RULE NO. 424(b)(2)
REGISTRATION NO. 33-52551
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 14, 1994)
$250,000,000
Brown-Forman Corporation
MEDIUM-TERM NOTES
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Due More Than Nine Months From Date of Issue
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Brown-Forman Corporation (the "Company") may offer from time to time its
Medium-Term Notes, which are issuable in one or more series and may be offered
and sold in the United States. The Medium-Term Notes offered by this
Prospectus Supplement are offered in the United States at an aggregate initial
public offering price of up to U.S. $250,000,000, or the equivalent thereof in
other currencies, including composite currencies such as the European Currency
Unit (the "Specified Currency"). See "Important Currency Exchange
Information." Such aggregate offering price is subject to reduction as a
result of the sale by the Company of certain other Debt Securities. See "Plan
of Distribution." The interest rate on each Note will be either a fixed rate
established by the Company at the date of issue of such Note, which may be
zero in the case of certain Original Issue Discount Securities, or a floating
rate as set forth therein and specified in the applicable Pricing Supplement.
A Fixed Rate Note may pay a level amount in respect of both interest and
principal amortized over the life of the Note (an "Amortizing Note").
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note is payable each May 1 and November 1 and at maturity or
upon earlier redemption or repayment. Interest on each Floating Rate Note is
payable on the date set forth herein and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Amortizing
Notes will pay principal and interest semiannually each May 1 and November 1,
or quarterly each May 1, August 1, November 1 and February 1, and at maturity
or upon earlier redemption or repayment. Each Note will mature on any day more
than nine months from the date of issue, as set forth in the applicable
Pricing Supplement. See "Description of Notes." Unless otherwise specified in
the applicable Pricing Supplement, the Notes may not be redeemed by the
Company or the holder prior to maturity and will be issued in fully registered
form in denominations of $1,000 (or, in the case of Notes not denominated in
U.S. dollars, the equivalent thereof in the Specified Currency, rounded to the
nearest 1,000 units of the Specified Currency) or any amount in excess thereof
which is an integral multiple of $1,000 (or, in the case of Notes not
denominated in U.S. dollars, 1,000 units of the Specified Currency). Any terms
relating to Notes being denominated in foreign currencies or composite
currencies will be as set forth in the applicable Pricing Supplement. Each
Note will be represented either by a Global Security registered in the name of
a nominee of The Depository Trust Company, as Depositary (a "Global Note"), or
by a certificate issued in definitive form (a "Definitive Note"), as set forth
in the applicable Pricing Supplement. Interests in Global Securities
representing Global Notes will be shown on, and transfer thereof will be
affected only through records maintained by the Depositary (with respect to
participants' interests) and its participants. Global Notes will not be
issuable as Definitive Notes except under the circumstances described in the
Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT, ANY SUPPLEMENT HERETO OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
------------ -------------------- --------------------------
Per Note.......... 100% .125% --.750% 99.875% --99.250%
Total(4).......... $250,000,000 $312,500--$1,875,000 $249,687,500--$248,125,000
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(1) Unless otherwise specified in the applicable Pricing Supplement, Notes
will be sold at 100% of their principal amount. If the Company issues any
Note at a discount from or at a premium over its principal amount, the
Price to Public of any Note issued at a discount or premium will be set
forth in the applicable Pricing Supplement.
(2) The commission payable to an Agent for each Note sold through such Agent
shall range from .125% to .750% of the principal amount of such Note,
provided, however, that commissions with respect to Notes maturing in
thirty years or greater will be negotiated. The Company may also sell
Notes to an Agent, as principal at negotiated discounts, for resale to
investors and other purchasers.
(3) Before deducting expenses payable by the Company estimated at $244,225.
(4) Or the equivalent thereof in other currencies including composite
currencies.
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Offers to purchase the Notes are being solicited from time to time by Morgan
Stanley & Co. Incorporated, Goldman, Sachs & Co., Lehman Brothers Inc.
(including its affiliate Lehman Special Securities Inc.) and J.P. Morgan
Securities Inc. (individually, an "Agent" and collectively, the "Agents"), on
behalf of the Company. The Agents have agreed to use reasonable efforts to
solicit purchases of such Notes. The Company may also sell Notes to an Agent
acting as principal for its own account or otherwise, to be determined by such
Agent. No termination date for the offering of the Notes has been established.
The Company or an Agent may reject any order in whole or in part. The Notes
will not be listed on any securities exchange, and there can be no assurance
that the Notes offered hereby will be sold or that there will be a secondary
market for the Notes. See "Plan of Distribution."
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MORGAN STANLEY & CO.
Incorporated
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
J.P. MORGAN SECURITIES INC.
March 23, 1994
IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Notes in U.S. dollars, and payments of
principal, premium, if any, and interest on the Notes will also be made in U.S.
dollars, unless the applicable Pricing Supplement provides that purchasers are
instead required to pay for the Notes in a Specified Currency, and/or that
payments of principal, premium, if any, and interest on such Notes will be made
in a Specified Currency. Currently, there are limited facilities in the United
States for the conversion of U.S. dollars into foreign currencies and vice
versa. In addition, most banks do not currently offer non-U.S. dollar
denominated checking or savings account facilities in the United States.
Accordingly, unless otherwise specified in a Pricing Supplement or unless
alternative arrangements are made, payment of principal, premium, if any, and
interest on Notes in a Specified Currency other than U.S. dollars will be made
to an account at a bank outside the United States. See "Description of Notes"
and "Foreign Currency Risks."
If the applicable Pricing Supplement provides for payments of principal of
and interest on a non-U.S. dollar denominated Note to be made in U.S. dollars
or for payments of principal of and interest on a U.S. dollar denominated Note
to be made in a Specified Currency other than U.S. dollars, the conversion of
the Specified Currency into U.S. dollars or U.S. dollars into the Specified
Currency, as the case may be, will be handled by the Exchange Rate Agent
identified in the Pricing Supplement (as defined below). Any Agent may act,
from time to time, as Exchange Rate Agent. The costs of such conversion will be
borne by the holder of a Note through deductions from such payments.
Reference herein to "U.S. dollars" or "U.S. $" or "$" are to the currency of
the United States of America.
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DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth in the
Prospectus, to which reference is hereby made. The particular terms of the
Notes sold pursuant to any pricing supplement (a "Pricing Supplement") will be
described therein. The terms and conditions set forth in "Description of Notes"
will apply to each Note unless otherwise specified in the applicable Pricing
Supplement and in such Note.
If any Note is not to be denominated in U.S. dollars, the applicable Pricing
Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit ("ECU"), in which the principal,
premium, if any, and interest, if any, with respect to such Note are to be
paid, along with any other terms relating to the non-U.S. dollar denomination,
including exchange rates for the Specified Currency as against the U.S. dollar
at selected times during the last five years, and any exchange controls
affecting such Specified Currency. See "Foreign Currency Risks."
GENERAL
The Notes will be issued under the Indenture dated as of March 1, 1994 (the
"Indenture") between the Company and The First National Bank of Chicago, as
trustee (the "Trustee"). The Notes issued under the Indenture will constitute
one or more series under such Indenture. The Notes will rank pari passu with
all other unsecured and unsubordinated indebtedness of the Company. The Notes
may be issued from time to time in an aggregate principal amount of up to
$250,000,000 or the equivalent thereof in one or more foreign or composite
currencies, subject to reduction as a result of the sale by the Company of
other Debt Securities referred to in the accompanying Prospectus. For the
purpose of this Prospectus Supplement, (i) the principal amount of any Original
Issue Discount Security (as defined below) means the Issue Price (as defined
below) of such Security and (ii) the principal amount of any Note issued in a
foreign currency or composite currency means the U.S. dollar equivalent on the
date of issue of the Issue Price of such Security.
S-2
The Notes will mature on any day more than nine months from the date of
issue, as set forth in the applicable Pricing Supplement. Except as may be
provided in the applicable Pricing Supplement, the Notes will be issued only in
fully registered form. Unless otherwise provided in the applicable Pricing
Supplement, Notes will be denominated in Authorized Denominations (as defined
below).
The Notes will be offered on a continuing basis, and each Note will be issued
initially as either a Global Note or a Definitive Note. Except as set forth in
the Prospectus under "Description of Debt Securities--Book-Entry Debt
Securities," Global Notes will not be issuable as Definitive Notes. The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in Global
Securities. See "Book-Entry System" below.
