will be made at any office or agency of the Company
located in the United States or by check mailed to any address in the United
States or by transfer to an account maintained with a bank located in the United
States unless pursuant to applicable United States laws and regulations then in
effect such payment can be made without adverse tax consequences to the Company.
Notwithstanding the foregoing, payments in Dollars on Unregistered Securities of
any series and Coupons appertaining thereto which are payable in Dollars
7
<PAGE> 29
may be made at an agency of the Company maintained in The City of New York if
such payment in Dollars at each agency maintained by the Company outside the
United States for payment on such Unregistered Securities is illegal or
effectively precluded by exchange controls or other similar restrictions.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to
Securities of any series: (a) failure to pay any interest on any Security of
that series when due, continued for 30 days; (b) failure to pay principal of any
Security of that series when due; (c) failure to deposit any sinking fund
payment, when due, in respect of any Security of that series; (d) failure to
perform or observe any other term, covenant, or agreement contained in the
Indenture, continued for 90 days after written notice thereof, as provided in
the Indenture; (e) certain events of bankruptcy, insolvency or reorganization;
and (f) failure to comply with any other covenant the noncompliance with which
specifically would constitute an Event of Default with respect to Securities of
such series.
The Indenture provides that (a) if an Event of Default due to the default
in payment of principal of, or interest on, any series of Securities, or due to
the default in the performance or breach of any other covenant or warranty of
the Company applicable to the Securities of such series but not applicable to
all Outstanding Securities, shall have occurred and be continuing, either the
Trustee or the Holders of 25% in principal amount of the Securities of such
series then may declare the principal (or, if the Securities of such series are
Original Issue Discount Securities, such portion of the principal amount as may
be specified in the terms of such series) of all Securities of such series and
interest accrued thereon to be due and payable immediately, (b) if an Event of
Default due to the default in the performance of any other covenant or agreement
contained in the indenture applicable to all Outstanding Securities shall have
occurred and be continuing, either the Trustee or the Holders of 25% in
principal amount of the Outstanding Securities (treated as one class) may
declare the principal (or, if the Securities are Original Discount Securities,
such portion of the principal amount as may be specified in the terms of such
series) of all Securities and interest accrued thereon to be due and payable
immediately and (c) if an Event of Default due to certain events of bankruptcy,
insolvency or reorganization of the Company shall have occurred and be
continuing, then, the principal (or, if the Securities of such series are
Original Issue Discount Securities, such portion of the principal amount as may
be specified in the terms of such series) of all Securities and interest accrued
thereon shall become due and payable immediately.
The Indenture provides that the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity against the costs, expenses and liabilities which
might be incurred by it in compliance with any such direction. The Holders of a
majority in aggregate principal amount of the Outstanding Securities of any
series will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee with respect to the Securities of that series,
provided that (i) such direction shall not be in conflict with any rule of law
or the Indenture, and (ii) subject to certain provisions concerning the duties
and responsibilities of the Trustee, the Trustee shall have the right to decline
to follow any such direction if the Trustee, being advised by counsel, shall
determine that the action or proceeding so directed may not lawfully be taken or
if the Trustee in good faith by its board of directors, the executive committee,
or a trust committee of directors or Responsible Officers of the Trustee shall
determine that the action or proceedings so directed would involve the Trustee
in personal liability or if the Trustee in good faith shall so determine that
the actions or forebearances specified in or pursuant to such direction would be
unduly prejudicial to the interests of Holders of the Securities of all series
so affected not joining in the giving of said direction, it being understood
that (subject to the above-mentioned provisions) the Trustee shall have no duty
to ascertain whether or not such actions or forebearances are unduly prejudicial
to such Holders.
The Company is required to furnish to the Trustee annually a statement of
certain officers of the Company to the effect that, to the best of their
knowledge, the Company is not in default in the performance of the terms of the
Indenture or, if they have knowledge that the Company is in default, specifying
such default.
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<PAGE> 30
MODIFICATION AND WAIVER
The Indenture provides that the Company and the Trustee may enter into
supplemental indentures without the consent of the Holders of Securities to: (a)
secure any Securities, (b) evidence the assumption by a successor corporation of
the obligations of the Company, (c) add covenants for the protection of the
Holders of Securities, (d) cure any ambiguity or correct any inconsistency in
the Indenture, (e) establish the form or terms of Securities of any series and
(f) evidence the acceptance of appointment by a successor trustee.
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Security
affected thereby: (a) extend the final maturity of any Security; (b) reduce the
principal amount of, or any amount payable on redemption of, or reduce the rate
or extend the time of payment of interest on, any Security; (c) reduce the
amount of principal of an Original Issue Discount Security payable upon
acceleration of the maturity thereof; (d) change the coin or currency of payment
of principal of, or interest on, any Security; (e) impair or affect the right of
any Holder of Securities to institute suit for the enforcement of any payment on
or with respect to any Security; or (f) reduce the percentage in principal
amount of Outstanding Securities of any series, the consent of the Holders of
which is required for modification or amendment of the Indenture.
