Filed Pursuant to Rule 424(B)(5)
File No. 333-72676
333-72676-01
PROSPECTUS SUPPLEMENT
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(TO PROSPECTUS DATED NOVEMBER 30, 2001)
This prospectus supplement together with the prospectus dated November 30,
2001 to which it relates constitutes a public offering of these securities only
in those jurisdictions where they may be lawfully offered for sale and in those
jurisdictions only by persons permitted to sell such securities. No securities
commission or similar authority in Canada or the United States of America has in
any way passed upon the merits of the securities offered by this prospectus
supplement and the prospectus to which it relates and any representation to the
contrary is an offence.
U.S. $3,000,000,000
TEXTRON FINANCIAL CORPORATION
MEDIUM-TERM NOTES, SERIES E
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
U.S. $2,600,000,000
TEXTRON FINANCIAL CANADA FUNDING CORP.
MEDIUM-TERM NOTES, SERIES E-CAD
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
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We may offer from time to time Medium-Term Notes, Series E of Textron
Financial Corporation in an aggregate principal amount of up to U.S.
$3,000,000,000 and Medium-Term Notes, Series E-CAD of Textron Financial Canada
Funding Corp. fully and unconditionally guaranteed by Textron Financial
Corporation in an aggregate principal amount of up to U.S. $2,600,000,000. Any
notes issued by Textron Financial Corporation in excess of U.S. $400,000,000
will reduce the amount available to be issued in the future by Textron Financial
Canada Funding Corp. Any notes issued by Textron Financial Canada Funding Corp.
will reduce the amount available to be issued in the future by Textron Financial
Corporation. The specific terms of any notes offered will be included in a
pricing supplement. Unless we provide otherwise in the applicable pricing
supplement, the notes offered will have the following general terms:
- The notes will mature in nine months or more from the date of issuance.
- The notes will be senior unsecured obligations of Textron Financial
Corporation or Textron Financial Canada Funding Corp., as applicable.
- The notes will bear interest at a fixed or floating rate or will not bear
any interest. If the notes bear interest at a floating rate, the floating
interest rate formula will be based on one or more indices or formulas
plus or minus a fixed amount or multiplied by a specified percentage.
- The applicable issuer will pay amounts due on the notes in U.S. dollars or
any other consideration described in the applicable pricing supplement.
- We will specify in the applicable pricing supplement whether the notes can
be redeemed or repaid before their maturity and whether they are subject
to mandatory redemption, redemption at our option or repayment at the
option of the holder of the notes.
- Interest on the notes will be payable on the dates provided in this
prospectus supplement or in the applicable pricing supplement.
- The notes will not be listed on any securities exchange.
- The notes issued by Textron Financial Canada Funding Corp. will be fully
and unconditionally guaranteed by Textron Financial Corporation.
This offering is being made by Textron Financial Corporation, a U.S. issuer,
and Textron Financial Canada Funding Corp., a Canadian issuer, whose obligations
under debt securities issued by it will be guaranteed by Textron Financial
Corporation, using disclosure documents prepared in accordance with U.S.
securities laws. Purchasers should be aware that these requirements may differ
from those of Canadian securities law. The financial statements included or
incorporated by reference in this prospectus supplement have not been prepared
in accordance with Canadian generally accepted accounting principles and may not
be comparable to financial statements of Canadian issuers. This offering is
being made by Textron Financial Canada Funding Corp. in all of the provinces of
Canada pursuant to decisions issued by the securities commission or similar
regulatory authority of each such province.
In the opinion of Canadian counsel, the notes of Textron Financial
Corporation and of Textron Financial Canada Funding Corp. being offered hereby,
if issued on the date of this prospectus supplement, would be eligible for
investment under certain Canadian statutes referred to under the caption
"Eligibility for Investment".
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE S-3.
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RATES ON APPLICATION
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement, the accompanying prospectus or any pricing supplement is
truthful or complete. Any representation to the contrary is a criminal offense.
Certain of the directors and officers of Textron Financial Corporation and
Textron Financial Canada Funding Corp. and the experts named in this prospectus
supplement or the prospectus to which it relates reside outside of Canada.
Certain of the assets of these persons and Textron Financial Corporation and
Textron Financial Canada Funding Corp. may be located outside Canada. Textron
Financial Corporation and Textron Financial Canada Funding Corp. have appointed
Stewart McKelvey Stirling Scales, Suite 800, 1959 Upper Water Street, P.O. Box
997, Halifax Nova Scotia, Canada, B3J 2X2 as their agent for service of process
in Canada, but it may not be possible for investors to effect service of process
within Canada upon all of the directors, officers and experts referred to above.
It may also not be possible to enforce against Textron Financial Corporation and
Textron Financial Canada Funding Corp., their directors and officers and the
experts named in this prospectus supplement or the prospectus to which it
relates, judgments obtained in Canadian courts predicated upon the civil
liability provisions of applicable securities laws in Canada.
We may sell notes to the agents referred to below as principals for resale
at varying or fixed offering prices or through any agent as agent using its
reasonable efforts to sell notes on our behalf.
If we sell other securities referred to in the accompanying prospectus, the
amount of notes that we may offer and sell under this prospectus supplement will
be reduced.
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RBC CAPITAL MARKETS
BMO NESBITT BURNS SCOTIA CAPITAL INC.
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The date of this prospectus supplement is November 30, 2001.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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PROSPECTUS SUPPLEMENT
Risk Factors................................................ S-3
Important Currency Information.............................. S-6
About this Prospectus Supplement............................ S-6
Use of Proceeds............................................. S-6
Description of the Notes.................................... S-7
Special Provisions Relating to Foreign Currency Notes....... S-34
United States Federal Income Tax Considerations............. S-36
Canadian Federal Income Tax Considerations.................. S-45
Plan of Distribution........................................ S-49
Validity of the Notes....................................... S-50
Eligibility for Investment.................................. S-50
Certificate of the Agents................................... S-52
PROSPECTUS
About this Prospectus....................................... 1
Textron Financial Corporation............................... 1
Textron Financial Canada Funding Corp. ..................... 2
Use of Proceeds............................................. 3
Ratio of Earnings to Fixed Charges.......................... 3
Description of Debt Securities.............................. 3
Plan of Distribution........................................ 16
Where You Can Find More Information......................... 17
Legal Opinions.............................................. 18
Experts..................................................... 18
Purchasers' Statutory Rights................................ 18
Certificate of Textron Financial Corporation................ 19
Certificate of Textron Financial Canada Funding Corp. ...... 20
</Table>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. We have not, and the agents have not, authorized any other
person to provide you with different or additional information. If anyone
provides you with different or additional information, you should not rely on
it. We are not, and the agents are not, making an offer to sell these notes in
any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus supplement, the accompanying
prospectus and any pricing supplement, as well as information we previously
filed with the Securities and Exchange Commission and incorporated by reference,
is accurate only as of its date. Our business, financial condition, results of
operations and prospects may have changed since that date.
In this prospectus supplement, unless the context otherwise requires, we
will use the terms "we", "our", "ourselves" and "us" to mean Textron Financial
Corporation and Textron Financial Canada Funding Corp. We will refer to Textron
Financial Corporation as "Textron Financial" or "TFC" and Textron Financial
Canada Funding Corp. as "Textron Canada Funding", and to either of Textron
Financial or Textron Canada Funding as an "issuer".
References in this prospectus supplement to "agent" or "agents" are to any
or all, respectively, of the agents listed below or any other agent appointed by
us.
S-2
RISK FACTORS
Your investment in the notes is subject to certain risks, especially if the
notes involve in some way a foreign currency. This prospectus supplement does
not describe all of the risks of an investment in the notes, whether arising
because the notes are denominated in a currency other than U.S. dollars or
because the return on the notes is linked to one or more interest rate or
currency indices or formulas. Additional risks that we do not know about or that
we view as immaterial may also impair your investment. You should consult your
own financial and legal advisors about the risks entailed by an investment in
the notes and the suitability of your investment in the notes in light of your
particular circumstances. The notes are not an appropriate investment for you if
you are unsophisticated with respect to their significant components. Before
investing in the notes, you should consider carefully, among other factors, the
matters described below.
NOTES INDEXED TO INTEREST RATE, CURRENCY OR OTHER INDICES OR FORMULAS ARE MORE
VOLATILE THAN CONVENTIONAL DEBT SECURITIES
If you invest in notes indexed to one or more interest rates, currencies or
other indices or formulas, you could be subject to significant risks not
associated with a conventional fixed rate or floating rate debt security. These
risks include fluctuation of the indices or formulas and the possibility that
you will receive a lower, or no, amount of principal, premium or interest. You
may receive payments at different times than you expected. The value of an index
can fluctuate based on a number of interrelated factors, including economic,
financial and political events over which we have no control. In addition, if an
index or formula used to determine any amounts payable in respect of the notes
contains a multiplier or leverage factor, that feature will magnify the effect
of any change in the index or formula. In recent years, values of certain
indices and formulas have been volatile and volatility in those and other
indices and formulas may be expected in the future. You should not view the
historical experience of an index as an indication of its future performance.
NOTES DENOMINATED IN FOREIGN CURRENCIES ARE SUBJECT TO SIGNIFICANT RISKS
ASSOCIATED WITH EXCHANGE RATE FLUCTUATION, FOREIGN EXCHANGE CONTROLS AND OTHER
FACTORS OVER WHICH WE HAVE NO CONTROL
Unless we provide otherwise in the applicable pricing supplement, the
applicable issuer will make payments on foreign currency notes in the relevant
foreign currencies. Notes denominated in Canadian dollars and issued in Canada
are not considered to be foreign currency notes. As discussed below under
"Special Provisions Relating to Foreign Currency Notes -- Payment of Principal,
Premium and Interest," any amounts payable by the applicable issuer in the
relevant foreign currency will be converted by the exchange rate agent named in
the applicable pricing supplement into U.S. dollars for payment to holders of
notes, unless we provide otherwise in the applicable pricing supplement. If you
invest in foreign currency notes or currency indexed notes, your investment will
be subject to significant risks not associated with investments in debt
securities denominated in U.S. dollars or U.S. dollar-based indices. These risks
include the possibility of significant changes in the rate of exchange between
the U.S. dollar and your payment currency and the possibility of the imposition
or modification of foreign exchange controls by either the United States or the
applicable foreign governments. We have no control over the factors that
generally affect these risks, such as economic, financial and political events
and the supply and demand for the applicable currencies. In recent years, rates
of exchange between the U.S. dollar and certain foreign currencies have been
volatile and that volatility may continue in the future. Past fluctuations in
any particular exchange rate are not necessarily indicative, however, of
fluctuations that may occur in the future. Depreciation of your payment currency
would result in a decrease in the U.S. dollar-equivalent yield of your foreign
currency notes or currency indexed notes, in the U.S. dollar-equivalent value of
the principal or any premium payable at maturity of your notes and, generally,
in the U.S. dollar-equivalent market value of your notes. If payments on your
foreign currency notes are determined by reference to a formula containing a
multiplier or leverage factor, the effect of any change in the exchange rates
between the applicable currencies will be magnified. We may further describe the
currency risks with respect to your foreign currency notes or currency indexed
notes in the applicable pricing supplement.
S-3
Governmental exchange controls could affect exchange rates and the
availability of the payment currency for your foreign currency notes on a
required payment date. Even if there are no exchange controls, it is possible
that your payment currency will not be available on a required payment date due
to circumstances beyond our control. In these cases, the applicable issuer will
be allowed to satisfy its obligations in respect of your foreign currency notes
in U.S. dollars or Canadian dollars, as the case may be. See "Special Provisions
Relating to Foreign Currency Notes -- Payment Currency."
Foreign exchange rates can either float or be fixed by sovereign
governments. Governments, however, often do not voluntarily allow their
currencies to float freely in response to economic forces. Instead, governments
use a variety of techniques, such as intervention by that country's central
bank, or the imposition of regulatory controls or taxes, to affect the exchange
rate of their currencies. Governments may also issue a new currency to replace
an existing currency or alter the exchange rate or relative exchange
characteristics by the devaluation or revaluation of a currency. Thus, an
important risk in purchasing foreign currency notes or currency indexed notes
for U.S. dollar-based investors is that their U.S. dollar-equivalent yields
could be affected by governmental actions that could change or interfere with
currency valuation that was previously freely determined, fluctuations in
response to other market forces and the movement of currencies across borders.
We will make no adjustment or change in the terms of the foreign currency notes
or currency indexed notes if exchange rates become fixed, or if any devaluation
or revaluation or imposition of exchange or other regulatory controls or taxes
occur, or if other developments affecting the U.S. dollar or any applicable
currency occur.
The paying agent on the notes will make all calculations relating to
foreign currency notes or currency indexed notes. The determinations made by the
paying agent will, in the absence of clear error, be binding on holders of the
notes.
On January 1, 1999, Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, The Netherlands, Portugal and Spain (the "Participating
States") commenced a new stage of economic and monetary union and introduced a
single currency (the "euro"), which is legal tender in the Participating States
in substitution for the national currencies of those countries. Greece also
became a Participating State in January 2001. Bills and coins denominated in
euro will be circulated for the first time on January 1, 2002, and until a
specified date (on or before February 28, 2002) in respect of each Participating
State, the current currencies of the Participating States remain legal tender in
those countries as a subdivision of the euro. The conversion rate between the
current currencies of each Participating State and the euro have been fixed
irrevocably by the Council of the European Union on January 1, 1999. The Council
of the European Union has adopted regulations providing specific rules for the
introduction of the euro.
Unless we provide otherwise in the applicable pricing supplement, the notes
we issue in Canada will be denominated in Canadian dollars. For notes with a
specified currency other than U.S. dollars we will include in the applicable
pricing supplement information concerning historical exchange rates for that
currency against the U.S. dollar and a brief description of any relevant
exchange controls.
EXCHANGE RATES MAY AFFECT THE VALUE OF A JUDGMENT OF A U.S. COURT INVOLVING
FOREIGN CURRENCY NOTES
The notes issued by Textron Financial will be issued as a series of debt
securities under an indenture, dated as of December 9, 1999, between Textron
Financial and SunTrust Bank, as trustee, as amended or supplemented. The notes
issued by Textron Canada Funding will be issued as a series of debt securities
under an indenture, dated as of November 30, 2001, between Textron Canada
Funding, Textron Financial, as guarantor, and SunTrust Bank, as trustee, as
amended or supplemented. The indentures and the notes, including foreign
currency notes, except to the extent that we specify otherwise in a pricing
supplement, will be governed by, and construed in accordance with, the laws of
the State of New York. As a holder of notes, you may bring an action based upon
an obligation payable in a currency other than U.S. dollars in courts in the
United States. However, courts in the United States have not customarily
rendered judgments for money damages denominated in any currency other than U.S.
dollars. In addition, it is not clear whether in granting such a judgment, the
rate of conversion would be determined with reference to the date of default,
the date judgment is rendered or any other date. The Judiciary Law of the State
of
S-4
New York provides, however, that an action based upon an obligation payable in a
currency other than U.S. dollars will be rendered in the foreign currency of the
underlying obligation and converted into U.S. dollars at a rate of exchange
prevailing on the date the judgment or decree is entered. In these cases,
holders of foreign currency notes would bear the risk of exchange rate
fluctuations between the time the dollar amount of the judgment is calculated
and the time U.S. dollars were paid to the holders.
THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND THE APPLICABLE
PRICING SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN NOTES
DENOMINATED IN CURRENCIES OTHER THAN U.S. DOLLARS OR CANADIAN DOLLARS. WE
BELIEVE THAT THESE RISKS ARE POTENTIALLY TOO VARIABLE TO ASCERTAIN AND DESCRIBE
WITH ANY REASONABLE DEGREE OF CERTAINTY AND THAT PREPARATION OF A LIST OF EVERY
POTENTIAL MATERIAL RISK INCORPORATING EVERY ECONOMIC, FINANCIAL, POLITICAL AND
MILITARY CIRCUMSTANCE, AMONG OTHER THINGS, WOULD BE IMPRACTICAL. YOU SHOULD
CONSULT YOUR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN
INVESTMENT IN NOTES DENOMINATED IN CURRENCIES OTHER THAN U.S. DOLLARS OR
CANADIAN DOLLARS. THESE NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS
WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
REDEMPTION MAY ADVERSELY AFFECT YOUR RETURN ON THE NOTES
If your notes are redeemable at the option of the applicable issuer or are
subject to mandatory redemption, the applicable issuer may choose to, in the
case of optional redemption, or must, in the case of mandatory redemption,
redeem your notes at times when prevailing interest rates may be relatively low.
Accordingly, you may not be able to reinvest your redemption proceeds in a
comparable security at an effective interest rate as high as that of your notes
being redeemed.
THERE MAY BE AN UNCERTAIN TRADING MARKET FOR YOUR NOTES; MANY FACTORS AFFECT THE
TRADING VALUE OF YOUR NOTES
Upon issuance, your notes will not have an established trading market. We
cannot assure you that a trading market for your notes will ever develop or be
maintained. Many factors independent of our creditworthiness may affect the
trading market of your notes. These factors include:
- the complexity and volatility of the index or formula applicable to your
notes,
- the method of calculating the principal, premium and interest in respect
of your notes,
- the time remaining to the maturity of your notes,
- the outstanding amount of the notes,
- the redemption features of your notes,
- the amount of other debt securities linked to the index or formula
applicable to your notes, and
- the level, direction and volatility of market interest rates generally.
In addition, because some notes were designed for specific investment
objectives or strategies, these notes will have a more limited trading market,
and will experience more price volatility. There may be a limited number of
buyers when you decide to sell your notes. This may affect the price you receive
for your notes or your ability to sell your notes at all. You should not
purchase notes unless you understand and know you can bear all of the investment
risks relating to your notes.
OUR CREDIT RATINGS MAY NOT REFLECT ALL RISKS OF AN INVESTMENT IN THE NOTES
Our credit ratings are an assessment of our respective ability to pay our
respective obligations. Consequently, real or anticipated changes in our credit
ratings will generally affect the market value of your notes. Our credit
ratings, however, may not reflect the potential impact of risks related to
structure, market or other factors discussed above on the value of your notes.
ENFORCEMENT OF LIABILITIES WITH RESPECT TO TEXTRON CANADA FUNDING
Textron Canada Funding is a wholly-owned subsidiary of Textron Financial
incorporated under the laws of Nova Scotia. One or more of its directors and the
experts named herein with respect to Textron
S-5
Canada Funding reside outside the United States. All or a substantial portion of
the assets of these persons, as well as Textron Canada Funding, are located
outside the United States. Textron Canada Funding does not conduct business in
the United States and it is the position of Textron Canada Funding that (except
as provided below) it is not subject to service of process in the United States.
As a result, it may not be possible for investors in the notes to effect service
of process within the United States upon such persons or to enforce against such
persons or Textron Canada Funding judgments obtained in United States courts
predicated upon the civil liability provisions of the federal securities laws of
the United States. Textron Canada Funding has, however, consented to service of
process in the United States with respect to any action that may be brought in
connection with its notes or its indenture, including with respect to violations
of U.S. Federal Securities Laws with respect to offers and sales of notes.
Purchasers of notes issued by Textron Canada Funding may serve Textron Canada
Funding with respect to any actions by serving Corporation Service Company, 80
State Street, Albany, New York 12207-2543, its United States agent irrevocably
appointed for that purpose. Textron Canada Funding has been advised by its Nova
Scotia counsel that there is no treaty regarding the recognition and enforcement
of judicial decisions between the United States and Canada. As a result, to
enforce a final judgment against Textron Canada Funding obtained in the United
States courts, a claimant must bring such final judgment before a Canadian
court. Textron Canada Funding has been advised by its Nova Scotia counsel that,
subject to certain conditions and qualifications, a Nova Scotia court will
normally issue a judgment incorporating the final judgment rendered by the
United States court.
IMPORTANT CURRENCY INFORMATION
You are required to pay for each note in the currency provided for in the
applicable pricing supplement. If you are a prospective purchaser of a note
having a currency other than U.S. dollars, the agents may, in their discretion
and upon your request, arrange for the exchange of U.S. dollars into that
currency to enable you to pay for the notes. Each exchange will be made by the
agent on the terms, conditions, limitations and charges that the agent may from
time to time establish in accordance with its regular foreign exchange practice.
You must pay all costs of this exchange. See "Special Provisions Relating to
Foreign Currency Notes -- General."
References in this prospectus supplement to "U.S. dollars," "U.S.$," or
"dollar" are to the lawful currency of the United States. In this prospectus
supplement and the prospectus to which it relates, unless otherwise specified,
all dollar amounts are expressed in U.S. dollars.