The Notes may be presented for payment of principal and interest, transfer of
the Notes will be registrable and the Notes will be exchangeable at the agency
in The City of New York, maintained by the Company for such purpose; provided
that Global Notes will be exchangeable only in the manner and to the extent set
forth in the Prospectus under "Description of Debt Securities--Book-Entry Debt
Securities." On the date hereof, the agent for the payment, transfer and
exchange of the Notes (the "Paying Agent") is First Chicago Trust Company of
New York, acting through its office at 14 Wall Street, New York, NY 10005.
The applicable Pricing Supplement will specify the price (the "Issue Price")
of each Note to be sold pursuant thereto (unless such Note is to be sold at
100% of its principal amount), the interest rate or interest rate formula,
maturity, currency or composite currency and principal amount and any other
terms on which each Note will be issued.
As used herein, the following terms shall have the meanings set forth below:
"Authorized Denominations" means, unless otherwise provided in the
applicable Pricing Supplement, (i) with respect to Notes denominated in
U.S. dollars, U.S. $1,000 or any amount in excess thereof which is an
integral multiple of U.S. $1,000 and (ii) with respect to Notes denominated
in a Specified Currency, the equivalent of $1,000 (rounded to an integral
multiple of 1,000 units of such Specified Currency), or any amount in
excess thereof which is an integral multiple of 1,000 units of such
Specified Currency, as determined by reference to the noon dollar buying
rate in New York City for cable transfers of such Specified Currency
published by the Federal Reserve Bank of New York (the "Market Exchange
Rate") on the Business Day (as defined below) immediately preceding the
date of issuance; provided, however, that in the case of ECUs, the Market
Exchange Rate shall be the rate of exchange determined by the Commission of
the European Communities (or any successor thereto) as published in the
Official Journal of the European Communities, or any successor publication,
on the Business Day immediately preceding the date of issuance.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close in The City of New
York and (i) with respect to LIBOR Notes (as defined below), is also a
London Banking Day, (ii) with respect to Notes denominated in a Specified
Currency other than U.S. dollars, Australian dollars or ECUs, in the
principal financial center of the country of the Specified Currency, (iii)
with respect to Notes denominated in Australian dollars, in Sydney and (iv)
with respect to Notes denominated in ECUs, that is not a non-ECU clearing
day, as determined by the ECU Banking Association in Paris.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
"London Banking Day" means any day on which dealings in deposits in the
Index Currency are transacted in the London interbank market.
"Original Issue Discount Security" means any Note that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the
Indenture.
S-3
The "Record Date" with respect to any Interest Payment Date, unless
otherwise indicated in the applicable Pricing Supplement, (i) for Fixed
Rate Notes, shall be the April 15 or October 15 directly preceding such
Interest Payment Date and (ii) for Floating Rate Notes, shall be the date
15 calendar days prior to such Interest Payment Date, whether or not such
date shall be a Business Day.
PAYMENT CURRENCY
If the applicable Pricing Supplement provides for payments of interest and
principal on a non-U.S. dollar denominated Note to be made, at the option of
the holder of such Note, in U.S. dollars, conversion of the Specified Currency
into U.S. dollars will be based on the highest bid quotation in The City of New
York received by the Exchange Rate Agent at approximately 11:00 A.M., New York
City time, on the second Business Day preceding the applicable payment date
from three recognized foreign exchange dealers (one of which may be the
Exchange Rate Agent) for the purchase by the quoting dealer of the Specified
Currency for U.S. dollars for settlement on such payment date in the aggregate
amount of the Specified Currency payable to the holders of Notes and at which
the applicable dealer commits to execute a contract. If such bid quotations are
not available, payments will be made in the Specified Currency. All currency
exchange costs will be borne by the holders of Notes by deductions from such
payments.
Except as set forth below, if the principal of, premium, if any, or interest
on, any Note is payable in a Specified Currency other than U.S. dollars and
such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances
beyond the control of the Company or is no longer used by the government of the
country issuing such currency or for the settlement of transactions by public
institutions within the international banking community, then the Company will
be entitled to satisfy its obligations to holders of the Notes by making such
payments in U.S. dollars on the basis of the Market Exchange Rate on the date
of such payment or, if the Market Exchange Rate is not available on such date,
as of the most recent practicable date. Any payment made under such
circumstances in U.S. dollars where the required payment is in a Specified
Currency other than U.S. dollars will not constitute an Event of Default.
If payment in respect of a Note is required to be made in ECUs and ECUs are
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or are no longer used in the European Monetary
System, then all payments in respect of such Note shall be made in U.S. dollars
until ECUs are again available or so used. The amount of each payment in U.S.
dollars shall be computed on the basis of the equivalent of the ECU in U.S.
dollars, determined as described below, as of the second Business Day prior to
the date on which such payment is due.
The equivalent of the ECU in U.S. dollars as of any date shall be determined
by the Company or the Exchange Rate Agent on the following basis. The component
currencies of the ECU for this purpose (the "Components") shall be the currency
amounts that were components of the ECU as of the last date on which the ECU
was used in the European Monetary System. The equivalent of the ECU in U.S.
dollars shall be calculated by aggregating the U.S. dollar equivalents of the
Components. The U.S. dollar equivalent of each of the Components shall be
determined by the Company or the Exchange Rate Agent on the basis of the most
recently available Market Exchange Rates for such Components.
If the official unit of any Component is altered by way of combination or
subdivision, the number of units of that currency as a Component shall be
divided or multiplied in the same proportion. If two or more Components are
consolidated into a single currency, the amounts of those currencies as
Components shall be replaced by an amount in such single currency equal to the
sum of the appropriate amounts of the consolidated component currencies
expressed in such single currency. If any Component is divided into two or more
currencies, the amount of the original component currency shall be replaced by
the appropriate amounts of such two or more currencies, the sum of which shall
be equal to the amount of the original component currency.
All determinations referred to above made by the Company or its agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on holders of Notes.
S-4
INTEREST AND PRINCIPAL PAYMENTS
Interest will be payable to the person in whose name the Note is registered
at the close of business on the applicable Record Date; provided that the
interest payable upon maturity, redemption or repayment (whether or not the
date of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest
payment on a Note will be made on the first Interest Payment Date falling after
the date the Note is issued; provided, however, that payments of interest (or,
in the case of an Amortizing Note, principal and interest) on a Note issued
less than 15 calendar days before an Interest Payment Date will be paid on the
next succeeding Interest Payment Date to the holder of record on the Record
Date with respect to such succeeding Interest Payment Date, unless otherwise
specified in the applicable Pricing Supplement. See "United States Taxation--
Tax Consequences to United States Holders--Original Issue Discount Notes"
below.
U.S. dollar payments of interest, other than interest payable at maturity (or
on the date of redemption or repayment, if a Note is redeemed or repaid by the
Company prior to maturity), will be made by check mailed to the address of the
person entitled thereto as shown on the Note register. U.S. dollar payment of
principal, premium, if any, and interest upon maturity, redemption or repayment
will be made in immediately available funds against presentation and surrender
of the Note. Notwithstanding the foregoing, (a) the Depositary, as holder of
Global Notes, shall be entitled to receive payments of interest by wire
transfer of immediately available funds and (b) a holder of U.S. $10,000,000
(or the equivalent) or more in aggregate principal amount of Definitive Notes
having the same Interest Payment Date shall be entitled to receive payments of
interest by wire transfer of immediately available funds upon written request
to the Paying Agent, provided such request is received not later than 15
calendar days prior to the applicable Interest Payment Date.
Unless otherwise specified in the applicable Pricing Supplement, a beneficial
owner of Global Notes denominated in a Specified Currency electing to receive
payments of principal or any premium or interest in a currency other than U.S.
dollars must notify the participant through which its interest is held on or
prior to the applicable Record Date, in the case of a payment of interest, and
on or prior to the sixteenth day prior to maturity, in the case of principal or
premium of such beneficial owner's election to receive all or a portion of such
payment in a Specified Currency. Such participant must notify the Depositary
(as defined below) of such election on or prior to the third Business Day after
such Record Date. The Depositary will notify the Paying Agent of such election
on or prior to the fifth Business Day after such Record Date. If complete
instructions are received by the participant and forwarded by the participant
to the Depositary, and by the Depositary to the Paying Agent, on or prior to
such dates, the beneficial owner will receive payments in the Specified
Currency by wire transfer of immediately available funds to an account
maintained by the payee with a bank located outside the United States;
otherwise the beneficial owner will receive payments in U.S. dollars.
