PROSPECTUS SUPPLEMENT
(To Prospectus dated November 6, 1998)
$5,000,000,000
CHRYSLER FINANCIAL COMPANY L.L.C.
Medium-Term Notes, Series S
Due Nine Months or More From Date of Issue
The Issuer:Chrysler Financial Company L.L.C. ("We" or the "Company") is a
Michigan limited liability company.
Terms: We plan to sell notes ("Notes") at one or more times with variable
terms, including the following:
* Stated maturities of 9 months * Interest at fixed or floating
or more rates. After taking into
account any spread or spread
* Redemption and/or repayment multiplier, the floating
provisions, if applicable, interest rate may be based on
whether mandatory or at the one or more of the following:
option of the Company or
holders o CD rate
o CMT rate
* Payments in U.S. dollars or a o Commercial paper rate
foreign currency or unit of o Federal funds rate
currencies o LIBOR
o Prime rate
* Minimum denominations of o Treasury rate
$1,000, increased in multiples o Such other rate specified
of $1,000, or other specified in an applicable pricing
denominations and multiples supplement
for a foreign currency
* Interest payments on fixed
* Book-entry form rate Notes on March 15 and
September 15, unless otherwise
specified
* Interest payments on floating
rate Notes monthly, quarterly,
semi-annually, or annually
The final terms for each Note will be specified in the applicable
pricing supplement, and such terms may differ from those described above or
herein.
Investing in the Notes involves certain risks. See "Risk Factors" on
page S-2 hereof and page 4 of the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
We expect to receive proceeds of between $4,997,500,000 and
$4,970,000,000 from the sale of the Notes, after paying the Agents' discounts
and commissions of between .050% and .600%.
----------------
Merrill Lynch & Co. J.P. Morgan & Co. Salomon Smith Barney
----------------
November 6, 1998
RISK FACTORS
Your investment in the Notes will include certain risks. In
consultation with your own financial and legal advisers, you should carefully
consider, among other matters, the following discussion of risks before
deciding whether an investment in the particular Notes is suitable for you.
Such Notes are not an appropriate investment for you if you are
unsophisticated with respect to the significant components thereof and/or
financial matters.
Structure Risks
General
If you invest in Notes indexed to one or more interest rates, currencies
or other indices or formulas, there will be significant risks not associated
with a conventional fixed rate or floating rate debt security. Such risks
include fluctuation of the indices or formulas and the possibility that you
will receive a lower (or no) amount of principal, premium or interest and at
different times than you expected. We do not control a number of matters,
including economic, financial and political events, that are important in
determining the existence, magnitude and longevity of such risks and their
results. In addition, if an index or formula used to determine any amounts
payable in respect of the Notes contains a multiplier or leverage factor, the
effect of any change in such index or formula will be magnified. In recent
years, values of certain indices and formulas have been volatile, and
volatility in those and other indices and formulas may be expected in the
future. However, past experience is not necessarily indicative of what may
occur in the future.
Redemption
If your Notes are redeemable at our option or are otherwise subject to
mandatory redemption, we may (in the case of optional redemption) or must (in
the case of mandatory redemption) choose to redeem such Notes at times when
prevailing interest rates may be relatively low. Accordingly, you generally
will not be able to reinvest the redemption proceeds in a comparable security
at an effective interest rate as high as that of the Notes.
Credit Ratings
The credit ratings of our medium-term note program may not reflect the
potential impact of all risks related to structure and other factors on the
value of your Notes. In addition, real or anticipated changes in our credit
ratings will generally affect the market value of your Notes.
Uncertain Trading Markets
We cannot assure you that a trading market for your Notes will ever
develop or be maintained. Many factors independent of our creditworthiness
affect the trading market. These factors include:
* complexity and volatility of the index or formula applicable to the
Notes,
* method of calculating the principal, premium and interest in respect
of the Notes,
* time remaining to the maturity of the Notes,
* outstanding amount of the Notes,
* redemption features of the Notes,
* amount of other debt securities linked to the index or formula
applicable to the Notes, and
* level, direction and volatility of market interest rates generally.
In addition, certain Notes have a more limited trading market and
experience more price volatility because they were designed for specific
investment objectives or strategies. There may be a limited number of buyers
when you decide to sell such Notes. This may affect the price you receive for
such Notes or your ability to sell such Notes at all. You should not purchase
Notes unless you understand and know you can bear the foregoing investment
risks.
S-2
Exchange Rates and Exchange Controls
If you invest in Foreign Currency Notes, there will be significant
risks not associated with an investment in a debt security denominated and
payable in U.S. dollars, including the possibility of material changes in the
exchange rate between U.S. dollars and your payment currency and the
imposition or modification of exchange controls by the applicable
governments. We have no control over the factors that generally affect these
risks, such as economic, financial and political events and the supply and
demand for the applicable currencies. Moreover, if payments on your Foreign
Currency Notes are determined by reference to a formula containing a
multiplier or leverage factor, the effect of any change in the exchange rates
between the applicable currencies will be magnified. In recent years,
exchange rates between certain currencies have been highly volatile, and
volatility between such currencies or with other currencies may be expected
in the future. Fluctuations between currencies in the past are not
necessarily indicative, however, of fluctuations that may occur in the
future. Depreciation of your payment currency would result in a decrease in
the U.S. dollar equivalent yield of your Foreign Currency Notes, in the U.S.
dollar equivalent value of the principal and any premium payable at maturity
or earlier redemption of your Foreign Currency Notes and, generally, in the
U.S. dollar equivalent market value of your Foreign Currency Notes.
Governmental exchange controls could affect exchange rates and the
availability of your payment currency on a required payment date. Even if
there are no exchange controls, it is possible that your payment currency
will not be available on a required payment date due to circumstances beyond
our control. In such cases, we will be allowed to satisfy our obligations in
respect of your Foreign Currency Notes in U.S. dollars.
THE MERGER; PRIOR SALES
Chrysler Financial Corporation ("CFC") merged with and into the Company
on October 25, 1998 (the "Merger"), with the Company being the surviving
entity. Prior to the Merger, the Company had no operations and had nominal
assets and liabilities. In connection with the Merger, the Company succeeded
to all of the assets and liabilities of CFC. Unless the context otherwise
requires, for the period prior to October 25, 1998 the term "Company" as used
herein shall mean CFC and after the merger shall mean Chrysler Financial
Company L.L.C., as successor to CFC.
CFC commenced offering the Notes on July 2, 1998. As of November 6,
1998, there were approximately $933,900,000 principal amount of Notes
outstanding.
S-3
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Debt Securities")
supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set
forth under the heading "Description of Debt Securities" in the Prospectus,
to which reference is hereby made. The following description will apply to
each Note unless otherwise specified in the applicable Pricing Supplement.
Capitalized terms not defined herein have the meanings ascribed to them in
the Indenture (defined below) and/or the Notes.
General
The Notes constitute a single series of Debt Securities of the Company
issued under an Indenture dated as of February 15, 1988, as amended (the
"Indenture"), between the Company (as successor to CFC) and Manufacturers
Hanover Trust Company, which has been succeeded by United States Trust
Company of New York as successor trustee (the "Trustee"), which Indenture is
more fully described in the accompanying Prospectus. See the Prospectus for a
further description of the Trustee and the Notes, including the covenants,
modification provisions and events of default relating to the Notes.
The Notes are being offered on a continuous basis by the Company
through the agents listed on the cover of this Prospectus Supplement (the
"Agents"). The Notes will rank pari passu with all existing and future
unsecured and unsubordinated indebtedness of the Company. The Indenture does
not limit the aggregate principal amount of Debt Securities that may be
issued thereunder. The Company may, from time to time, without the consent of
the Holders of the Notes, provide for the issuance of Notes or other Debt
Securities under the Indenture in addition to the $5,000,000,000 aggregate
initial offering price of Notes offered hereby. As of the date of this
Prospectus Supplement, the Company has authorized the issuance and sale of up
to $5,000,000,000 (or the equivalent thereof denominated in one or more
foreign currencies or composite currencies) aggregate principal amount of
Notes, subject to reduction as a result of the sale of other securities of
the Company. Each Note will mature nine months or more from its date of
issue, as selected by the purchaser and agreed to by the Company and may be
subject to redemption or repayment prior to its Stated Maturity (as defined
below). Notes may be issued at significant discounts from their principal
amount payable on the Stated Maturity (or on any prior date on which the
principal or an installment of principal of a Note becomes due and payable,
whether by the declaration of acceleration, call for redemption at the option
of the Company, repayment at the option of the holder or otherwise) (each
such date, a "Maturity"), and some Notes may not bear interest. See
"Redemption" and "Repayment at the Option of the Holder" below. Unless
otherwise indicated in the applicable Pricing Supplement, currency amounts in
this Prospectus Supplement, the accompanying Prospectus and any Pricing
Supplement are stated in United States dollars ("$", "U.S.$" or "U.S.
Dollars").
Unless otherwise specified in such Note and described in the applicable
Pricing Supplement, the Notes will be denominated in U.S. Dollars and
payments of principal, premium, if any, and any interest on the Notes will be
made in U.S. Dollars. If any Note is to be denominated other than exclusively
in U.S. Dollars, or if the principal of, premium, if any, or any interest on
the Note is to be payable in one or more currencies (or currency units or in
amounts determined by reference to an index or indices) other than that in
which such Note is denominated, additional information with respect thereto
(including authorized denominations and applicable exchange rate information)
will be provided in the applicable Pricing Supplement. Unless otherwise
described in the applicable Pricing Supplement, Notes denominated in U.S.
Dollars will be issued in denominations of $1,000 or any integral multiple of
$1,000.
Interest rates offered by the Company with respect to the Notes may
differ depending upon, among other things, the aggregate principal amount of
the Notes purchased in any single transaction. Interest rates, interest rate
formulae and other variable terms of the Notes are subject to change by the
Company from time to time, but no such change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
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Each Note will be issued initially as a Book-Entry Note in fully
registered form without coupons. Except as set forth under "Book-Entry
System," owners of beneficial interests in Book-Entry Notes will not be
entitled to physical delivery of Notes in certificated form (each a
"Certificated Note"). Beneficial interests in Book-Entry Notes may be
transferred through a participating member of the The Depository Trust
Company ("DTC" or the "Depository"). All references herein to holders will
be, with respect to Book-Entry Notes, to the Depository or its nominee. See
"Book-Entry System."
Upon issuance thereof in the limited circumstances described in
"Book-Entry System," Certificated Notes will be exchangeable for Certificated
Notes in other authorized denominations, in an equal aggregate principal
amount and otherwise bearing identical terms and provisions, in accordance
with the provisions of the Indenture. Certificated Notes may be presented for
registration of transfer or for exchange at the office of the Registrar in
The City of New York designated for such purpose. No service charge will be
made for any transfer or exchange of any Certificated Note, but the Company
may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
The Pricing Supplement relating to a Note will describe the following
terms: (i) whether such Note is a Fixed Rate Note or a Floating Rate Note;
(ii) whether such Note is a Discount Note (as defined below), and, if so, the
total amount of original issue discount, the amount of original issue
discount allocable to the initial accrual period, and the yield to maturity
of such Note; (iii) the price (expressed as a percentage of the aggregate
principal amount thereof) at which such Note will be issued (the "Issue
Price"); (iv) the date on which such Note will be issued (the "Original Issue
Date"); (v) the date on which such Note will mature (the "Stated Maturity");
(vi) if such Note is a Fixed Rate Note, the rate per annum at which such Note
will bear interest, if any; (vii) if such Note is a Floating Rate Note, the
Base Rate (as defined below), the Initial Interest Rate, the Interest Reset
Period, the Interest Payment Dates, the Index Maturity, the Maximum Interest
Rate, if any, the Minimum Interest Rate, if any, the Spread and/or Spread
Multiplier, if any (all as defined below) and any other terms relating to the
particular method of calculating the interest rate for such Note; (viii)
whether such Note may be redeemed at the option of the Company, or repaid at
the option of the holder, prior to the Stated Maturity, and, if so, the
provisions relating to such redemption or repayment, including, in the case
of a Discount Note, the information necessary to determine the amount due
upon redemption or repayment; (ix) the Specified Currency in which such Note
is denominated; and (x) any other terms of such Note not inconsistent with
the provisions of the relevant Indenture.
Unless otherwise specified in a Note and described in the applicable
Pricing Supplement, "Business Day" with respect to any Note means any day,
other than a Saturday or Sunday, that is (i) not a day on which commercial
banks are authorized or required by law, regulation or executive order to be
closed in The City of New York and (ii) if such Note is a LIBOR Note (as
defined below), a London Business Day. "London Business Day" means (a) if the
Index Currency (as defined below) is other than the lawful currency of the
member states of the European Union that adopt the single currency in
accordance with the Treaty establishing the European Community, as amended by
the Treaty on European Union (the "Euro"), any day on which commercial banks
are open for business (including dealings in such Index Currency) in London
or (b) if the Index Currency is the Euro, any day on which the Trans-European
Automated Real-Time Gross Settlement Express Transfer (TARGET) System is
open.
Notes may be issued as discounted securities (bearing no interest or
interest at rates which at the time of issuance are below market rates), at
prices below their stated principal amounts, which securities will provide
that upon redemption or acceleration of the maturity thereof amounts less
than the principal amounts thereof shall become due and payable, or as other
Notes which for United States Federal income tax purposes would be considered
to have original issue discount ("Discount Notes"). See "Certain United
States Federal Income Tax Considerations." Certain additional considerations
relating to any Discount Notes may be described in the Pricing Supplement
relating thereto.
Unless otherwise specified in a Note and described in the applicable
Pricing Supplement, if the principal of any Discount Note is declared to be,
or automatically becomes, due and payable immediately as described in the
accompanying Prospectus under "Description of Debt Securities -- Events of
S-5
Default," the amount of principal due and payable with respect to such Note
shall be the Amortized Face Amount of such Note calculated as of the date of
such acceleration of the maturity of such Note. The "Amortized Face Amount"
of a Discount Note as of any date for which a calculation is being made shall
be an amount equal to the sum of (i) the aggregate principal amount of such
Note multiplied by the Issue Price plus (ii) the portion of the difference
between the Issue Price and the principal amount of such Note that has
accrued at the yield to maturity set forth in the Pricing Supplement
(computed in accordance with generally accepted United States bond yield
computation principles) to the date with respect to which such calculation is
being made, but in no event shall the Amortized Face Amount of a Discount
Note exceed its principal amount.
The initial Paying Agent, Registrar and Transfer Agent for the Notes is
The Chase Manhattan Bank, acting through its principal corporate trust
offices in The City of New York. The Company reserves the right at any time
to vary or terminate the appointment of the Paying Agent, Registrar and the
Transfer Agent and to appoint additional Paying Agents, Registrars and
Transfer Agents and to approve any change in the office through which the
Paying Agent, Registrar or Transfer Agent acts, provided that, so long as any
Notes remain outstanding, there will at all times be a Paying Agent in The
City of New York and the Company will maintain in The City of New York one or
more offices or agencies where Notes may be presented for registration of
transfer and exchange.
Payments of principal of, and premium and interest, if any, on
Book-Entry Notes will be made by the Company through the Paying Agent to the
Depository. See "Book-Entry System."
Upon issuance thereof in the limited circumstances described in
"Book-Entry System," payments of interest on a Certificated Note (other than
interest payable at Maturity) will be made, except as provided below, by
check mailed to the Person in whose name such Note is registered in the
Security Register (the "Registered Holder"). Notwithstanding the foregoing, a
Holder of $10,000,000 or more in aggregate principal amount of Certificated
Notes of like tenor and term shall be entitled to receive such U.S. dollar
payments by wire transfer of immediately available funds, but only if
appropriate wire transfer instructions have been received in writing by the
Trustee not later than fifteen calendar days prior to the applicable Interest
Payment Date. Principal and any premium and interest payable at the Maturity
of a Certificated Note will be paid in immediately available funds upon
surrender of such Note at the corporate trust office or agency of the Paying
Agent in The City of New York.
Interest
General
Unless otherwise specified in an applicable Pricing Supplement, each
Note will bear interest from and including its Original Issue Date at the
rate per annum or, in the case of a Floating Rate Note, pursuant to the
interest rate formula stated therein and in the applicable Pricing Supplement
until the principal thereof is paid or made available for payment. Interest
will be payable in arrears on each date specified in the applicable Pricing
Supplement on which an installment of interest is due and payable (each such
day being an "Interest Payment Date") and at Maturity. Unless otherwise
specified in the applicable Pricing Supplement, the "Regular Record Date"
with respect to any Interest Payment Date for a Floating Rate Note shall be
the date (whether or not a Business Day) fifteen calendar days immediately
preceding such Interest Payment Date, and for a Fixed Rate Note (unless
otherwise specified in the applicable Pricing Supplement) shall be the March
1 or September 1 (whether or not a Business Day) immediately preceding such
Interest Payment Date. Interest payable and punctually paid or duly provided
for on any Interest Payment Date will be paid to the Registered Holder at the
close of business on the Regular Record Date immediately preceding such
Interest Payment Date; provided, however, that in the case of a Note issued
between a Regular Record Date and the related Interest Payment Date, interest
for the period beginning on the Original Issue Date for such Note and ending
on such Interest Payment Date shall be paid on the first succeeding Interest
Payment Date to the Registered Holder of such Note on the related Regular
Record Date, and provided, further, that interest payable at Maturity will be
payable to the Person to whom principal shall be payable.
S-6
Fixed Rate Notes
Unless otherwise specified in an applicable Pricing Supplement, each
Fixed Rate Note will bear interest from, and including, its Original Issue
Date, or the most recent date to which interest has been paid or duly
provided for, to, but excluding, the Interest Payment Date or Maturity, as
the case may be, at the rate per annum stated on the face thereof until the
principal amount thereof is paid or made available for payment. Unless
otherwise set forth in the applicable Pricing Supplement, interest on each
Fixed Rate Note will be payable semiannually in arrears on each March 15 and
September 15 and at Maturity. Each payment of interest on a Fixed Rate Note
in respect of an Interest Payment Date shall include interest accrued through
the day before such Interest Payment Date. Unless otherwise specified in an
applicable Pricing Supplement, interest on Fixed Rate Notes will be computed
on the basis of a 360-day year of twelve 30-day months. Any payment required
to be made in respect of a Fixed Rate Note on a date that is not a Business
Day for such Note need not be made on such date, but may be made on the first
succeeding Business Day with the same force and effect as if made on such
date, and no additional interest shall accrue as a result of such delayed
payment.
Floating Rate Notes
Each Floating Rate Note will bear interest from and including its
Original Issue Date in accordance with the interest rate formula specified
therein until the principal thereof is paid or otherwise made available for
payment. The interest rate on such Note for each Interest Reset Period (as
defined below) will be determined by reference to an interest rate
basis (the "Base Rate"), plus or minus the Spread, if any, and/or multiplied
by the Spread Multiplier, if any, or pursuant to an interest rate formula.