The Holders of a majority in aggregate principal amount of the Outstanding
Securities of each series may, on behalf of all Holders of Securities of that
series, waive any past default under the Indenture with respect to Securities of
that series, except a default in respect of a covenant or provision contained in
the Indenture which cannot be modified or amended without the consent of the
Holder of each Security affected.
DISCHARGE AND DEFEASANCE
The Company is permitted to discharge and defease its obligations under the
Indenture although Securities remain Outstanding by depositing with the Trustee,
as trust funds, an amount in cash or, in the case of Securities denominated in
U.S. Dollars, cash, U.S. Government Obligations or a combination thereof,
sufficient to pay and discharge the principal of and interest on the Securities,
as and when the same become due and payable. To exercise such an option the
Company is required, among other things, to deliver to the Trustee an Opinion of
Counsel that the Holders of such Securities will not recognize income, gain or
loss for United States federal income tax purposes as a result of such
defeasance.
CERTAIN DEFINITIONS
The term "Attributable Debt" means, as to any particular lease under which
any Person is at the time liable, at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the remaining term thereof (after giving effect
to any extensions at the option of the lessee), discounted from the respective
due dates thereof to such date at the average rate per annum borne by the
Securities for the preceding 365 days.
The term "Consolidated Net Tangible Assets" means the aggregate amount of
assets (less applicable reserves and other properly deductible items) after
deducting therefrom (a) all current liabilities (excluding any thereof
constituting Funded Debt by reason of being renewable or extendible) and (b) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other intangibles, all as set forth on the most recent consolidated
balance sheet of the Company and its consolidated Subsidiaries and computed in
accordance with generally accepted accounting principles.
The term "Domestic Subsidiary" means a Subsidiary of the Company except a
Subsidiary (a) which neither transacts any substantial portion of its business
nor regularly maintains any substantial portion of its fixed assets within the
United States of America, or (b) which is engaged primarily in financing the
operation of the Company or its Subsidiaries, or both, outside the United States
of America.
The term "Subsidiary" means any corporation at least a majority of the
voting stock of which is owned or controlled, directly or indirectly, by the
Company or any of its Subsidiaries.
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The term "Exempted Debt" means the sum of the following items outstanding
as of the date Exempted Debt is being determined: (i) indebtedness of the
Company and its Subsidiaries incurred after the date of the Indenture and
secured by mortgages created or assumed pursuant to the second paragraph under
"Certain Restrictions on the Company -- Limitations on Liens" below and (ii)
Attributable Debt of the Company and its Subsidiaries in respect of every sale
and leaseback transaction entered into after the date of the Indenture and
pursuant to the second paragraph under "Certain Restrictions on the Company --
Limitation on Sale and Lease-back" below.
The term "Funded Debt" means all indebtedness for money borrowed having a
maturity of more than one year from the date as of which the amount thereof is
to be determined or having a maturity of less than one year but by its terms
being renewable or extendible beyond one year from such date at the option of
the borrower.
The term "principal" includes premium, if any.
The term "Principal Manufacturing Property" means any building, structure
or other facility, together with the land upon which it is erected and fixtures
comprising a part thereof, used primarily for manufacturing or warehousing and
located in the United States of America, owned or leased by the Company or any
Domestic Subsidiary. The term "Principal Manufacturing Property" does not
include: (a) property financed through the issuance of tax exempt governmental
obligations or (b) any property that the Board of Directors of the Company
determines is not materially important to the total business of the Company and
its Subsidiaries.
CERTAIN RESTRICTIONS ON THE COMPANY
The following restrictions apply to the Offered Securities unless the
Prospectus Supplement otherwise provides.
Limitations on Liens. While any Securities are Outstanding, the Company
will not, nor will it permit any Domestic Subsidiary to, incur, issue, assume or
guarantee any indebtedness for money borrowed ("Debt") secured by any mortgage
or other encumbrance ("Mortgage") on any Principal Manufacturing Property of the
Company or its Domestic Subsidiaries or any shares of stock or Debt of any
Domestic Subsidiary which owns a Principal Manufacturing Property, without
concurrently securing the Securities equally and ratably with such Debt so long
as such Debt shall be so secured. This restriction does not apply to Debt
secured by (1) Mortgages of the Company or its Domestic Subsidiaries existing at
the time of the Indenture; (2) Mortgages on property of, or on any shares of
stock of, any corporation existing at the time it becomes a Domestic Subsidiary;
(3) Mortgages on property or shares of stock of a Domestic Subsidiary existing
at the time of acquisition thereof (including acquisition through merger or
consolidation) or to secure the payment of all or any part of the purchase price
or construction cost thereof or to secure any Debt incurred prior to, at the
time of, or within 180 days after, the acquisition of such property or shares or
the completion of any such construction and commencement of full operation of
such property for the purpose of financing all or any part of the purchase price
or construction thereof; (4) Mortgages in favor of the Company or any Domestic
Subsidiary; (5) Mortgages in favor of the United States, any state or any
subdivision thereof, or any federal or state department, agency or
instrumentality, to secure progress, advance or other payments pursuant to any
contract or statute; or (6) extensions, renewals or replacements (or successive
extensions, renewals or replacements), in whole or in part, of any Mortgage
referred to in (1) through (5).