ABOUT THIS PROSPECTUS SUPPLEMENT
The notes issued by a particular issuer are a series of the debt securities
of that issuer described in the attached prospectus. The following is a
description of the particular terms of the notes. You should read this
prospectus supplement together with the description of the general terms and
provisions of the debt securities set forth in the accompanying prospectus. If
the following description is inconsistent with the description contained in the
accompanying prospectus, then the following description replaces and supersedes
the description contained in the accompanying prospectus.
The pricing supplement for each offering of notes will contain the specific
information and terms for that offering. If any information in the pricing
supplement, including any changes in the method of calculating interest on any
note, is inconsistent with this prospectus supplement or the accompanying
prospectus, you should rely on the information in the pricing supplement. The
pricing supplement may also add, update or change information contained in the
accompanying prospectus and this prospectus supplement. It is important for you
to consider the information contained in the accompanying prospectus, this
prospectus supplement and the applicable pricing supplement in making your
investment decision.
USE OF PROCEEDS
Textron Financial intends to use the net proceeds from the sale of its
notes for general corporate purposes unless otherwise indicated in the
applicable pricing supplement. Textron Canada Funding will lend the net proceeds
from the sale of its notes to Textron Financial or Textron Financial's other
subsidiaries to be used for similar purposes.
S-6
DESCRIPTION OF THE NOTES
The notes issued by Textron Financial will be issued under an indenture,
dated as of December 9, 1999, with SunTrust Bank, as trustee, as amended or
supplemented from time to time. The notes issued by Textron Canada Funding will
be issued as a series of debt securities under an indenture, dated as of
November 30, 2001, with Textron Financial, as guarantor, and SunTrust Bank, as
trustee, as amended or supplemented from time to time. Except as noted in this
prospectus supplement or in the accompanying prospectus, the indentures are
identical in all material respects. The term "senior debt securities" as used in
this prospectus supplement refers to all securities issued and issuable from
time to time under the applicable indenture and includes the notes issued by
Textron Financial or Textron Canada Funding, as applicable. The indentures are
subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
senior debt securities and the indentures are more fully described in the
accompanying prospectus. The following summary of the material provisions of the
notes and of the indentures is not complete and is qualified in its entirety by
reference to the indentures. The summary does not contain all of the provisions
that you may want to consider as an investor in the notes. You may wish to
review the indentures. We have filed a copy of the indentures with the SEC as
exhibits to the registration statement of which this prospectus supplement and
the accompanying prospectus are a part. Unless an issuer provides otherwise in
the applicable pricing supplement, the notes will have the terms described
below, except that references to interest payments and interest-related
information do not apply to some original issue discount notes which are notes
issued at prices significantly less than the amount payable on them at maturity.
GENERAL
The notes issued by a particular issuer will be issued as a series of debt
securities of that issuer under the applicable indenture and will initially be
limited to an aggregate principal amount of $3,000,000,000 for Textron Financial
and $2,600,000,000 for Textron Canada Funding subject to each issuer's right to
"reopen" its series of debt securities to issue additional notes. Any notes
issued by Textron Financial in excess of $400,000,000 will reduce the amount
available to be issued in the future by Textron Canada Funding. Any notes issued
by Textron Canada Funding will reduce the amount available to be issued in the
future by Textron Financial. Notes issued by Textron Canada Funding will be
fully and unconditionally guaranteed under a guarantee by Textron Financial of
the payment of principal of, and any premium and interest on, such notes when
due, whether at maturity or otherwise. Unless an issuer provides otherwise in
the applicable pricing supplement, all senior debt securities, including the
notes, issued and to be issued under the indentures (as well as the related
guarantee, if applicable) will be the applicable issuer's (or guarantor's)
unsecured general obligations and will rank equally in right of payment with all
of its other unsecured and unsubordinated indebtedness from time to time
outstanding.
Neither indenture limits the aggregate principal amount of senior debt
securities that the applicable issuer may issue. Each issuer may issue senior
debt securities from time to time as a single series or in two or more separate
series up to the aggregate principal amount from time to time as the applicable
issuer may authorize for each series. Each issuer may, from time to time,
without the consent of the holders of the notes, provide for the issuance of
notes or other senior debt securities in addition to the aggregate principal
amount of notes offered by this prospectus supplement. As of September 30, 2001,
Textron Financial had $4.9 billion aggregate principal amount of senior debt
securities issued and outstanding (including $850 million aggregate principal
amount of Textron Financial Corporation Medium Term Notes, Series E issued and
outstanding). As of September 30, 2001, Textron Canada Funding had $32.5 million
aggregate principal amount of senior debt securities outstanding and C$25
million aggregate principal amount of senior debt securities outstanding, all of
which are guaranteed by Textron Financial.
The notes will be offered on a continuing basis. Interest-bearing notes
will bear interest at either fixed or floating rates as specified in the
applicable pricing supplement. Notes may be issued at significant discounts from
their principal amount payable at maturity, which will be either the stated
maturity date or any date before the stated maturity date on which the principal
or an installment of principal of a note becomes due and payable, whether by the
declaration of acceleration, call for redemption at the option of the applicable
issuer, repayment at the option of the holder or otherwise. The stated maturity
date or this
S-7
prior date, as the case may be, is referred to as the "maturity date" with
respect to the principal, premium, if any, and interest, payable on that date.
For further information regarding discount notes, see "-- Original Issue
Discount Notes" and "United States Federal Income Tax Considerations -- Tax
Consequences to U.S. Holders."
Unless an issuer provides otherwise in the applicable pricing supplement,
the notes we issue in the United States will be denominated in, and payments in
respect of the notes will be made in, United States dollars. Unless an issuer
provides otherwise in the applicable pricing supplement, the notes we issue in
Canada will be denominated in, and payments in respect of the notes will be made
in, Canadian dollars. The notes also may be denominated in, and payments in
respect of the notes may be made in, one or more foreign or composite
currencies. See "Special Provisions Relating to Foreign Currency Notes --
Payment of Principal, Premium and Interest."
Unless otherwise specified by Textron Financial in the applicable pricing
supplement, all amounts of principal of, and any premium and interest on, any
notes issued by Textron Financial outside of the United States will be paid by
Textron Financial without deduction or withholding for any taxes, assessments or
other charges imposed by the United States, or the government of a jurisdiction
in which a successor to Textron Financial is organized, subject to certain
exceptions. For a discussion of the payment of these taxes, assessments or
charges, please see "Description of Debt Securities -- Payment of Additional
Amounts with Respect to the TFC Debt Securities" in the attached prospectus. In
addition, unless otherwise specified in the applicable pricing supplement,
Textron Financial may redeem these notes in the event certain tax events occur,
to the extent set forth under "Description of Debt Securities -- Optional Tax
Redemption" in the attached prospectus.
Each fixed rate note will mature on a day nine months or more from the date
of issue, as provided in the applicable pricing supplement, as selected by the
agent and agreed to by the applicable issuer. Each floating rate note will
mature on an interest payment date nine months or more from the date of issue as
provided in the applicable pricing supplement, as selected by the agent and
agreed to by the applicable issuer. Except as provided in the next sentence, in
the event that an interest payment date, maturity date or any date fixed for
redemption or repayment of any note is not a business day, principal, premium,
if any, and interest payable on such interest payment date, maturity date or
date fixed for redemption or repayment will be paid on the next succeeding
business day with the same effect as if that business day were the specified
interest payment date, maturity date or date fixed for redemption or repayment
and no interest will accrue for the period from and after the specified interest
payment date, maturity date or date fixed for redemption or repayment to the
next succeeding business day. However, if any interest payment date for a
floating rate note, other than an interest payment date at maturity, falls on a
day that is not a business day, that interest payment date will be postponed to
the next business day and interest will continue to accrue to the following
business day, but in the case of a LIBOR note or a BA Rate note offered in
Canada, if the next business day is in the following calendar month, the
interest payment date will be the immediately preceding business day.
Unless an issuer provides otherwise in the applicable pricing supplement,
the notes will be issuable only in fully registered book-entry form or
certificated form, without coupons, in denominations of U.S.$1,000 and integral
multiples of U.S.$1,000 above that amount for notes denominated in U.S. dollars
or Cdn.$1,000 and integral multiples of Cdn.$1,000 above that amount for notes
denominated in Canadian dollars and the minimum denominations of each foreign
currency note will be in at least equivalent amounts in the applicable foreign
currency, as provided in the applicable pricing supplement. Notes in book-entry
form may be transferred or exchanged only through a participating member of The
Depository Trust Company, The Canadian Depository for Securities Limited or any
other depositary as is identified in an applicable pricing supplement. See
"-- Book-Entry System." Registration of transfer of notes in certificated form
will be made at the corporate trust office of the trustee. There will be no
service charge for any registration of transfer or exchange of notes, but the
applicable issuer may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection with any transfer or exchange,
other than exchanges pursuant to each indenture not involving any transfer.
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The pricing supplement relating to a particular issuance of notes will
describe the following terms:
- whether the notes are fixed rate or floating rate notes or will not bear
any interest,
- the price (expressed as a percentage of the aggregate principal amount)
at which the notes will be issued,
- the date on which the notes will be issued,
- the maturity date of the notes,
- if the notes are fixed rate notes, the rate per annum at which the notes
will bear interest,
- if the notes are floating rate notes, the terms of the notes, including
those matters described below under "-- Floating Rate Notes,"
- whether the notes are original issue discount notes and whether they have
been issued with original issue discount for U.S. or Canadian federal
income tax purposes,
- whether the notes are amortizing notes,
- whether the notes may be redeemed at the option of the applicable issuer,
or repaid at the option of the holder, prior to maturity as described
under "-- Optional Redemption" and "-- Repayment at the Noteholders'
Option; Repurchase" below and, if so, the provisions relating to that
redemption or repayment, including, in the case of any original issue
discount notes, the information necessary to determine the amount due
upon redemption or repayment,
- whether the notes will be initially represented by a global book-entry
note registered in the name of The Depository Trust Company, The Canadian
Depository for Securities Limited or another depositary or a certificate
issued in definitive form,
- any relevant material tax consequences associated with the terms of those
notes which have not been described in "United States Federal Income Tax
Considerations" and "Canadian Federal Income Tax Considerations" below,
- whether the notes will be denominated in a currency other than U.S.
dollars, if offered in the United States, or Canadian dollars, if offered
in Canada,
- the use of proceeds, if materially different from that disclosed in the
accompanying prospectus,
- the identity of any additional agent through or to whom the notes are
being sold,
- the amount of discounts or commissions to be paid to an agent if
different from those specifically set forth in the distribution
agreements which are incorporated by reference as exhibits to the
registration statement of which this prospectus supplement and the
accompanying prospectus are a part, and
- any other terms of those notes that are not inconsistent with the
provisions of the applicable indenture.
PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST
The applicable issuer will make payments of principal and premium, if any,
and interest on notes in book-entry form through the trustee to the depositary
or its nominee. See "-- Book-Entry System."
In the case of notes in certificated form, the applicable issuer will make
payment of principal, premium, if any, and interest on the maturity of each note
in immediately available funds upon presentation and surrender of the note and,
in the case of any repayment on an optional repayment date, upon submission of a
duly completed election form, at the corporate trust office of the trustee in
the Borough of Manhattan, The City of New York, or at any other place as the
applicable issuer may designate. Payment of interest due at maturity will be
made to the person to whom payment of the principal and premium, if any, of the
note in certificated form will be made.
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Unless an issuer provides otherwise in the pricing supplement, it will pay
interest on each certificated note, other than interest payable upon maturity or
upon earlier redemption or repayment, at the corporate trust office of the
trustee in the Borough of Manhattan, The City of New York, or at any other
office as the applicable issuer specifies or, at its option, by check mailed to
the address of the person in whose name a certificated note is registered, as
such address appears in the register maintained by the trustee. However, in the
case of a note issued between a regular record date and the related interest
payment date, interest for the period beginning on the original issue date and
ending on the first interest payment date will be paid to the holder on the next
succeeding interest payment date. A holder of U.S. $10,000,000 or more in total
principal amount of certificated notes of like tenor and terms for notes
denominated in U.S. dollars or Cdn.$10,000,000 or more in total principal amount
of certificated notes of like tenor and terms denominated in Canadian dollars
will be entitled to receive interest payments in U.S. or Canadian dollars, as
the case may be, by wire transfer of immediately available funds if appropriate
wire transfer instructions have been received in writing by the trustee not less
than 15 days prior to that interest payment date. Any such wire transfer
instructions received by the trustee will remain in effect until revoked by the
holder. In the case of a global book-entry note, the payment of interest will be
made to a nominee of the depositary.
The interest rates on notes issued in one transaction may be different from
the interest rates applicable to notes issued in another transaction depending
upon, among other things, the aggregate principal amount of notes purchased in
the applicable transaction. Each issuer may offer notes with similar variable
terms but different interest rates concurrently at any time. Each issuer may
also concurrently offer notes having different variable terms to different
investors.
INTEREST AND INTEREST RATES
Unless otherwise specified in an applicable pricing supplement, each
interest-bearing note will bear interest from the date of issue at the rate per
annum or, in the case of a floating rate note, pursuant to the interest rate
formula, stated in the applicable note and in the applicable pricing supplement
until the principal of the note is paid or made available for payment. Interest
payments on fixed rate notes and floating rate notes will equal the amount of
interest accrued from and including the immediately preceding interest payment
date in respect of which interest has been paid or made available for payment or
from and including the date of issue, if no interest has been paid or made
available for payment with respect to the note, to, but excluding, the related
interest payment date or maturity, as the case may be.
The applicable issuer will pay interest in arrears on each interest payment
date specified in the applicable pricing supplement on which an installment of
interest is due and payable and at maturity. The applicable issuer will pay
interest to the persons or entities in whose names the notes are registered as
of the regular record date. However, interest that the applicable issuer pays at
maturity, if any, will be payable to the persons to whom the principal will be
payable. If any note is originally issued between a regular record date and the
related interest payment date, the applicable issuer will make the first payment
of interest on that note on the interest payment date immediately following the
next succeeding regular record date to the registered holder on that next
succeeding regular record date. Unless we provide otherwise in the applicable
pricing supplement, the regular record date with respect to fixed rate notes
will be the last day of February and August, whether or not a business day,
immediately preceding the related interest payment date and the regular record
date with respect to floating rates notes will be the fifteenth day, whether or
not a business day, immediately preceding the related interest payment date.
"Business day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in The City of New York,
or in the case of notes issued by Textron Canada Funding, Toronto; provided,
however, that, with respect to non-United States dollar-denominated notes, the
day is also not a day on which commercial banks are authorized or required by
law, regulation or executive order to close in the principal financial center,
as defined below, of the country issuing the specified currency or, if the
specified currency is euro, the day is also a day on which the Trans-European
Automated Real-Time Gross Settlement Express Transfer (TARGET) System is open;
and provided further that, with respect to
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floating rate notes as to which LIBOR is an applicable interest rate basis, the
day is also a London banking day.
"London banking day" means a day on which commercial banks are open for
business, including dealings in the LIBOR currency, as defined below under
"LIBOR Rate Notes," in London.
"Principal financial center" means, unless otherwise specified in the
applicable pricing supplement,
(1) the capital city of the country issuing the specified currency, or
(2) the capital city of the country to which the LIBOR currency
relates,
except, in each case, that with respect to United States dollars, Australian
dollars, Canadian dollars, South African rand and Swiss francs, the "principal
financial center" will be The City of New York, Sydney (and solely in the case
of the specified currency, Melbourne), Toronto, Johannesburg and Zurich,
respectively.
FIXED RATE NOTES
Each fixed rate note will bear interest at the annual rate provided in the
note and in the applicable pricing supplement. Unless an issuer provides
otherwise in the applicable pricing supplement, the interest payment dates for
the fixed rate notes will be on March 15 and September 15 of each year. Unless
an issuer provides otherwise in the applicable pricing supplement, interest on
fixed rate notes issued in the United States will be computed and paid on the
basis of a 360-day year of twelve 30-day months. Unless an issuer provides
otherwise in the applicable pricing supplement, interest on fixed rate notes
issued in Canada will be computed on the basis of a 365-day year and will be
payable in two equal semi-annual installments.
FLOATING RATE NOTES
Interest on floating rate notes issued in the United States will be
determined by reference to the applicable interest rate basis or interest rate
bases, which may be one or more of the following:
- the CMT rate,
- the CD rate,
- the Commercial Paper rate,
- the Federal Funds rate,
- LIBOR,
- the Prime rate,
- the Treasury rate, or
- any other interest rate formula described in the applicable pricing
supplement.
Floating rate notes issued in Canada may use different interest rate bases.
See "Floating Rate Notes Issued in Canada" below.
TERMS. Each applicable pricing supplement will specify the terms of the
floating rate note being delivered, including the following:
- whether the floating rate note is a regular floating rate note, a
floating rate/fixed rate note or an inverse floating rate note,
- the interest rate basis or bases (the "base rate"),
- the initial interest rate,
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- the fixed rate commencement date, if applicable,
- the fixed interest rate, if applicable,
- the interest reset dates,
- the interest payment dates,
- the period to maturity of the instrument or obligation with respect to
which the interest rate basis or bases will be calculated (the "index
maturity"),
- the maximum interest rate and minimum interest rate, if any,
- the number of basis points to be added to or subtracted from the related
interest rate basis or bases (the "spread"),
- the percentage of the related interest rate basis or bases by which the
interest rate basis or bases will be multiplied to determine the
applicable interest rate (the "spread multiplier"),
- if one or more of the specified interest rate bases is LIBOR, the LIBOR
currency, the index maturity and the designated LIBOR page, each as
defined below, and
- if one or more of the specified interest rate bases is the CMT rate, the
CMT Telerate Page and the weekly average or the monthly average.
If we designate the floating rate note as having an addendum attached, the
floating rate note will bear interest in accordance with the terms described in
the addendum and the applicable pricing supplement.
The interest rate borne by the floating rate notes will be determined as
follows:
REGULAR FLOATING RATE NOTE. Unless a floating rate note is designated as a
"floating rate/fixed rate note," an "inverse floating rate note" or as having an
addendum attached or as having "other/additional provisions" apply relating to a
different interest rate formula, the floating rate note will be designated as a
"regular floating rate note" and, except as described below or in an applicable
pricing supplement, will bear interest at the rate determined by reference to
the applicable interest rate basis or bases:
- plus or minus the applicable spread, if any, and/or
- multiplied by the applicable spread multiplier, if any.
Commencing on the first interest reset date, the interest rate of the regular
floating rate note will be reset on each interest reset date. However, the
interest rate for the period from the date of issuance to the first interest
reset date will be the initial interest rate provided in the pricing supplement.
FLOATING RATE/FIXED RATE NOTE. If a floating rate note is designated as a
"floating rate/fixed rate note," then, except as described below or in the
applicable pricing supplement, it will bear interest at the rate determined by
reference to the applicable interest rate basis or bases:
- plus or minus the applicable spread, if any, and/or
- multiplied by the applicable spread multiplier, if any.
Commencing on the first interest reset date, the interest rate on the
floating rate/fixed rate note will be reset on each interest reset date;
provided, however, that:
- the interest rate for the period from the date of issuance to the first
interest reset date will be the initial interest rate, and
- the interest rate for the period commencing on, and including, the date
on which interest begins to accrue on a fixed rate basis to maturity,
i.e. the fixed rate commencement date, will be the fixed interest rate
provided in the applicable pricing supplement or, if no fixed interest
rate is provided in the applicable pricing supplement, the interest rate
for this period will be the interest rate in effect on the day
immediately preceding the date on which interest begins to accrue on a
fixed rate basis.
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INVERSE FLOATING RATE NOTE. If a floating rate note is designated as an
"inverse floating rate note," then, except as described below or in the
applicable pricing supplement, it will bear interest at the fixed interest rate
specified in the applicable pricing supplement minus the rate determined by
reference to the applicable interest rate basis or bases:
- plus or minus the applicable spread, if any, and/or
- multiplied by the applicable spread multiplier, if any.
Unless an issuer provides otherwise in the applicable pricing supplement, the
interest rate will not be less than zero.
Commencing on the first interest reset date, the interest rate on the
inverse floating rate note will be reset as of each interest reset date.
However, the interest rate in effect for the period from the date of issuance to
the first interest reset date will be the initial interest rate.
INTEREST RESET DATES. The rate of interest on each floating rate note will
be reset daily, weekly, monthly, quarterly, semi-annually or annually, as
provided in the applicable pricing supplement (the "interest reset date").