The "Spread" is the number of basis points (one basis point equals one
one-hundredth of a percentage point) that may be specified in the applicable
Pricing Supplement as being applicable to such Note, and the "Spread
Multiplier" is the percentage that may be specified in the applicable Pricing
Supplement as being applicable to such Note. The applicable Pricing
Supplement will designate one or more of the following Base Rates as
applicable to a Floating Rate Note: (i) LIBOR (a "LIBOR Note"), (ii) the
Commercial Paper Rate (a "Commercial Paper Rate Note"), (iii) the Treasury
Rate (a "Treasury Rate Note"), (iv) the CD Rate (a "CD Rate Note"), (v) the
CMT Rate (a "CMT Rate Note"), (vi) the Federal Funds Rate (a "Federal Funds
Rate Note"), (vii) the Prime Rate (a "Prime Rate Note") or (viii) such other
Base Rate or interest rate formula as is set forth in such Pricing Supplement
and in such Note. In addition, a Floating Rate Note may bear interest in
respect of two or more Base Rates. The "Index Maturity" for any Note is the
period of maturity of the instrument or obligation from which the Base Rate
is calculated. "H.15(519)" means the publication entitled "Statistical
Release H.15(519), Selected Interest Rates," or any successor publication,
published by the Board of Governors of the Federal Reserve System."H.15 Daily
Update" means the daily update of H.15(519), available through the world-wide
website of the Board of Governors of the Federal Reserve System at
http://www.bog.frb.fed.us/releases/h15/update, or any successor site or
publication
Unless otherwise provided in the applicable Pricing Supplement, each
Base Rate shall be the rate determined in accordance with the applicable
provisions below. Except as set forth above or in an applicable Pricing
Supplement, the interest rate in effect on each day shall be (a) if such day
is an Interest Reset Date (as defined below), the interest rate determined
with respect to the Interest Determination Date (as defined below)
immediately preceding such Interest Reset Date or (b) if such day is not an
Interest Reset Date, the interest rate determined with respect to the
Interest Determination Date immediately preceding the next preceding Interest
Reset Date.
As specified in the applicable Pricing Supplement, a Floating Rate Note
may also have either or both of the following (in each case expressed as a
rate per annum on a simple interest basis); (i) a maximum limitation, or
ceiling, on the rate at which interest may accrue during any interest period
("Maximum Interest Rate") and (ii) a minimum limitation, or floor, on the
rate at which interest may accrue during any interest period ("Minimum
Interest Rate"). In addition to any Maximum Interest Rate that may be
applicable to any Floating Rate Note, 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.
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The Company will appoint, and enter into an agreement with, U.S. Bank
Trust National Association (the "Calculation Agent") to calculate interest
rates on Floating Rate Notes. The interest rate 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 applicable Pricing Supplement, the Interest Reset Date will be, in the
case of Floating Rate Notes that reset daily, each Business Day; in the case
of Floating Rates Notes (other than Treasury Rate Notes) that reset weekly,
Wednesday of each week; in the case of Treasury Rate Notes that reset weekly,
Tuesday of each week (except as provided below); in the case of Floating Rate
Notes that reset monthly, the third Wednesday of each month; in the case of
Floating Rate Notes that reset quarterly, the third Wednesday of March, June,
September and December of each year; in the case of Floating Rate Notes that
reset semiannually, the third Wednesday of March and September; and, in the
case of Floating Rate Notes that reset annually, the third Wednesday of
September; provided, however, that, unless otherwise specified in the
applicable Pricing Supplement, the interest rate in effect from the Original
Issue Date to but excluding the first Interest Reset Date with respect to
such Floating Rate Note will be the Initial Interest Rate (as set forth in
the applicable Pricing Supplement). If any Interest Reset Date for any
Floating Rate Note would otherwise be a day that is not a Business Day, such
Interest Reset Date shall be postponed to the first 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 immediately
preceding Business Day.
Unless otherwise specified in the applicable Pricing Supplement,
interest payable in respect of Floating Rate Notes shall be the accrued
interest from and including the Original Issue Date or the last date to which
interest has been paid, as the case may be, to but excluding the applicable
Interest Payment Date or Maturity, as the case may be.
With respect to a Floating Rate Note, accrued interest shall be
calculated by multiplying the principal amount of such 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 accrued
interest is being calculated. Unless otherwise specified in the applicable
Pricing Supplement, the interest factor for each such day will be computed by
dividing the interest rate in effect on such day by 360, in the case of LIBOR
Notes, Commercial Paper Rate Notes, CD Rate Notes, Federal Funds Rate Notes
and Prime Rate Notes, or by the actual number of days in the year, in the
case of CMT Rate Notes or Treasury Rate Notes. Unless otherwise specified in
an applicable Pricing Supplement, the interest factor for Notes for which the
interest rate is calculated with reference to two or more Base Rates will be
calculated in each period in the same manner as if only one of the applicable
Base Rates applied. For purposes of making the foregoing calculation, the
interest rate in effect on any Interest Reset Date will be the applicable
rate as reset on such date.
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation of the rate of interest of a
Floating Rate Note will be rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded
to 9.87655% (or .0987655) and 9.876544% (or .09876544) being rounded to
9.87654% (or .0987654)), and all dollar amounts used in or resulting from
such calculation on Floating Rate Notes will be rounded to the nearest cent
(with one-half cent being rounded upward).
Unless otherwise indicated in the applicable Pricing Supplement and
except as provided below, interest will be payable, in the case of Floating
Rate Notes that reset daily, weekly, or monthly, on the third Wednesday of
each month or on the third Wednesday of March, June, September and December
of each year, as specified in the applicable Pricing Supplement; in the case
of Floating Rate Notes that reset quarterly, on the third Wednesday of March,
June, September and December of each year; in the case of Floating Rate Notes
that reset semiannually, on the third Wednesday of March and September; and,
in the case of Floating Rate Notes that reset annually, on the third
Wednesday of September and, in all such cases, at Maturity. If an Interest
Payment Date with respect to any Floating Rate Note (other
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than an Interest Payment Date at Maturity) would otherwise be a day that is
not a Business Day, such Interest Payment Date shall be postponed to the
first succeeding Business Day, except that, in the case of a LIBOR Note, if
such Business Day falls in the next calendar month, such Interest Payment
Date shall be the immediately preceding Business Day. If the Maturity of a
Floating Rate Note falls on a day that is not a Business Day, the payment of
principal, premium, if any, and interest will be made on the next succeeding
Business Day, and no interest on such payment shall accrue for the period
from and after such Maturity.
The interest rate applicable to each Interest Reset Period commencing
on the Interest Reset Date with respect to such Interest Reset Period will be
the rate determined as of the applicable "Interest Determination Date."
Unless otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date with respect to the CD Rate, the CMT Rate, the Commercial
Paper Rate, the Federal Funds Rate and the Prime Rate will be the second
Business Day preceding each Interest Reset Date for the related Note; the
Interest Determination Date with respect to LIBOR will be the second London
Business Day preceding each Interest Reset Date. With respect to the Treasury
Rate, unless otherwise specified in an applicable Pricing Supplement, the
Interest Determination Date will be the day in the week in which the related
Interest Reset Date falls on which day Treasury bills (as defined below) are
normally auctioned (Treasury bills are normally sold at auction on Monday of
each week, unless such Monday is a legal holiday, in which case the auction
is normally held on the immediately suceeding Tuesday although such auction
may be held on the preceding Friday); provided, however, that if an auction
is held on the Friday of the week preceding the related Interest Reset Date,
the related Interest Determination Date will be such preceding Friday; and
provided, further, that if an auction falls on any Interest Reset Date, then
the related Interest Reset Date will instead by the first Business Day
following such auction. Unless otherwise specified in the applicable Pricing
Supplement, the Interest Determination Date pertaining to a Floating Rate
Note the interest rate of which is determined with reference to two or more
Base Rates will be the first Business Day which is at least two Business Days
prior to such Interest Reset Date for such Floating Rate Note on which each
Base Rate is determinable. Each Base Rate will be determined as of such date,
and the applicable interest rate will take effect on the related Interest
Reset Date. Unless otherwise specified in the applicable Pricing Supplement,
the "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after
such Interest Determination Date, or, if such day is not a Business Day, the
next succeeding Business Day or (ii) the Business Day preceding the
applicable Interest Payment Date or Maturity, as the case may be.
Upon the request of the Holder of any Floating Rate Note, the
Calculation Agent will provide the interest rate then in effect and, if
determined, the interest rate that will become effective on the next Interest
Reset Date with respect to such Note.
Commercial Paper Rate Notes. Each Commercial Paper Rate Note will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Commercial Paper Rate and the Spread and/or Spread
Multiplier, if any, specified in such Note 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 relating to a Commercial Paper Rate Note or any Floating Rate Note for
which the interest rate is determined with reference to the Commercial Paper
Rate (a "Commercial Paper Rate Determination Date"), the Money Market Yield
(calculated as described below) on such Commercial Paper Rate Determination
Date of the rate for commercial paper having the Index Maturity specified in
the applicable Pricing Supplement, as such rate shall be published by the
Board of Governors of the Federal Reserve System in H.15(519) under the
caption "Commercial Paper -- Nonfinancial" or, if such heading is no longer
available, such other heading representing commercial paper issued by
non-financial entities whose bond rating is "Aa", or the equivalent, from a
nationally recognized statistical rating organization. In the event that such
rate is not so published prior to 9:00 a.m., New York City time, on the
Calculation Date, the rate on such Commercial Paper Rate Determination Date
shall be the rate for commercial paper of the specified Index Maturity as
published in H.15 Daily Update or such other recognized electronic source for
the purpose of displaying
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such rate, under the caption "Commercial Paper -- Nonfinancial". If by 3:00
p.m., New York City time, on such Calculation Date such rate is not yet
published in H.15(519), H.15 Daily Update or another recognized electronic
source, then the "Commercial Paper Rate" for such Commercial Paper Rate
Determination Date shall be calculated by the Calculation Agent and shall be
the Money Market Yield of the arithmetic mean of the offered per annum rates
(quoted on a bank discount basis), as of 11:00 a.m., New York City time, on
such Commercial Paper Rate Determination Date, of three leading dealers of
United States dollar denominated commercial paper in The City of New York
(any of which may be an Agent or an affiliate of an Agent) selected by the
Calculation Agent for commercial paper of the specified Index Maturity placed
for industrial issuers whose bond rating is "Aa" or the equivalent, from a
nationally recognized 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 "Commercial Paper Rate" for such Commercial
Paper Rate Determination Date will be the same as the Commercial Paper Rate in
effect on such Commercial Paper Rate Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage
rounded upwards to the nearest one hundred-thousandth of a percentage point)
calculated in accordance with the following formula:
D X 360
Money Market Yield = ----------- X 100
360-(D X M)
where "D" refers to the 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 in the interest period for which interest is being
calculated.
LIBOR Notes. Each LIBOR Note will bear interest for each Interest Reset
Period at the interest rate calculated with reference to LIBOR and the Spread
and/or Spread Multiplier, if any, specified in such Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined by the Calculation Agent in accordance with
the following provisions:
With respect to an Interest Determination Date relating to a LIBOR Note
or any Floating Rate Note for which the interest rate is determined with
reference to LIBOR (a "LIBOR Determination Date"), LIBOR will be either: (a)
if "LIBOR Telerate" is specified in the applicable Pricing Supplement or if
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable
Pricing Supplement as the method for calculating LIBOR, the rate for the
deposits in the Index Currency having the Index Maturity specified in such
Pricing Supplement, commencing on such Interest Reset Date, that appears on
the Designated LIBOR Page as of 11:00 a.m. London time, on such LIBOR
Determination Date; or (b) 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 (as defined below) having the Index Maturity designated
in the applicable Pricing Supplement, commencing on the second London Business
Day immediately following that LIBOR Determination Date, that appear on the
Designated LIBOR Page specified in the applicable Pricing Supplement as of
11:00 a.m.,London time, on that LIBOR Determination Date, if at least two such
offered rates appear (unless, as aforesaid, only a single rate is required)
on such Designated LIBOR Page. If fewer than two offered rates appear, or no
rate appears, as applicable, LIBOR in respect of the related LIBOR
Determination Date will be determined as if the parties had specified the
rate described in clause (ii) below.
With respect to a LIBOR Determination Date on which fewer than two
offered rates appear, or no rate appears, as the case may be, on the
applicable Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity
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designated in the applicable Pricing Supplement, commencing on the second
London Business Day immediately following such LIBOR Determination Date, to
prime banks in the London interbank market at approximately 11:00 a.m.,
London time, on such LIBOR Determination Date and in a principal amount that
is representative for a single transaction in such Index Currency in such
market at such time. If at least two such quotations are provided, LIBOR
determined on such LIBOR Determination Date will be the arithmetic mean of
such quotations. If fewer than two quotations are provided, LIBOR determined
on such LIBOR 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
(as defined below), on such LIBOR Determination Date by three major banks in
such Principal Financial Center selected by the Calculation Agent for loans
in the Index Currency to leading European banks, having the Index Maturity
designated in the applicable Pricing Supplement and in a principal amount
that is representative for a single transaction in such Index Currency in
such market at such time; provided, however, that if the banks so selected by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
determined on such LIBOR Determination Date will be LIBOR in effect on such
LIBOR Determination Date.
"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 Bridge Telerate, Inc. 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, LIBOR Page 3750) has been specified.
"Principal Financial Center" will generally be the capital city of the
country of the specified Index Currency, except that with respect to U.S.
dollars and Euros, the Principal Financial Center shall be The City of New York
and Luxembourg, respectively.
Treasury Rate Notes. Each Treasury Rate Note will bear interest for
each Interest Reset Period at the interest rate calculated with reference to
the Treasury Rate and the Spread and/or Spread Multiplier, if any, specified
in such Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Treasury Rate" means, with respect to any Interest Determination Date
relating to a Treasury Rate Note or any Floating Rate Note for which the
interest rate is determined by reference to the Treasury Rate (a "Treasury
Rate Determination Date"), the rate applicable to the most recent auction of
direct obligations of the United States ("Treasury bills") having the Index
Maturity specified in the applicable Pricing Supplement under the
caption "AVGE INVEST YIELD" on the display on Bridge Telerate, Inc. (or any
successor service) on page 56 ("Telerate Page 56") or page 57 ("Telerate Page
57") or, in the event that such rate is not so published by 3:00 p.m., New
York City time, on the Calculation Date pertaining to such Treasury Rate
Determination Date, the auction average rate (expressed as a bond equivalent
on the basis of a year of 365 or 366 days, as applicable, and applied on a
daily basis) on such Treasury Rate Determination Date as otherwise announced
by the United States Department of the Treasury. In the event that the
results of the auction of Treasury bills having the specified Index Maturity
are not so published or reported as provided above by 3:00p.m., New York
City time, on such Calculation Date, or if no such auction is held, then the
Treasury Rate will be the rate (expressed as a bond equivalent on the basis
of a year of 365 or 366 days, as applicable, and applied on a daily basis) on
such Treasury Rate Determination Date of Treasury Bills having the Index
Maturity specified in the applicable Pricing Supplement as published in
H.15(519) under the caption "U.S. Government Securities/Treasury
Bills/Secondary Market" or, if not yet published by 3:00 p.m.,New York City
time, on the related Calculation Date, the rate on such Treasury Rate
Determination Date of such Treasury Bills as published in H.15(519)
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Daily Update, or such other recognized electronic source used for the purpose
of displaying such rate, under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market". If such rate is not yet
published in H.15(519), H.15 Daily Update or another recognized electronic
source, then the "Treasury Rate" for such Interest Reset Period shall be
calculated by the Calculation Agent and shall be the yield to maturity
(expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 p.m., New York City
time, on such Treasury Rate Determination Date, of three leading primary
United States government securities dealers (any of which may be an Agent or
an affiliate of an Agent) selected by the Calculation Agent, for the issue of
Treasury bills with a remaining maturity closest to the specified Index
Maturity; provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting bid rates as mentioned in this sentence,
the "Treasury Rate" with respect to such Treasury Rate Determination Date
will be the Treasury Rate in effect on such Treasury Rate Determination Date.
CD Rate Notes. Each CD Rate Note will bear interest for each Interest
Reset Period at the interest rate calculated with reference to the CD Rate
and the Spread and/or Spread Multiplier, if any, specified in such Note and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD
Rate" means, with respect to any Interest Determination Date relating to a CD
Rate Note or any Floating Rate Note for which the interest rate is determined
with reference to the CD Rate (a "CD Rate Determination Date"), the rate on
such CD Rate Determination Date for negotiable certificates of deposit having
the Index Maturity designated in the applicable Pricing Supplement, as such
rate shall be published in H.15(519) under the heading "CDs (secondary
market"). In the event that such rate is not so published prior to 3:00 p.m.,
New York City time, on the Calculation Date pertaining to such CD Rate
Determination Date, then the "CD Rate" for such Interest Reset Period shall
be the rate on such CD Rate Determination Date for negotiable certificates of
deposit of the specified Index Maturity as published in H.15 Daily Update
(as herein after defined), or such other recognized electronic source used
for the purpose of displaying such rate, under the caption "CDs (secondary
market)". If, by 3:00 p.m., New York City time, on such Calculation Date,
such rate is not yet published in either H.15(519), H.15 Daily Update or
another recognized electronic source, then the "CD Rate" on such CD Rate
Interest Determination Date shall be calculated by the Calculation Agent
and will be the arithmetic mean of the secondary market offered rates as of
10:00 a.m., New York City time, on such CD Rate Determination Date, of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in
The City of New York (any of which may be an Agent or an affiliate of an
Agent) selected by the Calculation Agent for negotiable certificates of
deposit of major United States money market banks (in the market for
negotiable certificates of deposit) with a remaining maturity closest to the
Index Maturity designated in the applicable Pricing Supplement in an amount
that is representative for a single transaction in that market at that time;
provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the CD Rate
with respect to such CD Rate Determination Date will be the CD Rate in effect
on such CD Rate Determination Date.
CMT Rate Notes. Each CMT Note will bear interest for each Interest
Reset Period at the interest rate calculated with reference to the CMT Rate
and the Spread and/or Spread Multiplier, if any, specified in such Note and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT
Rate" means, with respect to any Interest Determination Date relating to any
Floating Rate Note for which the interest rate is determined with reference
to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate
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displayed on the Designated CMT Telerate Page under the caption "Treasury
Constant Maturities. Federal Reserve Board Release H.15. Monday Approximately
3:45 P.M.", under the column for the Designated CMT Maturity Index for
(i) if the Designated CMT Telerate Page is 7051, the rate on such CMT Rate
Interest Determination Date and (ii) if the Designated CMT Telerate Page is
7052, the weekly or the monthly average, as specified in the Pricing
Supplement, for the week or the month, as applicable, ended immediately
preceding the week or month, as applicable, in which the related CMT Rate
Interest Determination Date occurs. If such rate is no longer displayed on
the relevant page or is not displayed by 3:00 P.M., New York City time, on
the related Calculation Date, then the CMT Rate for such CMT Rate Interest
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as published in the relevant H.15(519). If such
rate is no longer published or is not published by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate of
the Designated CMT Maturity Index (or other United States Treasury rate for
the Designated CMT Maturity Index) for the CMT Rate Interest Determination
Date with respect to such Interest Reset Date as may then be published by
either the Board of Governors of the Federal Reserve System or the United
States Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Designated CMT Telerate Page
and published in the relevant H.15(519). If such information is not so
provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate on the CMT Rate Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity, based on
the arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 P.M., New York City time, on such CMT Rate Interest
Determination Date reported, according to their written records, by three
leading primary United States government securities dealers (each, a
"Reference Dealer") in The City of New York (which may include the Agent or
its affiliates) selected by the Calculation Agent (from five such Reference
Dealers selected by the Calculation Agent and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the lowest
quotation (or, in the event of equality, one of the lowest)), for the most
recently issued direct noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not less
than such Designated CMT Maturity Index minus one year. If the Calculation
Agent is unable to obtain three such Treasury Note quotations, the CMT Rate
on such CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic
mean of the secondary market offered rates as of approximately 3:30 P.M., New
York City time, on such CMT Rate Interest Determination Date of three
Reference Dealers in The City of New York (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or,
in the event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for Treasury Notes with an
original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index and in an amount of at least $100 million. If
three or four (and not five) of the Reference Dealers are quoting as
described above, then the CMT Rate will be based on the arithmetic mean of
the offered rates obtained and neither the highest nor the lowest of such
quotes will be eliminated; provided, however, that if fewer than three
Reference Dealers so selected by the Calculation Agent are quoting as
mentioned herein, the CMT Rate Interest Determination Date will be the CMT
Rate in effect on such CMT Rate Interest Determination Date. If two Treasury
Notes with an original maturity as described in the second preceding sentence
have remaining terms to maturity equally close to the Designated CMT Maturity
Index, the Calculation Agent will obtain from five Reference Dealers
quotations for the Treasury Note with the shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on Bridge Telerate,
Inc. on the page specified in the applicable Pricing Supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)) for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no such
page is specified in the applicable Pricing Supplement, page 7051.