Certain Notes, including Original Issue Discount Securities, may be
considered to be issued with original issue discount, which must be included in
income for United States federal income tax purposes at a constant rate. See
"United States Taxation--Tax Consequences to United States Holders--Original
Issue Discount Notes" below. Unless otherwise specified in the applicable
Pricing Supplement, if the principal of any Original Issue Discount Security is
declared to be due and payable immediately as described under "Description of
Debt Securities--Events of Default" in the Prospectus, the amount of principal
due and payable with respect to such Note shall be limited to the aggregate
principal amount of such Note multiplied by the sum of its Issue Price
(expressed as a percentage of the aggregate principal amount) plus the original
issue discount amortized from the date of issue to the date of declaration,
which amortization shall be calculated using the "interest method" (computed in
accordance with generally accepted accounting principles in effect on the date
of declaration). Special considerations applicable to any such Notes will be
set forth in the applicable Pricing Supplement.
S-5
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issuance at the
annual rate stated on the face thereof, except as described below under
"Extension of Maturity," until the principal thereof is paid or made available
for payment. Unless otherwise specified in the applicable Pricing Supplement,
such interest will be computed on the basis of a 360-day year of twelve 30-day
months. Unless otherwise specified in the applicable Pricing Supplement,
payments of interest on Fixed Rate Notes other than Amortizing Notes will be
made semiannually on each May 1 and November 1 and at maturity or upon any
earlier redemption or repayment. Unless otherwise specified in the applicable
Pricing Supplement, payments of principal and interest on Amortizing Notes,
which are securities on which payments of principal and interest are made in
equal installments over the life of the security, will be made either quarterly
on each May 1, August 1, November 1 and February 1 or semiannually on each May
1 and November 1, as set forth in the applicable Pricing Supplement, and at
maturity or upon any earlier redemption or repayment. Payments with respect to
Amortizing Notes will be applied first to interest due and payable thereon and
then to the reduction of the unpaid principal amount thereof. A table setting
forth repayment information in respect of each Amortizing Note will be provided
to the original purchaser and will be available, upon request, to subsequent
holders.
If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is
a Business Day, and no interest on such payment shall accrue for the period
from and after the Interest Payment Date. If the maturity (or date of
redemption or repayment) of any Fixed Rate Note falls on a day that is not a
Business Day, the payment of interest and principal (and premium, if any) will
be made on the next succeeding Business Day, and no interest on such payment
shall accrue for the period from and after the maturity date (or date of
redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest from and
including the date of issue or from and including the last date in respect of
which interest has been paid, as the case may be, to, but excluding, the
Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from the date of issuance until
the principal thereof is paid or made available for payment at a rate
determined by reference to an interest rate basis or formula (the "Base Rate"),
which may be adjusted by a Spread and/or Spread Multiplier (each as defined
below). The applicable Pricing Supplement will designate one or more of the
following Base Rates as applicable to each Floating Rate Note: (a) the CD Rate
(a "CD Rate Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate
Note"), (c) the Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a
"LIBOR Note"), (e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate
(a "Treasury Rate Note" or (g) such other Base Rate or interest rate formula as
is set forth in such Pricing Supplement and in such Floating Rate Note. The
"Index Maturity" for any Floating Rate Note is the period of maturity of the
instrument or obligation from which the Base Rate is calculated and will be
specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the interest
rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, and/or (ii)
multiplied by the Spread Multiplier, if any. The "Spread" is the number of
basis points (one one-hundredth of a percentage point) specified in the
applicable Pricing Supplement to be added to or subtracted from the Base Rate
for such Floating Rate Note, and the "Spread Multiplier" is the percentage
specified in the applicable Pricing Supplement to be applied to the Base Rate
for such Floating Rate Note.
S-6
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or
ceiling, on the rate of interest which may accrue during any interest period
("Maximum Interest Rate"); and (ii) a minimum limitation, or floor, on the rate
of interest which may accrue during any interest period ("Minimum Interest
Rate"). In addition to any Maximum Interest Rate that may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on a
Floating Rate Note will in no event be higher than the maximum rate permitted
by New York law, as the same may be modified by United States law of general
application. Under current New York law, the maximum rate of interest, subject
to certain exceptions, for any loan in an amount less than $250,000 is 16% and
for any loan in the amount of $250,000 or more but less than $2,500,000 is 25%
per annum on a simple interest basis. These limits do not apply to loans of
$2,500,000 or more.
Unless otherwise specified in the applicable Pricing Supplement, the rate of
interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually (such period being the "Interest Reset
Period" for such Note, and the first day of each Interest Reset Period being an
"Interest Reset Date"), as specified in the applicable Pricing Supplement.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each Business
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, the Tuesday of each week, except as provided below; in the
case of Floating Rate Notes which reset monthly, the third Wednesday of each
month; in the case of Floating Rate Notes which reset quarterly, the third
Wednesday of March, June, September and December; in the case of Floating Rate
Notes which reset semiannually, the third Wednesday of two months of each year,
as specified in the applicable Pricing Supplement; and in the case of Floating
Rate Notes which reset annually, the third Wednesday of one month of each year,
as specified in the applicable Pricing Supplement; provided, however, that (a)
the interest rate in effect from the date of issue to the first Interest Reset
Date with respect to a Floating Rate Note will be the initial interest rate set
forth in the applicable Pricing Supplement (the "Initial Interest Rate") and
(b) unless otherwise specified in the applicable Pricing Supplement, the
interest rate in effect for the ten calendar days immediately prior to
maturity, redemption or repayment will be that in effect on the tenth calendar
day preceding such maturity, redemption or repayment date. If any Interest
Reset Date for any Floating Rate Note would otherwise be a day that is not a
Business Day, such Interest Reset Date shall be postponed to the next
succeeding Business Day, except that in the case of a LIBOR Note, if such
Business Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset
Date, on the third Wednesday of each month or on the third Wednesday of March,
June, September and December, as specified in the applicable Pricing
Supplement; (ii) in the case of Floating Rate Notes with a quarterly Interest
Reset Date, on the third Wednesday of March, June, September and December;
(iii) in the case of Floating Rate Notes with a semiannual Interest Reset Date,
on the third Wednesday of the two months specified in the applicable Pricing
Supplement; and (iv) in the case of Floating Rate Notes with an annual Interest
Reset Date, on the third Wednesday of the month specified in the applicable
Pricing Supplement. If any Interest Payment Date for any Floating Rate Note
would fall on a day that is not a Business Day with respect to such Floating
Rate Note, such Interest Payment Date will be postponed to the following day
that is a Business Day with respect to such Floating Rate Note, except that, in
the case of a LIBOR Note, if such Business Day is in the next succeeding
calendar month, such Interest Payment Date shall be the immediately preceding
day that is a Business Day with respect to such LIBOR Note. If the maturity
date or any earlier redemption or repayment date of a Floating Rate Note would
fall 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, redemption or repayment date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes (except Floating Rate Notes on which interest
is reset daily or weekly) shall be the amount of interest
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accrued from and including the date of issue or from and including the last
date to which interest has been paid to, but excluding, the Interest Payment
Date or maturity date or date of redemption or repayment. In the case of a
Floating Rate Note on which interest is reset daily or weekly, interest
payments shall be, unless otherwise specified in the applicable Pricing
Supplement, the amount of interest accrued from and including the date of issue
or from but excluding the last Record Date to which interest has been paid, as
the case may be, to and including the Record Date immediately preceding such
Interest Payment Date, except that at maturity or earlier redemption or
repayment, the interest payable will include interest accrued to, but
excluding, the maturity, redemption or repayment date, as the case may be.
With respect to a Floating Rate Note, accrued interest shall be calculated by
multiplying the principal amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement,
the interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by
the actual number of days in the year, in the case of Treasury Rate Notes. All
percentages used in or resulting from any calculation of the rate of interest
on a Floating Rate Note will be rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upward, and all dollar amounts used in or resulting
from such calculation on Floating Rate Notes will be rounded to the nearest
cent, with one-half cent rounded upward. The interest rate in effect on any
Interest Reset Date will be the applicable rate as reset on such date. The
interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).