Unless an issuer provides otherwise in the applicable 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 which reset weekly, the Wednesday of
each week, with the exception of weekly reset floating rate notes as to
which the Treasury rate is an applicable interest rate basis, which will
reset the Tuesday of each week,
- 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 semi-annually, the third
Wednesday of the two months specified in the applicable pricing
supplement, and
- in the case of floating rate notes which reset annually, the third
Wednesday of the month specified in the applicable pricing supplement;
provided, however, that:
- the interest rate of a floating rate/fixed rate note will not reset after
the applicable fixed rate commencement date,
- the initial interest rate, which is the interest rate in effect from the
original issue date to, but not including, the first interest reset date,
will be as provided in the applicable pricing supplement, and
- if any interest reset date falls on a day that is not a business day, the
applicable interest reset date will be postponed to the next business
day, except, in the case of a LIBOR note or a BA Rate note offered in
Canada, if that business day is in the following calendar month, the
interest reset date will be the immediately preceding business day.
MAXIMUM AND MINIMUM INTEREST RATES. A floating rate note may also have
either or both of the following:
- a maximum numerical limitation, or ceiling, on the rate at which interest
may accrue during any interest period (a "maximum interest rate"), and
- a minimum numerical limitation, or floor, on the rate at which interest
may accrue during any period (a "minimum interest rate").
Each indenture is, and any notes issued under each indenture will be,
governed by and construed in accordance with the laws of the State of New York.
Under present New York law, the maximum rate of
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interest is 25% per annum on a simple interest basis. This limit may not apply
to securities in which $2,500,000 or more has been invested. While we believe
that New York law would be given effect by a state or federal court sitting
outside of New York, state laws frequently regulate the amount of interest that
may be charged to and paid by a borrower, including, in some cases, corporate
borrowers. We suggest that prospective investors consult their personal advisors
with respect to the applicability of these laws. We have agreed for the benefit
of the beneficial owners of the notes, to the extent permitted by law, not to
claim voluntarily the benefits of any laws concerning usurious rates or interest
against a beneficial owner of the notes.
INTEREST DETERMINATION DATES. Unless an issuer provides otherwise in the
applicable pricing supplement, the interest rate applicable to each interest
reset period commencing on the related interest reset date will be the rate
determined as of the applicable "interest determination date" and calculated on
or prior to the calculation date, as defined below.
- The interest determination date with respect to a CD rate note, a CMT
rate note and a Commercial Paper rate note will be the second business
day preceding each interest reset date for the related note.
- The interest determination date with respect to a Federal Funds rate note
and a Prime rate note will be the first business day preceding each
interest reset date for the related note.
- The interest determination date with respect to a LIBOR note will be the
second London banking day preceding each interest reset date.
- The interest determination date with respect to a Treasury rate note will
be the day of the week in which that interest reset date falls on which
Treasury bills would normally be auctioned. Treasury bills are normally
sold at auction on Monday of each week. If Monday is a legal holiday, the
auction is normally held on the following Tuesday, but the auction may be
held on the preceding Friday. If, as the result of a legal holiday, an
auction is held on the preceding Friday, that Friday will be the interest
determination date relating to the interest reset date occurring in the
following week.
- The interest determination date relating to a floating rate note with an
interest rate that is determined by reference to two or more interest
rate bases will be the most recent business day which is at least two
business days before the applicable interest reset date for each interest
rate for the applicable floating rate note on which each interest reset
basis is determinable.
- The interest determination date with respect to a BA Rate note and a Cdn.
Prime Rate note offered in Canada will be each interest reset date for
the related note.
CALCULATION DATE
Unless an issuer provides otherwise in the applicable pricing supplement,
SunTrust Bank will be the calculation agent, which term includes any successor
calculation agent appointed by the applicable issuer. The calculation agent will
determine for each interest reset date the interest rate in the manner described
in this prospectus supplement. The calculation agent will notify the trustee of
each determination of the interest rate for any floating rate note promptly
after the determination is made. The calculation agent will, upon the request of
the holder of any floating rate note, provide the interest rate then in effect
and, if determined, the interest rate which will become effective on the next
interest reset date for that note.
Unless an issuer provides otherwise in the applicable pricing supplement,
the calculation date relating to any interest determination date will be the
earlier of:
- the tenth day after the applicable interest determination date or, if
that day is not a business day, the following business day, or
- the business day preceding the applicable interest payment date or
maturity date, as the case may be.
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INTEREST PAYMENTS
Each applicable pricing supplement will specify the dates on which interest
will be payable. Except as provided below or in the applicable pricing
supplement, interest on floating rate notes will be payable:
- 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 of each year,
- in the case of floating rate notes with a quarterly interest reset date,
on the third Wednesday of March, June, September and December of each
year,
- in the case of floating rate notes with a semi-annual interest reset
date, on the third Wednesday of the two months specified in the
applicable pricing supplement,
- in the case of floating rate notes with an annual interest reset date, on
the third Wednesday of the month of each year specified in the applicable
pricing supplement, and
- at maturity.
All percentages resulting from any calculation on floating rate notes will
be rounded to the nearest one hundred thousandth of a percentage point, with
five one millionths of a percentage point rounded upwards. For example,
9.876545%, or .09876545, would be rounded to 9.87655%, or .0987655. All dollar
amounts used in or resulting from any calculation on floating rate notes will be
rounded to the nearest cent with one half cent being rounded upward.
With respect to each floating rate note, accrued interest from the date of
issue or from the last date to which interest has been paid is calculated by
multiplying the face amount of a note by an accrued interest factor. Unless
otherwise specified in the applicable pricing supplement, the accrued interest
factor is computed by adding together the interest factors calculated for each
day from the original issue date, or from the last date to which interest has
been paid, to the date for which accrued interest is being calculated. Unless
provided otherwise in the applicable pricing supplement:
- In the case of notes for which the interest rate basis is the CD rate,
the Commercial Paper rate, the Federal Funds rate, LIBOR or the Prime
rate, the interest factor for each day will be computed by dividing the
interest rate applicable to each day by 360.
- In the case of notes for which the interest rate basis is the CMT rate or
the Treasury rate or in the case of floating rate notes issued in Canada,
the interest factor for each day will be computed by dividing the
interest rate applicable to each day by the actual number of days in the
year.
- The interest factor for floating rate notes for which the interest rate
is calculated with reference to two or more interest rate bases will be
calculated in each period in the same manner as if only one of the
applicable interest rate bases applied.
Except as set forth in the applicable pricing supplement, the interest rate
in effect on each day will be:
- if the day is an interest reset date, the interest rate with respect to
the interest determination date relating to that interest reset date, or
- if the day is not an interest reset date, the interest rate with respect
to the interest determination date relating to the immediately preceding
interest reset date; provided, however, that the interest rate in effect
for the period from the date of issue to the first interest reset date
will be the initial interest rate specified in the applicable pricing
supplement.
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Unless an issuer provides otherwise in the applicable pricing supplement,
with respect to floating rate notes issued in the United States, interest rates
will be determined by the calculation agent as follows:
CD RATE NOTES. CD rate notes will bear interest at the rates, calculated
with reference to the CD rate and the spread and/or spread multiplier, if any,
specified in the applicable CD rate notes and in any applicable pricing
supplement.
"CD rate" means:
(1) the rate on the applicable interest determination date for
negotiable United States dollar certificates of deposit having the index
maturity specified in the applicable pricing supplement published in
H.15(519) under the heading "CDs (secondary market)," or
(2) if the rate referred to in clause (1) above is not so published by
3:00 P.M., New York City time, on the related calculation date, the rate on
the applicable interest determination date for negotiable United States
dollar certificates of deposit of the index maturity specified in the
applicable pricing supplement as published in H.15 daily update, or other
recognized electronic source used for the purpose of displaying the
applicable rate, under the caption "CDs (secondary market)," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on the
applicable interest determination date calculated by the calculation agent
on the notes as the arithmetic mean of the secondary market offered rates
as of 10:00 A.M., New York City time, on the applicable interest
determination date, of three leading non-bank dealers in negotiable United
States dollar certificates of deposit in The City of New York (which may
include an agent or its affiliates) selected by the calculation agent for
negotiable United States dollar certificates of deposit of major United
States money market banks with a remaining maturity closest to the index
maturity specified in the applicable pricing supplement in an amount that
is representative for a single transaction in that market at that time, or
(4) if the dealers selected by the calculation agent are not quoting
as mentioned in clause (3) above, the CD rate in effect on the applicable
interest determination date.
"H.15(519)" means the weekly statistical release designated as H.15(519),
or any successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 daily update" means the daily update of H.15(519), available through
the world-wide-web site of the Board of Governors of the Federal Reserve System
at http://www.federalreserve.gov/releases/h15/update, or any successor site or
publication.
CMT RATE NOTES. CMT rate notes will bear interest at the rates, calculated
with reference to the CMT rate and the spread and/or spread multiplier, if any,
specified in the applicable CMT rate notes and in any applicable pricing
supplement.
"CMT rate" means:
(1) if CMT Telerate Page 7051 is specified in the applicable pricing
supplement:
(a) the percentage equal to the yield for United States Treasury
securities at "constant maturity" having the index maturity specified in
the applicable pricing supplement as published in H.15(519) under the
caption "Treasury Constant Maturities," as the yield is displayed on
Bridge Telerate, Inc. (or any successor service), on page 7051 or any
other page as may replace page 7051 on that service ("Telerate Page
7051"), for the applicable interest determination date, or
(b) if the rate referred to in clause (a) does not appear on
Telerate Page 7051, the percentage equal to the yield for United States
Treasury securities at "constant maturity" having the index maturity
specified in the applicable pricing supplement and for the applicable
interest determination date as published in H.15(519) under the caption
"Treasury Constant Maturities," or
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(c) if the rate referred to in clause (b) does not appear in
H.15(519), the rate on the applicable interest determination date for
the period of the index maturity specified in the applicable pricing
supplement as may then be published by either the Federal Reserve System
Board of Governors or the United States Department of the Treasury that
the calculation agent determines to be comparable to the rate which
would otherwise have been published in H.15(519), or
(d) if the rate referred to in clause (c) is not published, the
rate on the applicable interest determination date calculated by the
calculation agent as a yield to maturity based on the arithmetic mean of
the secondary market bid prices at approximately 3:30 P.M., New York
City time, on the applicable interest determination date of three
leading primary United States government securities dealers in The City
of New York, which may include the agents or their affiliates (each, a
"reference dealer"), selected by the calculation agent from five
reference dealers selected by the calculation agent and eliminating the
highest quotation, or, in the event of equality, one of the highest, and
the lowest quotation or, in the event of equality, one of the lowest,
for United States Treasury securities with an original maturity equal to
the index maturity specified in the applicable pricing supplement, a
remaining term to maturity no more than 1 year shorter than the index
maturity specified in the applicable pricing supplement and in a
principal amount that is representative for a single transaction in the
securities in the market at that time, or
(e) if fewer than five but more than two of the prices referred to
in clause (d) are provided as requested, the rate on the applicable
interest determination date calculated by the calculation agent based on
the arithmetic mean of the bid prices obtained and neither the highest
nor the lowest of the quotations shall be eliminated, or
(f) if fewer than three prices referred to in clause (d) are
provided as requested, the rate on the applicable interest determination
date calculated by the calculation agent as a yield to maturity based on
the arithmetic mean of the secondary market bid prices as of
approximately 3:30 P.M., New York City time, on the applicable interest
determination date of three reference dealers selected by the
calculation agent from five reference dealers selected by the
calculation agent and eliminating the highest quotation or, in the event
of equality, one of the highest and the lowest quotation or, in the
event of equality, one of the lowest, for United States Treasury
securities with an original maturity greater than the index maturity
specified in the applicable pricing supplement, a remaining term to
maturity closest to the index maturity specified in the applicable
pricing supplement and in a principal amount that is representative for
a single transaction in the securities in the market at that time, or
(g) if fewer than five but more than two prices referred to in
clause (f) are provided as requested, the rate on the applicable
interest determination date calculated by the calculation agent based on
the arithmetic mean of the bid prices obtained and neither the highest
nor the lowest of the quotations will be eliminated, or
(h) if fewer than three prices referred to in clause (f) are
provided as requested, the CMT rate in effect on the applicable interest
determination date.
(2) if CMT Telerate Page 7052 is specified in the applicable pricing
supplement:
(a) the percentage equal to the one-week or one-month, as specified
in the applicable pricing supplement, average yield for United States
Treasury securities at "constant maturity" having the index maturity
specified in the applicable pricing supplement as published in H.15(519)
opposite the caption "Treasury Constant Maturities," as the yield is
displayed on Bridge Telerate, Inc., or any successor service, on page
7052 or any other page as may replace that specified page on that
service ("Telerate Page 7052"), for the week or month, as applicable,
ended immediately preceding the week or month, as applicable, in which
the related interest determination date falls, or
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(b) if the rate referred to in clause (a) does not appear on
Telerate Page 7052, the percentage equal to the one-week or one-month,
as specified in the applicable pricing supplement, average yield for
United States Treasury securities at "constant maturity" having the
index maturity specified in the applicable pricing supplement and for
the week or month, as applicable, preceding the applicable interest
determination date as published in H.15(519) opposite the caption
"Treasury Constant Maturities," or
(c) if the rate referred to in clause (b) does not appear in
H.15(519), the one-week or one-month, as specified, average yield for
United States Treasury securities at "constant maturity" having the
index maturity specified in the applicable pricing supplement as
otherwise announced by the Federal Reserve Bank of New York for the week
or month, as applicable, ended immediately preceding the week or month,
as applicable, in which the related interest determination date falls,
or
(d) if the Federal Reserve Bank of New York does not publish the
rate referred to in clause (c), the rate on the applicable interest
determination date calculated by the calculation agent as a yield to
maturity based on the arithmetic mean of the secondary market bid prices
at approximately 3:30 P.M., New York City time, on the applicable
interest determination date of three reference dealers selected by the
calculation agent from five reference dealers selected by the
calculation agent and eliminating the highest quotation, or, in the
event of equality, one of the highest, and the lowest quotation or, in
the event of equality, one of the lowest, for United States Treasury
securities with an original maturity equal to the index maturity
specified in the applicable pricing supplement, a remaining term to
maturity no more than 1 year shorter than the index maturity specified
in the applicable pricing supplement and in a principal amount that is
representative for a single transaction in the securities in the market
at that time, or
(e) if fewer than five but more than two of the prices referred to
in clause (d) are provided as requested, the rate on the applicable
interest determination date calculated by the calculation agent based on
the arithmetic mean of the bid prices obtained and neither the highest
nor the lowest of the quotations shall be eliminated, or
(f) if fewer than three prices referred to in clause (d) are
provided as requested, the rate on the applicable interest determination
date calculated by the calculation agent as a yield to maturity based on
the arithmetic mean of the secondary market bid prices as of
approximately 3:30 P.M., New York City time, on the applicable interest
determination date of three reference dealers selected by the
calculation agent from five reference dealers selected by the
calculation agent and eliminating the highest quotation or, in the event
of equality, one of the highest and the lowest quotation or, in the
event of equality, one of the lowest, for United States Treasury
securities with an original maturity greater than the index maturity
specified in the applicable pricing supplement, a remaining term to
maturity closest to the index maturity specified in the applicable
pricing supplement and in a principal amount that is representative for
a single transaction in the securities in the market at the time, or
(g) if fewer than five but more than two prices referred to in
clause (f) are provided as requested, the rate will be calculated by the
calculation agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations will
be eliminated, or
(h) if fewer than three prices referred to in clause (f) are
provided as requested, the CMT rate in effect on the applicable interest
determination date.
If two United States Treasury securities with an original maturity
greater than the index maturity specified in the applicable pricing
supplement have remaining terms to maturity equally close to the index
maturity specified in the applicable pricing supplement, the quotes for
the United States Treasury security with the shorter original remaining
term to maturity will be used.
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COMMERCIAL PAPER RATE NOTES. Commercial Paper rate notes will bear
interest at the rates, calculated with reference to the Commercial Paper rate
and the spread and/or spread multiplier, if any, specified in the applicable
Commercial Paper rate notes and in any applicable pricing supplement.
"Commercial Paper rate" means:
(1) the money market yield on the applicable interest determination
date of the rate for commercial paper having the index maturity specified
in the applicable pricing supplement published in H.15(519) under the
caption "Commercial Paper-Nonfinancial," or
(2) if the rate described in clause (1) is not so published by 3:00
P.M., New York City time, on the related calculation date, the money market
yield of the rate on the applicable interest determination date for
commercial paper having the index maturity specified in the applicable
pricing supplement published in H.15 daily update, or other recognized
electronic source used for the purpose of displaying the applicable rate,
under the caption "Commercial Paper-Nonfinancial," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on the
applicable interest determination date calculated by the calculation agent
as the money market yield of the arithmetic mean of the offered rates at
approximately 11:00 A.M., New York City time, on the applicable interest
determination date of three leading dealers of United States dollar
commercial paper in The City of New York, which may include the agent and
its affiliates, selected by the calculation agent for commercial paper
having the index maturity specified in the applicable pricing supplement
placed for industrial issuers whose bond rating is "Aa," or the equivalent,
from a nationally recognized statistical rating organization, or
(4) if the dealers selected by the calculation agent are not quoting
as mentioned in clause (3), the Commercial Paper rate in effect on the
applicable interest determination date.
"Money market yield" means a yield calculated in accordance with the following
formula and expressed as a percentage:
<Table>
D X 360
Money market yield = ------------- X 100
360 - (D X M)
</Table>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
FEDERAL FUNDS RATE NOTES. Federal Funds rate notes will bear interest at
the rates, calculated with reference to the Federal Funds rate and the spread
and/or spread multiplier, if any, specified in the applicable Federal Funds rate
notes and in any applicable pricing supplement.
"Federal Funds rate" means:
(1) the rate on the applicable interest determination date for United
States dollar federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," as displayed on Bridge Telerate, Inc. or any
successor service on page 120 or any other page as may replace the
applicable page on that service, "Telerate Page 120," or
(2) if the rate referred to in clause (1) does not appear on Telerate
Page 120 or is not so published by 3:00 P.M., New York City time, on the
related calculation date, the rate on the applicable interest determination
date for United States dollar federal funds published in H.15 daily update,
or other recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "Federal Funds/Effective Rate," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on the
applicable interest determination date calculated by the calculation agent
as the arithmetic mean of the rates for the last transaction in overnight
United States dollar federal funds arranged by three leading brokers of
United States dollar federal funds
S-19
transactions in The City of New York, which may include the agent or its
affiliates, selected by the calculation agent before 9:00 A.M., New York
City time, on the applicable interest determination date, or
(4) if the brokers selected by the calculation agent are not quoting
as mentioned in clause (3), the Federal Funds rate in effect on the
applicable interest determination date.
LIBOR RATE NOTES. LIBOR rate notes will bear interest at the rates,
calculated with reference to LIBOR and the spread and/or spread multiplier, if
any, specified in the applicable LIBOR rate notes and in any applicable pricing
supplement.
"LIBOR" means:
(1) if "LIBOR Telerate" is specified in the applicable pricing
supplement or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified
in the applicable pricing supplement as the method for calculating LIBOR,
LIBOR will be the rate for deposits in the LIBOR currency, as defined
below, having the index maturity specified in the applicable pricing
supplement, commencing on the second London banking day immediately
following that interest determination date that appears on the designated
LIBOR Page as of 11:00 A.M., London time, on the applicable interest
determination date, or
(2) if "LIBOR Reuters" is specified in the applicable pricing
supplement, LIBOR will be the arithmetic mean of the offered rates for
deposits in the LIBOR currency having the index maturity specified in the
applicable pricing supplement, commencing on the second London banking day
immediately following that interest determination date, that appear on the
designated LIBOR page specified in the applicable pricing supplement as of
11:00 A.M., London time, on the applicable interest determination date. If
the designated LIBOR page by its terms provides only for a single rate,
then the single rate will be used, or
(3) with respect to a LIBOR interest determination date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the designated LIBOR page as specified in clauses (1) and (2),
respectively, the rate calculated by the calculation agent as the
arithmetic mean of at least two quotations obtained by the calculation
agent after requesting the principal London offices of each of four major
reference banks, which may include affiliates of the agent, in the London
interbank market to provide the calculation agent with its offered
quotation for deposits in the LIBOR currency for the period of the index
maturity specified in the applicable pricing supplement, commencing on the
second London banking day immediately following the applicable interest
determination date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on the applicable interest
determination date and in a principal amount that is representative for a
single transaction in the applicable LIBOR currency in that market at that
time, or
(4) if fewer than two quotations referred to in clause (3) are so
provided, the rate on the applicable interest determination date calculated
by the calculation agent as the arithmetic mean of the rates quoted at
approximately 11:00 A.M., in the applicable principal financial center(s),
on the applicable interest determination date by three major banks, which
may include affiliates of the agent, in the applicable principal financial
center selected by the calculation agent for loans in the LIBOR currency to
leading European banks, having the index maturity specified in the
applicable pricing supplement and in a principal amount that is
representative for a single transaction in the applicable LIBOR currency in
that market at that time, or
(5) if the banks so selected by the calculation agent are not quoting
as mentioned in clause (4), LIBOR in effect on the applicable interest
determination date.