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"Designated CMT Maturity Index" means the original period to maturity
of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be 2 years.
Federal Funds Rate Notes. Each Federal Funds Rate Note will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Federal Funds Rate and the Spread and/or Spread Multiplier,
if any, specified in such Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Federal Funds Rate" means, with respect to any Interest Determination Date
relating to a Federal Funds Rate Note or any Floating Rate Note for which the
interest rate is determined with reference to the Federal Funds Rate (a
"Federal Funds Rate Determination Date"), the rate on such Federal Funds Rate
Determination Date for Federal Funds as such rate shall be published in
H.15(519) H.15 under the heading "Federal Funds (Effective)", as such rate is
displayed on Bridge Telerate, Inc. (or any successor service) on page 120
("Telerate Page 120"), or, if such rate does not appear on Telerate Page 120
or is not so published prior to 3:00 P.M., New York City time, on the
Calculation Date pertaining to such Federal Funds Rate Determination Date,
then the "Federal Funds Rate" on such Federal Funds Rate Determination Date
shall be the rate for United States Dollar federal funds as published in H.15
Daily Update, or such other recognized electronic source used for the purpose
of displaying such rate, under the caption "Federal Funds (Effective). If
such rate does not appear on Telerate Page 120 or is not yet published in
H.15(519) H.15 , Daily Update or another recognized electronic source by
3:00 p.m.,New York City time, on such Calculation Date, then the "Federal
Funds Rate" for such Federal Funds Determination Date will be calculated by
the Calculation Agent and will be the arithmetic mean of the rates for the
last transaction in overnight United States Dollar federal funds arranged by
three leading brokers of United States dollar denominated federal funds
transactions in The City of New York selected by the Calculation Agent prior
to 9:00 a.m., New York City time, on such Federal Funds Rate Determination
Date; provided, however, that if the brokers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the Federal
Funds Rate with respect to such Federal Funds Rate Determination Date will
be the Federal Funds Rate in effect on such Federal Funds Rate Determination
Date.
Prime Rate Notes. Each Prime Rate Note will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the
Prime Rate and the Spread and/or Spread Multiplier, if any, specified in such
Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Prime Rate" means, with respect to any Interest Determination Date relating
to a Prime Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Prime Rate (a "Prime Rate Determination
Date"), the rate on such date as such rate is published in H.15(519) under
the caption "Bank Prime Loan" or, if such rate is not published prior to 3:00
p.m., New York City time, on the Calculation Date, the rate on such Prime
Rate Determination Date as published in H.15 Daily Update, or such other
recognized electronic source used for the purpose of displaying such rate,
under the caption "Bank Prime Loan." If such rate is not yet published in
H.15(519), H.15 Daily Update or another recognized electronic source by 3:00
p.m., New York City time, on the related Calculation Date, then the Prime Rate
shall be the arithmetic mean of the rates of interest publicly announced by
each bank that appears on the Reuters screen USPRIME1 (as hereinafter
defined) as such bank's prime rate or base lending rate as of 11:00 a.m., New
York City time, on such Prime Rate Determination Date. If fewer than four
such rates so appear on the Reuters Screen USPRIME1 for such Prime Rate
Determination Date, then the Prime Rate shall be the arithmetic mean of the
prime rates or base lending rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on
such Prime Rate Determination Date by three major banks (which may include
affiliates of the Agents) in The City of New York selected by the Calculation
Agent; provided, however, that if the banks or trust companies selected as
aforesaid are not quoting as mentioned in this sentence, the Prime Rate for
such Prime Rate Determination Date will be the Prime Rate as determined based
on the last such rate published in H.15(519). "Reuters Screen USPRIME1" means
the display designated as page "USPRIME1" on the
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Reuters Monitor Money Rates Service (or such other page as may replace the
USPRIME1 page on that service for the purpose of displaying prime rates or
base lending rates of major United States banks).
Redemption
Unless otherwise specified in an applicable Pricing Supplement, the
Notes will not be subject to any sinking fund. If provided in an applicable
Pricing Supplement, Notes may be subject to redemption, in whole or in part,
prior to their Stated Maturity at the option of the Company or through
operation of a mandatory or optional sinking fund or analogous provisions.
Such Pricing Supplement will set forth the detailed terms of such redemption,
including, but not limited to, the date after or on which and the price or
prices (including premium, if any) at which such Notes may be redeemed.
Unless otherwise specified in the applicable Pricing Supplement, the Company
may redeem any Notes that are redeemable and remain outstanding either in
whole or in part upon not less than 30 nor more than 60 days' notice.
Repayment at the Option of the Holder
If provided in an applicable Pricing Supplement, Notes will be subject
to repayment at the option of the Holders thereof in accordance with the
terms of such Notes on their respective optional repayment dates, if any, as
agreed upon by the Company and the purchasers thereof at the time of sale
(each, an "Optional Repayment Date"). If no Optional Repayment Date is
indicated with respect to a Note, such Note will not be repayable at the
option of the Holder thereof prior to its Stated Maturity. Unless otherwise
specified in the applicable Pricing Supplement, on any Optional Repayment
Date with respect to any Note, such Note will be repayable in whole or in
part in increments of $1,000 (provided that any remaining principal amount of
such Note shall not be less than the minimum denomination of such Note) at
the option of the Holder thereof at a repayment price equal to 100% of the
principal amount to be repaid, together with interest thereon payable to the
date of repayment.
Unless otherwise specified in the applicable Pricing Supplement, in
order for a Note to be repaid at the option of the Holder, the applicable
Trustee must receive the Note, at least 30 days but not more than 60 days
prior to the repayment date, with the section entitled "Option to Elect
Repayment" on the reverse of the Note duly completed. Exercise of a repayment
option by the Holder of a Note will be irrevocable.
Other Provisions; Addenda
Any provisions with respect to Notes, including the determination of a
Base Rate, calculation of the interest rate applicable to a Floating Rate
Note, its Interest Payment Dates or any other matter relating thereto, may be
modified by the terms as specified under "Other Provisions" on the face
thereof or in an Addendum relating thereto, if so specified on the face
thereof and in the applicable Pricing Supplement.
Foreign-Currency Notes
If any Note is not to be denominated in U.S. Dollars (a
"Foreign-Currency Note"), certain provisions with respect thereto will be set
forth in an applicable Pricing Supplement which will specify the currency or
currencies, including composite currencies such as the ECU, in which the
principal, premium, if any, and interest, if any, 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.
Indexed Notes
Notes also may be issued with the principal amount payable at Maturity
and/or interest to be paid thereon to be determined with reference to the
price or prices of specified commodities or stocks, the exchange rate of one
or more specified currencies (including a composite currency such as the ECU
relative to an indexed currency, or such other price or exchange rate as may
be specified in a Pricing Supplement relating to such Notes ("Indexed
Notes")). Holders of such Notes may receive a principal amount at Maturity
that is greater than or less than the face amount of the Notes depending upon
the
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relative value at Maturity of the specified indexed item. Information as to
the method for determining the principal amount payable at Maturity, certain
historical information with respect to the specified indexed item and tax
considerations associated with investment in Indexed Notes will be set forth
in the applicable Pricing Supplement.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in whole or in part as Book-Entry
Notes represented by a Global Security (as defined in the accompanying
Prospectus) deposited with, or on behalf of, the Depository and registered in
the name of the Depository or a nominee of the Depository. Unless otherwise
specified in the applicable Pricing Supplement, DTC will be the Depository.
So long as the Depository for a Global Security, or a nominee of the
Depository, is the registered owner of the Global Security, the Depository or
its nominee, as the case may be, will be considered the sole owner or holder
of the Book-Entry Notes represented by such Global Security for all purposes
under the Indenture. Except as provided below, owners of beneficial interests
in Book-Entry Notes represented by a Global Security will not be considered
the owners or holders thereof under the Indenture, will not be entitled to
have Book-Entry Notes represented by such Global Security registered in their
names and will not be entitled to physical delivery of Notes in certificated
form evidencing their respective beneficial interests therein. A Global
Security may not be transferred except as a whole by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository or by the Depository or any nominee to a
successor of the Depository or a nominee of such successor.
Payments of principal of and any premium and interest on Book-Entry
Notes represented by a Global Security registered in the name of a Depository
or its nominee will be made to the Depository or its nominee, as the case may
be, as the registered owner of the Global Security. Neither the Company, the
Trustee, any Paying Agent nor the Registrar will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in Book-Entry Notes represented by
a Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company expects that the Depository or its nominee, upon receipt of
any payment of principal, premium, if any, or interest, if any, in respect of
a Global Security, will credit immediately 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
Depository or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in Book-Entry Notes
represented by such Global Security held through such participants will be
governed by standing customer 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", and will be the responsibility of such
participants.
If the Depository with respect to any Global Security is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by the Company within 90 days of such time, the
Company will issue Certificated Notes in exchange for each Book-Entry Note
represented by such Global Security. In addition, the Company may at any time
and in its sole discretion determine not to have the Notes represented by a
Global Security and, in such event, will issue Certificated Notes in exchange
for the Book-Entry Notes represented by such Global Security. In either
instance, an owner of a beneficial interest in a Book-Entry Note will be
entitled to have a Certificated Note or Notes equal in principal amount to
such beneficial interest registered in its name and will be entitled to
physical delivery of such Note or Notes.
DTC has advised the Company and the Agents as follows: DTC is a
limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and a "clearing agency"
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registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC was created to hold securities for persons that
have accounts with DTC ("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 movements of
securities certificates. DTC's participants include securities brokers and
dealers (including the Agents), banks, trust companies, clearing
corporations, and certain other organizations, some of whom (and/or their
representatives) own DTC. Access to DTC'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 DTC only through participants.
DTC has also advised the Company and the Agents that, upon the issuance
by the Company of Book-Entry Notes represented by a Global Security, DTC will
credit on its book-entry registration and transfer system the respective
principal amounts of the Book-Entry Notes represented by such Global Security
to the accounts of participants. The accounts to be credited shall be
designated by the applicable Agent or by the Company if such Notes are
offered and sold directly by the Company. Ownership of beneficial interests
in Book-Entry Notes represented by a Global Security registered in the name
of DTC or its nominee will be limited to participants or persons that may
hold interests through participants. Ownership of beneficial interests in
Book-Entry Notes represented by a Global Security registered in the name of
DTC or its nominee will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with
respect to beneficial interests of participants), or by participants or
persons that may hold interests through participants (with respect to
beneficial 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 certificated form. Such limits and such laws
may impair the ability to transfer beneficial interests in Book-Entry Notes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible
differing interpretations. It deals only with Notes held as capital assets
and does not purport to deal with persons in special tax situations, such as
financial institutions, insurance companies, regulated investment companies,
dealers in securities or currencies, persons holding Notes as a hedge against
currency risks or as a position in a "straddle" for tax purposes, or persons
whose functional currency is not the United States dollar. It also does not
deal with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. 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, partnership or other
entity treated as a corporation or partnership for United States federal
income tax purposes created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (other than a
partnership that is not treated as a United States person under applicable
Treasury regulations), (iii) an estate the income of which is subject to
United States Federal income taxation regardless of its source, or (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date, that elect to continue
to be treated as United States persons will also be a U.S. Holder. As used
herein, the term "non-U.S. Holder" means a beneficial owner of a Note that is
not a U.S. Holder.
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U.S. Holders
Payments of Interest. Payments of interest on a Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such
payments are accrued or are received (in accordance with the U.S. Holder's
regular method of tax accounting).
Original Issue Discount. The following summary is a general discussion
of the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Notes issued with original issue
discount ("Discount Notes"). The following summary is based upon final
Treasury regulations (the "OID Regulations") issued by the Internal Revenue
Service ("IRS") on January 27, 1994, as amended on June 11, 1996, under the
original issue discount provisions of the Internal Revenue Code of 1986, as
amended (the "Code").
For United States Federal income tax purposes, original issue discount
is the excess of the stated redemption price at maturity of a Note over its
issue price, if such excess equals or exceeds a de minimis amount (generally
1/4 of 1% of the Note's stated redemption price at maturity multiplied by the
number of complete years to its maturity from its issue date or, in the case
of a Note providing for the payment of any amount other than qualified stated
interest (as defined below) prior to maturity, multiplied by the weighted
average maturity of such Note). The issue price of each Note in an issue of
Notes equals the first price at which a substantial amount of such Notes has
been sold (ignoring sales to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). The stated redemption price at maturity of a Note is the sum of
all payments provided by the Note other than "qualified stated interest"
payments. The term "qualified stated interest" generally means stated
interest that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate. In
addition, under the OID Regulations, if a Note bears interest for one or more
accrual periods at a rate below the rate applicable for the remaining term of
such Note (e.g., Notes with teaser rates or interest holidays), and if the
greater of either the resulting foregone interest on such Note or any "true"
discount on such Note (i.e., the excess of the Note's stated principal amount
over its issue price) equals or exceeds a specified de minimis amount, then
the stated interest on the Note would be treated as original issue discount
rather than qualified stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or
are received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of such U.S.
Holder's regular method of tax accounting. In general, the amount of original
issue discount included in income by the initial U.S. Holder of a Discount
Note is the sum of the daily portions of original issue discount with respect
to such Discount Note for each day during the taxable year (or portion of the
taxable year) on which such U.S. Holder held such Discount Note. The "daily
portion" of original issue discount on any Discount Note is determined by
allocating to each day in any accrual period a ratable portion of the
original issue discount allocable to that accrual period. An "accrual period"
may be of any length and the accrual periods may vary in length over the term
of the Discount Note, provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs either on the
final day of an accrual period or on the first day of an accrual period. The
amount of original issue discount allocable to each accrual period is
generally equal to the difference between (i) the product of the Discount
Note's adjusted issue price at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the close of
each accrual period and appropriately adjusted to take into account the
length of the particular accrual period) and (ii) the amount of any qualified
stated interest payments allocable to such accrual period. The "adjusted
issue price" of a Discount Note at the beginning of any accrual period is the
sum of the issue price of the Discount Note plus the amount of original issue
discount allocable to all prior accrual periods minus the amount of any prior
payments on the Discount Note that were not qualified stated interest
payments. Under these rules, U.S. Holders generally will have to include in
income increasingly greater amounts of original issue discount in successive
accrual periods.
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A U.S. Holder who purchases a Discount Note for an amount that is
greater than its adjusted issue price as of the purchase date and less than
or equal to the sum of all amounts payable on the Discount Note after the
purchase date other than payments of qualified stated interest will be
considered to have purchased the Discount Note at an "acquisition premium."
Under the acquisition premium rules, the amount of original issue discount
which such U.S. Holder must include in its gross income with respect to such
Discount Note for any taxable year (or portion thereof in which the U.S.
Holder holds the Discount Note) will be reduced (but not below zero) by the
portion of the acquisition premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes
("Variable Notes") are subject to special rules whereby a Variable Note will
qualify as a "variable rate debt instrument" if (a) its issue price does not
exceed the total noncontingent principal payments due under the Variable Note
by more than a specified de minimis amount and (b) it provides for stated
interest, paid or compounded at least annually, at current values of (i) one
or more qualified floating rates, (ii) a single fixed rate and one or more
qualified floating rates, (iii) a single objective rate, or (iv) a single
fixed rate and a single objective rate that is a qualified inverse floating
rate.
A "qualified floating rate" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating
rate will generally not itself constitute a qualified floating rate, a
variable rate equal to the product of a qualified floating rate and a fixed
multiple that is greater than .65 but not more than 1.35 will constitute a
qualified floating rate. A variable rate equal to the product of a qualified
floating rate and a fixed multiple that is greater than .65 but not more than
1.35, increased or decreased by a fixed rate, will also constitute a
qualified floating rate. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have
approximately the same values throughout the term of the Variable Note (e.g.,
two or more qualified floating rates with values within 25 basis points of
each other as determined on the Variable Note's issue date) will be treated
as a single qualified floating rate. Notwithstanding the foregoing, a
variable rate that would otherwise constitute a qualified floating rate but
which is subject to one or more restrictions such as a maximum numerical
limitation (i.e., a cap) or a minimum numerical limitation (i.e., a floor)
may, under certain circumstances, fail to be treated as a qualified floating
rate under the OID Regulations unless such cap or floor is fixed throughout
the term of the Note. An "objective rate" is a rate that is not itself a
qualified floating rate but that is based on objective financial or economic
information. A rate will not qualify as an objective rate if it is based on
information that is within the control of the issuer (or a related party) or
that is unique to the circumstances of the issuer (or a related party), such
as dividends, profits, or the value of the issuer's stock (although a rate
does not fail to be an objective rate merely because it is based on the
credit quality of the issuer). A "qualified inverse floating rate" is any
objective rate where such rate is equal to a fixed rate minus a qualified
floating rate, as long as variations in the rate can reasonably be expected
to inversely reflect contemporaneous variations in the qualified floating
rate. The OID Regulations also provide that if a Variable Note provides for
stated interest at a fixed rate for an initial period of one year or less
followed by a variable rate that is either a qualified floating rate or an
objective rate and if the variable rate on the Variable Note's issue date is
intended to approximate the fixed rate (e.g., the value of the variable rate
on the issue date does not differ from the value of the fixed rate by more
than 25 basis points), then the fixed rate and the variable rate together
will constitute either a single qualified floating rate or objective rate, as
the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term
thereof qualifies as a "variable rate debt instrument" under the OID
Regulations and if the interest on such Note is unconditionally payable in
cash or property (other than debt instruments of the issuer) at least
annually, then all stated interest on the Note will constitute qualified
stated interest and will be taxed accordingly. Thus, a Variable Note that
provides for stated interest at either a single qualified floating rate or a
single objective rate throughout the term thereof and that qualifies as a
"variable rate debt instrument" under the OID Regulations will generally not
be treated as having been issued with original issue discount unless the
Variable Note is issued at a "true"
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discount (i.e., at a price below the Note's stated principal amount) in
excess of a specified de minimus amount. The amount of qualified stated
interest and the amount of original issue discount, if any, that accrues
during an accrual period on such a Variable Note is determined under the
rules applicable to fixed rate debt instruments by assuming that the variable
rate is a fixed rate equal to (i) in the case of a qualified floating rate or
qualified inverse floating rate, the value as of the issue date, of the
qualified floating rate or qualified inverse floating rate, or (ii) in the
case of an objective rate (other than a qualified inverse floating rate), a
fixed rate that reflects the yield that is reasonably expected for the
Variable Note. The qualified stated interest allocable to an accrual period
is increased (or decreased) if the interest actually paid during an accrual
period exceeds (or is less than) the interest assumed to be paid during the
accrual period pursuant to the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate
debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of original
issue discount and qualified stated interest on the Variable Note. The OID
Regulations generally require that such a Variable Note be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified
floating rate or qualified inverse floating rate provided for under the terms
of the Variable Note with a fixed rate equal to the value of the qualified
floating rate or qualified inverse floating rate, as the case may be, as of
the Variable Note's issue date. Any objective rate (other than a qualified
inverse floating rate) provided for under the terms of the Variable Note is
converted into a fixed rate that reflects the yield that is reasonably
expected for the Variable Note. In the case of a Variable Note that qualifies
as a "variable rate debt instrument" and provides for stated interest at a
fixed rate in addition to either one or more qualified floating rates or a
qualified inverse floating rate, the fixed rate is initially converted into a
qualified floating rate (or a qualified inverse floating rate, if the
Variable Note provides for a qualified inverse floating rate). Under such
circumstances, the qualified floating rate or qualified inverse floating rate
that replaces the fixed rate must be such that the fair market value of the
Variable Note as of the Variable Note's issue date is approximately the same
as the fair market value of an otherwise identical debt instrument that
provides for either the qualified floating rate or qualified inverse floating
rate rather than the fixed rate. Subsequent to converting the fixed rate into
either a qualified floating rate or a qualified inverse floating rate, the
Variable Note is then converted into an "equivalent" fixed rate debt
instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate
debt instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original
issue discount rules to the "equivalent" fixed rate debt instrument and a
U.S. Holder of the Variable Note will account for such original issue
discount and qualified stated interest as if the U.S. Holder held the
"equivalent" fixed rate debt instrument. In each accrual period, appropriate
adjustments will be made to the amount of qualified stated interest or
original issue discount assumed to have been accrued or paid with respect to
the "equivalent" fixed rate debt instrument in the event that such amount
differs from the actual amount of interest accrued or paid on the Variable
Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt
instrument" under the OID Regulations, then the Variable Note would be
treated as a contingent payment debt obligation. U.S. Holders should be aware
that on June 11, 1996, the Treasury Department issued final regulations (the
"CPDI Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments. In general, the CPDI
Regulations would cause the timing and character of income, gain or loss
reported on a contingent payment debt instrument to substantially differ from
the timing and character of income, gain or loss reported on a contingent
payment debt instrument under general principles of current United States
Federal income tax law. Specifically, the CPDI Regulations generally require
a U.S. Holder of such an instrument to include future contingent and
noncontingent interest payments in income as such interest accrues based upon
a projected payment schedule. Moreover, in general, under the CPDI
Regulations, any gain recognized by a U.S. Holder on the sale, exchange, or
retirement of a contingent payment debt instrument will be treated as
ordinary income and all or a portion of any loss realized could be treated as
ordinary loss as opposed to capital loss
S-20
(depending upon the circumstances). The CPDI Regulations apply to debt
instruments issued on or after August 13, 1996. The proper United States
Federal income tax treatment of Variable Notes that are treated as contingent
payment debt obligations will be more fully described in the applicable
Pricing Supplement. Furthermore, 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.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable
at the option of the holder prior to their stated maturity (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase Notes with
such features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and
features of the purchased Notes.