Unless otherwise stated in the applicable Pricing Supplement, the calculation
agent (the "Calculation Agent") with respect to any issue of Floating Rate
Notes shall be The First National Bank of Chicago. 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 Floating
Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date for CD
Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes and Prime
Rate Notes will be the second Business Day next preceding such Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for
a LIBOR Note will be the second London Banking Day preceding such Interest
Reset Date. The Interest Determination Date pertaining to an Interest Reset
Date for a Treasury Rate Note will be the day of the week in which such
Interest Reset Date falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, but such auction may be held on the preceding Friday. If, as
the result of a legal holiday, an auction is so held on the preceding Friday,
such Friday will be the Interest Determination Date pertaining to the Interest
Reset Date occurring in the next succeeding week. If an auction falls on a day
that is an Interest Reset Date, such Interest Reset Date will be the next
following Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest
Payment Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD Rate Notes
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
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Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity designated in
the applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release
"Composite 3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date for certificates of deposit in the denomination of
$5,000,000 with a remaining maturity closest to the Index Maturity designated
in the Pricing Supplement of three leading nonbank dealers in negotiable U.S.
dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major United States
money center banks; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as set forth above, the CD
Rate in effect for the applicable period will be the same as the CD Rate for
the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the CD Rate Notes for
which such CD Rate is being determined shall be the Initial Interest Rate).
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Interest Determination Date, the Money
Market Yield (as defined below) of the rate on such date for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement, as
such rate shall be published in H.15(519), under the heading "Commercial
Paper." In the event that such rate is not published by 9:00 A.M., New York
City time, on the Calculation Date pertaining to such Interest Determination
Date, then the Commercial Paper Rate shall be the Money Market Yield of the
rate on such Interest Determination Date for commercial paper of the specified
Index Maturity as published in Composite Quotations under the heading
"Commercial Paper." If by 3:00 P.M., New York City time, on such Calculation
Date such rate is not yet available in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate shall be the Money Market Yield of
the arithmetic mean of the offered rates as of 11:00 A.M., New York City time,
on such Interest Determination Date of three leading dealers of commercial
paper in The City of New York selected by the Calculation Agent for commercial
paper of the specified Index Maturity, placed for an industrial issuer whose
bond rating is "AA," or the equivalent, from a nationally recognized 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 in effect for the applicable period will be the same
as the Commercial Paper Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of interest
payable on the Commercial Paper Rate Notes for which such Commercial Paper Rate
is being determined shall be the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D x 360
Money Market Yield = ------------ x 100
360 - (D x M)
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where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days for which interest is being calculated.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rate (calculated
with reference to the Federal Funds Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Federal Funds Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the "Federal
Funds Rate" means, with respect to any Interest Determination Date, the rate on
such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York
City time, on the Calculation Date pertaining to such Interest Determination
Date, the Federal Funds Rate will be the rate on such Interest Determination
Date as published in the Composite Quotations under the heading "Federal
Funds/Effective Rate." If such rate is not yet published in either H.15(519) or
the Composite Quotations by 3:00 P.M., New York City time, on the Calculation
Date pertaining to such Interest Determination Date, the Federal Funds Rate for
such Interest Determination Date will be calculated by the Calculation Agent
and will be the arithmetic mean of the rates for the last transaction in
overnight Federal funds, as of 9:00 A.M., New York City time, on such Interest
Determination Date, arranged by three leading brokers of Federal funds
transactions in The City of New York selected by the Calculation Agent;
provided, however, that if the brokers selected as aforesaid by the Calculation
Agent are not quoting as set forth above, the Federal Funds Rate in effect for
the applicable period will be the same as the Federal Funds Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the Federal Funds Rate Notes for
which such Federal Funds Rate is being determined shall be the Initial Interest
Rate).
LIBOR Notes
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any) specified
in the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR" for
each Interest Determination Date will be determined by the Calculation Agent as
follows:
(i) As of the Interest Determination Date, LIBOR will be either: (a) if
"LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the specified Designated LIBOR
Page (as defined below) by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in the Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on such Interest Determination Date, that appear on
the Designated LIBOR Page as of 11:00 A.M., London time, on that Interest
Determination Date, if at least two such offered rates appear (unless, as
aforesaid, only a single rate is required) on such Designated LIBOR Page,
or (b) if "LIBOR Telerate" is specified in the applicable Pricing
Supplement, the rate for deposits in the Index Currency having the Index
Maturity designated in the applicable Pricing Supplement, commencing on
such Interest Determination Date, that appears on the Designated LIBOR Page
as of 11:00 A.M., London time, on that Interest Determination Date. If
fewer than two offered rates appear (if "LIBOR Reuters" is specified in the
applicable Pricing Supplement) or no rate appears (if "LIBOR Telerate" is
specified in the applicable Pricing Supplement), LIBOR in respect of the
related Interest Determination Date will be determined as if the parties
had specified the rate described in clause (ii) below.
(ii) With respect to an Interest Determination Date on which fewer than
two offered rates appear (if "LIBOR Reuters" is specified in the applicable
Pricing Supplement) or no rate appears (if "LIBOR
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Telerate" is specified in the applicable Pricing Supplement), the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity designated in the applicable Pricing Supplement, commencing on the
second London Banking Day immediately following such Interest Determination
Date, to prime banks in the London interbank market at approximately 11:00
A.M., London time, on such Interest Determination Date and in a principal
amount of not less than $1,000,000 (or the equivalent in the Index
Currency, if the Index Currency is not the U.S. dollar) that is
representative for a single transaction in such Index Currency in such
market at such time. If at least two such quotations are provided, LIBOR
determined on such Interest Determination Date will be the arithmetic mean
of such quotations. If fewer than two quotations are provided, LIBOR
determined on such Interest Determination Date will be the arithmetic mean
of the rates quoted at approximately 11:00 A.M. (or such other time
specified in the applicable Pricing Supplement), in the applicable
principal financial center for the country of the Index Currency on such
Interest Determination Date, by three major banks in such principal
financial center selected by the Calculation Agent for loans in the Index
Currency to leading European banks, having the Index Maturity designated in
the applicable Pricing Supplement and in a principal amount of not less
than $1,000,000 commencing on the second London Banking Day immediately
following such Interest Determination Date (or the equivalent in the Index
Currency, if the Index Currency is not the U.S. dollar) that is
representative for a single transaction in such Index Currency in such
market at such time; provided, however, that if the banks so selected by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
in effect for the applicable period will be the same as LIBOR for the
immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the LIBOR Notes for
which such LIBOR is being determined shall be the Initial Interest Rate).
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated in
the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Telerate Service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency. If neither LIBOR Reuters nor
LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for the
applicable Index Currency will be determined as if LIBOR Telerate (and, if the
U.S. dollar is the Index Currency, Page 3750) had been specified.
Prime Rate Notes
Prime Rate Notes will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime Rate"
means, with respect to any Interest Determination Date, the rate set forth in
H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate is
not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such
Interest Determination Date will be the arithmetic mean of the rates of
interest publicly announced by each bank named on the Reuters Screen NYMF Page
(as defined below) as such bank's prime rate or base lending rate as in effect
for such Interest Determination Date as quoted on the Reuters Screen NYMF Page
on such Interest Determination Date, or, if fewer than four such rates appear
on the Reuters Screen NYMF Page for such Interest Determination Rate, the rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of
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days in the year divided by 360 as of the close of business on such Interest
Determination Date by at least two of the three major money center banks in The
City of New York selected by the Calculation Agent from which quotations are
requested. If fewer than two quotations are provided, the Prime Rate shall be
calculated by the Calculation Agent and shall be determined as the arithmetic
mean on the basis of the prime rates in The City of New York by the appropriate
number of substitute banks or trust companies organized and doing business
under the laws of the United States, or any State thereof, in each case having
total equity capital of at least U.S. $500 million and being subject to
supervision or examination by federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if the
banks or trust companies selected as aforesaid by the Calculation Agent are not
quoting as set forth above, the "Prime Rate" in effect for the applicable
period will be the same as the Prime Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the rate
of interest payable on the Prime Rate Notes for which such Prime Rate is being
determined shall be the Initial Interest Rate). "Reuters Screen NYMF Page"
means the display designated as Page "NYMF" on the Reuters Monitor Money Rates
Services (or such other page as may replace the NYMF Page on that service for
the purpose of displaying prime rates or base lending rates of major United
States banks).