"LIBOR currency" means the currency specified in the applicable pricing
supplement as to which LIBOR will be calculated or, if no currency is specified
in the applicable pricing supplement, United States dollars.
S-20
"Designated LIBOR page" means either:
- if "LIBOR Telerate" is designated in the applicable pricing supplement or
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the
applicable pricing supplement as the method for calculating LIBOR, the
display on Bridge Telerate, Inc. or any successor service on the page
specified in such pricing supplement or any page as may replace the
specified page on that service for the purpose of displaying the London
interbank rates of major banks for the applicable LIBOR currency, or
- if "LIBOR Reuters" is specified in the applicable pricing supplement, the
display on the Reuters Monitor Money Rates Service or any successor
service on the page specified in the applicable pricing supplement or any
other page as may replace the specified page on that service for the
purpose of displaying the London interbank rates of major banks for the
applicable LIBOR currency.
PRIME RATE NOTES. Prime rate notes will bear interest at the rates,
calculated with reference to the Prime rate and the spread and/or spread
multiplier, if any, specified in the applicable Prime rate notes and any
applicable pricing supplement.
"Prime rate" means:
(1) the rate on the applicable interest determination date as
published in H.15(519) under the caption "Bank Prime Loan," or
(2) if the rate referred to in clause (1) is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on the
applicable interest determination date published in H.15 daily update, or
such other recognized electronic source used for the purpose of displaying
the applicable rate under the caption "Bank Prime Loan," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on the
particular interest determination date calculated by the calculation agent
as the arithmetic mean of the rates of interest publicly announced by each
bank that appears on the Reuters Screen US PRIME 1 Page as the particular
bank's prime rate or base lending rate as of 11:00 A.M., New York City
time, on the applicable interest determination date, or
(4) if fewer than four rates described in clause (3) are so published
by 3:00 P.M., New York City time, on the related calculation date as shown
on the Reuters Screen US PRIME 1 Page, the rate on the applicable interest
determination date calculated by the calculation agent as the arithmetic
mean of the prime rates or base lending rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close
of business on the applicable interest determination date by three major
banks, which may include affiliates of the agent, in The City of New York
selected by the calculation agent, or
(5) if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), the Prime rate in effect on the applicable
interest determination date.
"Reuters Screen US Prime 1 Page" means the display on the Reuters Monitor Money
Rates Service or any successor service on the "US PRIME 1 Page" or other page as
may replace the US PRIME 1 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 rates,
calculated with reference to the Treasury rate and the spread and/or spread
multiplier, if any, specified in the applicable Treasury rate notes and in any
applicable pricing supplement.
"Treasury rate" means:
(1) the rate from the auction held on the applicable interest
determination date (the "auction") of direct obligations of the United
States ("treasury bills") having the index maturity specified in the
S-21
applicable pricing supplement under the caption "Investment Rate" on the
display on Bridge Telerate, Inc. or any successor service on page 56 or any
other page as may replace page 56 on that service, "Telerate Page 56," or
page 57 or any other page as may replace page 57 on that service, "Telerate
Page 57," or
(2) if the rate described in clause (1) is not so published by 3:00
P.M., New York City time, on the related calculation date, the bond
equivalent yield of the rate for the applicable treasury bills as published
in H.15 daily update, or other recognized electronic source used for the
purpose of displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Auction High," or
(3) if the rate described in clause (2) is not so published by 3:00
P.M., New York City time, on the related calculation date, the bond
equivalent yield of the auction rate of the applicable treasury bills
announced by the United States Department of the Treasury, or
(4) if the rate referred to in clause (3) is not announced by the
United States Department of the Treasury, or if the Auction is not held,
the bond equivalent yield of the rate on the applicable interest
determination date of treasury bills having the index maturity specified in
the applicable pricing supplement published in H.15(519) under the caption
"U.S. Government Securities/Treasury Bills/Secondary Market," or
(5) if the rate referred to in clause (4) is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on the
applicable interest determination date of the applicable treasury bills as
published in H.15 daily update, or other recognized electronic source used
for the purpose of displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market," or
(6) if the rate referred to in clause (5) is not so published by 3:00
P.M., New York City time, on the related calculation date, the rate on the
applicable interest determination date calculated by the calculation agent
as the bond equivalent yield of the arithmetic mean of the secondary market
bid rates, as of approximately 3:30 P.M., New York City time, on the
applicable interest determination date, of three primary United States
government securities dealers, which may include the agent or its
affiliates, selected by the calculation agent, for the issue of treasury
bills with a remaining maturity closest to the index maturity specified in
the applicable pricing supplement, or
(7) if the dealers selected by the calculation agent are not quoting
as mentioned in clause (6), the Treasury rate in effect on the applicable
interest determination date.
"Bond equivalent yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
<Table>
D X N
Bond equivalent yield = ------------- X 100
360 - (D X M)
</Table>
where "D" refers to the applicable per annum rate for treasury bills quoted on a
bank discount basis and expressed as a decimal, "N" refers to 365 or 366, as the
case may be, and "M" refers to the actual number of days in the interest period
for which interest is being calculated.
FLOATING RATE NOTES ISSUED IN CANADA
Except as described in the applicable pricing supplement, floating rate
notes issued in Canada will bear interest at the rate determined by reference to
one or more of the BA Rate (as defined below), LIBOR (as defined in "LIBOR Rate
Notes" above), or the Cdn. Prime Rate (as defined below) (each an interest rate
basis), as specified in the pricing supplement.
BA RATE NOTES. Floating rate notes for which the interest rate is
determined with reference to the BA Rate will bear interest at interest rates
(calculated with reference to the BA Rate and the spread, spread multiplier or
other formula, if any) specified in the applicable pricing supplement.
S-22
Unless otherwise specified in the applicable pricing supplement, "BA Rate"
means the rate (expressed as an annual percentage rate based on a year of 365
days) determined by the applicable issuer to be the arithmetic average (rounded
to the nearest one-hundred-thousandth of one percent, with .000005 being rounded
up) of the bid quotations for bankers' acceptances stamped by Schedule I
Canadian chartered banks denominated in Canadian dollars with a maturity
approximately coextensive with the stated maturity applicable to such floating
rate note, as set forth on the Reuters CDOR Page (as defined below) at
approximately 10:00 a.m. (Toronto time) on the BA Rate interest determination
date. If on the BA Rate interest determination date only one or zero quotations
are available on the Reuters CDOR Page or if the Reuters CDOR Page is
unavailable for any reason, the BA Rate shall be the rate (expressed as an
annual percentage rate based on a year of 365 days) determined by the applicable
issuer or calculation agent to be the average (rounded to the nearest
one-hundred-thousandth of one per cent, with .000005 being rounded up) of rates
bid by each of the three Schedule I Canadian chartered banks selected by the
applicable issuer or calculation agent at approximately 10:00 a.m. (Toronto
time) on the BA Rate interest determination date for bankers' acceptances
stamped by Schedule I Canadian chartered banks denominated in Canadian dollars
with a maturity approximately coextensive with the stated maturity applicable to
such floating rate note. If on the BA Rate interest determination date only one
or two such Schedule I Canadian chartered banks provide bid quotations, then
such bid, or the arithmetic average of such bids, as the case may be, shall be
used for purposes of determining the BA Rate.
"Reuters CDOR Page" means the display designated as page "CDOR" on the
Reuters Monitor Money Rates Service (or such other page as may replace the CDOR
page on that service for the purpose of displaying bankers' acceptance rates of
banks and investment dealers).
CDN. PRIME RATE NOTES. Floating rate notes for which the interest rate is
determined with reference to the Cdn. Prime Rate will bear interest at the rates
(calculated with reference to the Cdn. Prime Rate and the spread, spread
multiplier or other formula, if any) specified in the applicable pricing
supplement.
Unless otherwise specified in the applicable pricing supplement, "Cdn.
Prime Rate" means the rate (expressed as an annual percentage rate based on a
year of 365 days) determined by the applicable issuer to be the average (rounded
to the nearest one-hundred-thousandth of one percent, with .000005 being rounded
up) of the rates publicly quoted by the Schedule I Canadian chartered banks as
base rates for determining interest rates on Canadian dollar prime rate loans in
Canada prevailing at 10:00 a.m. (Toronto time) on the Cdn. Prime Rate interest
determination date.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to an issue of notes, including the
determination of one or more interest rate bases, the specification of one or
more interest rate bases, the calculation of the interest rate applicable to a
floating rate note, the applicable interest payment dates, the stated maturity
date, any redemption or repayment provisions, or any other matters relating to
the applicable notes, may be modified by the terms as specified under "Other
Provisions" on the face of the applicable notes or in an addendum relating to
the applicable notes, if so specified on the face of the applicable notes and in
the applicable pricing supplement.
ORIGINAL ISSUE DISCOUNT NOTES
Original issue discount notes are notes issued at a discount from the
principal amount payable at maturity and which may be considered to be issued
with original issue discount which must be included in income for U.S. federal
income tax purposes (if issued in the United States) at a constant rate. Unless
an issuer provides otherwise in the applicable pricing supplement, if the
principal of any original issue discount note becomes due prior to its maturity
either as a result of acceleration caused by an event of default or through
redemption, the amount of principal due and payable on the note will be limited
to (1) the issue price of the note plus, (2) in the case of a redemption, any
premium provided in the applicable pricing supplement, plus (3) the original
issue discount amortized from the original issue date to the date of
acceleration or redemption. This amortization will be calculated using the
"constant yield
S-23
method," computed in accordance with the rules under the Internal Revenue Code
of 1986 and the regulations thereunder in effect on the date of the acceleration
or redemption. Original issue discount notes may pay no interest currently or
may bear interest at a rate that at the time of issuance is below market rates.
Additional considerations relating to any original issue discount notes will be
described in the applicable pricing supplement. For further information
regarding the federal income tax implications for U.S. holders of discount
notes, see "United States Federal Income Tax Considerations -- Tax Consequences
to U.S. Holders."
AMORTIZING NOTES
We may offer, from time to time, amortizing notes with the amount of
principal and interest payable in installments over the term of these notes.
Unless an issuer provides otherwise in the applicable pricing supplement,
interest on each amortizing note will be computed on the basis of a 360-day year
of twelve 30-day months if issued in the United States and on the basis of a
365-day year if issued in Canada. Payments with respect to amortizing notes will
be applied first to interest due and payable and then to the reduction of the
unpaid principal amount. Further information concerning additional terms and
provisions of the amortizing notes will be provided in the applicable pricing
supplement, including a table setting forth repayment information for the
amortizing notes.
OPTIONAL REDEMPTION
Unless an issuer provides otherwise in the applicable pricing supplement:
- the notes will not be subject to any sinking fund, and
- the applicable issuer cannot at its option redeem the notes prior to
maturity.
If the pricing supplement provides that the applicable issuer may redeem the
notes at its option, the applicable pricing supplement will indicate the terms
on which the notes will be redeemable. The pricing supplement will also
indicate:
- the initial redemption date from which the notes may be redeemed, and
- the redemption price at which, together with accrued interest to the
initial redemption date, the notes may be redeemed.
Unless an issuer provides otherwise in the applicable pricing supplement,
the redemption price will be an amount equal to the initial redemption
percentage provided in the applicable pricing supplement multiplied by the
unpaid principal amount of the notes to be redeemed. The initial redemption
percentage will decline at each anniversary of the initial redemption date by a
percentage specified in the applicable pricing supplement of the principal
amount to be redeemed until the redemption price is 100% of the principal amount
to be redeemed.
Unless otherwise specified in the applicable pricing supplement, notice of
redemption will be provided by mailing a notice of the 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 address of each holder set forth
in the applicable issuer's books. Unless an issuer provides otherwise in the
applicable pricing supplement, the applicable issuer may exercise its option to
redeem the notes in whole or in part in increments of $1,000 or any other
integral multiple of an authorized denomination specified in the applicable
pricing supplement (provided that any remaining principal amount thereof shall
be at least $1,000 or other minimum authorized denomination applicable thereto).
In the event of redemption of a note in part only, the applicable issuer will
issue a new note for the unredeemed portion of the note to the holder of the
note upon the cancellation of the note.
Whenever less than all of the notes of like tenor and terms are to be
redeemed, the notes to be redeemed will be selected by the trustee by a method
the trustee finds appropriate and fair.
S-24
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
Unless an issuer provides otherwise in the applicable pricing supplement,
the notes will not be repayable at the option of the holder. If applicable, the
pricing supplement relating to a particular issuance of notes will indicate that
those notes may be repayable at the option of the holder on a date or dates
provided prior to the maturity date and, unless provided otherwise in the
applicable pricing supplement, at a price equal to 100% of the principal amount
of the notes, together with accrued interest to the date of repayment. The
pricing supplement will also indicate the other terms applicable to any
repayment at the option of a holder.
In order for notes to be repaid, the trustee must receive at least 30 days
but not more than 60 days before the optional repayment date:
- in the case of a note in certificated form, the note and the form on the
reverse side of the note entitled "Option to Elect Repayment" duly
completed, or
- in the case of a note in book-entry form, instructions to that effect
from the applicable beneficial owner of the global security representing
the notes to the depositary and forwarded by the depositary to the
trustee.
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 in increments of $1,000 or any
integral multiples of an authorized denomination specified in the applicable
pricing supplement but in that event the principal amount of the note remaining
outstanding after repayment must be an authorized denomination. If a note is
partially repaid, the note will be canceled and the applicable issuer will issue
a new note for the remaining principal amount in the name of the holder of the
repaid note.
If a note is represented by a book-entry note held through The Depository
Trust Company or The Canadian Depository for Securities Limited, The Depository
Trust Company's nominee or The Canadian Depository for Securities Limited's
nominee, as the case may be, will be the holder of the note and, therefore, will
be the only entity that can exercise a right to repayment. In order to ensure
that The Depository Trust Company's nominee or The Canadian Depository for
Securities Limited's nominee, as the case may be, will timely exercise a right
to repayment relating to a particular note, the beneficial owner of the note
must instruct the broker or other direct or indirect participant through which
it holds an interest in the note to notify The Depository Trust Company or The
Canadian Depository for Securities Limited, as the case may be, of its desire to
exercise a right to repayment. Different firms have different deadlines for
accepting instructions from their customers. 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 find out the deadlines for giving
instructions in order for the broker or participant to deliver timely notice to
The Depository Trust Company or The Canadian Depository for Securities Limited,
as the case may be. All instructions given to participants from beneficial
owners of notes in book-entry form relating to the option to elect repayment
will be irrevocable. In addition, at the time instructions are given, each
beneficial owner will cause the participant through which it owns its interest
to transfer its interest in the global security or securities representing the
related notes in book-entry form, on the depositary's records, to the trustee.
See "-- Book-Entry System."
If applicable, the applicable issuer will comply with the requirements of
Section 14(e) of the Securities Exchange Act of 1934 and the rules promulgated
thereunder and any other securities laws or regulations in connection with any
repayment.
Each issuer may at any time purchase its notes at any price in the open
market or otherwise. Notes purchased by that issuer may, at its discretion, be
held, resold or surrendered to the registrar for cancellation.
S-25
RENEWABLE NOTES
Each issuer may issue renewable notes, which are notes that will
automatically renew at their maturity date unless the holder of the renewable
note elects to terminate the automatic extension feature by giving notice in the
manner described in the related pricing supplement.
The holder of the renewable note must give notice of termination at least
15, but not more than 30, days prior to the renewal date. The holder of a
renewable note may terminate the automatic extension for less than all of the
holder's renewable notes only if the terms of the note as described in the
related pricing supplement specifically permit partial termination. An election
to terminate the automatic extension of any portion of the renewable note is not
revocable and will be binding on the holder of the note. If the holder elects to
terminate the automatic extension of the maturity of the note, the holder will
become entitled to the principal and interest accrued up to the renewal date.
The related pricing supplement will identify a final maturity date beyond which
the maturity date cannot be renewed.
If a note is represented by a global note, (a "global note") the depositary
or its nominee will be the holder of the note and therefore will be the only
entity that can exercise a right to terminate the automatic extension of a note.
In order to ensure that the depositary or its nominee will timely exercise a
right to terminate the automatic extension provisions of a particular note, the
beneficial owner of the note must instruct the broker or other participant
through which it holds an interest in the note to notify the depositary of its
desire to terminate the automatic extension of the note. Different firms have
different cut-off times for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other
participant through which it holds an interest in a note to ascertain the
cut-off time by which an instruction must be given for delivery of timely notice
to the depositary or its nominee.
EXTENDIBLE NOTES
Each issuer may issue notes whose stated maturity date may be extended at
its option, an "extendible note," for one or more whole year periods, each an
"extension period," up to but not beyond a final maturity date described in the
related pricing supplement.
The applicable issuer may exercise its option to extend the extendible note
by notifying the trustee (or any duly appointed paying agent) prior to the then
effective maturity date. If the applicable issuer elects to extend the
extendible note, the trustee (or paying agent) will mail (at least 40 days prior
to the maturity date) to the registered holder of the extendible note a notice
("extension notice") informing the holder of its election, the new maturity date
and any updated terms. Upon the mailing of the extension notice, the maturity of
such note will be extended automatically as set forth in the extension notice.
In connection with the extension of an extendible note, the applicable
issuer may, at its option, establish a higher interest rate, in the case of a
fixed rate note, or a higher spread and/or spread multiplier, in the case of a
floating rate note, for the extension period by mailing or causing the
applicable trustee (or paying agent) to mail notice of that higher interest rate
or higher spread and/or spread multiplier to the holder of the note. The notice
will be irrevocable.
If the applicable issuer elects to extend the maturity of an extendible
note, the holder of the note will have the option to instead elect repayment of
the note by the applicable issuer on the then effective maturity date. In order
for an extendible note to be so repaid on the maturity date, the applicable
issuer must receive, prior to the maturity date:
- the note with the form "Option to Elect Repayment" on the reverse of the
note duly completed, or
- unless an issuer provides otherwise in the applicable pricing supplement,
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 (or, in respect of notes issued in Canada, from a stock
exchange, chartered bank or trust company in Canada) 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
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the tenor and terms of the note, a statement that the option to elect
repayment is being exercised 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 applicable
trustee (or paying agent) not later than the fifth business day after the
date of the telegram, telex, facsimile transmission or letter; provided,
however, that the telegram, telex, facsimile transmission or letter will
only be effective if the trustee (or paying agent) receives the note and
form duly completed by that fifth business day. The option may be
exercised by the holder of an extendible note for less than the aggregate
principal amount of the note then outstanding if the principal amount of
the note remaining outstanding after repayment is an authorized
denomination.
A holder who has tendered an extendible note for repayment may, by written
notice to the applicable issuer, revoke the tender until 3:00 pm New York City
time on the 15th day preceding the then effective maturity date.
If a note is represented by a global note, the depositary or its nominee
will be the holder of that note and therefore will be the only entity that can
exercise a right to repayment. To ensure that the depositary or its nominee
timely exercises a right to repayment with respect to a particular note, the
beneficial owner of that note must instruct the broker or other participant
through which it holds an interest in the note to notify the depositary of its
desire to exercise a right to repayment. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other participant through which it
holds an interest in a note to determine the cut-off time by which an
instruction must be given for timely notice to be delivered to the depositary or
its nominee.
INDEXED NOTES
We may from time to time offer "indexed notes" with the amount of
principal, premium and/or interest payable in respect thereof to be determined
with reference to the price or prices of specified commodities or stocks, to the
exchange rate of one or more designated currencies relative to an indexed
currency or to other items, in each case as specified in the applicable pricing
supplement. In certain cases, holders of indexed notes may receive a principal
payment on the maturity date that is greater than or less than the principal
amount of such indexed notes depending upon the relative value on the maturity
date of the specified indexed item. Information as to the method for determining
the amount of principal, premium, if any, and/or interest, if any, payable in
respect of indexed notes, certain historical information with respect to the
specified indexed item and any material tax considerations associated with an
investment in indexed notes will be specified in the applicable pricing
supplement.