U.S. Holders may generally, upon election, include in income all
interest (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) that accrues on a debt instrument by using
the constant yield method applicable to original issue discount, subject to
certain limitations and exceptions.
Short-Term Notes. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original
issue discount. In general, an individual or other cash method U.S. Holder is
not required to accrue such original issue discount unless the U.S. Holder
elects to do so. If such an election is not made, any gain recognized by the
U.S. Holder on the sale, exchange or maturity of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method (based
on daily compounding), through the date of sale or maturity, and a portion of
the deductions otherwise allowable to the U.S. Holder for interest on
borrowings allocable to the Short-Term Note will be deferred until a
corresponding amount of income is realized. U.S. Holders who report income
for United States Federal income tax purposes under the accrual method, and
certain other holders including banks and dealers in securities, are required
to accrue original issue discount on a Short-Term Note on a straight-line
basis unless an election is made to accrue the original issue discount under
a constant yield method (based on daily compounding).
Market Discount. If a U.S. Holder purchases a Note, other than a
Discount Note, for an amount that is less than its issue price (or, in the
case of a subsequent purchaser, its stated redemption price at maturity) or,
in the case of a Discount Note, for an amount that is less than its adjusted
issue price as of the purchase date, such U.S. Holder will be treated as
having purchased such Note at a "market discount," unless such difference is
less than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to
treat any partial principal payment (or, in the case of a Discount Note, any
payment that does not constitute qualified stated interest) on, or any gain
realized on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the lesser of (i) the amount of such payment
or realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Note at the time
of such payment or disposition. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date
of the Note, unless the U.S. Holder elects to accrue market discount on the
basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a
portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a Note with market discount until the
maturity of the Note or certain earlier dispositions, because a current
deduction is only allowed to the extent that the interest expense exceeds an
allocable portion of market discount. A U.S. Holder may elect to include
market discount in income currently as it accrues (on either a ratable or
semiannual compounding basis), in which case the rules described above
regarding the treatment as ordinary income of gain upon the disposition of
the Note and upon the receipt of certain cash payments and regarding
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the deferral of interest deductions will not apply. Generally, such currently
included market discount is treated as ordinary interest for United States
Federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the
first taxable year to which such election applies and may be revoked only
with the consent of the IRS.
Premium. If a U.S. Holder purchases a Note for an amount that is
greater than the sum of all amounts payable on the Note after the purchase
date other than payments of qualified stated interest, such U.S. Holder will
be considered to have purchased the Note with "amortizable bond premium"
equal in amount to such excess. A U.S. Holder may elect to amortize such
premium using a constant yield method over the remaining term of the Note and
may offset interest otherwise required to be included in respect of the Note
during any taxable year by the amortized amount of such excess for the
taxable year. However, if the Note may be optionally redeemed after the U.S.
Holder acquires it at a price in excess of its stated redemption price at
maturity, special rules would apply which could result in a deferral of the
amortization of some bond premium until later in the term of the Note. Any
election to amortize bond premium applies to all taxable debt instruments
held by the U.S. Holder during or after the taxable year to which such
election applies and may be revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale,
exchange or retirement of a Note, a U.S. Holder generally will recognize
taxable gain or loss equal to the difference between the amount realized on
the sale, exchange or retirement (other than amounts representing accrued and
unpaid interest) and such U.S. Holder's adjusted tax basis in the Note. A
U.S. Holder's adjusted tax basis in a Note generally will equal such U.S.
Holder's initial investment in the Note increased by any original issue
discount included in income (and accrued market discount, if any, if the U.S.
Holder has included such market discount in income) and decreased by the
amount of any payments, other than qualified stated interest payments,
received and amortizable bond premium taken with respect to such Note. Such
gain or loss generally will be long-term capital gain or loss if the Note
were held for more than one year.
Notes Denominated or on Which Interest is Payable in a Foreign Currency
As used herein, "Foreign Currency" means a currency or currency unit
other than U.S. Dollars.
Payments of Interest in a Foreign Currency.
Cash Method. A U.S. Holder who uses the cash method of accounting for
United States Federal income tax purposes and who receives a payment of
interest on a Note (other than original issue discount or market discount) will
be required to include in income the U.S. dollar value of the Foreign Currency
payment (determined on the date such payment is received) 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 U.S. Holder's tax basis in such Foreign Currency.
Accrual Method. A U.S. Holder who uses the accrual method of accounting
for United States Federal income tax purposes, or who otherwise is required
to accrue interest prior to receipt, will be required to include in income
the U.S. dollar value of the amount of interest income (including original
issue discount or market discount and 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 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 the taxable year. A U.S. Holder may elect, however, to
translate such accrued interest income using the rate of exchange on the last
day of the accrual period or, with respect to an accrual period that spans
two taxable years, using the rate of exchange on the last day of the taxable
year. If the last day of an accrual period is within five business days of
the date of receipt of the accrued interest, a U.S. Holder may translate such
interest using the rate of exchange on the date of receipt. The above
election will apply to other debt obligations held by the U.S. Holder and may
not be changed without the consent of the IRS. A U.S. Holder should consult a
tax advisor before making the above election. A U.S. Holder will recognize
exchange gain or loss (which will be treated as ordinary income or loss) with
respect to accrued interest income on the date
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such income is received. The amount of ordinary income or loss recognized
will equal the difference, if any, 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 value of
interest income that has accrued during such accrual period (as determined
above).
Purchase, Sale and Retirement of Notes. A U.S. Holder who purchases a
Note with previously owned Foreign Currency will recognize ordinary income or
loss in an amount equal to the difference, if any, between such U.S. Holder's
tax basis in the Foreign Currency and the U.S. dollar fair market value of
the Foreign Currency used to purchase the Note, determined on the date of
purchase.
Except as discussed above with respect to Short-Term Notes, upon the
sale, exchange or retirement of a Note, a U.S. Holder will recognize taxable
gain or loss equal to the difference between the amount realized on the sale,
exchange or retirement and such U.S. Holder's adjusted tax basis in the Note.
Such gain or loss generally will be capital gain or loss (except to the
extent of any accrued market discount not previously included in the U.S.
Holder's income) and will be long-term capital gain or loss if at the time of
sale, exchange or retirement the Note has been held by such U.S. Holder for
more than one year. To the extent the amount realized represents accrued but
unpaid interest, however, such amounts must be taken into account as interest
income, with exchange gain or loss computed as described in "Payments of
Interest in a Foreign Currency" above. If a U.S. Holder receives Foreign
Currency on such a sale, exchange or retirement, the amount realized will be
based on the U.S. dollar value of the Foreign Currency on the date the
payment is received or the Note is disposed of (or deemed disposed of in the
case of a taxable exchange of the Note for a new Note). In the case of a Note
that is denominated in Foreign Currency and is traded on an established
securities market, a cash basis U.S. Holder (or, upon election, an accrual
basis U.S. Holder) will determine the U.S. dollar value of the amount
realized by translating the Foreign Currency payment at the spot rate of
exchange on the settlement date of the sale. A U.S. Holder's adjusted tax
basis in a Note will equal the cost of the Note to such holder, increased by
the amounts of any market discount or original issue discount previously
included in income by the holder with respect to such Note and reduced by any
amortized acquisition or other premium and any principal payments received by
the holder. A U.S. Holder's tax basis in a Note, and the amount of any
subsequent adjustments to such holder's tax basis, will be the U.S. dollar
value of the Foreign Currency amount paid for such Note, or of the Foreign
Currency amount of the adjustment, determined on the date of such purchase or
adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note
that is attributable to fluctuations in currency exchange rates will be
ordinary income or loss which will not be treated as interest income or
expense. Gain or loss attributable to fluctuations in exchange rates will
equal the difference between the U.S. dollar value of the Foreign Currency
principal amount of the Note, determined on the date such payment is received
or the Note is disposed of, and the U.S. dollar value of the Foreign Currency
principal amount of the Note, determined on the date the U.S. Holder acquired
the Note. Such Foreign Currency gain or loss will be recognized only to the
extent of the total gain or loss realized by the U.S. Holder on the sale,
exchange or retirement of the Note.
Original Issue Discount. In the case of a Discount Note or Short-Term
Note, (i) original issue discount is determined in units of the Foreign
Currency, (ii) accrued original issue discount is translated into U.S.
dollars as described in "Payments of Interest in a Foreign Currency --
Accrual Method" above and (iii) the amount of Foreign Currency gain or loss
on the accrued original issue discount is determined by comparing the amount
of income received attributable to the discount (either upon payment,
maturity or an earlier disposition), as translated into U.S. dollars at the
rate of exchange on the date of such receipt, with the amount of original
issue discount accrued, as translated above.
Premium and Market Discount. In the case of a Note with market
discount, (i) market discount is determined in units of the Foreign Currency,
(ii) accrued market discount taken into account upon the receipt of any
partial principal payment or upon the sale, exchange, retirement or other
disposition of the Note (other than accrued market discount required to be
taken into account currently) is translated into U.S. dollars at the exchange
rate on such disposition date (and no part of such accrued market discount is
treated as exchange gain or loss) and (iii) accrued market discount currently
includible in
S-23
income by a U.S. Holder for any accrual period is translated into U.S.
dollars on the basis of the average exchange rate in effect during such
accrual period, and the exchange gain or loss is determined upon the receipt
of any partial principal payment or upon the sale, exchange, retirement or
other disposition of the Note in the manner described in "Payments of
Interest in a Foreign Currency -- Accrual Method" above with respect to
computation of exchange gain or loss on accrued interest.
With respect to a Note issued with amortizable bond premium, such
premium is determined in the relevant Foreign Currency and reduces interest
income in units of the Foreign Currency. Although not entirely clear, a U.S.
Holder should recognize exchange gain or loss equal to the difference between
the U.S. dollar value of the bond premium amortized with respect to a period,
determined on the date the interest attributable to such period is received,
and the U.S. dollar value of the bond premium determined on the date of the
acquisition of the Note.
Exchange of Foreign Currencies. A U.S. Holder will have a tax basis in
any Foreign Currency received as interest or on the sale, exchange or
retirement of a Note equal to the U.S. dollar value of such Foreign Currency,
determined at the time the interest is received or at the time of the sale,
exchange or retirement. Any gain or loss realized by a U.S. Holder on a sale or
other disposition of Foreign Currency (including its exchange for U.S. dollars
or its use to purchase Notes) will be ordinary income or loss.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States Federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount, if any) on a Note, unless such non-U.S. Holder is a
direct or indirect 10% or greater shareholder of the Company, a controlled
foreign corporation related to the Company or a bank receiving interest
described in section 881(c)(3)(A) of the Code. To qualify for the exemption
from taxation, the last United States payor in the chain of payment prior to
payment to a non-U.S. Holder (the "Withholding Agent") must have received in
the year in which a payment of interest or principal occurs, or in either of
the two preceding calendar years, a statement that (i) is signed by the
beneficial owner of the Note under penalties of perjury, (ii) certifies that
such owner is not a U.S. Holder and (iii) provides the name and address of
the beneficial owner. The statement may be made on an IRS Form W-8 or a
substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However,
in such case, the signed statement must be accompanied by a copy of the IRS
Form W-8 or the substitute form provided by the beneficial owner to the
organization or institution. The Treasury Department is considering
implementation of further certification requirements aimed at determining
whether the issuer of a debt obligation is related to holders thereof.
Generally, a non-U.S. Holder will not be subject to U.S. Federal income
taxes on any amount which constitutes capital gain upon retirement or
disposition of a Note, attributable to an office or other fixed place of
business maintained by the non-U.S. Holder in the United States. Certain
other exceptions may be applicable, and a non-U.S. Holder should consult its
tax advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder
unless the individual is a direct or indirect 10% or greater shareholder of
the Company or, at the time of such individual's death, payments in respect
of the Notes would have been effectively connected with the conduct by such
individual of a trade or business in the United States.
Backup Withholding
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the Notes to registered owners who
are not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number)
in the required manner. Generally, individuals are not exempt recipients,
whereas corporations and
S-24
certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance
with the identification procedures described in the preceding section would
establish an exemption from backup withholding for those non-U.S. Holders who
are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient
or (ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such seller
is a non-U.S. Holder (and certain other conditions are met). Such a sale must
also be reported by the broker to the IRS, unless either (i) the broker
determines that the seller is an exempt recipient or (ii) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status would be made
normally on an IRS Form W-8 under penalties of perjury, although in certain
cases it may be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment
to a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax, provided the required
information is furnished to the IRS.
New Withholding Regulations
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, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
PLAN OF DISTRIBUTION
The Notes are offered on a continuing basis by the Company through the
Agents, each of which has agreed to use its reasonable efforts to solicit
offers to purchase the Notes. The Company will pay each Agent a commission
ranging from .05% to .60% of the principal amount of Notes sold through such
Agent, depending on the maturity of the Notes sold, except that the
commission payable by the Company to the Agents with respect to Notes with
maturities of or greater than thirty years will be negotiated at the time the
Company issues such Notes. The Company has also agreed to reimburse the
Agents for certain of their expenses.
The Company may also sell the Notes to any Agent, as principal, at a
discount for resale to one or more investors and other purchasers at varying
prices related to prevailing market prices at the time of resale, as
determined by such Agent, or, if so agreed, on a fixed public offering price
basis. The Company reserves the right to sell Notes directly on its own
behalf in those jurisdictions where it is authorized to do so. No commission
will be payable on any sales made directly by the Company.
In addition, each Agent may offer the Notes it has purchased as
principal, to or through dealers and, unless otherwise specified in the
applicable Pricing Supplement, such dealers may receive compensation in the
form of discounts, concessions or commissions from such Agent not in excess
of the discount or commission received by the Agent from the Company.
Unless otherwise indicated in the applicable Pricing Supplement, any
Note sold to an Agent as principal will be purchased by such Agent at a price
equal to 100% of the principal amount thereof less a percentage equal to the
commission applicable to an agency sale of a Note of identical maturity, and
may be resold by the Agent to investors and other purchasers as described
above. After the initial public offering of Notes to be resold to investors
and other purchasers, the public offering price (in the case of Notes to be
sold at a fixed public offering price), the concession and the discount may
be changed. The applicable Pricing Supplement may set forth further
information with respect to distribution of the Notes.
S-25
The Company will have the sole right to accept offers to purchase Notes
and may reject any proposed purchase of Notes. Each Agent will have the
right, in its sole discretion, to reject any offer received by it. Payment of
the purchase price of Notes will be required to be made in immediately
available funds.
Each Agent may be deemed to be an "underwriter" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"). The Company
has agreed to indemnify the Agents against certain liabilities, including
liabilities under the Securities Act or to contribute to payments the Agents
may be required to make in respect thereof. The Company has agreed to
reimburse the Agents for certain expenses.
The Notes are a new issue of securities with no established trading
market. The Agents have informed the Company that they intend to make a
market in the Notes, but are under no obligation to do so and such market
making may be discontinued at any time. No assurance can be given as to the
liquidity of a trading market for the Notes.
Concurrently with the offering of Notes described herein, the Company
may issue other Debt Securities described in the accompanying Prospectus
pursuant to the Indenture, and the amount of Notes offered hereby may be
subject to reduction as a result of such sales.
In connection with the offering of Notes purchased by the Agents as
principal on a fixed price basis, the Agents are permitted to engage in
certain transactions that stabilize the price of the Notes. Such transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Notes. If the Agents create a short position in
the Notes in connection with the offering (i.e., if they sell Notes in an
aggregate principal amount exceeding that set forth in the applicable Pricing
Supplement), then the Agents may reduce that short position by purchasing
Notes in the open market. 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 they may end any of these
activities at any time.
S-26
PROSPECTUS
CHRYSLER FINANCIAL COMPANY L.L.C.
By this prospectus, we may offer
up to approximately $7,951,950,600 of:
DEBT SECURITIES
and
WARRANTS TO PURCHASE DEBT SECURITIES
We will provide specific terms of such debt securities and warrants to
purchase debt securities (in general, the "securities") in supplements to
this prospectus. For information on the general terms of these securities,
see "Description of Debt Securities" or "Description of Warrants". You should
read this prospectus and the supplements carefully before you invest.
-------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
These securities have not been approved or disapproved by the
Commissioner of Insurance for the State of North Carolina, nor has the
Commissioner of Insurance ruled upon the accuracy or the adequacy of this
prospectus or any prospectus supplement.
-------------------------------------
The date of this Prospectus is November 6, 1998.
ADDITIONAL INFORMATION -- INCORPORATION BY REFERENCE
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"),
and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "SEC"). Effective October 25, 1998,
Chrysler Financial Corporation ("CFC") merged with the Company (the
"Merger"), with the Company being the surviving entity. Prior to the Merger,
CFC was subject to the informational requirements of the Securities Exchange
Act. Reports and other information filed by the Company (and, prior to the
Merger, by CFC) with the SEC can be inspected at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. To obtain information
on the operation of the Public Reference Room, you may call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from the SEC's web site
(http://www.sec.gov). In addition, you, or any beneficial owner of the
securities that you purchase, may request copies of any or all of the
information incorporated by reference into this prospectus. Such copies will
be provided at no cost to the requester. Address your request, in writing or
by phone, to: Office of the Secretary, Chrysler Financial Company L.L.C.,
27777 Franklin Road, Southfield, Michigan 48034. Telephone: (248) 948-3062.
The following documents, previously filed with the SEC by CFC in
compliance with the Securities Exchange Act, are "incorporated by reference"
in this prospectus:
* CFC's Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
* CFC's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;
* CFC's Current Reports on Form 8-K dated February 17, 1998, March 24,
1998, May 12, 1998, May 21, 1998, July 22, 1998, September 2, 1998,
September 25, 1998 and October 16, 1998; and
* All other documents CFC has filed pursuant to Sections 13(a), 13(c), 14
or 15 (d) of the Securities Exchange Act since December 31, 1997.