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rate (calculated with
reference to the Treasury Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Treasury Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the
rate for the auction held on such date of direct obligations of the United
States ("Treasury Bills") having the Index Maturity designated in the
applicable Pricing Supplement, as published in H.15(519) under the heading
"Treasury Bills--auction average (investment)" or, if not so published by 9:00
A.M., New York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination
Date (expressed as a bond equivalent, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) as otherwise announced by
the United States Department of the Treasury. In the event that the results of
the auction of Treasury Bills having the Index Maturity designated in the
applicable Pricing Supplement are not published or reported as provided above
by 3:00 P.M., New York City time, on such Calculation Date or if no such
auction is held on such Interest Determination Date, then the Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) calculated using the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on such Interest Determination Date, of three leading primary United
States government securities dealers selected by the Calculation Agent for the
issue of Treasury Bills with a remaining maturity closest to the Index Maturity
designated in the applicable Pricing Supplement; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting bid
rates as mentioned in this sentence, the Treasury Rate for such Interest Reset
Date will be the same as the Treasury Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the rate
of interest payable on the Treasury Rate Notes for which the Treasury Rate is
being determined shall be the Initial Interest Rate).
RENEWABLE NOTES
The Company may also issue from time to time variable rate renewable notes
(the "Renewable Notes") that will bear interest at the interest rate
(calculated with reference to a Base Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Renewable Notes and in the applicable
Pricing Supplement.
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The Renewable Notes will mature on an Interest Payment Date as specified in
the applicable Pricing Supplement (the "Initial Maturity Date"), unless the
maturity of all or any portion of the principal amount thereof is extended in
accordance with the procedures described below. On the Interest Payment Dates
in May and November in each year (unless different Interest Payment Dates are
specified in the applicable Pricing Supplement) (each such Interest Payment
Date, an "Election Date"), the maturity of the Renewable Notes will be extended
to the Interest Payment Date occurring twelve months after such Election Date,
unless the holder thereof elects to terminate the automatic extension of the
maturity of the Renewable Notes or of any portion thereof having a principal
amount of $1,000 or any multiple of $1,000 in excess thereof by delivering a
notice of such effect to the Paying Agent not less than nor more than a number
of days to be specified in the applicable Pricing Supplement prior to such
Election Date. Such option may be exercised with respect to less than the
entire principal amount of the Renewable Notes; provided that the principal
amount for which such option is not exercised is at least $1,000 or any larger
amount that is an integral multiple of $1,000. Notwithstanding the foregoing,
the maturity of the Renewable Notes may not be extended beyond the Final
Maturity Date, as specified in the applicable Pricing Supplement (the "Final
Maturity Date"). If the holder elects to terminate the automatic extension of
the maturity of any portion of the principal amount of the Renewable Notes and
such election is not revoked as described below, such portion will become due
and payable on the Interest Payment Date falling six months (unless another
period is specified in the applicable Pricing Supplement) after the Election
Date prior to which the holder made such election.
An election to terminate the automatic extension of maturity may be revoked
as to any portion of the Renewable Notes having a principal amount of $1,000 or
any multiple of $1,000 in excess thereof by delivering a notice to such effect
to the Paying Agent on any day following the effective date of the election to
terminate the automatic extension of maturity and prior to the date 15 days
before the date on which such portion would otherwise mature. Such a revocation
may be made for less than the entire principal amount of the Renewable Notes
for which the automatic extension of maturity has been terminated; provided
that the principal amount of the Renewable Notes for which the automatic
extension of maturity has been terminated and for which such a revocation has
not been made is at least $1,000 or any larger amount that is an integral
multiple of $1,000. Notwithstanding the foregoing, a revocation may not be made
during the period from and including a Record Date to but excluding the
immediately succeeding Interest Payment Date.
An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon such subsequent holder.
The Renewable Notes may be redeemed in whole or in part at the option of the
Company on the Interest Payment Dates in each year specified in the applicable
Pricing Supplement, commencing with the Interest Payment Date specified in the
applicable Pricing Supplement, at a redemption price as stated in the
applicable Pricing Supplement, together with accrued and unpaid interest to the
date of redemption. Notwithstanding anything to the contrary in this Prospectus
Supplement, notice of redemption will be provided by mailing a notice of such
redemption to each holder by first class mail, postage prepaid, at least 180
days prior to the date fixed for redemption.
INDEXED NOTES
The Notes may be issued, from time to time, as Notes of which the principal
amount payable on a date more than nine months from the date of original issue
(the "Stated Maturity") and/or on which the amount of interest payable on an
Interest Payment Date will be determined by reference to currencies, currency
units, commodity prices, financial or non-financial indices or other factors
(the "Indexed Notes"), as indicated in the applicable Pricing Supplement.
Holders of Indexed Notes may receive a principal amount at maturity that is
greater than or less than the face amount of such Notes depending upon the
fluctuation of the relative value, rate or price of the specified index.
Specific information pertaining to the method for determining the principal
amount payable at maturity, a historical comparison of the relative value, rate
or price of the
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specified index and the face amount of the Indexed Note and certain additional
United States federal tax considerations will be described in the applicable
Pricing Supplement.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note (other than an Amortizing Note)
will indicate whether the Company has the option to extend the maturity of such
Note for one or more periods of one or more whole years (each an "Extension
Period") up to but not beyond the date (the "Final Maturity Date") set forth in
such Pricing Supplement. If the Company has such option with respect to any
such Note (an "Extendible Note"), the following procedures will apply, unless
modified as set forth in the applicable Pricing Supplement.
The Company may exercise such option with respect to an Extendible Note by
notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has
already been extended, prior to the maturity date then in effect (an "Extended
Maturity Date"). No later than 38 days prior to the Original Maturity Date or
an Extended Maturity Date, as the case may be (each, a "Maturity Date"), the
Paying Agent will mail to the holder of such Note a notice (the "Extension
Notice") relating to such Extension Period, by first class mail, postage
prepaid, setting forth (a) the election of the Company to extend the maturity
of such Note; (b) the new Extended Maturity Date; (c) the interest rate
applicable to the Extension Period (which, in the case of a Floating Rate Note,
will be calculated with reference to a Base Rate and the Spread and/or Spread
Multiplier, if any); and (d) the provisions, if any, for redemption during the
Extension Period, including the date or dates on which, the period or periods
during which and the price or prices at which such redemption may occur during
the Extension Period. Upon the mailing by the Paying Agent of an Extension
Notice to the holder of an Extendible Note, the maturity of such Note shall be
extended automatically, and, except as modified by the Extension Notice and as
described in the next paragraph, such Note will have the same terms it had
prior to the mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 10:00 A.M., New York City time,
on the thirtieth calendar day prior to the Maturity Date then in effect for an
Extendible Note (or, if such day is not a Business Day, not later than 10:00
A.M., New York City time, on the immediately succeeding Business Day), the
Company may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period by causing the Paying Agent to send notice of such higher
interest rate (or, in the case of a Floating Rate Note, a higher Spread and/or
Spread Multiplier, if any) to the holder of such Note by first class mail,
postage prepaid, or by such other means as shall be agreed between the Company
and the Paying Agent. Such notice shall be irrevocable. All Extendible Notes
with respect to which the Maturity Date is extended in accordance with an
Extension Notice will bear such higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period, whether or not tendered for repayment.
If the Company elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Company to repay such
Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be repaid on such Maturity Date, the holder thereof must
follow the procedures set forth below under "Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for delivery
of such Note or notification to the Paying Agent shall be at least 25 but not
more than 35 days prior to the Maturity Date then in effect and except that a
holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not
a Business Day, until 3:00 P.M., New York City time, on the immediately
succeeding Business Day).
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BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Global Notes having the same Issue Date,
interest rate, if any, amortization schedule, if any, maturity date and other
terms, if any, will be represented by one or more Global Securities, and all
Floating Rate Global Notes having the same Issue Date, Initial Interest Rate,
Base Rate, Interest Reset Period, Interest Payment Dates, Index Maturity,
Spread and/or Spread Multiplier, if any, Minimum Interest Rate, if any, Maximum
Interest Rate, if any, maturity date and other terms, if any, will be
represented by one or more Global Securities. Each Global Security representing
Global Notes will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depositary"), and registered in the name of a
nominee of the Depositary. Global Notes will not be exchangeable for Definitive
Notes, except under the circumstances described in the Prospectus under
"Description of Debt Securities--Book-Entry Debt Securities." Definitive Notes
will not be exchangeable for Global Notes and will not otherwise be issuable as
Global Notes.