Notwithstanding the limitations on liens described above, the Company or
any Domestic Subsidiary may incur, issue, assume or guarantee any Debt secured
by a Mortgage on any Principal Manufacturing Property of the Company or its
Domestic Subsidiaries or any shares of stock or Debt of any Domestic Subsidiary,
in addition to that permitted above and without any obligation to secure the
Securities, provided that at the time of such incurrences, issuance, assumption
or guarantee of such Debt, and after giving effect thereto, Exempted Debt does
not exceed 15% of the Consolidated Net Tangible Assets of the Company and its
Subsidiaries, taken as a whole.
Limitation on Sale and Lease-back. While any Securities are Outstanding,
the Company will not, nor will it permit any Domestic Subsidiary to, sell and
lease-back for more than three years any Principal Manufacturing Property
acquired or placed into service more than 180 days before such lease
arrangement, unless (a) the Company would be entitled to incur Debt secured by a
Mortgage on such Principal Manufacturing Property in a principal amount
equivalent to the Attributable Debt in respect of such arrangement without
equally and ratably
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securing the Securities or (b) the Company retires Funded Debt or causes Funded
Debt to be retired equal to the net proceeds of such sale.
Notwithstanding the limitations on sale and lease-back transactions
described above, the Company or any Domestic Subsidiary may enter into a sale
and lease-back transaction of a Principal Manufacturing Property in addition to
that permitted above and without any obligation to retire any Securities or
other indebtedness referred to above, provided that at the time of entering into
such sale and lease-back transaction and after giving effect thereto, Exempted
Debt does not exceed 15% of the Consolidated Net Tangible Assets of the Company
and its Subsidiaries, taken as a whole.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may, without the consent of the Trustee or the Holders of
Outstanding Securities, consolidate or merge with or into, or convey, transfer
or lease its properties and assets substantially as an entirety to, any other
corporation, provided that any successor corporation is a corporation organized
under the laws of the United States of America or any state thereof and that
such successor corporation expressly assumes all obligations of the Company
under the Securities and that certain other conditions are met, and, thereafter,
except in the case of a lease, the Company shall be relieved of all obligations
under the Indenture.
APPLICABLE LAW
The Securities and the Indenture will be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
A judgment for money damages by a court in the United States, including a
money judgment based on an obligation expressed in a foreign currency, will
ordinarily be rendered only in U.S. dollars. The Judiciary Law of the State of
New York provides, however, that an action based upon an obligation denominated
in a currency other than U.S. dollars 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 the entry of the judgment or decree.
CONCERNING THE TRUSTEE
The Bank of New York will be the Trustee under the Indenture.
Under the Indenture, the Company has agreed to pay reasonable compensation
to the Trustee, to reimburse the Trustee for all of its reasonable expenses and
to indemnify the Trustee for certain liabilities incurred by the Trustee in the
performance of its obligations under the Indenture. The Company's obligations
under the foregoing sentence constitute additional indebtedness under the
Indenture and will be a senior claim to that of the Securities upon all property
and funds held or collected by the Trustee as such, except funds held in trust
for the benefit of the Holders of particular Securities or Coupons.
PLAN OF DISTRIBUTION
The Company may sell Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement. The Company also may, from time to time, authorize dealers, acting
as the Company's agents, to offer and sell the Offered Securities upon the terms
and conditions as are set forth in the Prospectus Supplement. The Company has
reserved the right to sell Offered Securities directly to investors on its own
behalf in those jurisdictions where it is authorized to do so.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, 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 Offered Securities, underwriters 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
Offered Securities for whom they may act as agent. Underwriters may sell
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the Offered Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers, are
set forth in the applicable Prospectus Supplement or Pricing Supplement.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Act.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Jones, Day, Reavis & Pogue, North Point, 901 Lakeside Avenue, Cleveland, Ohio
44114.
Certain legal matters relating to the Offered Securities will be passed
upon for the underwriters and certain other purchasers by Brown & Wood LLP, One
World Trade Center, New York, New York 10048.
EXPERTS
The consolidated financial statements of The Timken Company incorporated by
reference in The Timken Company's Annual Report (Form 10-K) for the year ended
December 31, 1997, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated 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.
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