The Company's Current Report on Form 8-K dated October 26, 1998,
previously filed with the SEC by the Company in compliance with the Securities
Exchange Act, is also "incorporated by reference" in this prospectus.
We are also incorporating by reference into this prospectus all
documents that we have filed or will file with the SEC as prescribed by
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act since the
date of this prospectus and prior to the termination of the sale of the
securities offered by this prospectus.
This means that important information about the Company and Chrysler
Corporation appears or will appear in these documents and will be regarded as
appearing in this prospectus also. To the extent that information appearing
in a document filed later is inconsistent with prior information, the later
statement will control.
We have filed a registration statement on Form S-3 with the SEC
covering the securities described in this prospectus. For further information
with respect to us and those securities, you should refer to our registration
statement and its exhibits. In this prospectus, we have summarized certain
key provisions of contracts and other documents. We have filed or
incorporated by reference copies of these documents as exhibits to our
registration statement. Because a summary may not contain all the information
that is important to you, you should review the full text of the documents so
included with our registration statement.
You should only rely on the information contained or incorporated by
reference in this prospectus, any prospectus supplement or any pricing
supplement. We have not authorized anyone to provide you with any other
information. You should not assume that the information in this prospectus,
any accompanying prospectus supplement or any document incorporated by
reference is accurate as of any date other than the date on the front of
those documents.
2
CHRYSLER FINANCIAL COMPANY L.L.C.
General
The Company is a financial services organization that principally
provides consumer and dealer automotive financing. The Company provides
retail and lease financing for vehicles, dealer inventory and other financing
needs, dealer property and casualty insurance, and dealership facility
development and management, primarily for Chrysler Corporation dealers and
their customers. All of the Company's membership interests are owned by
Chrysler Corporation, a Delaware corporation (together with its subsidiaries,
"Chrysler"). The Company's primary objective is to provide financing for
automotive dealers and retail purchasers of Chrysler's products. The Company
sells significant amounts of automotive receivables acquired in transactions
subject to limited credit risk. The Company remains as servicer of such
receivables for which it is paid a servicing fee. At September 30, 1998, the
Company had approximately 3,400 employees and its portfolio of receivables and
leases managed, which includes receivables and leases owned and serviced for
others, totaled $46.8 billion. On October 25, 1998, CFC merged with and into
the Company, with the Company being the surviving entity. The purpose of the
Merger was to change the form of organization of CFC from a corporation into
a limited liability company. Prior to the Merger, the Company had no
operations and had nominal assets and liabilities. In connection with the
Merger, the Company succeeded by operation of law to all of the assets and
liabilities of CFC. Unless the context otherwise requires, for the period
prior to October 25, 1998 the term "Company" as used herein shall mean CFC and
after the Merger shall mean Chrysler Financial Company L.L.C., as successor
to CFC. The Company's executive offices are located at 27777 Franklin Road,
Southfield, Michigan 48034; telephone (248) 948-3058.
This Prospectus contains brief summaries of certain more detailed
information contained in documents incorporated herein by reference. Such
summaries are qualified in their entirety by the more detailed information
contained in the incorporated documents.
Company Operations
The Company's portfolio of finance receivables and leases managed
includes receivables owned and receivables and leases serviced for others.
Receivables and leases serviced for others includes securitized automotive
receivables and retail leases. At September 30, 1998, receivables and leases
serviced for others accounted for 65 percent of the Company's portfolio of
receivables and leases managed. Total finance receivables and leases managed
at September 30, 1998 and 1997 and at the end of each of the five most recent
years were as follows (in millions of dollars):
September 30, December 31,
-------------- -------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Automotive ..................... $43,956 $38,405 $39,276 $37,993 $36,222 $30,092 $25,011
Nonautomotive .................. 2,799 2,674 2,715 2,204 2,391 2,775 3,251
------- ------- ------- ------- ------- ------- -------
Total financing ................ $46,755 $41,079 $41,991 $40,197 $38,613 $32,867 $28,262
======= ======= ======= ======= ======= ======= =======
Automotive Financing. The Company conducts its automotive finance
business through Chrysler Financial Company L.L.C. (formerly Chrysler
Financial Corporation) in the United States and Chrysler Credit Canada Ltd.
in Canada. The Company is the major source of car and truck wholesale
financing and retail financing for Chrysler vehicles throughout North
America. The Company also offers dealers working capital loans, real estate
and equipment financing and financing plans for fleet buyers. The automotive
financing operations of the Company are conducted through 29 zone offices in
the United States and Canada. The Company also provides automotive financial
products and services in Europe and Asia.
During the first nine months of 1998, the Company financed or leased
approximately 738,000 vehicles at retail in the United States, including
approximately 563,000 new Chrysler cars and trucks, representing 30 percent of
Chrysler's U.S. retail and fleet deliveries. During the first nine months of
1998, the Company financed approximately 2,030,000 vehicles at wholesale in
the United States, including approximately 1,338,000 new Chrysler cars and
trucks, representing 69 percent of Chrysler's U.S. factory shipments.
3
During 1997, the Company financed or leased approximately 870,000
vehicles at retail in the United States, including approximately 611,000 new
Chrysler cars and trucks, representing 27 percent of Chrysler's U.S. retail
and fleet deliveries. During 1997, the Company financed approximately
2,603,000 vehicles at wholesale in the United States, including approximately
1,625,000 new Chrysler cars and trucks, representing 70 percent of Chrysler's
U.S. factory shipments.
Nonautomotive Financing. The Company conducts its nonautomotive finance
business through its subsidiary, Chrysler Capital Corporation. At September
30, 1998, the nonautomotive receivables managed throughout the United States
consisted primarily of $2.7 billion of leveraged leases, as compared to $2.6
billion at December 31, 1997.
RISK FACTORS
Your investment in the securities will involve certain credit risks.
You should carefully consider the following discussion of risks before
deciding whether an investment in the securities is suitable for you.
Liquidity and Capital Resources.
We have significant liquidity requirements. If cash from operations,
bank borrowings, receivable sales, and the placement of term debt does not
provide the necessary liquidity, we would be required to restrict the
financing of Chrysler products and dealers. A significant reduction in such
financing support would have a material adverse effect on us and Chrysler.
Additionally, our inability to sell or securitize our receivables and a
variety of other factors could affect our ability to repay our debt at
maturity. See, "Chrysler Financial Corporation Selected Consolidated
Financial Data -- Liquidity and Capital Resources."
Relationship with Chrysler.
Our business is dependent upon Chrysler. Lower levels of production and
sales of Chrysler automotive products would result in a reduction of our level
of finance operations. The production and sale of Chrysler's automotive
products will depend significantly on Chrysler's ability to continue its
capital expenditure and vehicle development programs and to market its
vehicles successfully. See "Information Concerning Chrysler Corporation."
On May 7, 1998, Chrysler, Daimler-Benz Aktiengesellschaft ("Daimler") and
DaimlerChrysler Aktiengesellschaft ("DaimlerChrysler") entered into a
Business Combination Agreement (the "Business Combination Agreement")
providing for a series of transactions which will result in Chrysler becoming
a wholly owned subsidiary of DaimlerChrysler and Daimler merging with and
into DaimlerChrysler. Consummation of the transactions contemplated by the
Business Combination Agreement is subject to the receipt of certain
regulatory approvals and the satisfaction or waiver of various other
conditions and there can be no assurance that such transactions will be
consummated. In addition, the integration of two large companies,
incorporated in different countries, with geographically dispersed
operations, and with different business cultures and compensation structures,
present significant management challenges and there can be no assurance, if
the transactions are consummated, that this integration will be successfully
achieved.
CHRYSLER FINANCIAL COMPANY L.L.C.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data as of and for the nine-month
periods ended September 30, 1998 and 1997 are derived from the unaudited
consolidated financial statements of the Company and its subsidiaries
incorporated herein by reference, and reflect all adjustments, consisting of
only normal recurring items, which are, in the opinion of management,
necessary to present a fair statement of the results for such periods.
Results for the nine-month period ended September 30, 1998 are not
necessarily indicative of results to be expected for the entire year. The
following selected financial data of the Company for each of the last five
years ended December 31, 1997 have been derived from the audited consolidated
financial statements of the Company. The consolidated financial statements as
of December 31, 1997 and 1996 and for each of the last three years in the
period ended December 31, 1997 and the report of Deloitte & Touche LLP
thereon are incorporated herein by reference. The following selected
4
consolidated financial data should be read in conjunction with such
consolidated financial statements, related notes and other financial
information incorporated herein by reference (in millions of dollars).
Nine Months Ended
September 30, Year Ended December 31,
--------------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(unaudited)
Earnings Statement Data:(1)
Total finance revenue ............................... $ 1,442 $ 1,212 $ 1,648 $ 1,663 $ 1,621 $ 1,366 $ 1,417
Interest expense .................................... 724 609 816 797 910 754 791
Depreciation on vehicles leased ..................... 278 113 169 92 46 11 --
Net margin .......................................... 440 490 663 774 665 601 626
Other revenues ...................................... 815 729 1,006 818 818 629 622
Operating and other expenses ........................ 393 391 501 523 508 603 463
Provision for credit losses ......................... 281 297 443 387 342 203 216
Earnings before income taxes and cumulative
effect of changes in accounting principles ........ 518 465 637 586 522 315 267
Net earnings(2) ..................................... 344 307 419 376 339 195 129
September 30, December 31,
--------------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
Balance Sheet Data:(1) (unaudited)
Finance receivables -- net .......................... $ 13,123 $10,995 $10,926 $11,158 $12,644 $12,423 $ 9,626
Retained interests in sold receivables -- net ....... 2,928 3,961 3,111 3,153 2,733 2,251 2,620
Cash and cash equivalents ........................... 660 287 380 230 476 174 265
Marketable securities ............................... 454 413 408 472 674 583 348
Loans and other amounts due from
affiliated companies............................... 1,405 1,187 1,705 859 -- 66 --
Repossessed collateral .............................. 39 100 76 146 194 162 269
Dealership properties leased -- net ................. 261 295 281 319 363 407 423
Vehicles leased -- net .............................. 3,117 1,386 1,736 614 397 130 --
Other assets ........................................ 738 650 698 582 354 452 700
-------- ------- ------- ------- ------- ------- -------
Total assets .................................... $ 22,725 $19,274 $19,321 $17,533 $17,835 $16,648 $14,251
======== ======= ======= ======= ======= ======= =======
Short-term notes (primarily commercial paper) ....... $ 2,833 $ 2,297 $ 2,970 $ 2,616 $ 2,435 $ 4,315 $ 2,772
Bank borrowings ..................................... 431 130 217 90 -- -- --
Senior term debt .................................... 12,077 9,882 9,324 8,435 9,234 6,069 5,139
Subordinated term debt .............................. -- -- -- -- -- 27 77
Other debt .......................................... 115 275 207 104 100 260 447
Accounts payable, accrued expenses and other ........ 2,004 1,612 1,474 1,372 1,236 1,155 1,147
Amounts due to affiliated companies ................. -- -- -- -- 29 -- 24
Deferred income taxes ............................... 1,975 1,774 1,832 1,628 1,499 1,549 1,514
-------- ------- ------- ------- ------- ------- -------
Total liabilities ............................... 19,435 15,970 16,024 14,245 14,533 13,375 11,120
Shareholder's investment(3):
Common(4) ......................................... 3,290 3,304 3,297 3,288 3,302 3,273 3,131
-------- ------- ------- ------- ------- ------- -------
Total liabilities and shareholder's investment .. $ 22,725 $19,274 $19,321 $17,533 $17,835 $16,648 $14,251
======== ======= ======= ======= ======= ======= =======
<FN>
- ---------
(1) Prior periods reclassified to conform to current classifications.
(2) Net earnings for 1993 included a $30 million after-tax charge from the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
and SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
(3) On a pro forma basis and after giving effect to the Merger as if it had
taken place on September 30, 1998, the Company's Shareholder's
Investment/Member Interest is as follows:
Shareholder's Investment/Member Interest:
Pro Forma
CFC as Pro Forma Company after
reported Adjustments Merger
-------- ----------- -------------
Member Interest ..................................... $ -- $ 3,290 $3,290
Common Stock -- par value $100 per share Authorized,
issued and outstanding 250,000 shares ............. 25 (25) --
Additional paid-in capital .......................... 1,168 (1,168) --
Retained Earnings ................................... 2,097 (2,097) --
------ ------- ------
Total ......................................... $3,290 $ -- $3,290
====== ======= ======
(4) The Company paid dividends to Chrysler Corporation totaling $346 million
and $300 million during the first nine months of 1998 and 1997,
respectively. The Company paid dividends totalling $415 million, $382
million, $335 million and $40 million for the years ended December 31,
1997, 1996, 1995, and 1994, respectively. The Company declared no cash
dividends in respect of its common stock during 1993.
5
Financial Review
The Company's net earnings were $344 million for the nine months ended
September 30, 1998, and $307 million for the nine months ended September 30,
1997. The increase in net earnings primarily reflects higher gains and
servicing fees from sales of receivables, a decrease in provision for credit
losses, and gains from sales of certain nonautomotive assets. Net earnings
for the first nine months of 1997 reflect a one-time benefit from the
adoption of Statement of Financial Accounting Standards No. 125.
The Company had net earnings of $419 million in 1997 compared to $376
million and $339 million in 1996 and 1995, respectively. The increase in net
earnings for the year ended December 31, 1997 reflects an increase in gains
and servicing fees from sales of receivables, higher levels of vehicles
leased, and lower operating expenses, partially offset by higher credit loss
provisions.
Total assets at September 30, 1998 were $22.7 billion compared to $19.3
billion at December 31, 1997 and $19.3 billion at September 30, 1997. The
increase in total assets is primarily attributable to the higher volume of
finance receivables and vehicles leased.
Total assets at December 31, 1997 totaled $19.3 billion compared to
$17.5 billion at December 31, 1996. The increase in total assets is primarily
attributable to the higher balance of vehicles leased and an increase in
loans and other amounts due from affiliated companies.
Total debt outstanding was $15.5 billion at September 30, 1998, $12.7
billion at December 31, 1997 and $12.6 billion at September 30, 1997. The
increase in total debt is attributable to the need to fund higher levels of
automotive volume. The Company's debt-to-equity ratio was 4.7 to 1 at
September 30, 1998, 3.9 to 1 at December 31, 1997 and 3.8 to 1 at September
30, 1997.
Total debt outstanding at December 31, 1997 was $12.7 billion compared
to $11.2 billion at December 31, 1996. The increase in total debt is
attributable to the need to fund higher automotive volume. The Company's
debt-to-equity ratio was 3.9 to 1 at December 31, 1997, compared to 3.4 to 1
at December 31, 1996.
The Company's portfolio of receivables and leases managed, which
includes receivables owned and receivables serviced for others, totaled $46.8
billion at September 30, 1998, $42.0 billion at December 31, 1997 and $41.1
billion at September 30, 1997. Receivables and leases serviced for others
totaled $30.3 billion at September 30, 1998, $29.1 billion at December 31,
1997, and $28.5 billion at September 30, 1997.
The Company's portfolio of receivables and leases managed totaled $42.0
billion at December 31, 1997, as compared to $40.2 billion at December 31,
1996. The increase in receivables and leases managed during the last two
years reflects higher automotive volume. Receivables and leases serviced for
others totaled $29.1 billion at December 31, 1997 compared to $28.2 billion
at December 31, 1996.
The Company's allowance for credit losses totaled $564 million, $559
million and $546 million at September 30, 1998, December 31, 1997, and
September 30, 1997, respectively. The allowance for credit losses as a
percentage of related finance receivables outstanding was 1.47 percent at
September 30, 1998, 1.60 percent at December 31, 1997, and 1.58 percent at
September 30, 1997.
The Company's allowance for credit losses totaled $559 million, $526
million, and $578 million at December 31, 1997, 1996, and 1995, respectively.
The allowance for credit losses as a percentage of related finance
receivables outstanding was 1.60 percent at December 31, 1997, 1.52 percent
at December 31, 1996 and 1.69 percent at December 31, 1995. The increase in
allowance for credit losses as a percentage of related finance receivables
outstanding is primarily attributable to higher credit loss provisions during
1997.
6
Net credit loss experience, including net losses on receivables sold
subject to limited credit risk, for the nine-month periods ended September
30, 1998 and September 30, 1997 and for the years ended December 31, 1997,
1996 and 1995 was as follows (dollars in millions):
Net Credit Losses -- Finance Receivables
--------------------------------------------
Nine Months Ended
September 30, Year Ended December 31,
----------------- -----------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Automotive ................... $259 $268 $393 $358 $229
Nonautomotive ................ 5 7 14 35 23
---- ---- ---- ---- ----
Total .................... $264 $275 $407 $393 $252
==== ==== ==== ==== ====
Net Credit Losses --
Finance Receivables
to Average Gross
Finance Receivables Outstanding
---------------------------------
September 30, December 31,
------------- ------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Automotive ................... .95% 1.03% 1.13% 1.06% .70%
Nonautomotive ................ .15% .27% .38% 1.06% .69%
Total .................... .87% .96% 1.06% 1.06% .70%
Liquidity and Capital Resources
Receivable sales continued to be a significant source of funding in the
first nine months of 1998 as the Company realized $7.8 billion of net
proceeds from the sale of automotive retail receivables, compared to $6.1
billion of net proceeds in the same period of 1997. Securitization of
revolving wholesale account balances provided funding which aggregated $4.8
billion and $7.0 billion at September 30, 1998 and 1997, respectively.
Receivables sales continued to be a significant source of funding
during 1997, as the Company realized $9.0 billion of net proceeds from the
sales of automotive retail receivables, compared to $8.1 billion of net
proceeds in 1996. Securitization of revolving wholesale account balances
provided funding which aggregated $6.1 billion and $6.8 billion at December
31, 1997 and 1996, respectively.
Term debt, commercial paper and receivable sales represent the
Company's primary funding sources. During 1997, as the Company issued $4.0
billion of term debt (primarily medium term notes), repaid $3.1 billion of
term debt and increased its commercial paper outstanding by $0.4 billion.
At September 30, 1998, the Company had contractual debt maturities of
$4.1 billion during the remainder of 1998 (including $2.8 billion of
short-term notes), $3.4 billion in 1999, $3.6 billion in 2000, $2.1 billion
in 2001, $0.8 billion in 2002, and $1.5 billion thereafter. The Company
expects that 1998 debt maturities will be funded from continued access to
term debt markets, issuances of commercial paper, receivables sales and
operating cash flows. At September 30, 1998, the Company had approximately
$3.0 billion in eligible wholesale receivables held by securitization trusts.
The Company's revolving credit facilities, which total $8.0 billion,
consist of a $2.0 billion facility expiring in April, 1999 and a $6.0 billion
facility expiring in April, 2002. These facilities include $1.0 billion
allocated to Chrysler Credit Canada Ltd. As of September 30, 1998, no amounts
were outstanding under these facilities.
The Company paid dividends to Chrysler totaling $346 million during the
first nine months of 1998, compared to $300 million for the comparable period
of 1997. The Company paid $415 million and $382 million in dividends to
Chrysler during 1997 and 1996, respectively.
For additional information regarding the results of operations and
financial condition of the Company, see the Company's Annual Report on Form
10-K for the year ended December 31, 1997, and the Company's Quarterly Report
of Form 10-Q for the quarter ended September 30, 1998, which are incorporated
by reference into this Prospectus.