A further description of the Depositary's procedures with respect to Global
Securities representing Global Notes is set forth in the Prospectus under
"Description of Debt Securities--Book-Entry Debt Securities." The Depositary
has confirmed to the Company, each Agent and the Trustee that it intends to
follow such procedures.
OPTIONAL REDEMPTIONS
The Pricing Supplement will indicate that the Notes cannot be redeemed prior
to maturity or will indicate the terms on which the Notes will be redeemable at
the option of the Company. Notice of redemption will be provided by mailing a
notice of such redemption to each holder by first class mail, postage prepaid,
at least 30 days and not more than 60 days prior to the date fixed for
redemption to the respective address of each holder as that address appears
upon the books maintained by the Paying Agent. Unless otherwise provided in the
applicable Pricing Supplement, the Notes, except for Amortizing Notes, will not
be subject to any sinking fund.
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
If applicable, the Pricing Supplement relating to each Note will indicate
that the Note will be repayable at the option of the holder on a date or dates
specified prior to its maturity date and, unless otherwise specified in such
Pricing Supplement, at a price equal to 100% of the principal amount thereof,
together with accrued interest to the date of repayment, unless such Note was
issued with original issue discount, in which case the Pricing Supplement will
specify the amount payable upon such repayment.
In order for such a Note to be repaid, the Paying Agent must receive at least
30 days but not more than 60 days prior to the repayment date (i) the Note with
the form entitled "Option to Elect Repayment" on the reverse of the Note duly
completed or (ii) a telegram, telex, facsimile transmission or a letter from a
member of a national securities exchange, or the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States setting forth the name of the holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid,
the certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed form
entitled "Option to Elect Repayment" on the reverse of the Note, will be
received by the Paying Agent not later than the fifth Business Day after the
date of such telegram, telex, facsimile transmission or letter, provided,
however, that such telegram, telex, facsimile transmission or letter shall only
be effective if such Note and form duly completed are received by the Paying
Agent by such fifth Business Day. Except in the case of Renewable Notes or
Extendible Notes, and unless otherwise specified in the applicable Pricing
Supplement, exercise of the repayment option by the holder of a Note will be
irrevocable. The repayment option may be exercised by the holder of a Note for
less than the entire principal amount of the Note but, in that event, the
principal amount of the Note remaining outstanding after repayment must be an
Authorized Denomination.
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If a Note is represented by a Global Security, the Depositary's nominee will
be the holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note,
the beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different deadlines for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other direct or
indirect participant through which it holds an interest in a Note in order to
ascertain the deadline by which such an instruction must be given in order for
timely notice to be delivered to the Depositary.
The Company may purchase Notes at any price in the open market or otherwise.
Notes so purchased by the Company may, at the discretion of the Company, be
held or resold or surrendered to the relevant Trustee for cancellation.
FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
Any investment in Notes that are denominated in, or the payment of which is
related to the value of, a specified Currency other than U.S. dollars entails
significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the U.S.
dollar and the various foreign currencies (or composite currencies) and the
possibility of the imposition or modification of exchange controls by either
the U.S. or a foreign government. Such risks generally depend on economic and
political events over which the Company has no control. In recent years, rates
of exchange between U.S. dollars and certain foreign currencies have been
highly volatile and such volatility may be expected to continue in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations in such rate that may
occur during the term of any Note. Depreciation against the U.S. dollar of the
currency in which a Note is payable would result in a decrease in the effective
yield of such Note below its coupon rate and, in certain circumstances, could
result in a loss to the investor on a U.S. dollar basis. In addition, depending
on the specific terms of a currency linked Note, changes in exchange rates
relating to any of the currencies involved may result in a decrease in its
effective yield and, in certain circumstances, could result in a loss of all or
a substantial portion of the principal of a Note to the investor.
THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY PRICING
SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED
IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, A FOREIGN CURRENCY OR A
COMPOSITE CURRENCY AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE
PROSPECTIVE PURCHASERS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS
TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED IN, OR THE PAYMENT
OF WHICH IS RELATED TO THE VALUE OF, SPECIFIED CURRENCIES OTHER THAN U.S.
DOLLARS. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, premium,
if any, and interest on the Notes. Such persons should consult their own
counsel with regard to such matters.
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Governments have imposed from time to time, and may in the future impose,
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency at the time of payment of principal of,
premium, if any, or interest on a Note. Even if there are no actual exchange
controls, it is possible that the Specified Currency for any particular Note
not denominated in U.S. dollars would not be available when payments on such
Note are due. In that event, the Company would make required payments in U.S.
dollars on the basis of the Market Exchange Rate on the date of such payment,
or if such rate of exchange is not then available, on the basis of the Market
Exchange Rate as of the most recent practicable date. See "Description of
Notes--Payment Currency."
With respect to any Note denominated in, or the payment of which is related
to the value of, a foreign currency or currency unit, the applicable Pricing
Supplement will include information with respect to applicable current exchange
controls, if any, and historic exchange rate information on such currency or
currency unit. The information contained therein shall constitute a part of
this Prospectus Supplement and is furnished as a matter of information only and
should not be regarded as indicative of the range of or trends in fluctuations
in currency exchange rates that may occur in the future.
GOVERNING LAW AND JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. In the event an action based on Notes denominated in a
Specified Currency other than U.S. dollars were commenced in a court in the
United States, it is likely that such court would grant judgment relating to
the Notes only in U.S. dollars.
UNITED STATES TAXATION
In the opinion of Davis Polk & Wardwell, tax counsel to the Company, the
following summary accurately describes the principal United States federal
income tax consequences of ownership and disposition of the Notes to initial
holders purchasing Notes at the "issue price" (as defined below). This summary
is based on the Internal Revenue Code of 1986, as amended to the date hereof
(the "Code"), administrative pronouncements, judicial decisions and existing
and proposed Treasury Regulations, including regulations concerning the
treatment of debt instruments issued with original issue discount (the "OID
Regulations"), changes to any of which subsequent to the date of this
Prospectus may affect the tax consequences described herein. The OID
Regulations are effective for Notes issued on or after April 4, 1994. The
Internal Revenue Service has indicated that holders of Notes issued before
April 4, 1994 may rely on such regulations. This summary discusses only Notes
held as capital assets within the meaning of Section 1221 of the Code. It does
not discuss all of the tax consequences that may be relevant to a holder in
light of his particular circumstances or to holders subject to special rules,
such as certain financial institutions, insurance companies, dealers in
securities or foreign currencies, persons holding Notes as a hedge against, or
which are hedged against, currency risks, or Holders whose functional currency
(as defined in Code Section 985) is not the U.S. dollar. Finally, this summary
does not discuss Original Issue Discount Notes (as defined below) which qualify
as "applicable high-yield discount obligations" under Section 163(i) of the
Code. Holders of Original Issue Discount Notes which are "applicable high-yield
discount obligations" may be subject to special rules. Persons considering the
purchase of Notes should consult their tax advisors with regard to the
application of the United States federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
As used herein, the term "Holder" means an owner of a Note that is (i) for
United States federal income tax purposes a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or of any political subdivision thereof,
or (iii) an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.
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TAX CONSEQUENCES TO HOLDERS
Payments of Interest
Interest paid on a Note will generally be taxable to a Holder as ordinary
interest income at the time it accrues or is received in accordance with the
Holder's method of accounting for federal income tax purposes. Under the OID
Regulations, all payments of interest on a Note that matures one year or less
from its date of issuance will be included in the stated redemption price at
maturity of the Notes and will be taxed in the manner described below under
"Original Issue Discount Notes." Special rules governing the treatment of
interest paid with respect to Original Issue Discount Notes, including certain
Floating Rate Notes, Foreign Currency Notes, Currency Indexed Notes, Notes
providing for payments of principal or interest linked to commodity prices,
equity indices or other factors, are discussed below.
Original Issue Discount Notes
A Note which is issued for an amount less than its stated redemption price at
maturity will generally be considered to have been issued at an original issue
discount for federal income tax purposes (an "Original Issue Discount Note").