BOOK-ENTRY SYSTEM
Description of the Global Notes
Upon issuance, all notes in book-entry form having the same date of issue,
interest rate or formula, maturity and redemption and/or repayment provisions,
if any, and otherwise having identical terms and provisions will be represented
by one or more fully registered global notes. Each global note issued in the
United States will be deposited with, or on behalf of, The Depository Trust
Company (the "Depository" or "DTC") as depositary and will be registered in the
name of the Depository or a nominee of the Depository. Each global note issued
in Canada will be deposited with, or on behalf of, The Canadian Depository for
Securities Limited ("CDS") as depositary and will be registered in the name of
CDS or a nominee of CDS. Unless and until it is exchanged in whole or in part
for notes in certificated form, no global note may be transferred except as a
whole by (1) the Depository or CDS to a nominee of the Depository or CDS, as
applicable (2) by a nominee of the Depository or CDS to the Depository or CDS or
to another nominee of the Depository or CDS, as applicable or (3) by the
Depository or CDS or any of its nominees to a successor of the Depository or
CDS, as applicable or a nominee of the successor.
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DTC Procedures
The following is based on information furnished by the Depository:
The Depository will act as securities depositary for the notes issued in
the United States in book-entry form. The notes issued in the United States in
book-entry form will be issued as fully registered securities registered in the
name of Cede & Co., the Depository's partnership nominee. One fully registered
global note will be issued for each issue of notes in book-entry form, each in
the aggregate principal amount of the issue, and will be deposited with the
depositary. If, however, the aggregate principal amount of any issue exceeds
$500,000,000, one global note will be issued with respect to each $500,000,000
of principal amount and an additional global note will be issued with respect to
any remaining principal amount of the issue.
The Depository is a limited-purpose trust company organized under the New
York Banking Law, a banking organization within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The Depository holds securities that its participating
members, referred to as participants, deposit with the Depository. The
Depository also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
participants of the Depository include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. The
Depository is owned by a number of its direct participants and by the New York
Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, Inc. Access to the Depository's system is
also available to others such as securities brokers and dealers, banks and trust
companies, referred to as indirect participants, that clear through or maintain
a custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to the Depository and its participants are on
file with the SEC.
Purchasers of notes in book-entry form under the Depository's system must
be made by or through direct participants, which will receive a credit for those
notes in book-entry form on the Depository's records. The ownership interest of
each actual purchaser of each note in book-entry form represented by a global
note is, in turn, to be recorded on the records of direct participants and
indirect participants. Beneficial owners in book-entry form will not receive
written confirmation from the Depository of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in a global note
representing notes in book entry form are to be accomplished by entries made on
the books of participants acting on behalf of beneficial owners. Beneficial
owners of a global note representing notes in book-entry form will not receive
notes in certificated form representing their ownership interests therein,
except in the event that use of the book-entry system for such notes is
discontinued.
To facilitate subsequent transfers, all global notes representing notes in
book-entry form that are deposited with, or on behalf of, the Depository are
registered in the name of the Depository's nominee, Cede & Co. The deposit of
global notes with, or on behalf of, the Depository and their registration in the
name of Cede & Co. effect no change in beneficial ownership. The Depository has
no knowledge of the actual beneficial owners of the global notes representing
the notes in book-entry form; the Depository's records reflect only the identity
of the direct participants to whose accounts such notes in book-entry form are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depository to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial
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owners, will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Neither the Depository nor Cede & Co. will consent or vote with respect to
the global notes representing the notes in book-entry form. Under its usual
procedures, the Depository mails an omnibus proxy to us as soon as possible
after the applicable record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants, identified in a
listing attached to the omnibus proxy, to whose accounts the notes in book entry
form are credited on the applicable record date.
The applicable issuer will make principal, premium, if any, and/or interest
payments on the global notes representing the notes in book-entry form in
immediately available funds to the Depository. The Depository's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on its records unless the
Depository has reason to believe that it will not receive payment on the
applicable payment date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of the applicable participant and
not of the Depository, the trustee or the applicable issuer, subject to any
statutory or regulatory requirements as may be in effect from time to time. The
applicable issuer and the trustee are responsible for the payment of principal,
premium, if any, and/or interest to the Depository. The Depository is
responsible for disbursement of payments to direct participants. The direct
participants and indirect participants are responsible for the disbursement of
payments to the beneficial owners.
If applicable, redemption notices will be sent to Cede & Co. If less than
all of the notes in book-entry form of like tenor and terms are being redeemed,
the Depository's practice is to determine by lot the amount of the interest of
each direct participant in the issue to be redeemed.
A beneficial owner will give notice of any option to elect to have its
notes in book-entry form repaid by the issuer of such notes, through its
participant, to the trustee, and will effect delivery of the applicable notes in
book-entry form by causing the direct participant to transfer the participant's
interest in the global notes in book-entry form, on the Depository's records, to
the trustee.
The Depository may discontinue providing its services as securities
depositary with respect to the notes in book-entry form at any time by giving
reasonable notice to us or the trustee. In the event that a successor securities
depositary is not obtained, notes in certificated form are required to be
printed and delivered.
The applicable issuer may decide to discontinue use of the system of
book-entry transfers through the Depository or a successor securities
depositary. In that event, notes in certificated form will be printed and
delivered.
The laws of some states may require that certain purchasers of securities
take physical delivery of securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in
global notes.
So long as the Depository, or its nominee, is the registered owner of a
global note, the Depository or its nominee, as the case may be, will be
considered the sole owner or holder of the notes represented by that global note
for all purposes under the applicable indenture. Except as provided below,
beneficial owners of a global note will not be entitled to have the notes
represented by a global note registered in their names, will not receive or be
entitled to receive physical delivery of the notes in definitive form and will
not be considered the owners or holders thereof under the applicable indenture.
Accordingly, each person owning a beneficial interest in a global note must rely
on the procedures of the Depository or any successor depositary and, if that
person is not a participant, on the procedures of the participant through which
that person owns its interest, to exercise any rights of a holder under the
applicable indenture. We understand that under existing industry practices, if
the applicable issuer requests any action of holders or if an owner of a
beneficial interest in a global note desires to give or take any action which a
holder is entitled to give or take under the applicable indenture, the
Depository would authorize the participants
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holding the relevant beneficial interests to give or take the desired action,
and the participants would authorize beneficial owners owning through the
participants to give or take the desired action or would otherwise act upon the
instructions of beneficial owners.
The information in this section concerning the Depository and the
Depository's system has been obtained from sources that we believe to be
reliable, but we take no responsibility for the accuracy of the information.
Clearstream, Luxembourg and Euroclear Bank Systems
Investors in notes may elect to hold interests in book-entry notes through
Clearstream Banking, societe anonyme ("Clearstream, Luxembourg") or Euroclear
Bank S.A./N.V. ("Euroclear") if they are participants of these systems, or
indirectly through organizations which are participants in these systems.
Clearstream, Luxembourg and Euroclear will hold interests on behalf of their
participants through customers' securities accounts in Clearstream, Luxembourg's
and Euroclear's names on the books of their respective depositaries, which in
turn will hold these interests in customers' securities accounts in the
depositaries' names on the books of The Depository Trust Company. Citibank, N.A.
will act as U.S. depositary for Clearstream, Luxembourg and The Chase Manhattan
Bank will act as U.S. depositary for Euroclear.
Clearstream, Luxembourg advises that it is incorporated under the laws of
Luxembourg as a professional depositary. Clearstream, Luxembourg holds
securities for its participating organizations ("Clearstream, Luxembourg
participants") and facilitates the clearance and settlement of securities
transactions between Clearstream, Luxembourg participants through electronic
book-entry changes in accounts of Clearstream, Luxembourg participants, thereby
eliminating the need for physical movement of certificates. Clearstream,
Luxembourg provides to Clearstream, Luxembourg participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg interfaces with domestic markets in several countries.
As a professional depositary, Clearstream, Luxembourg is subject to regulation
by the Luxembourg Monetary Institute. Clearstream, Luxembourg participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the agents or their affiliates.
Indirect access to Clearstream, Luxembourg is also available to others, such as
banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Clearstream, Luxembourg participant either
directly or indirectly.
Distributions with respect to the notes held beneficially through
Clearstream, Luxembourg will be credited to cash accounts of its participants in
accordance with its rules and procedures, to the extent received by the U.S.
depositary for Clearstream, Luxembourg.
Euroclear advises that it was created in 1968 to hold securities for its
participants and to clear and settle transactions between its participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Euroclear provides
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries. Euroclear is operated by
Euroclear Bank S.A./N.V. (the "Euroclear Operator"), under contract with
Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear participants. Euroclear participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the agents or their
affiliates. Indirect access to Euroclear is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear
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System, and applicable Belgian law (collectively, the "Terms and Conditions").
The Terms and Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
Distributions with respect to notes held beneficially through Euroclear
will be credited to the cash accounts of Euroclear participants in accordance
with the Terms and Conditions, to the extent received by the U.S. depositary for
Euroclear.
Exchange for Notes in Certificated Form
If:
- DTC notifies the applicable issuer that it is unwilling or unable to
continue as a clearing system in connection with a global note or DTC
ceases to be a clearing agency registered under the Exchange Act, and in
each case we do not appoint a successor clearing system within 90 days
after receiving such notice from DTC or on becoming aware that DTC is no
longer so registered,
- the applicable issuer executes and delivers to the trustee a company
order to the effect that the global notes shall be exchangeable, or
- a default or an event of default has occurred and is continuing with
respect to the notes,
then the global note or global notes will be exchangeable for notes in
certificated form of like tenor and of an equal aggregate principal amount. The
certificated notes will be registered in the name or names as DTC instructs the
trustee. It is expected that instructions may be based upon directions received
by DTC from participants with respect to ownership of beneficial interests in
global notes.
CDS Procedures
The notes issued in Canada will initially be represented by one or more
global notes in definitive, fully registered form without interest coupons. The
global notes issued in Canada will be held by, or on behalf of, CDS as
depositary and registered in the name of CDS or its nominee, CDS & Co., except
in certain circumstances described below. Direct and indirect participants in
CDS, including DTC on behalf of its accountholders, will record beneficial
ownership of the notes by their respective accountholders. Ownership of
beneficial interests in the global notes will be shown on, and transfers of
their ownership may be effected only through, records maintained by CDS or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
So long as CDS or its nominee is the registered owner or holder of the
global notes, CDS or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by such global notes for all
purposes (except for matters relating to any applicable withholding taxes) under
the applicable indenture and the notes. No beneficial owner of an interest in
the global notes will be able to transfer that interest except in accordance
with CDS's applicable procedures, in addition to those provided for under the
applicable indenture.
Except in the limited circumstances described below under "-- Certificated
Notes in Canada", owners of beneficial interests in the global notes will not be
entitled to receive physical delivery of certificated notes.
Payments of the principal, premium, if any, and interest on the global
notes will be made to CDS or its nominee, as the case may be, as the registered
owner of the global notes. Although the applicable issuer will make all payments
of principal, premium, if any, and interest on any Canadian dollar denominated
notes in Canadian dollars, holders of notes held through DTC will receive such
payments in U.S. dollars, except as set forth below. Canadian dollar payments
received by CDS will be exchanged into
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U.S. dollars and paid directly to DTC in accordance with procedures established
from time to time by CDS and DTC. All costs of conversion will be borne by
holders of notes held through DTC who receive payments in U.S. dollars. Holders
of notes held through DTC may elect, through procedures established from time to
time by DTC and its participants, to receive Canadian dollar payments, in which
case such Canadian dollar amounts will be transferred directly to Canadian
dollar accounts designated by such holders to DTC. None of Textron Canada
Funding, Textron Financial, the trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial funding ownership interests in the global
notes or for maintaining, supervising or reviewing any records relating to such
funding beneficial ownership interests.
We expect that CDS or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the global notes, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global notes as
shown on the records of CDS or its nominee. We also expect that payments by
participants to owners of beneficial interests in the global notes held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between CDS participants will be effected in the ordinary way in
accordance with CDS rules and will be settled in same-day funds.
The policies of CDS and DTC will govern payments, transfers, exchange and
other matters relating to your interest in the global notes. We have obtained
the foregoing information from sources we believe to be reliable, including from
CDS and DTC. CDS and DTC are under no obligation to perform or continue to
perform the procedures described above, and they may modify or discontinue them
at any time. None of Textron Canada Funding, Textron Financial, the trustee, any
paying agent or any transfer agent will have any responsibility for the
performance by CDS or DTC or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes in Canada
Under the terms of the applicable indenture, owners of notes will receive
certificated notes with the TFC guarantee (if applicable) endorsed thereon:
- if CDS notifies the applicable issuer that it is unwilling or unable to
continue to act as depositary or CDS ceases to be registered as a
clearing agency under the Securities Act (Ontario) and equivalent
legislation in other provinces and any other applicable statute or
regulation and in each case a successor depositary is not appointed by
the applicable issuer within 90 days;
- if at any time the applicable issuer in its sole discretion determines
that the global notes should be exchanged for certificated notes; or
- if an event of default (as defined in the applicable indenture) with
respect to the notes has occurred and is continuing.
In any such instance, an owner of a beneficial interest in a global note
will be entitled to have notes equal in principal amount to such beneficial
interest registered in its name and will be entitled to physical delivery of
certificated notes with the TFC guarantee (if applicable) endorsed thereon in
accordance with the relevant provisions of the notes, the applicable indenture
and the rules and procedures of CDS. Notes denominated in Canadian dollars in
certificated form will be issued in denominations of C$1,000 and integral
multiples of C$1,000 and will be issued in registered form only, without
coupons. Holders of interests in the global notes that receive certificated
notes in such circumstances may receive notes with the TFC guarantee (if
applicable) endorsed thereon, in accordance with the relevant provisions of the
notes, the applicable indenture, and the rules and procedures of CDS and DTC, as
applicable.
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We will maintain in the Borough of Manhattan, the City of New York (or
elsewhere, as we may specify), one or more offices or agencies where notes may
be presented for payment and may be transferred or exchanged. No service charge
will be made for any registration of transfer or exchange of certificated notes,
but we may require payment of a sum sufficient to cover any tax or governmental
charge payable in connection with that registration.
GLOBAL CLEARANCE AND SETTLEMENT PROCEDURES
The applicable issuer will make initial settlement for the notes in
immediately available funds. Secondary market trading with respect to notes
issued in the United States between DTC participants will occur in the ordinary
way in accordance with DTC's rules and will be settled in immediately available
funds using DTC's same-day funds settlement system. Secondary market trading
with respect to notes issued in the United States between Euroclear Bank
participants and/or Clearstream, Luxembourg participants will occur in the
ordinary way in accordance with the applicable rules and operating procedures of
Euroclear Bank and Clearstream, Luxembourg and will be settled using the
procedures applicable to conventional eurobonds in immediately available funds.
Cross-market transfers with respect to notes issued in the United States
between persons holding directly or indirectly through DTC, on the one hand, and
directly or indirectly through Euroclear Bank or Clearstream, Luxembourg
participants, on the other, will be effected by DTC in accordance with DTC's
rules on behalf of the relevant European international clearing system by its
U.S. depositary. However, these cross-market transactions will require delivery
of instructions to the relevant European international clearing system by the
counterparty in that system in accordance with its rules and procedures and
within its established deadlines in European time. The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its U.S. depositary to take action to
effect final settlement on its behalf by delivering or receiving notes to or
from DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. Euroclear Bank participants and
Clearstream, Luxembourg participants may not deliver instructions directly to
their respective U.S. depositaries.
Because of time-zone differences, credits of notes received in Euroclear
Bank or Clearstream, Luxembourg as a result of a transaction with DTC's
participant will be made during subsequent securities settlement processing and
dated the business day following the DTC settlement date. These credits or any
transactions in the notes settled during this processing will be reported to the
relevant Euroclear Bank or Clearstream, Luxembourg participants on such business
day. Cash received in Euroclear Bank or Clearstream, Luxembourg as a result of
sales of notes by or through a Euroclear Bank participant or a Clearstream,
Luxembourg participant to a DTC participant will be received with value on the
DTC settlement date but will be available in the relevant Euroclear Bank or
Clearstream, Luxembourg cash account only as of the business day following
settlement in DTC.
Although DTC, Euroclear Bank and Clearstream, Luxembourg have agreed to the
foregoing procedures in order to facilitate transfers of notes among
participants of DTC, Euroclear Bank and Clearstream, Luxembourg, they are under
no obligation to perform or continue to perform such procedures and such
procedures may be changed or discontinued at any time.
GOVERNING LAW AND JUDGMENTS
The indentures and notes will be governed by and construed in accordance
with the laws of the State of New York.
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SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless an issuer indicates otherwise in the applicable pricing supplement,
the notes issued in the United States will be denominated in U.S. dollars, the
applicable issuer will make payments of principal, premium, if any, and interest
on the notes in U.S. dollars and you must pay the purchase price of the notes in
U.S. dollars in immediately available funds. If any of the notes issued in the
United States ("foreign currency notes") are to be denominated or payable in a
currency or basket of currencies other than U.S. dollars (or, if that currency
is not at the time of the purchase or payment legal tender for the payment of
public and private debts of the country issuing that currency or, in the case of
euro, in the member states of the European Union that have adopted the single
currency in accordance with the Treaty Establishing the European Community, as
amended by the Treaty on European Union, the currency which is then legal tender
in the related country or in the adopting member states of the European Union,
as the case may be) (a "specified currency"), the following provisions will
apply in addition to, and to the extent inconsistent therewith will replace, the
description of general terms and provisions relating to notes issued in the
United States set forth in the accompanying prospectus and elsewhere in this
prospectus supplement. Notes denominated in Canadian dollars and issued in
Canada are not considered to be foreign currency notes.
A pricing supplement with respect to any foreign currency note (which may
include information with respect to applicable current foreign exchange
controls), is a part of this prospectus and the accompanying prospectus
supplement. Any information we provide you concerning exchange rates is provided
as a matter of information only and you should not regard it as indicative of
the range of or trends in fluctuations in currency exchange rates that may occur
in the future. The information set forth in this prospectus supplement is
directed to prospective purchasers who are United States residents and, with
respect to foreign currency notes, is by necessity incomplete. We and the agents
disclaim 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, and
premium, if any, and interest, if any, on, their foreign currency notes.
CURRENCIES
We may offer foreign currency notes denominated and/or payable in a
specified currency or specified currencies. Unless an issuer indicates otherwise
in the applicable pricing supplement, you are required to pay for foreign
currency notes in the specified currency. At the present time, there are limited
facilities in the United States for conversion of U.S. dollars into specified
currencies and vice versa, and banks may elect not to offer non-U.S. dollar
checking or savings account facilities in the United States. However, at your
request, on or prior to the fifth business day preceding the date of delivery of
the foreign currency notes, or by such other day as determined by the agent who
presents the offer to purchase foreign currency notes to us, that agent may be
prepared to arrange for the conversion of U.S. dollars into the applicable
specified currency set forth in the applicable pricing supplement to enable the
purchasers to pay for the foreign currency notes. Each such conversion will be
made by the agent or agents on the terms and subject to the conditions,
limitations and charges as the agent may from time to time establish in
accordance with their regular foreign exchange practices. If you purchase
foreign currency notes you will pay all costs of exchange.
The applicable pricing supplement will set forth information about the
specified currency in which a particular foreign currency note is denominated
and/or payable, including historical exchange rates and a description of the
currency and any exchange controls, and, in the case of a basket of currencies,
will include a description of that basket and a description of provisions for
payment in the event that currency basket is no longer used for the purposes for
which it was established.
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PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST
The applicable issuer will pay the principal of, premium, if any, and/or
interest on foreign currency notes in the specified currency. Currently, banks
do not generally offer non-U.S. dollar denominated account facilities in their
offices in the United States, although they are permitted to do so. Accordingly,
if you are a holder of foreign currency notes you will be paid in U.S. dollars
converted from the specified currency unless you elect to be paid in the
specified currency or unless the applicable pricing supplement provides
otherwise.
The applicable issuer will base U.S. dollar amounts that it owes to holders
of foreign currency notes on the highest bid quotation received by the exchange
rate agent specified in the applicable pricing supplement in The City of New
York at approximately 11:00 A.M., New York City time, on the second business day
preceding the applicable payment date. The exchange rate agent will obtain that
highest quote by asking three recognized foreign exchange dealers approved by
the applicable issuer (one of whom may be the exchange rate agent) for their bid
quotations for the purchase of the specified currency in exchange for U.S.
dollars for settlement on the relevant payment date, in the aggregate amount of
the specified currency payable to all holders of foreign currency notes
scheduled to receive U.S. dollar payments, and at which the applicable dealer
commits to execute a contract. If three such bid quotations are not available,
the applicable issuer will make payments in the specified currency. All currency
exchange costs will be borne by the holders of foreign currency notes by
deductions from such payments.