7
Year 2000 Date Conversion
The Company has conducted an evaluation of the actions necessary to
ensure that its business critical computer systems will function without
disruption with respect to the application of dating systems in the Year
2000. As a result of this evaluation, the Company is engaged in the process
of upgrading, replacing and testing certain of its information and other
computer systems. The Company's remedial actions are scheduled to be
completed during the third quarter of 1999 and, based upon information
currently available, the Company does not anticipate that the costs of its
remedial actions will be material to the consolidated results of operations
and financial position and are being expensed as incurred. However, there
can be no assurance that the remedial actions being implemented by the
Company will be completed in time to avoid dating systems problems or that
the cost will not be material. If the Company is unable to complete its
remedial actions in the planned timeframe, contingency plans will be
developed to address those business critical systems that may not be Year
2000 compliant.
In addition, disruptions with respect to computer systems of vendors or
customers, which are outside the control of the Company, could impair the
ability of the Company to obtain necessary services or to provide services to
its customers. Disruptions of the Company's computer systems, or the
computer systems of the Company's vendors or customers, as well as the cost
of avoiding such disruption, could have a material adverse effect upon the
financial condition and results of operations. The Company has a process in
place to assess the Year 2000 readiness of its business critical vendors and
customers. The Company believes that the most likely worst case scenario is
that a small number of vendors will be unable to supply service for a short
time after January 1, 2000. As part of the assessment process, the Company
will develop contingency plans for those business critical vendors who are
either unable or unwilling to develop remediation plans to become Year 2000
compliant. Although these plans have yet to be developed, the Company expects
that these plans will include selective resourcing of services to Year 2000
compliant vendors. The Company expects that vendors in this category will
represent an insignificant part of its total service base. It is expected
that these plans will be in place by the third quarter of 1999.
New Accounting Standards
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This Statement revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. This
Statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures. Restatement of disclosures for earlier periods is required. This
Statement is effective for the Company's financial statements for the year
ended December 31, 1998.
8
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires companies to
record derivatives on the balance sheet as assets and liabilities, measured
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This Statement is not expected to
have a material impact on the Company's financial statements. This Statement
is effective for fiscal years beginning after June 15, 1999, with earlier
adoption encouraged. The Company will adopt this accounting standard as
required by January 1, 2000.
In the second quarter of 1998, the Company adopted Statement on Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," effective January 1, 1998. This SOP provides
guidance on accounting for the costs of computer software developed or
obtained for internal use. This SOP requires that entities capitalize certain
internal-use software costs once certain criteria are met. Historically, the
Company generally expensed the costs of developing or obtaining internal-use
software as incurred. Adoption of the standard did not have a material effect
on the Company's consolidated financial statements.
9
INFORMATION CONCERNING CHRYSLER CORPORATION
On May 7, 1998, the Company's parent, Chrysler, Daimler and
DaimlerChrysler entered into a Business Combination Agreement providing
for (i) the merger of a newly created Delaware corporation with and into
Chrysler (the "Chrysler Merger"); (ii) an offer by DaimlerChrysler to
exchange DaimlerChrysler ordinary shares for Daimler ordinary shares; and
(iii) the merger of Daimler with and into DaimlerChrysler. In the Chrysler
Merger, each share of outstanding Chrysler common stock will be converted
into the right to receive DaimlerChrysler shares. As a result of these
transactions, DaimlerChrysler will be owned by the former shareholders of
Chrysler and Daimler, and Chrysler will be a wholly owned subsidiary of
DaimlerChrysler. Both Chrysler's and Daimler's shareholders voted to approve
the proposed Business Combination at separate Special Shareholders' Meetings
held on September 18, 1998. The initial period for the exchange of Daimler
shares for DaimlerChrysler shares occured from September 24, 1998 through
October 23, 1998.
The Company's results of operations depend significantly upon the
results of operations of Chrysler. Chrysler is subject to the informational
requirements of the Securities Exchange Act, and in accordance therewith
files reports and other information with the SEC. Such reports and other
information can be inspected and copied at the public reference facilities of
the SEC referred to above under "Available Information -- Incorporation by
Reference."
The results of operations and balance sheet data set forth below for
Chrysler reflect the full consolidation of the accounts of all significant
majority-owned subsidiaries and entities over which Chrysler has a
controlling financial interest. Information as of, and for the nine-month
periods ended, September 30, 1998 and 1997, has been derived from Chrysler's
unaudited consolidated financial statements. For each of the last three years
ended December 31, 1997, such information has been derived from the audited
consolidated financial statements of Chrysler (in millions of dollars).
Nine Months Ended
September 30, Year Ended December 31,
----------------- ---------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Results of Operations Data
Sales of manufactured products ...................... $45,805 $40,650 $56,986 $57,587 $49,601
Finance and insurance revenues ...................... 1,517 1,204 1,636 1,746 1,589
Other revenues ...................................... 1,436 1,826 2,525 2,064 2,005
------- ------- ------- ------- -------
Total Revenues ...................................... 48,758 43,680 61,147 61,397 53,195
------- ------- ------- ------- -------
Total Expenses ...................................... 44,405 40,439 56,590 55,305 49,746
------- ------- ------- ------- -------
Earnings Before Income Taxes, Extraordinary Item and
Cumulative Effect of a Change in Accounting
Principle ......................................... 4,353 3,241 4,557 6,092 3,449
Provision for income taxes .......................... 1,616 1,288 1,752 2,372 1,328
------- ------- ------- ------- -------
Earnings Before Extraordinary Item and Cumulative
Effect of a Change in Accounting Principle ........ 2,737 1,953 2,805 3,720 2,121
Extraordinary item -- Loss on early extinguishment of
debt, net of taxes ................................ -- -- -- (191) --
Cumulative effect of a change in accounting principle -- -- -- -- (96)
------- ------- ------- ------- -------
Net Earnings ........................................ $ 2,737 $ 1,953 $ 2,805 $ 3,529 $ 2,025
Preferred stock dividends ........................... -- -- 1 3 21
------- ------- ------- ------- -------
Net Earnings on Common Stock ........................ $ 2,737 $ 1,953 $ 2,804 $ 3,526 $ 2,004
======= ======= ======= ======= =======
September 30, December 31,
----------------- ---------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data
Cash, cash equivalents and marketable securities .... $10,628 $ 7,599 $ 7,848 $ 7,752 $ 8,125
Total assets ........................................ 67,736 60,119 60,418 56,184 53,756
Total debt .......................................... 18,133 15,934 15,485 13,396 14,193
Shareholders' equity ................................ 13,202 11,267 11,362 11,571 10,959
10
Results of Operations
For the first nine months of 1998, Chrysler reported earnings before
income taxes of $4.4 billion, compared with $3.2 billion for the first
nine months of 1997. Net earnings for the first nine months of 1998 were
$2.7 billion, or $4.23 per common share, compared with $2.0 billion, or
$2.86 per common share for the first nine months of 1997. Chrysler reported
earnings before income taxes, extraordinary item and the cumulative effect
of a charge in accounting principle of $4.6 billion in 1997, compared with
$6.1 billion in 1996. Net earnings for 1997 were $2.8 billion, or $4.15
per common share, compared with $3.5 billion, or $4.83 per common share, in
1996.
The increase in earnings for the first nine months of 1998 compared with
the first nine months of 1997 primarily reflect an increase in vehicle
shipments and decreased warranty costs, partially offset by an increase in
average sales incentives and depreciation and special tools amortization.
Vehicle shipments for the first nine months of 1997 were negatively impacted
by the 29-day strike at an engine plant in Detroit, Michigan. The decrease in
warranty costs was primarily related to several voluntary customer service
actions and recalls which occurred in 1997. The increase in average sales
incentives was attributable to an increasingly competitive automotive market
environment. Earnings for the first nine months of 1997 also included a
$41 million charge ($25 million after taxes) for costs related to
discontinuing Chrysler's Eagle brand at the end of the 1998 model year.
Earnings decreased for calendar-year 1997 as compared with
calendar-year 1996 primarily as a result of an increase in average sales
incentives per vehicle, a decrease in vehicle shipments and an increase in
warranty costs, partially offset by lower profit-based employee compensation
costs. The increase in average sales incentives per vehicle reflects an
increasingly competitive automotive environment in 1997 resulting primarily
from new product offerings from competitors and greater flexibility in
vehicle pricing by Japanese manufacturers who have benefitted from currency
exchange rate changes between the Japanese yen and U.S. dollar. The decrease
in shipments for calendar-year 1997 was primarily due to the changeover to
Chrysler's all-new Dodge Intrepid and Chrysler Concorde sedans and the
unfavorable impact of a 29-day strike. The increase in warranty costs was
primarily related to customer service and recall actions, partially offset by
lower average warranty costs on 1997 and 1998 model-year vehicles.
Earnings before income taxes, extraordinary item and the cumulative
effect of a change in accounting principle for 1997 reflected the unfavorable
impact of a 29-day strike which reduced earnings by an estimated $590 million
($364 million after taxes) after considering partial recovery of production
losses from the strike, and a $41 million charge ($25 million after taxes)
for costs related to the decision to discontinue Chrysler's Eagle brand at
the end of the 1998 model year. The effect of these unfavorable items was
partially offset by the recognition of $97 million ($60 million after taxes)
of previously deferred profits from the sale of vehicles from Chrysler to
Dollar Thrifty Automotive Group, Inc. ("DTAG", formerly Pentastar
Transportation Group, Inc.) as a result of the December 1997 initial public
offering ("IPO") of Chrysler's common stock interest in DTAG.
Earnings before income taxes, extraordinary item and the cumulative
effect of a change in accounting principle for 1996 included a charge of $97
million ($61 million after taxes) for costs associated with a voluntary early
retirement program for certain salaried employees, a charge of $77 million
($51 million after taxes) related to a write-down of Pentastar Electronics,
Inc. ("PEI"), a charge of $65 million ($100 million after taxes) related to a
write-down of Thrifty Rent-A-Car System, Inc. ("Thrifty"), a charge of $50
million ($31 million after taxes) for lump-sum retiree pension costs related
to the 1996 UAW collective bargaining agreement, and a gain of $101 million
($87 million after taxes) from the sale of Electrospace Systems, Inc. ("ESI")
and Chrysler Technologies Airborne Systems, Inc. ("CTAS"). In addition, in
1996, Chrysler extinguished $550 million, or 50 percent, of the outstanding
principal amount of its Auburn Hills Trust Guaranteed Exchangeable
Certificates Due 2020 (the "Certificates") at a cost of $859 million. The
extinguishment of the Certificates resulted in an extraordinary after-tax
loss of $191 million (net of income tax benefit of $118 million).
11
Chrysler's worldwide vehicle shipments in the first nine months of 1998
were 2,348,252, an increase of 223,204 units, or 11 percent, compared with the
first nine months of 1997. The increase in worldwide shipments for the first
nine months of 1998, as compared to the first nine months of 1997, primarily
reflects increased shipments of Chrysler's Dodge Durango and Dodge Ram pickup
trucks as well as a general increase in passenger cars, partially offset by
decreased shipments of Jeep Grand Cherokees. Decreased shipments of Jeep
Grand Cherokees resulted from the changeover to the all-new Jeep Grand
Cherokee which began in the second quarter of 1998 and was substantially
completed in the third quarter of 1998. Shipments for the first nine months
of 1997 also reflect the unfavorable impact of a 29-day strike during the
second quarter of 1997. Chrysler's worldwide vehicle shipments in 1997 were
2,886,981 units, a decrease of 71,819 units or 2 percent compared with 1996
levels. Chrysler's vehicle shipments outside the U.S., Canada and Mexico
("North America") in the first nine months of 1998 were 145,919, a decrease
of 33,379 units, or 19 percent, compared with the first nine months of 1997.
The decrease in shipments outside of North America was primarily caused by
continued economic difficulties in Asian markets. Chrysler's vehicle
shipments outside of North America in 1997 were 237,439 units, an increase of
13,782 units or 6 percent compared with 1996 levels.
Chrysler's revenues and results of operations are principally derived
from the U.S. and Canada automotive marketplaces. In the first nine months of
1998, retail industry sales (including fleet) of new cars and trucks in the
U.S. and Canada, on a Seasonally Adjusted Annual Rate basis, were 17.1
million units, compared with 16.9 million units for the first nine months of
1997. Retail industry sales (including fleet) of new cars and trucks in the
U.S. and Canada were 16.9 million units in 1997, compared with 16.6 million
units in 1996, an increase of 2 percent.
Chrysler's U.S. and combined U.S. and Canada retail sales and market
share data for the first nine months of 1998 and 1997 and for years 1997 and
1996 were as follows:
Nine Months Year
--------------------------------- ---------------------------------
Increase/
1998 1997 Decrease 1997 1996 Decrease
---- ---- --------- ---- ---- --------
U.S. Retail Market(1):
Car sales ................................ 569,948 583,325 (13,377) 736,530 832,633 (96,103)
Car market share ......................... 9.2% 9.1% 0.1% 8.9% 9.7% (0.8)%
Truck sales (including minivans) ......... 1,318,547 1,162,007 156,540 1,567,258 1,618,193 (50,935)
Truck market share ....................... 22.7% 21.5% 1.2% 21.7% 23.4% (1.7)%
Combined car and truck sales ............. 1,888,495 1,745,332 143,163 2,303,788 2,450,826 (147,038)
Combined car and truck market share ...... 15.7% 14.8% 0.9% 14.9% 15.9% (1.0)%
U.S. and Canada Retail Market(1):
Combined car and truck sales ............. 2,095,853 1,936,843 159,010 2,559,950 2,690,340 (130,390)
Combined car and truck market share ...... 16.0% 15.1% 0.9% 15.1% 16.1% (1.0)%
<FN>
- ----------------
(1) All retail sales and market share data include fleet sales.
Chrysler's U.S. truck market share for the first nine months of 1998
increased compared with the first nine months of 1997 primarily as a result
of increased sales of its Dodge Durango, partially offset by the negative
impact of the changeover to the all new Jeep Grand Cherokee which began in the
second quarter of 1998 and was substantially completed in the third quarter of
1998. The decrease in Chrysler's 1997 U.S. car market share was primarily due
to the changeover to Chrysler's all-new Intrepid and Concorde sedans and
decreased sales of Neons. The decrease in Chrysler's 1997 U.S. truck market
share was primarily due to decreased sales of its Dodge Ram Pickup trucks and
Jeep Grand Cherokees, which primarily reflects the effect of a 29-day strike
in the second quarter of 1997.
12
For the past several years, Chrysler has benefitted from the following
factors: (1) favorable economic conditions in the U.S. and Canada, where
Chrysler's sales are concentrated, and (2) a continuing shift in U.S. and
Canada consumer preferences toward trucks, as Chrysler manufactures a higher
proportion of trucks to total vehicles than its principal competitors in the
U.S. and Canada. A significant deterioration in either of these factors could
adversely affect Chrysler's consolidated operating results. Further, Chrysler
has benefitted from a strategy of focusing resources on its core automotive
business and an aggressive capital expenditure and vehicle development
program that has resulted in the replacement of substantially all of its car
and truck offerings over the last five years. Chrysler's long-term
profitability will depend significantly on its ability to continue its
capital expenditure and vehicle development programs and to market its
vehicles successfully in an increasingly competitive automotive environment.
During December 1997, Chrysler completed an IPO of its common stock
interest in DTAG for net proceeds of $387 million. The IPO of the common
stock interest resulted in a pretax and after-tax gain of $73 million. The
gain was deferred and will be recognized over the remaining term of the
vehicle supply agreements with DTAG, which end in 2001. The tax effect on
this transaction reflects the difference between the book and tax basis of
Chrysler's stock interest in DTAG for which deferred taxes were not provided,
in accordance with SFAS No. 109, "Accounting for Income Taxes."
In 1996, Chrysler committed to a plan of disposal for Thrifty, a
subsidiary of DTAG, and recognized a $65 million pretax loss ($100 million
after taxes) to write down Thrifty's carrying value to estimated fair value
less cost to sell. The pretax loss is included in "Costs, other than items
below" in Chrysler's consolidated statement of earnings for 1996. The
after-tax loss includes the effect of not being able to claim a tax deduction
for the capital loss on Chrysler's investment in Thrifty.
In 1996, Chrysler sold ESI and CTAS for net proceeds of $476 million.
ESI and CTAS were engaged principally in the manufacture of defense
electronics and aircraft modification, respectively, and represented
substantially all of the operations of Chrysler Technologies Corporation
("CTC"), a wholly owned subsidiary of Chrysler. The sale resulted in a pretax
gain of $101 million ($87 million after taxes). In the fourth quarter of
1996, Chrysler signed an agreement to sell PEI for net proceeds of $17
million, which resulted in the recognition of a pretax loss of $77 million
($51 million after taxes) to write down PEI's carrying value to estimated
fair value less cost to sell. PEI represented the remaining operations of
CTC. The sale of PEI was completed on January 10, 1997. The pretax gain on
the sale of ESI and CTAS and the pretax loss on the write-down of PEI are
included in "Costs, other than items below" in Chrysler's consolidated
statement of earnings for 1996.
In 1995, Chrysler recorded a $263 million provision ($162 million after
taxes) for costs associated with production changes at its Newark assembly
plant. Newark production of the Chrysler Concorde and Dodge Intrepid was
reduced to one shift in August 1995 and terminated in July 1996. Production
of an all-new sport-utility vehicle, the Dodge Durango, began at the Newark
assembly plant in the fall of 1997. The provision reflects the recognition of
supplemental unemployment benefits, job security benefits and other related
employee costs, and the write-down of certain equipment and tooling. The
provision is included in "Costs, other than items below" in Chrysler's
consolidated statement of earnings for 1995.
Chrysler's effective tax rates for the nine months ended September 30,
1998 and in 1997, 1996 and 1995 were 37.1 percent, 38.4 percent, 38.9 percent
and 38.5 percent, respectively.
Liquidity and Capital Resources
Chrysler's consolidated combined cash, cash equivalents and marketable
securities totaled $10.6 billion at September 30, 1998 (including $1.1
billion held by the Company), compared to $7.8 billion at December 31, 1997
(including $0.8 billion held by the Company), $7.8 billion at December 31,
1996 (including $0.8 billion held by the Company and DTAG), and $8.1 billion
at December 31, 1995 (including $1.2 billion held by the Company and DTAG).
The increase in Chrysler's combined cash, cash
13
equivalents and marketable securities in the first nine months of 1998 was
primarily the result of cash provided by a net increase in total debt at
the Company and cash generated by operating activities, partially offset by
capital expenditures, net finance receivables acquired and dividend payments.
Chrysler's long-term profitability will depend significantly on its
ability to continue its capital expenditure and vehicle development programs
and to market its vehicles successfully in an increasingly competitive
environment. Chrysler's expenditures for new product development and the
acquisition of productive assets were approximately $19 billion for the
three-year period ended December 31, 1997. Expenditures for these items
during the succeeding three-year period are expected to be at similar or
higher levels. At December 31, 1997, Chrysler had commitments for capital
expenditures, including commitments for assets currently under construction,
totaling approximately $1.3 billion.
At September 30, 1998, Chrysler (excluding the Company) had debt
maturities totaling $129 million through 2000. At September 30, 1998,
Chrysler had a $2.6 billion revolving credit agreement which expires in April
2002. There were no amounts outstanding under this revolving credit agreement
at September 30, 1998. Chrysler believes that cash from operations and its
cash position will be sufficient to meet the capital expenditure, debt
maturity and other funding requirements.
In February 1997, Chrysler sold $500 million of 7.45% Debentures due
2097 and $600 million of 7.45% Debentures due 2027 for net proceeds of $485
million and $592 million, respectively. In July 1997, Chrysler sold $500
million of 7.40% Debentures due 2097 for net proceeds of $495 million.