The "issue price" of a Note will equal the first price to the public (not
including bond houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers) at which a
substantial amount of the Notes is sold. The stated redemption price at
maturity of a Note will equal the sum of all payments required under the Note
other than payments of "qualified stated interest." "Qualified stated interest"
is stated interest unconditionally payable as a series of payments in cash or
property (other than debt instruments of the issuer) at least annually during
the entire term of the Note and equal to the outstanding principal balance of
the Note multiplied by a single fixed rate or certain variable rates of
interest, or certain combinations thereof. Special tax considerations
(including possible original issue discount) may arise with respect to Floating
Rate Notes providing for (i) one Base Rate followed by one or more Base Rates,
(ii) a single fixed rate followed by a floating rate or (iii) a Spread
Multiplier. Purchasers of Floating Rate Notes with any of such features should
carefully examine the applicable Pricing Supplement and should consult their
tax advisors with respect to such a feature since the tax consequences will
depend, in part, on the particular terms of the purchased Note. Special rules
may also apply if a Floating Rate Note is subject to a cap, floor, governor or
similar restriction that is not fixed throughout the term of the Note and is
reasonably expected as of the issue date to cause the yield on the Note to be
significantly less or more than the expected yield determined without the
restriction.
If the difference between a Note's stated redemption price at maturity and
its issue price is less than a de minimis amount, i.e., of 1 percent of the
stated redemption price at maturity multiplied by the number of complete years
to maturity, then the Note will not be considered to have original issue
discount. Holders of Notes with a de minimis amount of original issue discount
will generally include such original issue discount in income, as capital gain,
on a pro rata basis as principal payments are made on the Note.
A Holder of Original Issue Discount Notes will be required to include any
qualified stated interest payments in income in accordance with the Holder's
method of accounting for federal income tax purposes. Holders of Original Issue
Discount Notes that mature more than one year from their date of issuance will
be required to include original issue discount in income for federal income tax
purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest, before the receipt of cash payments attributable to
such income. Under this method, Holders of Original Issue Discount Notes
generally will be required to include in income increasingly greater amounts of
original issue discount in successive accrual periods.
Under proposed regulations, contingent payments on Floating Rate Notes that
do not provide for qualified stated interest payments will be included in
income as they become fixed (if they are due within six months after they
become fixed), to the extent that such interest payments exceed minimum stated
interest, if any. If such payments are not due within six months after the date
their amount becomes fixed, a portion of such payments will be included in
income as interest over the period between the date on which the payments
S-18
are fixed and the date on which the payments are due, and the remainder will be
included when the payments are fixed.
Under the OID Regulations, a Note that matures one year or less from its date
of issuance will be treated as a "short-term Original Issue Discount Note". In
general, a cash method Holder of a short-term Original Issue Discount Note is
not required to accrue original issue discount for United States federal income
tax purposes unless it elects to do so. Holders who make such an election,
Holders who report income for federal income tax purposes on the accrual method
and certain other Holders, including banks and dealers in securities, are
required to include original issue discount in income on such short-term
Original Issue Discount Notes as it accrues on a straight-line basis, unless an
election is made to accrue the original issue discount according to a constant
yield method based on daily compounding. In the case of a Holder who is not
required and who does not elect to include original issue discount in income
currently, any gain realized on the sale, exchange or retirement of the short-
term Original Issue Discount Note will be ordinary income to the extent of the
original issue discount accrued on a straight-line basis (or, if elected,
according to a constant yield method based on daily compounding) through the
date of sale, exchange or retirement. In addition, such Holders will be
required to defer deductions for any interest paid on indebtedness incurred to
purchase or carry short-term Original Issue Discount Notes in an amount not
exceeding the deferred interest income, until such deferred interest income is
recognized.
Under the OID Regulations, a Holder may make an election (the "Constant Yield
Election") to include in gross income all interest that accrues on a Note
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) in accordance with a constant yield method based on the
compounding of interest.
Certain of the Original Issue Discount Notes may be redeemed prior to
maturity. Original Issue Discount Notes containing such a feature may be
subject to rules that differ from the general rules discussed above. Purchasers
of Original Issue Discount Notes with such a feature should carefully examine
the applicable Pricing Supplement and should consult their tax advisors with
respect to such a feature since the tax consequences with respect to original
issue discount will depend, in part, on the particular terms and the particular
features of the purchased Note.
The OID Regulations contain aggregation rules stating that in certain
circumstances if more than one type of Note is issued as part of the same
issuance of securities to a single holder, some or all of such Notes may be
treated together as a single debt instrument with a single issue price,
maturity date, yield to maturity and stated redemption price at maturity for
purposes of calculating and accruing any original issue discount. Unless
otherwise provided in the related Pricing Supplement, the Company does not
expect to treat any of the Notes as being subject to the aggregation rules for
purposes of computing original issue discount.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of a Note, a Holder will recognize
taxable gain or loss equal to the difference between the amount realized on the
sale, exchange or retirement and such Holder's adjusted tax basis in the Note.
For these purposes, the amount realized does not include any amount
attributable to accrued interest on the Note. Amounts attributable to accrued
interest are treated as interest as described under "Payments of Interest"
above, in accordance with the Holder's method of accounting for federal income
tax purposes as described therein. A Holder's adjusted tax basis in a Note will
equal the cost of the Note to such Holder, increased by the amount of any
original issue discount previously included in income by the Holder with
respect to such Note and reduced by any amortized premium and any principal
payments received by the Holder and, in the case of an Original Issue Discount
Note, by the amounts of any other payments that do not constitute qualified
stated interest (as defined above).
S-19
Subject to the discussion under "Foreign Currency Notes" below, gain or loss
realized on the sale, exchange or retirement of a Note will be capital gain or
loss (except in the case of a short-term Original Issue Discount Note, to the
extent of any original issue discount not previously included in the Holder's
taxable income), and will be long-term capital gain or loss if at the time of
sale, exchange or retirement the Note has been held for more than one year. See
"Original Issue Discount Notes" above. The excess of net long-term capital
gains over net short-term capital losses is taxed at a lower rate than ordinary
income for certain non-corporate taxpayers. The distinction between capital
gain or loss and ordinary income or loss is also relevant for purposes of,
among other things, limitations on the deductibility of capital losses.
If a Holder purchases a Note for an amount that is greater than the amount
payable at maturity, such Holder will be considered to have purchased such Note
with "amortizable bond premium" equal in amount to such excess, and may elect
(in accordance with applicable Code provisions) to amortize such premium, using
a constant yield method, over the remaining term of the Note (where such Note
is not optionally redeemable prior to its maturity date). If such Note may be
optionally redeemed prior to maturity after the Holder has acquired it, the
amount of amortizable bond premium is determined with reference to the amount
payable on maturity or, if it results in a smaller premium attributable to the
period of earlier redemption date, with reference to the amount payable on the
earlier redemption date. A Holder who elects to amortize bond premium must
reduce his tax basis in the Note by the amount of the premium amortized in any
year. An election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the taxpayer and may be
revoked only with the consent of the Internal Revenue Service.
If a Holder makes a Constant Yield Election for a Note with amortizable bond
premium, such election will result in a deemed election to amortize bond
premium for all of the Holder's debt instruments with amortizable bond premium
and may be revoked only with the permission of the Internal Revenue Service
with respect to debt instruments acquired after revocation.
Foreign Currency Notes
The following summary relates to Notes that are denominated in a currency or
currency unit other than the U.S. dollar ("Foreign Currency Notes").
A Holder who uses the cash method of accounting and who receives a payment of
qualified stated interest in a foreign currency with respect to a Foreign
Currency Note will be required to include in income the U.S dollar value of the
foreign currency payment (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 Holder's tax basis in the foreign
currency. A cash method Holder who receives such a payment in U.S. dollars
pursuant to an option available under such Note will be required to include the
amount of such payment in income upon receipt.
In the case of accrual method taxpayers and Holders of Original Issue
Discount Notes, a Holder will be required to include in income the U.S. dollar
value of the amount of interest income (including original issue discount, but
reduced by amortizable bond premium to the extent applicable) that has accrued
and is otherwise required to be taken into account with respect to a Foreign
Currency Note during an accrual period. The U.S. dollar value of such accrued
income will be determined by translating such income at the average rate of
exchange for the accrual period or, with respect to an accrual period that
spans two taxable years, at the average rate for the partial period within the
taxable year. Such Holder will recognize ordinary income or loss with respect
to accrued interest income on the date such income is actually received. The
amount of ordinary income or loss recognized will equal the difference between
the U.S. dollar value of the foreign currency payment received (determined on
the date such payment is received) in respect of such accrual period (or, where
a Holder receives U.S. dollars, the amount of such payment 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). A Holder may elect to
translate interest income (including original issue discount) into U.S. dollars
at the spot rate on the last day of the interest accrual period (or, in the
case of a partial accrual
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period, the spot rate on the last date of the taxable year) or, if the date of
receipt is within five business days of the last day of the interest accrual
period, the spot rate on the date of receipt. A Holder that makes such an
election must apply it consistently to all debt instruments from year to year
and cannot change the election without the consent of the Internal Revenue
Service.