Unless an issuer indicates otherwise in the applicable pricing supplement,
as a holder of foreign currency notes you may elect to receive payment of the
principal of, premium, if any, and/or interest on the foreign currency notes in
the specified currency by transmitting a written request for such payment to the
corporate trust office of the trustee in the Borough of Manhattan, The City of
New York, at least fifteen days prior to the applicable interest payment date or
maturity, as the case may be. You may make this request in writing (mailed or
hand delivered) or sent by facsimile transmission. As a holder of a foreign
currency note you may elect to receive all or a specified portion of all future
payments in the specified currency for all payments of principal, premium, if
any, and/or interest and need not file a separate election for each payment.
Your election will remain in effect until revoked by written notice to the
trustee, but written notice of any such revocation must be received by the
trustee at least fifteen days prior to the applicable interest payment date or
maturity, as the case may be. If your foreign currency notes are held in the
name of a broker or nominee, you should contact your broker or nominee to
determine whether and how you may elect to receive payments in the specified
currency.
If a note is represented by a global note, DTC or its nominee will be the
holder of the note and will be entitled to all payments on the note. Although
DTC can hold notes denominated in foreign currencies, all payments to DTC will
be made in U.S. dollars. Accordingly, a beneficial owner of the related global
note who elects to receive payments of principal, premium, if any, and/or
interest in the specified currency must notify the participant through which it
owns its interest on or prior to the applicable regular record date, in the case
of a payment of interest, or at least fifteen days prior to maturity, in the
case of a payment of principal and/or premium, of that beneficial owner's
election. The participant must notify DTC of that election on or prior to the
third business day after the regular record date or at least twelve days prior
to maturity, as the case may be. DTC will notify the trustee of the election on
or prior to the fifth business day after the regular record date or at least ten
days prior to maturity, as the case may be. If the participant receives complete
instructions from the beneficial owner and those instructions are forwarded by
the participant to DTC, and by DTC to the trustee, on or prior to such dates,
then the beneficial owner will receive payments in the specified currency. For
more information about global notes, see "Description of the Notes -- Book-Entry
System."
The applicable issuer will pay principal, any premium and/or interest on
foreign currency notes to be paid in U.S. dollars in the manner specified in the
accompanying prospectus and this prospectus supplement with respect to notes
denominated in U.S. dollars. See "Description of the Notes -- Payment of
Principal, Premium and Interest." Unless otherwise specified in the applicable
pricing supplement, the applicable issuer will pay interest on foreign currency
notes in the specified currency on an interest
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payment date other than the maturity date by check mailed on the relevant
interest payment date to the persons entitled thereto as their addresses shall
appear in the security register. The applicable issuer will pay the principal of
foreign currency notes, together with any premium and any interest accrued and
unpaid thereon, due at maturity in the specified currency by wire transfer of
immediately available funds to an account with a bank designated at least
fifteen days prior to the maturity date by the applicable registered holder,
provided the particular bank has appropriate facilities to make these payments
upon surrender of the notes at the corporate trust office of the trustee in the
Borough of Manhattan, The City of New York, in time for the trustee to make
these payments in the specified currency in accordance with its normal
procedures.
PAYMENT CURRENCY
If a specified currency is not available for the payment of principal,
premium or interest with respect to a foreign currency note due to the
imposition of exchange controls or other circumstances beyond our control, the
applicable issuer will be entitled to satisfy its obligations to holders of
foreign currency notes by making that payment in U.S. dollars on the basis of
the noon buying rate in The City of New York for cable transfers of the
specified currency as certified for customs purposes (or, if not so certified,
as otherwise determined) by the Federal Reserve Bank of New York (the "market
exchange rate") as computed by the exchange rate agent on the second business
day prior to the particular payment or if the market exchange rate is not then
available, on the basis of the most recently available market exchange rate on
or before the date that payment is due, or as otherwise indicated in an
applicable pricing supplement. Any payment made under such circumstances in U.S.
dollars where the required payment is in a specified currency will not
constitute a default under the applicable indenture with respect to the notes.
All determinations referred to above made by the exchange rate agent will
be at its sole discretion and will, in the absence of manifest error, be
conclusive for all purposes and binding on the holders of the foreign currency
notes.
As indicated above, if you invest in foreign currency notes or currency
indexed notes your investment will be subject to substantial risks, the extent
and nature of which change continuously. As with any investment that you make in
a security, you should consult your own financial and legal advisors as to the
risks entailed in an investment in foreign currency notes or currency indexed
notes. Such notes are not an appropriate investment for you if you are
unsophisticated with respect to foreign currency matters.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
This section summarizes the material U.S. tax consequences to holders of
notes. The discussion is limited in the following ways:
- The discussion only covers you if you buy your notes in the initial
offering.
- The discussion only covers you if you hold your notes as a capital asset
(that is, for investment purposes), and if you do not have a special tax
status (for example, you are not a financial institution, insurance
company, dealer in securities or foreign currencies or regulated
investment company).
- The discussion does not cover tax consequences that depend upon your
particular tax situation (for example, if you hold the notes as a hedge
against currency risks or as a position in a straddle for tax purposes)
in addition to your ownership of notes.
- The discussion does not cover federal tax law other than income tax law
and does not cover state, local or foreign income tax or other tax law.
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- The discussion does not cover every type of note that we might issue. If
we intend to issue a note of a type not described in this summary, we
will provide additional tax information in the applicable pricing
supplement.
- Except as discussed below, the discussion does not apply to you if you
are a non-U.S. holder (as defined below).
- We have not requested a ruling from the IRS on the tax consequences of
purchasing, owning or disposing of the notes. As a result, the IRS could
disagree with portions of this discussion.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), regulations, rulings and decisions now in effect. Changes in the
law (or possible differing interpretations) may affect the tax treatment of the
notes, possibly with a retroactive effect.
If you are considering buying notes, we suggest that you consult your tax
advisor about the tax consequences of acquiring, holding or disposing of the
notes in your particular situation.
TAX CONSEQUENCES TO U.S. HOLDERS
This section applies to you if you are a "U.S. holder." A "U.S. holder" is
a beneficial holder of a note that is for U.S. federal income tax purposes:
- an individual U.S. citizen or resident alien;
- a corporation, partnership, or entity taxable as a corporation or
partnership, that was created or organized in or under U.S. law (federal,
state or the District of Columbia);
- an estate whose income is subject to U.S. federal income tax regardless
of it source;
- a trust, if a U.S. court is able to exercise primary jurisdiction over
the administration of the trust and one or more U.S. persons has the
authority to control all substantial decisions over the trust, and
certain trusts in existence on August 20, 1996; or
- any holder of a note whose income or gain in respect to its investment in
such note is effectively connected with the conduct of a U.S. trade or
business.
If a partnership holds notes, the tax treatment of a partner will generally
depend upon the status of the partner and upon the activities of the
partnership. If you are a partner of a partnership holding notes, we suggest
that you consult your tax advisor.
Payments of Interest
The tax treatment of interest paid on the notes generally depends upon
whether the interest is "qualified stated interest."
"Qualified stated interest" is any interest that meets all of the following
conditions:
- is payable at least once each year,
- is payable over the entire term of the note,
- is payable at a single fixed rate or under a single formula, and
- is payable in respect of a note that has a maturity of more than one year
from its issue date.
If any interest on a note is qualified stated interest, then
- if you are a cash method taxpayer, you must report that interest in your
income when you receive it, or
- if you are an accrual method taxpayer, you must report that interest in
your income as it accrues.
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If any interest on a note is not qualified stated interest, it is generally
subject to the rules for original issue discount ("OID") described below.
Determining Amount of OID
Notes that are issued at prices less than their "stated redemption price at
maturity" ("discount notes") are generally subject to additional tax rules. The
amount of OID on a discount note is generally determined as follows:
- The amount of OID on a note is the stated redemption price at maturity of
the note minus the "issue price" of the note. If this amount is negative,
there is no OID.
- The "stated redemption price at maturity" of a note is the total amount
of all principal and interest payments to be made on the note, other than
qualified stated interest. In a typical case where all interest is
qualified stated interest, the stated redemption price at maturity of a
note is the same as its principal amount.
- The "issue price" of a note is the first price at which a substantial
amount of the notes are sold to the public.
- If the OID on a discount note is de minimis, it is disregarded and not
treated as OID. In general, OID is considered de minimis if the amount of
OID is less than the following items multiplied together: (a) .25% (1/4
of 1%), (b) the number of full years from the issue date to the maturity
date and (c) the stated redemption price at maturity.
Accrual of OID Into Income
Discount notes have the following consequences:
- A holder must include an allocable amount of OID in income as ordinary
income over the period the holder holds the discount note.
- All holders of discount notes, even those on the cash method of
accounting, must include OID in income as the OID accrues on the discount
notes. This means that holders are required to report OID in income for
federal income tax purposes before they receive the cash that corresponds
to that income.
- OID accrues on a discount note on a "constant yield" method. This method
takes into account the compounding of interest. Under this method, the
accrual of OID on a discount note, combined with the inclusion into
income of any qualified stated interest on the discount note, will result
in the holder being taxable at approximately a constant percentage of the
unrecovered investment in the note.
- The accruals of OID on a discount note will generally be less in the
early years and more in the later years.
- If any of the interest paid on the discount note is not qualified stated
interest, that interest is taxed solely as OID. It is not separately
taxed when it is paid to the holder.
- Your tax basis in the discount note is initially your cost in that note.
It increases by any OID you report as income. It decreases by any
principal or interest payments you receive on the discount note that are
not qualified stated interest.
Notes Subject to Additional Tax Rules
Additional or different tax rules apply to particular types of notes that
we may issue. We will discuss these additional or different tax rules in the
applicable pricing supplement.
SHORT-TERM NOTES: We may issue notes with a fixed maturity of one year or
less. These are referred to as "short-term notes."
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- The amount of OID is calculated in the same manner as described above
except that no interest on a short-term note is qualified stated
interest.
- Certain elections apply to the method of accrual of OID on short-term
notes over the life of the notes.
- Accrual method taxpayers and certain other holders, such as banks and
securities dealers, must include OID in income as it accrues.
- If you are a cash method taxpayer not subject to the accrual rule
described above, you generally do not include OID with respect to a
short-term note in income until you actually receive payments on the
note. Alternatively, you can elect to include OID in income as it accrues
on a straight-line basis unless an election is made to accrue under a
constant yield method.
- Two special rules apply if you are a cash method taxpayer and do not
include OID in income as it accrues. First, if you sell the note, or it
is paid at maturity, and you have a taxable gain, then the gain is
ordinary income to the extent of the accrued OID on the note at the time
of the sale that you have not yet taken into income. Second, if you
borrow money (or do not repay outstanding debt) to acquire or hold the
note, then while you hold the note you cannot deduct any interest on the
borrowing that corresponds to accrued OID on the note until you include
the accrued OID in your income.
FLOATING RATE NOTES: Floating rate notes are subject to special OID rules.
- All stated interest on a floating rate note that is unconditionally
payable in cash or property (other than debt instruments of the issuer)
at least annually is generally treated as qualified stated interest if
such floating rate note (a) has an issue price that does not exceed the
total noncontingent principal payments due under the floating rate note
by more than a specified de minimis amount and (b) provides for stated
interest, paid or compounded at least annually, at current values of (i)
one or more qualified floating rates, (ii) a single fixed rate and one or
more qualified floating rates, (iii) a single objective rate, or (iv) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate. Generally, a qualified floating rate is any variable rate
where variations in the value of such rate can reasonably be expected to
measure contemporaneous variations in the cost of borrowing.
- Although a multiple of a qualified floating rate will generally not
itself constitute a qualified floating rate, a variable rate equal to the
product of a qualified floating rate and a fixed multiple that is greater
than 0.65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate
and a fixed multiple that is greater than 0.65 but not more than 1.35,
increased or decreased by a fixed rate, will also constitute a qualified
floating rate. In addition, under the Treasury Regulations promulgated
under the OID provisions of the Internal Revenue Code (the "OID
Regulations"), two or more qualified floating rates that can reasonably
be expected to have approximately the same values throughout the term of
the variable note (e.g., two or more qualified floating rates with values
within 25 basis points of each other as determined on the variable note's
issue date) will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise
constitute a qualified floating rate but which is subject to one or more
restrictions such as a maximum numerical limitation (i.e., a cap) or a
minimum numerical limitation (i.e., a floor) may, under certain
circumstances, fail to be treated as a qualified floating rate under the
OID Regulations unless such cap or floor is fixed throughout the term of
the note.
- An objective rate is a rate that (a) is not itself a qualified floating
rate, (b) is determined using a single fixed formula and (c) is based on
objective financial or economic information that is not within the
control of the issuer (or a related party) and is not unique to the
circumstances of the issuer (or a related party), such as dividends,
profits, or the value of the issuer's stock (although a rate does not
fail to be an objective rate merely because it is based on the credit
quality of the issuer).
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- The amount of qualified stated interest and the amount of original issue
discount, if any, that accrues during an accrual period on such a
floating rate note will then be calculated under the rules applicable to
fixed rate debt instruments by assuming that the floating rate is a fixed
rate equal to (i) in the case of a qualified floating rate or qualified
inverse floating rate, the value, as of the issue date, of the qualified
floating rate or qualified inverse floating rate, or (ii) in the case of
an objective rate (other than a qualified inverse floating rate), a fixed
rate reflecting the floating rate note's reasonably expected yield. The
qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds
(or is less than) the interest assumed to be paid during the accrual
period pursuant to the foregoing rules.
- If the note has more than one formula for interest rates, it is possible
that the combination of interest rates might create OID. We suggest that
you consult your tax advisor concerning the OID accruals on such a note.
FOREIGN CURRENCY NOTES: A foreign currency note is a note denominated in a
currency other than U.S. dollars. Special tax rules apply to these notes:
Payments of Interest in a Foreign Currency
- If you are a cash method taxpayer, you will be taxed on the U.S. dollar
value of any foreign currency you receive as interest. The dollar value
will be determined as of the date when you receive the payments.
- If you are an accrual method taxpayer, you must report interest income as
it accrues. You can use the average foreign currency exchange rate during
the relevant interest accrual period (or, if that period spans two
taxable years, during the portion of the interest accrual period in the
relevant taxable year). In this case, you will make an adjustment upon
receipt of the foreign currency to reflect actual exchange rates at that
time. Certain alternative elections may also be available. We suggest
that you consult your tax advisor with respect to the consequences to you
of making the above described election. An accrual method taxpayer will
recognize exchange gain or loss (which will be treated as ordinary income
or loss) with respect to accrued interest income on the date such income
is received. The amount of ordinary income or loss recognized will equal
the difference, if any, between the U.S. dollar value of the foreign
currency payment received (determined on the date such payment is
received) in respect of such accrual period and the U.S. dollar value of
interest income that has accrued during such accrual period (as
determined above).
OID on Foreign Currency Notes
- Any OID on foreign currency notes will be determined in the relevant
foreign currency. All holders must accrue OID in the same manner that an
accrual basis holder accrues interest income on a foreign currency note.
The amount of foreign currency gain or loss on the accrued original issue
discount is determined by comparing the amount of income received
attributable to the discount (either upon payment, maturity or an earlier
disposition), as translated into U.S. dollars at the rate of exchange on
the date of such receipt, with the amount of original issue discount
accrued, as translated above.
Purchase, Sale and Retirement of Foreign Currency Notes
- If you purchase a note with previously owned foreign currency, you will
recognize ordinary income or loss in an amount equal to the difference,
if any, between your tax basis in the foreign currency and the U.S.
dollar fair market value, determined on the date of purchase, of the
foreign currency used to purchase the note.
- Except as discussed above with respect to short-term notes, upon the
sale, exchange or retirement of a note, you will recognize taxable gain
or loss equal to the difference between the amount realized on the sale,
exchange or retirement and your adjusted tax basis in the note. Such gain
or
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loss generally will be capital gain or loss (except to the extent of any
accrued market discount not previously included in your income) and will
be long-term capital gain or loss if at the time of sale, exchange or
retirement you have held the note for more than one year. To the extent
the amount realized represents accrued but unpaid interest, however, such
amounts must be taken into account as interest income, with exchange gain
or loss computed as described above in "-- Payments of Interest in a
Foreign Currency."
- Your initial tax basis in a foreign currency note is the amount of U.S.
dollars you pay for the note (or, if you pay in foreign currency, the
U.S. dollar value of that foreign currency on the purchase date).
Adjustments are made to reflect OID and other items as described above.
- If you collect foreign currency upon the retirement of the note, or if
you sell or exchange the note for foreign currency, your gain or loss
will be based on the U.S. dollar value of the foreign currency you
receive. For a publicly traded foreign currency note, this value is
determined for cash basis taxpayers on the settlement date for the sale
of the note, and for accrual basis taxpayers on the trade date for the
sale (although such taxpayers can also elect the settlement date). You
will then have a tax basis in the foreign currency equal to the value
reported on the sale.
- Any gain or loss on the sale or retirement of a note will be ordinary
income or loss to the extent it arises from currency fluctuations between
your purchase date and sale date and will be recognized only to the
extent of the total gain or loss you realize on the sale, exchange or
retirement of the note.
Any gain or loss on the sale of foreign currency will also be ordinary
income or loss.
Premium and Market Discount on Foreign Currency Notes
Market discount on a foreign currency note is determined in units of the
foreign currency. Accrued market discount taken into account upon the receipt of
any partial principal payment or upon the sale, exchange, retirement or other
disposition of the note (other than accrued market discount required to be taken
into account currently) is translated into U.S. dollars at the exchange rate on
such disposition date (and no part of such accrued market discount is treated as
exchange gain or loss). Accrued market discount currently includible in income
for any accrual period is translated into U.S. dollars on the basis of the
average exchange rate in effect during such accrual period, and the exchange
gain or loss is determined upon the receipt of any partial principal payment or
upon the sale, exchange, retirement or other disposition of the note in the
manner used by accrual method taxpayers with respect to computation of exchange
gain or loss on accrued interest on foreign currency notes.
Amortizable bond premium is determined in the relevant foreign currency and
reduces interest income in units of the foreign currency. Although not entirely
clear, a U.S. holder should recognize exchange gain or loss equal to the
difference between the U.S. dollar value of the bond premium amortized with
respect to a period, determined on the date the interest attributable to such
period is received, and the U.S. dollar value of the bond premium determined on
the date of the acquisition of the note.
Exchange of Foreign Currencies
A U.S. Holder will have a tax basis in any foreign currency received as
interest or on the sale, exchange or retirement of a note equal to the U.S.
dollar value of such foreign currency as of the time the interest is received or
of the time of the sale, exchange or retirement. Any gain or loss realized by a
U.S. Holder on a sale or other disposition of foreign currency (including its
exchange for U.S. dollars or its use to purchase notes) will be ordinary income
or loss.
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OTHER CATEGORIES OF NOTES: Additional rules may apply to certain other
categories of notes. The applicable pricing supplement may describe these rules.
In addition, we suggest that you consult your tax advisor in these situations.
These categories of notes include:
- notes with contingent payments,
- notes which the applicable issuer may be required by the holder to redeem
prior to their maturity,
- notes that are callable by the applicable issuer before their maturity,
other than typical calls at a premium, and
- notes that are extendable at the option of the applicable issuer or the
option of the holder.
Accrual Election
You may generally elect to be taxed on the income from the note in a
different manner than described above. Under the election:
- No interest is qualified stated interest.
- You include amounts in income as they accrue to you in accordance with
the constant yield method, based on the compounding of interest. The
accrual of income takes into account stated interest, OID (including de
minimis OID), market discount, and premium.
- Your tax basis is increased by all accruals of income and decreased by
all payments you receive on the note.
Sale or Retirement of Notes
On your sale or retirement of your note:
- You will have taxable gain or loss equal to the difference between the
amount received by you and your tax basis in the note. Your tax basis in
the note is generally your cost, subject to certain adjustments.
- Your gain or loss will generally be capital gain or loss and will be long
term capital gain or loss if you held the note for more than one year.
- If (a) you purchased the note with de minimis OID, (b) you did not make
the election to accrue all OID into income, and (c) you receive the
principal amount of the note upon the sale or retirement, then you will
generally have capital gain equal to the amount of the de minimis OID.
- If you sell the note between interest payment dates, a portion of the
amount you receive reflects interest that has accrued on the note but has
not yet been paid by the sale date. That amount is treated as ordinary
interest income and not as sale proceeds.