In August 1997, Chrysler extinguished its $267 million 10.95%
Debentures due 2017 and $245 million 10.40% Notes due 1999 for $529 million.
In December 1997, Chrysler prepaid certain 1998 nonpension employee
benefits by contributing $1.1 billion to a Voluntary Employees' Beneficiary
Association trust and other employee benefit plans.
Chrysler's ability to market its products successfully depends
significantly on the availability of vehicle financing for its dealers and,
to a lesser extent, the availability of financing for retail and fleet
customers, both of which are provided by the Company.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges of the Company Consolidated and
Chrysler Consolidated for the nine-month periods ended September 30, 1998 and
1997, and for each of the last five years were as follows:
Nine Months Ended
September 30, Years Ended December 31,
----------------- -------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
The Company Consolidated ............ 1.70X 1.75X 1.77X 1.72X 1.56X 1.41X 1.33X
Chrysler Consolidated ............... 4.63X 4.12X 4.25X 5.51X 3.45X 5.52X 3.62X
The Company Consolidated. The ratios of earnings to fixed charges is
computed by dividing earnings available for fixed charges by total fixed
charges. Fixed charges consist of interest, amortization of debt discount and
expense, and rentals. Rentals included in fixed charges are the portion of
total rent expense representative of the interest factor (deemed to be
one-third).
Chrysler Consolidated. The ratio of earnings to fixed changes is computed
by dividing earnings available for fixed charges by total fixed charges.
14
USE OF PROCEEDS
Unless otherwise provided in the applicable Prospectus Supplement, the
net proceeds to be received by the Company from the sale of the Debt
Securities and Warrants and the exercise of Warrants will be added to its
general corporate funds and may be used to repay long-term or short-term
borrowings and for other general corporate purposes. If the Company elects at
the time of the issuance of Debt Securities or Warrants to make different or
more specific use of proceeds other than as set forth herein, such use will
be described in the Prospectus Supplement.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities set forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be
described in the Prospectus Supplement relating to such Debt Securities.
The Debt Securities are to be issued under an Indenture dated as of
February 15, 1988, as amended (the "Indenture"), between the Company and
Manufacturers Hanover Trust Company, which has been succeeded by United
States Trust Company of New York as successor Trustee (the "Trustee"). The
Indenture is incorporated by reference as an exhibit to the Registration
Statement. The following summary of certain provisions of the Indenture does
not purport to be complete and is qualified in its entirety by reference to
the provisions of the Indenture. Numerical references in parentheses below
are to sections of the Indenture. Wherever particular sections or defined
terms of the Indenture are referred to, it is intended that such sections or
defined terms shall be incorporated herein by reference.
General
Debt Securities and Warrants offered by this Prospectus will be limited
to an aggregate initial public offering price of approximately $7,951,950,600
or the equivalent thereof in one or more foreign currencies or composite
currencies. The Indenture provides that Debt Securities in an unlimited
amount may be issued thereunder from time to time in one or more series.
(Section 301)
The Securities will rank pari passu in right of payment with all
existing and future unsecured and unsubordinated indebtedness of the Company.
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Debt Securities offered thereby for the terms of such
Debt Securities, including, where applicable: (i) the designation, aggregate
principal amount, currency or currencies and denominations of such Debt
Securities; (ii) the price (expressed as a percentage of the aggregate
principal amount thereof) at which such Debt Securities will be issued; (iii)
the date or dates on which such Debt Securities will mature; (iv) the
currency or currencies in which such Debt Securities are being sold and in
which the principal of and any interest on such Debt Securities will be
payable, whether the holder of any such Debt Securities may elect the
currency in which payments thereon are to be made and, if so, the manner of
such election; (v) the rate or rates (which may be fixed or variable) per
annum at which such Debt Securities will bear interest; (vi) the date from
which such interest on such Debt Securities will accrue, the dates on which
such interest will be payable and the date on which payment of such interest
will commence; (vii) the dates on which and the price or prices at which such
Debt Securities will, pursuant to any mandatory sinking fund provision, or
may, pursuant to any optional redemption or required repayment provisions, be
redeemed or repaid and the other terms and provisions of any such optional
redemption or required repayment; (viii) whether such Debt Securities are to
be issuable as Registered Securities, Bearer Securities or both and the terms
upon which any Bearer Securities of such series may be exchanged for
Registered Securities of such series; (ix) whether such Debt Securities are
to be issued in whole or in part in the form of one or more Global Securities
and, if so, the identity of the Depositary for such Global Security or
Securities; (x) any special provisions for the payment of additional amounts
with respect to
15
such Debt Securities; (xi) if a temporary Global Security is to be issued
with respect to such series, whether any interest thereon payable on an
interest payment date prior to the issuance of a permanent Global Security or
definitive Bearer Securities will be credited to the account of the persons
entitled thereto on such interest payment date; (xii) if a temporary Global
Security is to be issued with respect to such series, the terms upon which
interests in such temporary Global Security may be exchanged for interests in
a permanent Global Security or for definitive Debt Securities of the series
and the terms upon which interests in a permanent Global Security, if any,
may be exchanged for definitive Debt Securities of the series; (xiii) any
additional restrictive covenants included for the benefit of holders of such
Debt Securities; (xiv) additional Events of Default provided with respect to
such Debt Securities; and (xv) the terms of any Warrants offered together
with such Debt Securities.
The Debt Securities may be issuable as Registered Securities, Bearer
Securities or both. Debt Securities of a series may be issuable in whole or
in part in the form of one or more Global Securities, as described below
under "Global Securities." Unless the Prospectus Supplement relating thereto
specifies otherwise, Registered Securities denominated in U.S. dollars will
be issued only in denominations of $1,000 or any integral multiple thereof
and Bearer Securities denominated in U.S. dollars will be issued only in the
denomination of $5,000. See, however, "Limitations on Issuance of Bearer
Securities and Bearer Warrants" below. One or more Global Securities may be
issued in a denomination or aggregate denominations equal to the aggregate
principal amount of Outstanding Debt Securities of the series to be
represented by such Global Security or Securities. The Prospectus Supplement
relating to a series of Debt Securities denominated in a foreign or composite
currency will specify the denomination thereof. No service charge will be
made for any transfer or exchange of Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. (Sections 302 and 305)
At the option of the Holder upon request confirmed in writing, and
subject to the terms of the applicable Indenture, Bearer Securities (with all
unmatured coupons, except as provided below) of any series will be
exchangeable into an equal aggregate principal amount of Registered
Securities (if the Debt Securities of such series are issuable as Registered
Securities) or Bearer Securities of the same series (with the same interest
rate and maturity date), but no Bearer Security will be delivered in or to
the United States, and Registered Securities of any series (other than a
Global Security, except as set forth below) will be exchangeable into an
equal aggregate principal amount of Registered Securities of the same series
(with the same interest rate and maturity date) of different authorized
denominations. If a Holder surrenders Bearer Securities in exchange for
Registered Securities between a Regular Record Date or, in certain
circumstances, a Special Record Date, and the relevant interest payment date,
such Holder will not be required to surrender the coupon relating to such
interest payment date. Registered Securities may not be exchanged for Bearer
Securities. (Section 305)
Debt Securities may be presented for exchange, and Registered
Securities (other than a Global Security) may be presented for transfer (with
the form of transfer endorsed thereon duly executed), at the office of any
transfer agent or at the office of the Security Registrar, without service
charge and upon payment of any taxes and other governmental charges as
described in the applicable Indenture. (Section 305) Bearer Securities will
be transferable by delivery.
Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a discount below their stated
principal amount. Federal income tax consequences and other special
considerations applicable to any such Original Issue Discount Securities will
be described in the Prospectus Supplement relating thereto. "Original Issue
Discount Securities" means any Debt Securities that provide for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof upon the occurrence of an
Event of Default and the continuation thereof. (Section 101)
Global Securities
The Debt 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 in either
registered or bearer form and in either temporary or permanent form. Unless
and until it is exchanged in whole or in
16
part for Debt Securities in definitive form, 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 such Depositary or any
such nominee to a successor of such Depositary or a nominee of such
successor. (Sections 303 and 305)
The specific terms of the depositary arrangement with respect to any
Debt Securities of a series will be described in the Prospectus Supplement
relating to such series. The Company anticipates that the following
provisions will apply to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such
Global Security to the accounts of institutions that have accounts with such
Depositary ("participants"). The accounts to be credited shall be designated
by the underwriters of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Global Security will be limited to 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 participants
or persons that hold through participants. The laws of some states 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
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 Debt Securities
represented by such Global Security for all purposes under the Indenture
governing such Debt Securities. Except as set forth below, owners of
beneficial interests in a Global Security will not be entitled to have Debt
Securities of the series represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Debt Securities of such series in definitive form and will not be considered
the owners or holders thereof under the Indenture.
Subject to the restrictions discussed under "Limitations on Issuance of
Bearer Securities and Bearer Warrants" below, principal, premium, if any, and
interest payments on Debt Securities registered in the name of or held by a
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner or the holder of the Global Security
representing such Debt Securities. None of the Company, the Trustee for such
Debt Securities, any Paying Agent or the Security Registrar for such Debt
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Security for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for Debt Securities of a
series, upon receipt of any payment of principal, premium or interest in
respect of a permanent Global Security, will credit immediately 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. 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," and will be the
responsibility of such participants. Receipt by owners of beneficial
interests in a temporary Global Security of payments in respect of such
temporary Global Security will be subject to the restrictions discussed under
"Limitations on Issuance of Bearer Securities and Bearer Warrants" below.
If a Depositary for Debt Securities of a series is at any time
unwilling or unable to continue as depositary and a successor depositary is
not appointed by the Company within ninety days, the Company will issue Debt
Securities of such series in definitive form in exchange for all of the
Global Securities representing the Debt Securities of such series. In
addition, the Company may at any time and in its sole
17
discretion determine not to have any Debt Securities of a series represented
by one or more Global Securities and, in such event, will issue Debt
Securities of such series in definitive form in exchange for all of the
Global Securities representing such Debt Securities. Further, if the Company
so specifies with respect to the Debt Securities of a series, an owner of a
beneficial interest in a Global Security representing Debt Securities of such
series may, on terms acceptable to the Company and the Depositary for such
Global Security, receive Debt Securities of such series in definitive form.
In any such instance, an owner of a beneficial interest in a Global Security
will be entitled to physical delivery in definitive form of Debt Securities
of the series represented by such Global Security equal in principal amount
to such beneficial interest and to have such Debt Securities registered in
its name (if the Debt Securities of such series are issuable as Registered
Securities). Debt 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 thereof if the
Debt Securities of such series are issuable as Registered Securities, (b) as
Bearer Securities in the denomination, unless otherwise specified by the
Company, of $5,000 if the Debt Securities of such series are issuable as
Bearer Securities or (c) as either Registered or Bearer Securities, if the
Debt Securities of such series are issuable in either form. (Section 305)
See, however, "Limitations on Issuance of Bearer Securities and Bearer
Warrants" below for a description of certain restrictions on the issuance of
a Bearer Security in definitive form in exchange for an interest in a Global
Security.
Payment and Paying Agents
Payment of principal of and premium, if any, and interest on Bearer
Securities will be payable in the currency designated in the Prospectus
Supplement, subject to any applicable laws and regulations, at such paying
agencies outside the United States as the Company may appoint from time to
time. Any such payment may be made by a check in the designated currency. No
payment with respect to any Bearer Securities will be made at the Corporate
Trust Office of the Trustee or any other paying agency maintained by the
Company in the United States nor will any such payment be made by transfer to
an account, or by mail to an address, in the United States. Notwithstanding
the foregoing, payments of principal of and premium, if any, and interest on
Bearer Securities will be made in U.S. dollars at the Corporate Trust Office
of the Trustee in The City of New York if payment of the full amount thereof
at all paying agencies outside the United States is illegal or effectively
precluded by exchange controls or other similar restrictions. (Section 1002)
Payment of principal of and premium, if any, on Registered Securities
will be made in the designated currency against surrender of such Registered
Securities at the Corporate Trust Office of the Paying Agent in The City of
New York. Unless otherwise indicated in the Prospectus Supplement, payment of
any installment of interest on Registered Securities will be made to the
person in whose name such Debt Security is registered at the close of
business on the regular record date for such interest. Unless otherwise
indicated in the Prospectus Supplement, payments of such interest will be
made at the Corporate Trust Office of the Paying Agent in The City of New
York, or by a check in the designated currency mailed to each Holder at such
Holder's registered address. (Sections 307 and 1001)
The paying agents outside the United States initially appointed by the
Company for a series of Debt Securities will be named in the Prospectus
Supplement. The Company may terminate the appointment of any of the paying
agents from time to time, except that the Company will maintain at least one
paying agent in The City of New York for payments with respect to Registered
Securities and at least one paying agent in a city in Europe so long as any
Bearer Securities are outstanding where Bearer Securities may be presented
for payment and may be surrendered for exchange, provided that so long as any
series of Debt Securities is listed on The International Stock Exchange of
the United Kingdom and the Republic of Ireland or the Luxembourg Stock
Exchange or any other stock exchange located outside the United States and
such stock exchange shall so require, the Company will maintain a paying
agent in London or Luxembourg or any other required city located outside the
United States, as the case may be, for such series of Debt Securities.
(Section 1002)
All moneys paid by the Company to a paying agent for the payment of
principal of or premium, if any, or interest on any Debt Security that
remains unclaimed at the end of two years after such
18
principal, premium or interest shall have become due and payable may be
repaid to the Company and the Holder of such Debt Security or any coupon
appertaining thereto will thereafter look only to the Company for payment
thereof. (Section 1003)
Covenants
The Indenture imposes the following restrictive covenants on the
Company.
Limitation on Liens. The Company will not subject its assets or assets
of a Restricted Subsidiary to liens without securing the Debt Securities
equally and ratably with other indebtedness for borrowed money so secured
except for (1) liens securing exports to or marketing of goods in foreign
countries other than Canada, (2) liens on receivables payable in foreign
currencies to secure borrowings in foreign countries other than Canada, (3)
deposits in connection with public obligations or legal proceedings, (4)
liens securing intercompany indebtedness, (5) purchase money mortgages on
fixed assets hereafter acquired by the Company or any of its Restricted
Subsidiaries for use in the Finance Business or the Finance-Related Insurance
Business, liens on such property at the time of its acquisition or liens on
fixed assets used in the Finance Business or the Finance-Related Insurance
Business existing when a company becomes a Subsidiary, and (6) renewals of
the foregoing. (Section 1004) The term "Restricted Subsidiary" means any
Subsidiary of the Company engaged in the Finance Business or in the
Finance-Related Insurance Business other than Subsidiaries that are organized
or conduct a major portion of their business outside the United States,
Puerto Rico or Canada. The term "Subsidiary" means a corporation a majority
of the outstanding voting stock of which is owned, directly or indirectly, by
the Company. (Section 101)
Limitation on Dividends. Cash dividends on or acquisitions for value of
capital stock of the Company subsequent to December 31, 1984 are limited to
the sum of (i) consolidated net income of the Company and its consolidated
Subsidiaries calculated in accordance with generally accepted accounting
principles and (ii) net proceeds from cash sales of or cash contributions to
capital stock, subsequent to December 31, 1984. Substantially concurrent
acquisitions of capital stock out of the net proceeds of sales of capital
stock are excluded. (Section 1005)
Restricted Subsidiary Stock and Debt. The Company will not, and will
not permit any Subsidiary to, sell or otherwise dispose of any shares of
stock or indebtedness for borrowed money of any Restricted Subsidiary except
to the Company or to a Restricted Subsidiary unless simultaneously therewith
all shares of stock and such indebtedness of such Restricted Subsidiary at
the time owned by the Company and all Subsidiaries are sold or transferred.
The Company will not permit any Restricted Subsidiary to issue, sell or
dispose of, except to the Company or to a Restricted Subsidiary, (i) any
preferred stock, except to any holders of the stock of such Restricted
Subsidiary in the exercise of a pre-emptive right to subscribe to such
preferred stock, or (ii) any other class of stock except on the condition
that the proportionate amount of shares of stock of such class and of the
total number of shares of stock of such Restricted Subsidiary held by persons
other than the Company and its Restricted Subsidiaries shall not be increased
and except for directors' qualifying shares. (Sections 1007 and 1008)
Modification of the Indenture
The Indenture permits the Company and the Trustee, with the consent of
the holders of not less than 66-2/3% in principal amount of the Debt
Securities at the time outstanding thereunder and affected thereby, to
execute a supplemental indenture modifying the Indenture or the rights of the
holders of such Debt Securities and any related coupons, provided that no
such modification shall, without the consent of the holder of each Debt
Security affected thereby, (i) change the maturity of any Debt Security or
coupon, or reduce the principal amount thereof, or reduce the rate or change
the time of payment of interest thereon, or change any Place of Payment or
change the coin or currency in which a Debt Security or coupon is payable or
affect the right of any holder to institute suit for the enforcement of
payment in accordance with the foregoing, or (ii) reduce the aforesaid
percentage of Debt Securities, the consent of the holders of which is
required for any such modification. (Section 902)
19
The Indenture contains provisions for convening meetings of the Holders
of Debt Securities of a series if Debt Securities of that series are issuable
in whole or in part as Bearer Securities. (Section 1401) A meeting may be
called at any time by the Trustee, or upon the request of the Company or the
Holders of at least 10% in principal amount of the outstanding Debt
Securities of such series, in any such case upon notice given in accordance
with the Indenture. (Section 1402) The quorum at any meeting called to adopt
a resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt
Securities of a series; provided, however, that if any action is to be taken
at such meeting with respect to a consent or waiver which may be given by the
Holders of not less than 66-2/3% in principal amount of the outstanding Debt
Securities of a series, the persons holding or representing 66-2/3% in
principal amount of the outstanding Debt Securities of such series will
constitute a quorum. (Section 1404) Except as limited by the proviso in the
preceding paragraph, any resolution presented at a meeting or adjourned
meeting at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the outstanding Debt
Securities of that series; provided, however, that, except as limited by the
proviso in the preceding paragraph, any resolution with respect to any
consent or waiver that may be given by the Holders of not less than 66-2/3%
in principal amount of the outstanding Debt Securities of a series may be
adopted at a meeting or an adjourned meeting at which a quorum is present
only by the affirmative vote of 66-2/3% in principal amount of the
outstanding Debt Securities of that series; and provided further that, except
as limited by the proviso in the preceding paragraph, any resolution with
respect to any demand, consent, waiver or other action that may be made,
given or taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of outstanding Debt Securities of a series may
be adopted at a meeting or adjourned meeting at which a quorum is present by
the affirmative vote of the Holders of such specified percentage in principal
amount of the outstanding Debt Securities of that series.
Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the Indenture will
be binding on all Holders of Debt Securities of that series and the related
coupons.
Events of Default
The Indenture provides that the following shall constitute Events of
Default with respect to any series of Debt Securities thereunder: (i)
default in payment of principal of or premium, if any, on any Debt Security
of such series when due; (ii) default for 30 days in payment of interest on
any Debt Security of such series when due; (iii) default in the deposit of
any sinking fund payment on any Debt Security of such series when due; (iv)
default in performance of any other covenant in such Indenture, continued for
30 days after written notice thereof by the Trustee thereunder or the holders
of 25% in principal amount of the Debt Securities of such series at the time
outstanding; (v) default resulting in acceleration of maturity of any other
indebtedness of the Company or any Restricted Subsidiary provided that such
acceleration has not been rescinded or annulled within 10 days of written
notice; and (vi) certain events of bankruptcy, insolvency or reorganization.