Original issue discount and amortizable bond premium on a Foreign Currency
Note are to be determined in the relevant foreign currency.
Any loss realized on the sale, exchange or retirement of a Foreign Currency
Note with amortizable bond premium by a Holder who has not elected to amortize
such premium under Section 171 of the Code will be a capital loss to the extent
of such bond premium. If such an election is made, amortizable bond premium
taken into account on a current basis shall reduce interest income in units of
the relevant foreign currency. Exchange gain or loss is realized on such
amortized bond premium with respect to any period by treating the bond premium
amortized in such period as a return of principal.
A Holder's tax basis in a Foreign Currency Note, and the amount of any
subsequent adjustment to such Holder's tax basis, will be the U.S. dollar value
of the foreign currency amount paid for such Foreign Currency Note, or of the
foreign currency amount of the adjustment, determined on the date of such
purchase or adjustment. A Holder who purchases a Foreign Currency Note with
previously owned foreign currency will recognize ordinary income or loss in an
amount equal to the difference, if any, between such Holder's tax basis in the
foreign currency and the U.S. dollar fair market value of the Foreign Currency
Note on date of purchase.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss which will not be treated as interest income or
expense. Gain or loss attributable to fluctuations in exchange rates will equal
the difference between (i) the U.S. dollar value of the foreign currency
principal amount of such Note, and any payment with respect to accrued
interest, determined on the date such payment is received or such Note is
disposed of, and (ii) the U.S. dollar value of the foreign currency principal
amount of such Note, determined on the date such Holder acquired such Note, and
the U.S. dollar value of the accrued interest received, determined by
translating such interest at the average exchange rate for the accrual period.
Such foreign currency gain or loss will be recognized only to the extent of the
total gain or loss realized by a Holder on the sale, exchange or retirement of
the Foreign Currency Note. The source of such foreign currency gain or loss
will be determined by reference to the residence of the Holder or the
"qualified business unit" of the Holder on whose books the Note is properly
reflected. Any gain or loss realized by such a Holder in excess of such foreign
currency gain or loss will be capital gain or loss except in the case of a
short-term Original Issue Discount Note, to the extent of any original issue
discount not previously included in the Holder's income).
A Holder will have a tax basis in any foreign currency received on the sale,
exchange or retirement of a Foreign Currency Note equal to the U.S. dollar
value of such foreign currency, determined at the time of such sale, exchange
or retirement. Regulations issued under Section 988 of the Code provide a
special rule for purchases and sales of publicly traded Foreign Currency Notes
by a cash method taxpayer under which units of foreign currency paid or
received are translated into U.S. dollars at the spot rate on the settlement
date of the purchase or sale. Accordingly, no exchange gain or loss will result
from currency fluctuations between the trade date and the settlement of such a
purchase or sale. An accrual method taxpayer may elect the same treatment
required of cash-method taxpayers with respect to the purchases and sale of
publicly traded Foreign Currency Notes provided the election is applied
consistently. Such election cannot be changed without the consent of the
Internal Revenue Service. Any gain or loss realized by a Holder on a sale or
other disposition of foreign currency (including its exchange for U.S. dollars
or its use to purchase Foreign Currency Notes) will be ordinary income or loss.
S-21
Currency Indexed Notes
Notes that are Currency Indexed Notes should constitute debt obligations of
the Company for United States federal income tax purposes and no portion of the
issue price of the Notes should be separately allocated to the foreign exchange
feature of the Notes. However, the proper treatment of payments of principal of
and interest on such Currency Indexed Notes is uncertain at this time.
Holders of Currency Indexed Notes should consult with their tax advisors as
to the federal income tax consequences of the ownership and disposition of such
Notes.
Extension of Maturity
The extension of the maturity of a Note pursuant to its original terms should
be viewed as a taxable exchange due to the Holder's ability to put the Note to
the Company.
Notes Linked to Commodity Prices, Equity Indices or Other Factors
The United States federal income tax consequences to a holder of the
ownership and disposition of Indexed Notes and Notes that are exchangeable into
the stock or a debt instrument of another issuer may vary depending on the
exact terms of the Notes. Under certain circumstances it is possible that
proposed regulations relating to contingent debt instruments would require
bifurcation of such a Note into component parts. If bifurcation were required,
the U.S. federal income tax treatment of the Note would differ materially from
that described herein. Holders intending to purchase such Notes should refer to
the discussion relating to taxation in the applicable Pricing Supplement.
Backup Withholding and Information Reporting
Certain noncorporate Holders may be subject to backup withholding at a rate
of 31% on payments of principal, premium and interest (including the accrual of
original issue discount, if any) on, and the proceeds of disposition of, a
Note. Backup withholding will apply only if the Holder (i) fails to furnish its
Taxpayer Identification Number ("TIN") which, for an individual, would be his
Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified by
the Internal Revenue Service that it has failed to properly report payments of
interest and dividends or (iv) under certain circumstances, fails to certify,
under penalty of perjury, that it has furnished a correct TIN and has not been
notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments. Holders
should consult their tax advisors regarding their qualification for exemption
from backup withholding and the procedure for obtaining such an exemption if
applicable.
The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company through the
Agents, who have agreed to use reasonable efforts to solicit offers to purchase
Notes. The Company will have the sole right to accept offers to purchase Notes
and may reject any offer to purchase Notes in whole or in part. An Agent will
have the right to reject any offer to purchase Notes solicited by it in whole
or in part. Payment of the purchase price of the Notes will be required to be
made in immediately available funds. The Company will pay an Agent, in
connection with sales of Notes resulting from a solicitation made or an offer
to purchase received by such Agent, a commission ranging from .125% to .750% of
the principal amount of Notes to be sold, provided, however, that commissions
with respect to Notes maturing in thirty years or greater will be negotiated.
S-22
The Company may also sell Notes to an Agent as principal for its own account
at discounts to be agreed upon at the time of sale. Such Notes may be resold to
investors and other purchasers at prevailing market prices, or prices related
thereto at the time of such resale, as determined by the Agent or, if so
agreed, at a fixed public offering price. In addition, the Agents may offer the
Notes they have purchased as principal to other dealers. The Agents may sell
Notes to any dealer at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not be
in excess of the discount to be received by such Agent from the Company. After
the initial public offering of Notes to be resold to investors and other
purchasers, the public offering price (in the case of Notes to be resold at a
fixed public offering price) concession and discount may be changed.
The Company has reserved the right to sell the Notes directly to investors,
and may solicit and accept offers to purchase Notes directly from investors
from time to time on its own behalf. The Company may accept (but not solicit)
offers to purchase Notes through additional agents and may appoint additional
agents for the purpose of soliciting offers to purchase Notes, in either case
on terms substantially identical to the terms contained in the Distribution
Agreement. Such other agents, if any, will be named in the applicable Pricing
Supplement.
An Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933 (the "Securities Act"). The Company and the Agents have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments made in
respect thereof. The Company has also agreed to reimburse the Agents for
certain expenses.
The Company does not intend to apply for the listing of the Notes on a
national securities exchange. The Company has been advised by the Agents that
the Agents intend to make a market in the Notes, as permitted by applicable
laws and regulations. The Agents are not obligated to do so, however, and the
Agents may discontinue making a market at any time without notice. No assurance
can be given as to the liquidity of any trading market for the Notes.
Concurrently with the offering of Notes through the Agents as described
herein, the Company may issue other Debt Securities pursuant to the Indenture
referred to herein.
The Agents and/or certain of their affiliates may engage in transactions with
and perform services for the Company and certain of its affiliates in the
ordinary course of business.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company by Ogden Newell
& Welch, counsel for the Company, or such other attorney of the Company as the
Company may designate, and for the Agents by Davis Polk & Wardwell, 450
Lexington Avenue, New York, New York. James S. Welch is a partner in the law
firm of Ogden Newell & Welch and is a director of the Company.
The Company is advised that as of March 18, 1994 members of Ogden Newell &
Welch owned 2,209 shares of Class A Common Stock and 254 shares of Class B
Common Stock of the Company.
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