- All or part of your gain may be ordinary income rather than capital gain
in certain cases. These cases include sales of short-term notes, notes
with market discount, notes with contingent payments or foreign currency
notes.
Premium and Discount
Additional special rules apply in the following situations involving
discount or premium:
- If you buy a note in the initial offering for more than its stated
redemption price at maturity, the excess amount you pay will be
"amortizable bond premium." You can generally elect to use bond premium
to reduce your taxable interest income over the life of your note.
- Similarly, if a note has OID and you buy it in the initial offering for
more than the issue price and less than its stated redemption price at
maturity, the excess (up to the total amount of OID) is
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called "acquisition premium." The amount of OID you are required to
include in income will be reduced by the amount of acquisition premium
over the life of the note.
- If you buy a note in the initial offering for less than the issue price,
special rules concerning "market discount" may apply.
- Generally, if the market discount rules apply, you will be required to
(i) treat as ordinary income payments made with respect to (other than
payments of qualified stated interest), or gain realized on, the sale,
exchange, retirement or other disposition of a note to the extent of the
accrued market discount not previously included in income and (ii) defer
the deduction of all or a portion of the interest paid or accrued on any
indebtedness incurred or maintained to purchase or carry a note with
market discount until the maturity of the note or certain earlier
dispositions. Market discount will be considered to accrue ratably during
the period from the date of acquisition to the maturity date of the note,
unless you elect to accrue market discount on the basis of semiannual
compounding.
- Alternatively, you may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding
basis). Generally, such currently included market discount is treated as
ordinary interest income. Such an election will apply to all debt
instruments you acquired on or after the first day of the first taxable
year to which such election applies and may be revoked only with the
consent of the IRS.
Appropriate adjustments to tax basis are made in these situations. We
suggest that holders in these situations consult their tax advisors.
Information Reporting and Backup Withholding
Under the tax rules concerning information reporting to the IRS:
- Assuming you hold your notes through a broker or other securities
intermediary, the intermediary must provide information to the IRS
concerning interest, OID and retirement proceeds on your notes, unless an
exemption applies.
- Similarly, unless an exemption applies, you must provide the intermediary
with your taxpayer identification number for the intermediary's use in
reporting information to the IRS. If you are an individual, this is your
social security number. You are also required to comply with other IRS
requirements concerning information reporting.
- If you are subject to these requirements but do not comply, the
intermediary must withhold at a rate of 30.5% (which rate is scheduled to
be reduced periodically through 2006) of all amounts payable to you on
the notes (including principal payments). If the intermediary withholds
payments, you may use the withheld amount as a credit against your
federal income tax liability.
- All individual U.S. holders are subject to these requirements. Some U.S.
holders, including all corporations, tax-exempt organizations and
individual retirement accounts, are exempt from these requirements.
Source of Income and Foreign Tax Credits With Respect to Debt Securities of
Textron Canada Funding
Interest payments made by Textron Canada Funding may be subject to
withholding tax. The withholding tax rate with respect to a U.S. holder may
depend on whether such U.S. holder is entitled to the benefits of the United
States-Canada tax treaty (the "Tax Treaty"). Certain U.S. holders (such as
limited liability companies) are not treated as United States persons for
purposes of the Tax Treaty and are subject to withholding tax at a higher rate.
U.S. holders should consult with their tax advisors as to whether the benefits
of the Tax Treaty are applicable to their particular circumstances.
If Canadian withholding taxes are imposed on interest payments on the debt
securities issued by Textron Canada Funding, a U.S. holder may be eligible for a
United States foreign tax credit with respect
S-43
to such taxes. Interest payments made by Textron Canada Funding will be foreign
source income and will generally constitute "passive income" for foreign tax
credit purposes. A U.S. holder that does not claim a foreign tax credit may be
entitled to a deduction for United States federal income tax purposes with
respect to any such Canadian withholding taxes.
The calculation of foreign tax credits or deductions involves the
application of complex rules that depend on a holder's particular circumstances.
Accordingly, U.S. holders are urged to consult their tax advisors regarding the
credibility or deductibility of such taxes. For a discussion of the Canadian
income tax considerations, see "Canadian Federal Income Tax Considerations."
TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section applies to you if you are a "non-U.S. holder." A "non-U.S.
holder" is any holder other than a U.S. holder. Generally, a non-U.S. holder is
not subject to U.S. federal income taxes on payments of interest (including OID)
on a note unless such holder is:
- a direct or indirect 10% or greater shareholder of the applicable issuer,
- a controlled foreign corporation related to the applicable issuer, or
- a bank receiving interest described in Section 881(c)(3)(A) of the Code.
Withholding Taxes
Generally, payments of principal and interest on the notes will not be
subject to U.S. withholding taxes.
However, for the exemption from withholding taxes to apply to you, you must
meet one of the following requirements:
- The last U.S. payor in the chain of payment prior to payment to a
non-U.S. holder is provided with your name, address, and a signed
statement that you are the beneficial owner of the note and are not a
U.S. holder. This statement is generally made on Form W-8BEN.
- You or your agent claim an exemption from withholding tax under an
applicable tax treaty. This claim is generally made on Form W-8BEN.
- You or your agent claim an exemption from withholding tax on the ground
that the income is effectively connected with the conduct of a trade or
business in the U.S. This claim is generally made on Form W-8ECI.
We suggest that you consult your tax advisor about the specific methods for
satisfying these requirements. In addition, a claim for exemption will not be
valid if the person receiving the applicable form has actual knowledge that the
statements on the form are false.
Even if you comply with these conditions, withholding tax might arise if
the amount of interest payable on a note is based on our earnings or on other
attributes of ours. If this exception applies, we will provide additional
information in the applicable pricing supplement.
Sale or Retirement of Notes
If you sell a note or it is redeemed, you will generally not be subject to
federal income tax on any ensuing gain unless one of the following applies:
- You are an individual, you are present in the U.S. for at least 183 days
during the year in which you dispose of the note, and certain other
conditions are satisfied.
- The gain is effectively connected with your conduct of a U.S. trade or
business.
S-44
Estate Taxes
If you are an individual, your notes will not be subject to U.S. estate tax
when you die. However, this rule only applies if, at your death, payments on the
notes were not connected to a trade or business that you were conducting in the
U.S. and you were not a direct or indirect 10% or greater shareholder of the
issuer of the notes.
Information Reporting and Backup Withholding
U.S. rules concerning information reporting and backup withholding are
described above. These rules apply to non-U.S. holders as follows:
- Principal and interest payments you receive will be automatically exempt
from the usual rules if you provide the tax certifications needed to
avoid withholding tax on interest, as described above. The exemption does
not apply if the recipient of the applicable form knows that the form is
false. In addition, interest payments made to you will be reported to the
IRS on Form 1042-S.
- Sale proceeds you receive on a sale of your notes through a broker may be
subject to information reporting and/or backup withholding if you are not
eligible for an exemption. In particular, information reporting and
backup withholding may apply if you use the U.S. office of a broker, and
information reporting (but not backup withholding) may apply if you use
the foreign office of a broker that has certain connections to the U.S.
We strongly suggest that you consult your tax advisor concerning
information reporting and backup withholding on a sale.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
THE DISCUSSION BELOW IS INTENDED TO BE A GENERAL DESCRIPTION ONLY OF
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO THE OWNERSHIP
AND DISPOSITION OF NOTES OF TEXTRON FINANCIAL AND TEXTRON CANADA FUNDING
ACQUIRED PURSUANT TO THIS OFFERING AND IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR PURCHASER (AS DEFINED
BELOW). ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS WITH RESPECT TO THE CANADIAN FEDERAL AND PROVINCIAL TAX CONSEQUENCES OF
AN INVESTMENT IN THE NOTES.
This summary is based on advice from Osler, Hoskin & Harcourt LLP, our
Canadian tax counsel. This summary is based on the current provisions of the
Income Tax Act (Canada) (the "Canadian Tax Act"), the regulations thereunder
(the "Regulations") and the United States-Canada tax treaty (the "Tax Treaty"),
proposed amendments to the Canadian Tax Act and the regulations (the "Proposed
Amendments") publicly announced by or on behalf of the Minister of Finance
(Canada) prior to the date hereof and counsel's understanding of the current
published administrative practices and policies of the Canada Customs and
Revenue Agency (the "CCRA"). This summary is not exhaustive of all possible
income tax consequences and, except for the Proposed Amendments, does not
otherwise take into account or anticipate any other changes in law or in the
administrative and assessing practices of the CCRA, whether by legislative,
governmental or judicial action, nor does it take into account provincial,
territorial or non-Canadian income tax considerations. We cannot assure you that
the Proposed Amendments will become law in their present form or at all.
For the purpose of the Canadian Tax Act all amounts in U.S. dollars or
other non-Canadian currency that relate to the acquisition, holding or
disposition of a note including interest, adjusted cost base, proceeds of
disposition (including transfer or redemption) and issue price must be converted
into Canadian dollars based on the exchange rate prevailing at the time such
events arise.
A. NON-CANADIAN HOLDERS
GENERAL
This section summarizes the principal Canadian federal income tax
considerations applicable to a "Non-Canadian holder" of notes issued by Textron
Canada Funding. For purposes of this summary, a Non-Canadian holder is a
beneficial owner of a note that buys such note in an initial offering pursuant
to
S-45
the terms of this prospectus supplement and the applicable pricing supplement
and who, at all relevant times, for purposes of the Canadian Tax Act:
- is not (and is not deemed to be) a resident of Canada,
- deals at arm's length with Textron Canada Funding, and
- holds the note as capital property and does not use or hold and is not
deemed to use or hold the note in, or in the course of, carrying on
business in Canada.
Special rules not discussed in this summary may apply to a person who carries on
an insurance business in Canada and elsewhere. Under the Canadian Tax Act,
certain persons, including "financial institutions" as defined for these
purposes, will generally be precluded from treating notes as capital property.
CANADIAN WITHHOLDING TAX
Subject to the application of certain exemptions as discussed below, any
amount paid or credited, or deemed to be paid or credited, by Textron Canada
Funding as, on account of or in lieu of payment of, or in satisfaction of
interest on a note to a Non-Canadian holder will generally be subject to a 25%
non-resident withholding tax. The rate of such tax may be reduced through the
application of international tax treaties or conventions to which Canada is a
party, usually to a rate of 10% or 15%. In the case of a Non-Canadian holder
that is a beneficial owner of interest in a note and a resident of the United
States for purposes of the Tax Treaty, the applicable rate is 10%.
Interest on a note that is paid or credited, or deemed to be paid or
credited by Textron Canada Funding to a Non-Canadian holder will be exempt from
Canadian non-resident withholding tax provided:
(a) none of the interest is contingent or dependent on the use of or
production from property in Canada or is computed by reference to revenue,
profit, cash flow, commodity price or any other similar criterion, or by
reference to dividends paid or payable to shareholders of any class of
shares of the capital stock of a corporation; and
(b) either:
(i) the note is issued under terms and conditions and in
circumstances whereby Textron Canada Funding may not be required to
repay more than 25% of the principal amount of the Textron Canada
Funding debt obligation represented by such notes within five years from
the date of issue of such obligation except in certain circumstances
including default (a "5-Year Note") (for this purpose, where a note is
issued as part of a number of notes that comprise a single debt issuance
of obligations that are identical in respect of all rights attaching
thereto except as regards the principal amount thereof, then Textron
Canada Funding may not be required to repay more that 25% of the total
of the principal amount of those notes within five years from the date
of issue of the debt issuance); or
(ii) the Non-Resident holder is a person to whom a certificate of
exemption has been issued under subsection 212(14) of the Canadian Tax
Act and which certificate is in force on the date such interest is paid
or credited.
Interest on a note that is paid or credited, or deemed to be paid or
credited, to a Non-Canadian holder will also be exempt from Canadian
non-resident withholding tax provided that at the time the interest is so paid
or credited such Non-Canadian holder is a trust, company, organization or other
arrangement described in Article XXI(2) of the Tax Treaty and such income is not
income of the trust, company or other arrangement from carrying on a trade or
business.
The pricing supplement with respect to a particular issuance of notes will
describe whether interest paid or credited or deemed to be paid or credited
thereon will be exempt from Canadian federal withholding tax.
S-46
When a note is issued at a discount, the difference between the issue price
and the amount payable to a Non-Canadian holder on maturity will, in certain
circumstances, be considered to be received as interest rather than as principal
for purposes of the Canadian Tax Act. Similarly, when a Non-Canadian holder
assigns or otherwise transfers a note (other than a 5-Year Note) to a person
resident in or deemed to be resident in Canada for purposes of the Canadian Tax
Act, any amount by which the transfer or assignment price exceeds the issue
price of the note shall in certain circumstances be deemed to be a payment of
interest to the Non-Canadian holder for purposes of the Canadian Tax Act. In
addition, any amount of interest accrued and unpaid on such a note at the time
of such assignment or transfer shall in certain circumstances be deemed to have
been paid to the Non-Canadian holder for purposes of the Canadian Tax Act. In
any of these circumstances, the comments made herein regarding Canadian
withholding tax on interest will apply.
OTHER TAXES
Other than in the circumstances described above, no taxes on income
(including taxable capital gains) will be payable by a Non-Resident holder in
respect of the acquisition, ownership or disposition of a note.
B. RESIDENTS OF CANADA
GENERAL
This section summarizes the principal Canadian federal income tax
considerations generally applicable to a person who acquires beneficial
ownership of the notes of Textron Financial or Textron Canada Funding ("notes")
in an initial offering pursuant to the terms of this prospectus supplement and
the applicable pricing supplement (a "Purchaser") and who for the purposes of
the Canadian Tax Act, and at all relevant times, is or is deemed to be resident
in Canada, holds the notes as capital property, deals at arm's length with the
issuer, is not affiliated with the issuer and is not a "financial institution"
for purposes of certain provisions of the Canadian Tax Act relating to
securities held by financial institutions.
TAXATION OF INTEREST ON NOTES
A Purchaser that is a corporation, partnership, unit trust or any trust of
which a corporation or a partnership is a beneficiary will be required to
include in computing its income for a taxation year any interest that accrues to
the Purchaser on a note to the end of the year or that becomes receivable or is
received by the Purchaser before the end of the year, to the extent that such
interest was not included in computing the Purchaser's income for a preceding
taxation year.
Any other Purchaser will be required to include in computing income for a
taxation year any interest on a note that is received or receivable by the
Purchaser in the taxation year (depending on the method regularly followed by
the Purchaser in computing the Purchaser's income) to the extent that the
interest was not included in computing the Purchaser's income for a preceding
taxation year. In addition, such Purchaser will be required to include in
computing income for a taxation year any interest that accrued to the Purchaser
to the end of any "anniversary day" (as defined in the Canadian Tax Act) of the
note, to the extent that such amount was not otherwise included in computing the
Purchaser's income for the year or for any preceding taxation year.
If a note is issued at a discount such that it is a "prescribed debt
obligation" as defined by the Regulations interest will be deemed to accrue to
the Purchaser for purposes of the rules described above at a rate determined in
accordance with the Regulations.
A Purchaser that is a Canadian-controlled private corporation (as defined
in the Canadian Tax Act) will be liable to pay an additional refundable tax of
6 2/3% on investment income. For this purpose, investment income will generally
include interest income and taxable capital gains.
S-47
REDEMPTION OR OTHER DISPOSITION
On an assignment or other transfer of a note, a Purchaser will generally be
required to include in computing its income for the year of transfer, the
amount, if any, of interest that has accrued on the note to the date of
transfer, and which was not, in accordance with the terms of the debt security,
payable until after that date, to the extent that such amount has not otherwise
been included in computing the Purchaser's income for that year or a preceding
year.
On a redemption of the note before maturity, the amount, if any, by which
the redemption proceeds exceed the principal amount of the note may be deemed to
be interest received by the Purchaser.
In addition, a disposition of a note (including a redemption or purchase by
the issuer) will give rise to a capital gain (or a capital loss) to the extent
that a Purchaser's proceeds from the disposition of the debt security net of
accrued interest and amounts deemed to be interest exceed (or are less than) the
aggregate of the Purchaser's adjusted cost base of the note and any reasonable
costs of disposition. One-half of the amount of any capital gain (a "taxable
capital gain") realized by a Purchaser in a taxation year generally must be
included in income in that year, and one-half of the amount of any capital loss
(an "allowable capital loss") realized in a taxation year must be deducted from
taxable capital gains of the Purchaser for that year. Allowable capital losses
in excess of taxable capital gains may be carried back and deducted in any of
the three preceding taxation years or carried forward and deducted in any
following taxation year against net taxable capital gains realized in such years
to the extent provided in the Canadian Tax Act.
FOREIGN TAX CREDITS
If a Purchaser pays U.S. withholding tax on interest payable on a note
issued by Textron Financial, the Purchaser may be eligible to claim a foreign
tax credit in computing tax payable or a deduction in computing income in
respect of such tax to the extent provided by the relevant provisions of the
Canadian Tax Act.
S-48
PLAN OF DISTRIBUTION
We are offering the notes in the United States on a continuing basis for
sale to or through Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of
America Securities LLC, Banc One Capital Markets, Inc., Barclays Capital Inc.,
Credit Suisse First Boston Corporation, Deutsche Banc Alex. Brown Inc., First
Union Securities, Inc., Fleet Securities, Inc., J.P. Morgan Securities Inc.,
Salomon Smith Barney Inc. and UBS Warburg LLC (the "U.S. agents") and in Canada
on a continuing basis for sale to or through RBC Dominion Securities Inc., BMO
Nesbitt Burns Inc. and Scotia Capital Inc. (the "Canadian agents" and, together
with the U.S. agents, the "agents"). The agents, individually or in a syndicate,
may purchase notes, as principal, from us from time to time for resale to
investors and other purchasers at varying prices relating to prevailing market
prices at the time of resale as determined by the applicable agent or, if so
specified in the applicable pricing supplement, for resale at a fixed offering
price. However, we may agree with an agent for that agent to utilize its
reasonable efforts on an agency basis on our behalf to solicit offers to
purchase notes at 100% of the principal amount thereof, unless otherwise
specified in the applicable pricing supplement. We will pay a commission to an
agent, ranging from .125% to .750% of the principal amount of each note,
depending upon its stated maturity, sold through that agent as our agent. We
will negotiate commissions with respect to notes with stated maturities in
excess of 30 years that are sold through an agent as our agent at the time of
the related sale. In addition, we estimate that our expenses incurred in
connection with the offering and sale of the notes, including reimbursement of
certain of the agents' expenses, will total approximately $1,655,000.
Unless otherwise specified in the applicable pricing supplement, any note
sold to an agent as principal will be purchased by that agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a note of
identical maturity. An agent may sell notes it has purchased from us as
principal to certain dealers less a concession equal to all or any portion of
the discount received in connection with that purchase. An agent may allow, and
dealers may reallow, a discount to certain other dealers. After the initial
offering of notes, the offering price (in the case of notes to be resold on a
fixed offering price basis), the concession and the reallowance may be changed.
We reserve the right to withdraw, cancel or modify the offer made hereby
without notice and may reject offers in whole or in part (whether placed
directly by us or through an agent). Each agent will have the right, in its
discretion reasonably exercised, to reject in whole or in part any offer to
purchase notes received by it on an agency basis.
Unless otherwise specified in the applicable pricing supplement, you will
be required to pay the purchase price of your notes in immediately available
funds in the specified currency in The City of New York on the date of
settlement. See "Special Provisions Relating to Foreign Currency Notes."
Upon issuance, the notes will not have an established trading market. The
notes will not be listed on any securities exchange. The agents may from time to
time purchase and sell notes in the secondary market, but the agents are not
obligated to do so, and there can be no assurance that a secondary market for
the notes will develop or that there will be liquidity in the secondary market
if one develops. From time to time, the agents may make a market in the notes,
but the agents are not obligated to do so and may discontinue any market-making
activity at any time.
In connection with an offering of notes purchased by one or more agents as
principal on a fixed offering price basis, the applicable agents will be
permitted to engage in certain transactions that stabilize the price of notes.
These transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of notes. If those agents create a short
position in notes, i.e., if they sell notes in an amount exceeding the amount
referred to in the applicable pricing supplement, they may reduce that short
position by purchasing notes in the open market. In general, purchases of notes
for the purpose of stabilization or to reduce a short position could cause the
price of notes to be higher than it might be in the absence of these types of
purchases.
S-49
Neither we nor any agent makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described in the
immediately preceding paragraph may have on the price of notes. In addition,
neither we nor any agent makes any representation that the agents will engage in
any such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). We have agreed to
indemnify the agents against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the agents may be required to
make in respect thereof.