(Section 501) The Company is required to file with each Trustee annually an
Officers' Certificate as to the absence of certain defaults under the terms
of the Indenture. (Section 1010)
The Indenture provides that if an Event of Default specified therein
shall occur and be continuing, either the Trustee or the holders of 25% in
principal amount of the Debt Securities of such series then outstanding may
declare the principal of all such Debt Securities (or in the case of Original
Issue Discount Securities, such portion of the principal amount thereof as
may be specified in the terms thereof) to be due and payable. (Section 502)
In certain cases, the holders of a majority in principal amount of the
outstanding Debt Securities of any series may on behalf of the holders of all
such Debt Securities and any related coupons waive any past default or event
of default except a default not theretofore cured in payment of the principal
of or premium, if any, or interest on any of the Debt Securities of such
series and any related coupons. (Sections 502 and 513)
The Indenture contains a provision entitling the Trustee, subject to
the duty of such Trustee during default to act with the required standard of
care, to be indemnified by the holders of the Debt Securities of any series
or any related coupons before proceeding to exercise any right or power under
the
20
Indenture with respect to such series at the request of such holders.
(Section 603) The Indenture provides that no holder of any Debt Securities of
any series or any related coupons may institute any proceeding, judicial or
otherwise, to enforce the Indenture except in the case of failure of the
Trustee, for 60 days, to act after it is given notice of default, a request
to enforce the Indenture by the holders of not less than 25% in aggregate
principal amount of the then outstanding Debt Securities of such series and
an offer of reasonable indemnity to such Trustee. (Section 507) This
provision will not prevent any holder of Debt Securities or any related
coupons from enforcing payment of the principal thereof and premium, if any,
and interest thereon at the respective due dates thereof. (Section 508) The
holders of a majority in aggregate principal amount of the Debt Securities of
any series then outstanding may direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee or
exercising any trust or power conferred on it with respect to the Debt
Securities of such series. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture or which would be unjustly
prejudicial to holders not joining therein. (Section 512)
The Indenture provides that the Trustee thereunder will, within 90 days
after the occurrence of a default with respect to any series of Debt
Securities thereunder known to it, give to the holders of the Debt Securities
of such series notice of such default if not cured or waived; but, except in
the case of a default in the payment of principal of (or premium, if any), or
interest on, any Debt Securities, the Trustee shall be protected in
withholding such notice if it determines in good faith that the withholding
of such notice is in the interests of the holders of such Debt Securities.
(Section 602)
Defeasance
The Company may terminate certain of its obligations under the
Indenture with respect to Debt Securities of any series, including its
obligations to comply with the covenants described under the heading
"Restrictive Covenants" above, with respect to the Debt Securities of such
series, on the terms and subject to the conditions contained in the
Indenture, by depositing in trust with the Trustee money or Government
Obligations sufficient to pay the principal of and interest on the Debt
Securities of such series to maturity. Such deposit and termination is
conditioned upon the Company's delivery of (a) an opinion of nationally
recognized independent counsel that the holders of the Debt Securities of
such series will have no federal income tax consequences as a result of such
deposit and termination, (b) an officer's certificate and (c) if the Debt
Securities of such series are then listed on the New York Stock Exchange, an
opinion of counsel that the Debt Securities of such series will not be
delisted as a result of the exercise of this option. Such termination will
not relieve the Company of its obligation to pay when due the principal of or
interest on the Debt Securities of such series if the Debt Securities of such
series are not paid from the money or Government Obligations held by the
Trustee for the payment thereof. (Section 1301)
Concerning the Trustee
The Trustee is also trustee under indentures dated as of June 15, 1984
and September 15, 1986 between it and the Company.
DESCRIPTION OF WARRANTS
The following description of the terms of the Warrants sets forth
certain general terms and provisions of the Warrants to which any Prospectus
Supplement may relate. The particular terms of the Warrants offered by any
Prospectus Supplement and the extent, if any, to which such general
provisions may apply to the Warrants so offered will be described in the
Prospectus Supplement relating to such Warrants.
Warrants may be offered independently or together with any series of
Debt Securities offered by a Prospectus Supplement and may be attached to or
separate from such Debt Securities. Each series of Warrants will be issued
under a separate warrant agreement ("Warrant Agreement") to be entered into
between the Company and a bank or trust company, as Warrant Agent (the
"Warrant Agent"), all as set
21
forth in the Prospectus Supplement relating to such series of Warrants. The
Warrant Agent will act solely as the agent of the Company in connection with
the certificates for the Warrants (the "Warrant Certificates") of such series
and will not assume any obligation or relationship of agency or trust for or
with any holders of Warrant Certificates or beneficial owners of Warrants.
Copies of the forms of Warrant Agreements, including the forms of Warrant
Certificates, are filed as an exhibit to the Registration Statement to which
this Prospectus pertains. The following summaries of certain provisions of
the forms of Warrant Agreements and Warrant Certificates do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Warrant Agreements and the Warrant
Certificates. Numerical references in parentheses below are to sections of
the Warrant Agreements. Wherever particular sections or defined terms of the
Warrant Agreement are referred to, it is intended that such sections or
defined items shall be incorporated herein by reference.
General
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Warrants, if any, offered thereby for the terms of such
Warrants, including, where applicable: (i) the offering price; (ii) the
currency or currencies in which such Warrants are being offered; (iii) the
designation, aggregate principal amount, currency or currencies,
denominations and terms of the series of Debt Securities purchasable upon
exercise of such Warrants; (iv) the designation and terms of the series of
Debt Securities with which such Warrants are being offered and the number of
such Warrants being offered with each such Debt Security; (v) the date on and
after which such Warrants and the related series of Debt Securities will be
transferable separately; (vi) the principal amount of the series of Debt
Securities purchasable upon exercise of each such Warrant and the price at
which and currency or currencies in which such principal amount of Debt
Securities of such series may be purchased upon such exercise; (vii) the date
on which the right to exercise such Warrants shall commence and the date (the
"Expiration Date") on which such right shall expire; (viii) whether such
Warrants are to be issuable as Bearer Warrants and the terms upon which any
Bearer Warrants of such series may be exchanged for Registered Warrants of
such series; (ix) federal income tax consequences; and (x) any other terms of
such Warrants.
Warrant Certificates of each series will be issuable as Registered
Warrants and may be issuable as Bearer Warrants. At the option of the holder
upon request confirmed in writing, and subject to the terms of the relevant
Warrant Agreement, Bearer Warrants of any series will be exchangeable into
Registered Warrants or Bearer Warrants of the same series representing in the
aggregate the number of Warrants surrendered for exchange, and Registered
Warrants of any series will be exchangeable into Registered Warrants of the
same series representing in the aggregate the number of Warrants surrendered
for exchange. Warrant Certificates may be presented for exchange, and
Registered Warrants may be presented for transfer (with the form of transfer
endorsed thereon duly executed), at the corporate trust office of the Warrant
Agent for such series of Warrants (or any other office indicated in the
Prospectus Supplement relating to such series of Warrants) without service
charge and upon payment of any taxes and other governmental charges as
described in the relevant Warrant Agreement. Such transfer or exchange will
be effected when the Warrant Agent for such series of Warrants is satisfied
with the documents of title and identity of the person making the request.
Bearer Warrants will be transferable by delivery. (Section 4.01) Prior to the
exercise of their Warrants, holders of Warrants will not have any of the
rights of holders of the series of Debt Securities purchasable upon such
exercise, including the right to receive payments of principal of, premium,
if any, or interest, if any, on the series of Debt Securities purchasable
upon such exercise, or to enforce any of the covenants in the Indenture.
(Section 3.01)
Exercise of Warrants
Each Warrant will entitle the holder thereof to purchase such principal
amount of the related series of Debt Securities at such exercise price as
shall in each case be set forth in, or calculable as set forth in, the
Prospectus Supplement relating to such Warrant. Warrants of a series may be
exercised at the corporate trust office of the Warrant Agent for such series
of Warrants (or any other office indicated in
22
the Prospectus Supplement relating to such series of Warrants) at any time
prior to 5:00 P.M., New York City time, on the Expiration Date set forth in
the Prospectus Supplement relating to such series of Warrants. After the
close of business on the Expiration Date relating to such series of Warrants
(or such later date to which such Expiration Date may be extended by the
Company), unexercised Warrants of such series will become void. (Sections
2.02 and 2.03)
Warrants of a series may be exercised by delivery to the appropriate
Warrant Agent of payment, as provided in the Prospectus Supplement relating
to such series of Warrants, of the amount required to purchase the principal
amount of the series of Debt Securities purchasable upon such exercise,
together with certain information as set forth on the reverse side of the
Warrant Certificate evidencing such Warrants and, in the case of Bearer
Warrants, compliance with the procedures specified in the applicable
Prospectus Supplement. Such Warrants will be deemed to have been exercised
upon receipt of the exercise price, subject to the receipt within five
business days of such Warrant Certificate. Upon receipt of such payment and
such Warrant Certificate, properly completed and duly executed, at the
corporate trust office of the appropriate Warrant Agent (or any other office
indicated in the Prospectus Supplement relating to such series of Warrants),
the Company will, as soon as practicable, issue and deliver the principal
amount of the series of Debt Securities purchasable upon such exercise.
Registered Securities will be issued and delivered upon exercise of
Registered Warrants. At the option of the holder of any Bearer Warrants,
Registered Securities or Bearer Securities will be issued and delivered upon
exercise of such Bearer Warrants. If fewer than all of the Warrants
represented by a Registered Warrant are exercised, a new Registered Warrant
will be issued and delivered for the remaining amount of Warrants. If fewer
than all the Warrants represented by a Bearer Warrant are exercised, at the
option of the holder thereof, a new Registered Warrant or Bearer Warrant will
be issued and delivered for the remaining amount of Warrants. (Section 2.03)
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES AND BEARER WARRANTS
In compliance with United States federal tax laws and regulations
regarding the distribution of debt securities in bearer form, Bearer
Securities and Bearer Warrants may not, in connection with their original
issuance, be offered, sold, resold or delivered in the United States or to
United States persons (each as defined below) except as otherwise permitted
by Treasury Regulation Section 1.163-5(c)(2)(i)(D). Exceptions include offers
and sales to offices located outside the United States of certain United
States financial institutions that agree in writing to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations thereunder. Any
underwriters, agents and dealers participating in the offering of Bearer
Securities or Bearer Warrants will agree in writing that they will not offer,
sell or resell any Bearer Securities or Bearer Warrants to persons within the
United States or to United States persons (except as described above) nor
deliver Bearer Securities or Bearer Warrants within the United States. In
addition, any such underwriters, agents and dealers will agree to send
confirmations to each purchaser of a Bearer Security or Bearer Warrant
confirming that such purchaser represents that it is not a United States
person or is a financial institution described above and, if such person is a
dealer, that it will send similar confirmations to purchasers from it. Bearer
Securities and any coupons attached thereto will bear a legend substantially
to the following effect: "Any United States person who holds this obligation
will be subject to limitations under the United States income tax laws,
including the limitations provided in Sections 165(j) and 1287(a) of the
United States Internal Revenue Code."
Generally, for United States federal income tax purposes, any United
States person who holds a Bearer Security will not be allowed to deduct any
loss sustained on the sale, exchange, redemption or other disposition of such
Bearer Security and will be taxed at ordinary income rates on any gain (which
might otherwise be characterized as capital gain) recognized on such sale,
exchange, redemption or disposition.
As used herein, "United States" mean the United States of America
(including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction, and "United
States person" means an individual who is a citizen or resident of the United
States, a
23
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or any estate
the income of which is subject to United States federal income taxation
regardless of its source, or a trust if a court within the United States is
able to exercise primary supervision of the administration of the trust and
one or more United States persons have the authority to control all
substantial decisions of the trust.
Pending the availability of a permanent Global Security or definitive
Bearer Securities, as the case may be, Debt Securities that are issuable as
Bearer Securities may initially be represented by a single temporary Global
Security, with or without interest coupons, each to be deposited with a
depositary in London for Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System ("Euroclear") and Cedel Bank,
soci|fet|fe anonyme ("Cedel") for credit to the designated accounts against
certifications to the effect described below. Following the availability of a
permanent Global Security or definitive forms of Bearer Securities and
subject to any further limitations described in the applicable Prospectus
Supplement, the temporary Global Security will be exchangeable for a
permanent Global Security or for definitive Bearer Securities, respectively,
only upon certification that an interest in such permanent Global Security or
such definitive Bearer Securities is not being acquired by or on behalf of a
United States person or, if a beneficial interest in such a Bearer Security
is being acquired by or on behalf of a United States person, that such United
States person is a financial institution described above; provided, however,
that no definitive Bearer Security will be issued if the Company has reason
to know that such certificate is false. No definitive Bearer Security will be
delivered in or to the United States. If so specified in the applicable
Prospectus Supplement, interest in respect of any portion of the temporary
Global Security payable in respect of an Interest Payment Date prior to the
issuance of a permanent Global Security or definitive Bearer Securities of
any series will be paid to each of Euroclear and Cedel with respect to the
portion of the temporary Global Security held for its account. Each of
Euroclear and Cedel will undertake in such circumstances to credit such
interest received by it in respect of the temporary Global Security to the
respective accounts for which it holds the temporary Global Security only
upon receipt in each case of (i) certification that as of the relevant
interest payment date the portion of the temporary Global Security on which
such interest is to be so credited is not beneficially owned by a United
States person or any person who has purchased its interest in the temporary
Global Security for resale to any United States person or (ii) if a
beneficial interest in the portion of the temporary Global Security on which
such interest is to be so credited is beneficially owned by a United States
person or any person who has purchased its interest in the temporary Global
Security for resale to any United States person, certification that such
United States person is a financial institution described above.
Bearer Warrants will be issued only on receipt of a certification that
the Bearer Warrant in question is not being acquired by or on behalf of a
United States person or, if a beneficial interest in such Bearer Warrant is
being acquired by or on behalf of a United States person, that such United
States person is a financial institution described above.
PLAN OF DISTRIBUTION
The Company may offer and sell Debt Securities and Warrants, separately
or together, to or through underwriters, acting as principals for their own
accounts and/or as agents, and also may offer and sell Debt Securities and
Warrants, separately or together, directly to dealers or other purchasers.
Any such Debt Securities and Warrants may be offered and sold upon their
original issuance or, if so indicated in the Prospectus Supplement, in
connection with a remarketing upon their purchase by or on behalf of the
Company, whether in accordance with a redemption or repayment pursuant to
their terms, in the open market or otherwise. Any underwriter and/or agent
will be identified and the terms of its agreement with the Company and its
compensation will be described in the Prospectus Supplement. Only
underwriters named in the Prospectus Supplement are deemed to be underwriters
in connection with the Debt Securities or Warrants offered thereby.
Debt Securities and Warrants, separately or together, also may be
offered and sold, if so indicated in the Prospectus Supplement, in connection
with a remarketing upon their purchase, in accordance with
24
a redemption or repayment pursuant to their terms, by one or more firms
("remarketing firms") acting as principals for their own accounts or as
agents for the Company. Any remarketing firm will be identified and the terms
of its agreement, if any, with the Company and its compensation will be
described in the Prospectus Supplement. Remarketing firms may be deemed to be
underwriters in connection with the Debt Securities and Warrants remarketed
thereby.
The distribution of the Debt Securities and Warrants may be effected
from time to time in one or more transactions at a fixed price or prices,
which may be changed, or at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities and Warrants, dealers
may receive compensation from the Company or from purchasers of Debt
Securities or Warrants for whom they may act as agents, in the form of
discounts, concessions or commissions. The dealers that participate in the
distribution of Debt Securities or Warrants may be deemed to be underwriters
and any discounts or commissions received by them and any profit on the
resale of Debt Securities or Warrants by them may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
compensation will be described in the Prospectus Supplement.
Under agreements that may be entered into with the Company,
underwriters, dealers, agents and remarketing firms may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act. Underwriters, dealers, agents and
remarketing firms may be customers of, engage in transactions with, or
perform services for the Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will
authorize dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Debt Securities or Warrants from
the Company pursuant to contracts providing for payment and delivery on a
future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but in all
cases such institutions must be approved by the Company. The obligations of
any purchaser under any such contract will not be subject to any conditions
except that (i) the purchase of the Debt Securities or Warrants shall not at
the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject, and (ii) if the series of Debt Securities or
Warrants being sold to such institutions are also being sold to underwriters,
the Company shall have sold to such underwriters the Debt Securities or
Warrants not sold for delayed delivery. The dealers and such other persons
will not have any responsibility in respect of the validity of performance of
such contracts.
Each underwriter, dealer, agent and remarketing firm participating in
the distribution of any Debt Securities that are issuable as Bearer
Securities will agree that it will not offer, sell or deliver, directly or
indirectly, Bearer Securities in the United States or to United States
persons (other than qualifying financial institutions) in connection with the
original issuance of such Debt Securities.
25
LEGAL MATTERS
The validity of the Debt Securities and Warrants offered hereby will be
passed upon for the Company by Christopher A. Taravella, Esq., Vice President
and General Counsel of the Company, and for any underwriters and agents by
Brown & Wood LLP, New York, New York. Mr. Taravella will rely as to all
matters of New York law on the opinion of Brown & Wood LLP, and Brown & Wood
LLP, will rely as to all matters of Michigan law on the opinion of Mr.
Taravella. Mr. Taravella owns and has options to purchase shares of common
stock of Chrysler. Brown & Wood LLP may from time to time render legal
services to the Company and its affiliates.
EXPERTS
The consolidated financial statements and the related financial
statement schedule of Chrysler Financial Corporation as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31,
1997 incorporated in this prospectus by reference from Chrysler Financial
Corporation's Annual Report on Form 10-K for the year ended December 31,
1997, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
With respect to unaudited interim financial information of Chrysler
Financial Corporation for periods ended September 30, 1998 and 1997 included
in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 which is incorporated herein by reference, Deloitte &
Touche LLP have applied limited procedures in accordance with professional
standards for a review of such information. However, as stated in their
report included in such Quarterly Report on Form 10-Q and incorporated by
reference herein, they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on
their report on such information should be restricted in light of the limited
nature of the review procedures applied. Deloitte & Touche LLP are not
subject to the liability provisions of Section 11 of the Securities Act of
1933 for their reports on unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meanings of Sections 7 and
11 of such Act.
26
================================== =================================
You should rely only on the
information contained in this
document or that we have referred
you to. We have not authorized
anyone to provide you with $5,000,000,000
information that is different.
This document is not an offer to
sell these securities and it is
not soliciting an offer to buy
these securities in any state
where the offer or sale of these [ LOGO ]
securities is not permitted. The
information in this document is Chrysler Financial Company L.L.C.
current as of the date of this
document. The affairs of the
Company or Chrysler may have
changed since such date.
Medium-Term Notes, Series S
---------------------
Table of Contents
Page
----
Prospectus Supplement
Risk Factors ..................... S-2
The Merger; Prior Sales .......... S-3 ---------------------
Description of Notes ............. S-4
Book-Entry System ................ S-16 PROSPECTUS SUPPLEMENT
Certain United States Federal
Income Tax Considerations ...... S-17 ---------------------
Plan of Distribution ............. S-25
Prospectus
Additional Information --
Incorporation by Reference ..... 2
Chrysler Financial Company L.L.C. 3
Risk Factors ..................... 4
Chrysler Financial Company L.L.C.
Selected Consolidated Financial Merrill Lynch & Co.
Data ........................... 4 J.P. Morgan & Co.
Information Concerning Chrysler Salomon Smith Barney
Corporation .................... 10
Ratio of Earnings to Fixed Charges 13
Use of Proceeds .................. 14
Description of Debt Securities ... 14
Description of Warrants .......... 20
Limitations on Issuance of Bearer
Securities and Bearer Warrants . 22
Plan of Distribution ............. 23
Legal Matters .................... 25
Experts .......................... 25 November 6, 1998
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/TEXT>