In the ordinary course of their business, the agents and their affiliates
have engaged, and may in the future engage, in investment and commercial banking
transactions with us and certain of our affiliates, for which they receive fees
and expenses.
First Union Securities, Inc. ("FUSI"), a subsidiary of Wachovia
Corporation, conducts its investment banking, institutional, and capital markets
businesses under the trade name of Wachovia Securities. Any references to
"Wachovia Securities" in this Prospectus, however, do not include Wachovia
Securities, Inc., a separate broker-dealer subsidiary of Wachovia Corporation
and sister affiliate of FUSI which may or may not be participating as a separate
selling dealer in the distribution of the Securities.
From time to time, we may sell other securities referred to in the
accompanying prospectus, and the amount of notes offered hereby may be reduced
as a result of these sales.
VALIDITY OF THE NOTES
Edwards & Angell, LLP, Providence, Rhode Island will issue an opinion about
the validity of the notes and the TFC guarantee for Textron Financial. Edwards &
Angell, LLP and Stewart McKelvey Stirling Scales, Halifax, Nova Scotia, will
issue opinions about the validity of the notes for Textron Canada Funding.
Certain matters relating to Ontario law and Canadian federal income tax matters
will be passed upon for Textron Financial and Textron Canada Funding by Osler,
Hoskin & Harcourt, LLP, Toronto, Canada. Sidley Austin Brown & Wood LLP, New
York, New York, will pass on certain matters for the agents in respect of the
notes being offered in the United States and Torys, Toronto, Canada, will pass
on certain matters for the Canadian agents in respect of the notes being offered
in Canada.
ELIGIBILITY FOR INVESTMENT
In the opinion of Osler, Hoskin & Harcourt LLP, Canadian counsel to Textron
Financial and Textron Canada Funding and Torys, Canadian counsel to the Canadian
agents, subject to compliance with the prudent investment standards and general
investment provisions and restrictions of the following statutes (and, where
applicable, the regulations thereunder) and, in certain cases, subject to the
satisfaction of additional requirements relating to investment or lending
policies, procedures or goals, and, in certain cases, the filing of such
policies, procedures or goals, the notes of Textron Financial and of Textron
Canada Funding issued in Canada will not at the date of their issue be precluded
as investments under the following statutes:
Insurance Companies Act (Canada)
Trust and Loan Companies Act (Canada)
Pension Benefits Standards Act, 1985 (Canada)
Cooperative Credit Associations Act (Canada)
Pension Benefits Act (Nova Scotia)
Trustee Act (Nova Scotia)
Pension Benefits Act (Ontario)
Loan and Trust Corporations Act (Ontario)
Trustee Act (Ontario)
Financial Institutions Act (British Columbia)
Pension Benefits Standards Act (British Columbia)
Loan and Trust Corporations Act (Alberta)
Alberta Heritage Savings Trust Fund Act (Alberta)
Employment Pension Plans Act (Alberta)
Insurance Act (Alberta)
The Pension Benefit Act, 1992 (Saskatchewan)
The Pension Benefits Act (Manitoba)
The Insurance Act (Manitoba)
The Trustee Act (Manitoba)
S-50
In the opinion of Osler Hoskin & Harcourt LLP and Torys, provided that at
the time of issue, the notes of Textron Canada Funding are held by at least 300
different persons, the notes of Textron Canada Funding at that time will be
qualified investments under the Canadian Tax Act for trusts governed by
registered retirement savings plans, registered retirement income funds and
deferred profit sharing plans (collectively, the "Deferred Income Plans"), other
than trusts governed by deferred profit sharing plans for which any of the
employers is Textron Canada Funding or is a corporation which does not deal at
arm's length with Textron Canada Funding. In the opinion of such counsel, based
on a certificate of Textron Canada Funding as to the use of proceeds from the
issue of notes of Textron Canada Funding and other matters, the notes of Textron
Canada Funding will not, on the date of issue, be "foreign property" for
purposes of the Canadian Tax Act for Deferred Income Plans and other persons
subject to tax under Part XI of the Canadian Tax Act.
S-51
CERTIFICATE OF THE AGENTS
Dated November 30, 2001
To the best of our knowledge, information and belief, the MJDS prospectus,
together with the documents incorporated in the prospectus, as supplemented by
the foregoing, will as of the date of each supplement to the MJDS prospectus,
constitute full, true and plain disclosure of all material facts relating to the
securities offered under the MJDS prospectus and by the supplement as required
by the provinces of Alberta, British Columbia, Manitoba, Ontario, Quebec,
Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland
and will not contain any misrepresentation likely to affect the value or the
market price of the securities to be distributed.
RBC DOMINION SECURITIES INC.
BY: /s/ JOHN R.G. YOUNGER
------------------------------------
JOHN R.G. YOUNGER
BMO NESBITT BURNS INC.
BY: /s/ PETER MARCHANT
------------------------------------
PETER MARCHANT
SCOTIA CAPITAL INC.
BY: /s/ MATTHEW FRANK
------------------------------------
MATTHEW FRANK
The following includes the names of every person having an interest either
directly or indirectly to the extent of not less than 5% in the capital of:
RBC Dominion Securities Inc.: a wholly-owned subsidiary of a Canadian
chartered bank;
BMO Nesbitt Burns Inc.: a wholly-owned subsidiary of BMO Nesbitt Burns
Corporation Limited, an indirect majority-owned subsidiary of a Canadian
chartered bank, and;
Scotia Capital Inc.: a wholly-owned subsidiary of a Canadian chartered
bank.
S-52
This prospectus constitutes a public offering of these securities only in
those jurisdictions where they may be lawfully offered for sale and in those
jurisdictions only by persons permitted to sell such securities. No securities
commission or similar authority in Canada or the United States of America has in
any way passed upon the merits of the securities offered by this prospectus and
any representation to the contrary is an offence.
PROSPECTUS
TFC TEXTRON LOGO
TEXTRON FINANCIAL CORPORATION
U.S. $3,000,000,000
DEBT SECURITIES OF TEXTRON FINANCIAL CORPORATION
TEXTRON FINANCIAL CANADA FUNDING CORP.
U.S. $2,600,000,000
GUARANTEED DEBT SECURITIES OF TEXTRON FINANCIAL CANADA FUNDING CORP.
-------------------------
Textron Financial Corporation may periodically sell debt securities to the
public. We will provide specific terms of such securities in supplements to this
prospectus. Textron Financial Corporation will not offer any convertible debt
securities or subordinated debt securities in Canada pursuant to this
prospectus.
Textron Financial Canada Funding Corp. may periodically sell debt securities
to the public. Such debt securities will be fully and unconditionally guaranteed
by Textron Financial Corporation. Textron Financial Canada Funding Corp. will
provide specific terms of such debt securities in supplements to this
prospectus. Textron Financial Canada Funding Corp. will not offer any of its
convertible debt securities or subordinated debt securities in Canada pursuant
to this prospectus.
You should read this prospectus and each applicable supplement carefully
before you invest. In this prospectus, unless otherwise specified, all dollar
amounts are expressed in U.S. dollars.
This offering is being made by Textron Financial Corporation, a U.S. issuer,
and Textron Financial Canada Funding Corp., a Canadian issuer, whose obligations
under debt securities issued by it will be guaranteed by Textron Financial
Corporation, using disclosure documents prepared in accordance with U.S.
securities laws. Purchasers should be aware that these requirements may differ
from those of Canadian securities laws. The financial statements included or
incorporated by reference in this prospectus have not been prepared in
accordance with Canadian generally accepted accounting principles and may not be
comparable to financial statements of Canadian issuers. This offering is being
made by Textron Financial Canada Funding Corp. in each of the provinces of
Canada pursuant to decisions issued by the securities commission or similar
regulatory authority of those provinces.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This prospectus may not be used to sell these securities unless it is
accompanied by a prospectus supplement.
This prospectus is dated November 30, 2001.
Certain of the directors and officers of the issuers and the experts named
in this prospectus reside outside of Canada. Certain of the assets of these
persons and the issuers may be located outside Canada. The issuers have
appointed Stewart McKelvey Stirling Scales, Suite 800, 1959 Upper Water Street,
P.O. Box 997 Halifax, Nova Scotia, Canada, B3J 2X2 as their agent for service of
process in Canada, but it may not be possible for investors to effect service of
process within Canada upon all of the directors, officers and experts referred
to above. It may also not be possible to enforce against the issuers, their
directors and officers and the experts named in this prospectus, judgments
obtained in Canadian courts predicated upon the civil liability provisions of
the applicable securities laws in Canada.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
About this Prospectus............... 1
Textron Financial Corporation....... 1
Textron Financial Canada Funding
Corp. ............................ 2
Use of Proceeds..................... 3
Ratio of Earnings to Fixed
Charges........................... 3
Description of Debt Securities...... 3
Plan of Distribution................ 16
Where You Can Find More
Information....................... 17
</Table>
<Table>
<Caption>
PAGE
Legal Opinions...................... 18
Experts............................. 18
Purchasers' Statutory Rights........ 18
Certificate of Textron Financial
Corporation....................... 19
Certificate of Textron Financial
Canada Funding Corp. ............. 20
</Table>
i
ABOUT THIS PROSPECTUS
This prospectus is part of a joint registration statement that we filed
with the SEC using a "shelf" registration process. Under this shelf registration
process, we may sell any combination of the debt securities of Textron Financial
Corporation (the "TFC debt securities") and the debt securities of Textron
Financial Canada Funding Corp. (the "guaranteed debt securities") fully and
unconditionally guaranteed by Textron Financial Corporation (the "TFC
guarantee") as described in this prospectus. Textron Financial Corporation may
issue up to $3,000,000,000 of debt securities under this prospectus and Textron
Financial Canada Funding Corp. may issue up to $2,600,000,000 of guaranteed debt
securities under this prospectus. Any debt securities issued by Textron
Financial Corporation in excess of $400,000,000 will reduce the amount available
to be issued in the future by Textron Financial Canada Funding Corp. Any
guaranteed debt securities issued by Textron Financial Canada Funding Corp. will
reduce the amount available to be issued in the future by Textron Financial
Corporation. Unless the context otherwise requires, we will refer to the TFC
debt securities to be issued by Textron Financial and the guaranteed debt
securities to be issued by Textron Canada Funding as the "securities" or the
"debt securities".
Textron Financial Corporation may periodically sell debt securities to the
public. We will provide specific terms of such securities in supplements to this
prospectus. Textron Financial Corporation will not offer any convertible debt
securities or subordinated debt securities in Canada pursuant to this
prospectus.
Textron Financial Canada Funding Corp. may periodically sell debt
securities to the public. Such debt securities will be fully and unconditionally
guaranteed by Textron Financial Corporation. Textron Financial Canada Funding
Corp. will provide specific terms of such debt securities in supplements to this
prospectus. Textron Financial Canada Funding Corp. will not offer any of its
convertible debt securities or subordinated debt securities in Canada pursuant
to this prospectus.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of the
securities offered. Each prospectus supplement may also add to, update, or
change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement together with the additional
information described under the heading "Where You Can Find More Information".
In this prospectus, unless the context otherwise requires, we will use the
terms "we", "our", "ourselves" and "us" to mean Textron Financial Corporation
and Textron Financial Canada Funding Corp. We will refer to Textron Financial
Corporation as "Textron Financial" and Textron Financial Canada Funding Corp. as
"Textron Canada Funding". In addition, we will use the term "issuer" when
referring to the particular company that issues a particular debt security or
series of debt securities.
TEXTRON FINANCIAL CORPORATION
Textron Financial was incorporated in the State of Delaware in 1962. Its
executive office is at 40 Westminster Street, Providence, Rhode Island and its
telephone number is 401-621-4200.
Textron Financial is a diversified commercial finance company with
operations in four core segments:
- Small Business segment, focusing on aircraft financing, small-ticket
equipment financing, factoring and SBA lending;
- Middle Markets segment, specializing in dealer floorplan financing,
asset-based lending and franchise finance;
- Specialty Finance segment, providing golf course finance, media finance
and receivable financing for developers of vacation interval resorts and
recreational and residential land lots; and
- Structured Capital segment, managing a portfolio of leveraged lease
transactions, originating factoring arrangements and working capital
loans for the telecommunication industry and other utilities, and
participating in investment grade, or near investment grade, secured
credit facilities.
Textron Financial's other services include transaction syndication,
equipment management, disposition and appraisal, portfolio servicing and
insurance brokerage. Textron Financial has subsidiary companies operating under
the names of Cessna Finance, Asset Control, Litchfield Financial, RFC Capital,
Systran Financial Services, TBS Business Services, TBS Insurance Agency, and
Textron Business Credit.
Textron Financial is a subsidiary of Textron Inc., a company with revenues
of approximately $13 billion per year and global, multi-industry market-leading
businesses in the aircraft, automotive, fastening systems, industrial products
and finance industries. Textron Inc. has a workforce of approximately 68,000
employees and major manufacturing facilities in 30 countries. Textron is
recognized around the world for brands like Bell Helicopter, Cessna Aircraft,
Kautex, Lycoming, E-Z-GO, and Greenlee.
Textron Financial entered into a Support Agreement dated as of May 25, 1994
with Textron Inc. The Support Agreement requires Textron Inc. to pay Textron
Financial, quarterly, an amount sufficient to provide that pre-tax earnings,
before extraordinary items and fixed charges, will not be less than 125% of
Textron Financial's fixed charges. Fixed charges for purposes of the Support
Agreement include interest on indebtedness and amortization of debt discount.
Textron Inc. was not required to make any payments under the Support Agreement
for the nine months ended September 30, 2001, or for the years ended 2000, 1999,
1998, 1997, and 1996, when Textron Financial's fixed charge coverage ratios were
162%, 158%, 163%, 173%, 171% and 165%, respectively. In addition, Textron Inc.
has agreed to maintain Textron Financial's consolidated shareholders' equity at
an amount not less than $200 million. Under the terms of the Support Agreement,
Textron Financial has agreed with Textron Inc. that one hundred percent (100%)
of Textron Financial's issued and outstanding common stock will be owned by
Textron Inc. or a corporation controlled by, controlling, or under common
control with, Textron Inc. The Support Agreement is not a guarantee by Textron
Inc. of the payment of interest or principal of any obligation, indebtedness or
liability by Textron Financial, including the debt securities offered hereby, to
any person. However, the Support Agreement does contain provisions protecting
Textron Financial's investors from the termination of the Support Agreement and
entitling them to enforce its provisions against Textron Inc. As a result, if
Textron Inc. does not comply with its obligations under the Support Agreement,
holders of TFC debt securities and holders of guaranteed debt securities could
bring an action against Textron Inc. to compel Textron Inc. to comply with its
obligations.
TEXTRON FINANCIAL CANADA FUNDING CORP.
Textron Canada Funding is one of Textron Financial's wholly-owned
subsidiaries, incorporated under the laws of the Province of Nova Scotia, as an
unlimited liability company, solely for the purpose of raising capital to meet
Textron Financial's financing needs and those of Textron Financial's
subsidiaries. Textron Canada Funding's registered office is located at Suite
800, 1959 Upper Water Street, P.O. Box 997, Halifax, Nova Scotia, Canada B3J
2X2. Its principal executive offices are located at 40 Westminster Street,
Providence, Rhode Island, and its telephone number is 401-621-4200.
Pursuant to rules promulgated by the SEC, we are not required to include
separate financial statements of Textron Canada Funding in this prospectus
because:
- all of the voting rights of Textron Canada Funding are owned by Textron
Financial, which files periodic and other reports with the SEC pursuant
to the Securities Exchange Act of 1934;
- Textron Canada Funding does not have operations, revenues or cash flows
other than those related to the issuance, administration and repayment of
the guaranteed debt securities and any other securities guaranteed by
Textron Financial; and
- Textron Financial fully and unconditionally guarantees the payment of
Textron Canada Funding's guaranteed debt securities.
2
USE OF PROCEEDS
Textron Financial and Textron Canada Funding will use the net proceeds from
the sale of the debt securities that they offer for sale by this prospectus for
the purposes that they specify in the prospectus supplement for those debt
securities. Those purposes may include in the case of Textron Financial
repayment of debt, origination of loan and lease financings, acquisition of
finance portfolios and businesses and other general corporate purposes. Unless
otherwise indicated in the applicable prospectus supplement, Textron Canada
Funding will lend the net proceeds from the sale of its notes to Textron
Financial or Textron Financial's other subsidiaries to be used for similar
purposes.
RATIO OF EARNINGS TO FIXED CHARGES
Textron Financial's ratio of earnings to fixed charges for each of the
periods indicated was as follows:
<Table>
<Caption>
YEARS ENDED
NINE MONTHS ENDED -------------------------------------
SEPTEMBER 30, 2001 2000 1999 1998 1997 1996
- ------------------ ----- ----- ----- ----- -----
1.62x 1.58x 1.63x 1.72x 1.70x 1.65x
</Table>
For these ratios, Textron Financial calculated earnings by adding the
following:
- pre-tax income from continuing operations before adjustment for minority
interests in consolidated subsidiaries or income or loss from investments
that Textron Financial accounts for using the equity method of
accounting;
- fixed charges;
- amortization of previously capitalized interest;
- distributed income of investments that Textron Financial accounts for
using the equity method of accounting; and
- Textron Financial's share of pre-tax losses of investments that Textron
Financial accounts for using the equity method of accounting and then
subtracting:
-- capitalized interest and
-- minority interests in pre-tax income of subsidiaries that have not
incurred fixed charges.
For this purpose, Textron Financial calculated fixed charges by adding the
following:
- interest expensed and capitalized;
- amortized premiums, discounts and capitalized expenses relating to
indebtedness;
- an estimate of interest included in rental expense; and
- preferred stock dividend requirements, if any, of consolidated
subsidiaries.
DESCRIPTION OF DEBT SECURITIES
Textron Financial will issue the TFC debt securities under an indenture
with SunTrust Bank, as trustee. Textron Canada will issue the guaranteed debt
securities under an indenture with Textron Financial, as guarantor, and Sun
Trust Bank, as trustee.
We have summarized below provisions of the indentures and the Trust
Indenture Act of 1939. The summary does not contain all of the provisions that
you may want to consider as an investor in the debt securities. You may wish to
review the indentures. We have filed a copy of each indenture with the SEC.
3
GENERAL
Neither of the indentures limits the amount of debt securities that the
applicable issuer may issue under it. In addition, the indentures do not limit
the amount of any other debt that the applicable issuer may issue under other
financing documents.
Each issuer is allowed under its indenture to issue debt securities in one
or more series. We will include in the prospectus supplement for a series of
debt securities being offered specific terms of the debt securities. These terms
will include some or all of the following:
- the title of the debt securities and whether the debt securities will be
debt securities of Textron Financial or guaranteed debt securities of
Textron Canada Funding;
- the total principal amount and the permitted denominations of the debt
securities;
- the currency or currencies in which the principal of and any interest on
the debt securities will be payable;
- the date on which the debt securities will be payable;
- the interest rate, if any, for the debt securities or the method that
will be used to determine the interest rate;
- the places where principal and any interest will be payable;
- any mandatory or optional repayment or redemption provisions; and
- any other terms of the debt securities.
Each issuer is allowed under its indenture to issue debt securities of a
single series at various times, with different maturity dates and redemption and
repayment provisions, if any, and different interest rates. We will specify in
the prospectus supplement the persons to whom and the manner in which any
interest will be payable.
The TFC debt securities and the guaranteed debt securities will be
unsecured, unsubordinated indebtedness of the applicable issuer. The TFC debt
securities and the guaranteed debt securities will rank equally with all other
unsecured and unsubordinated indebtedness of the applicable issuer.
We will issue the debt securities in the denominations that we set forth in
the applicable prospectus supplement. The trustee will register the debt
securities in the names of the holders of the debt securities. Each issuer will
maintain an office or agency where holders of the debt securities may present
the debt securities for payment, transfer or exchange. We will not charge any
service charge for any transfer or exchange of the debt securities, but we may
require a payment sufficient to cover any tax or other governmental charge
payable on the debt securities.
Each issuer may sell some of the debt securities at a substantial discount
below their stated principal amount and we may provide for the payment of no
interest or interest at a rate which at the time of issuance is below market
rates. We will describe the U.S. federal income tax consequences and, in the
case of debt securities issued in Canada, Canadian federal income tax
consequences, and other special considerations applicable to any discounted debt
securities in the prospectus supplement relating to the discounted debt
securities.
FULL AND UNCONDITIONAL GUARANTEE OF DEBT SECURITIES OF TEXTRON CANADA FUNDING
All guaranteed debt securities issued by Textron Canada Funding will be
fully and unconditionally guaranteed under a guarantee by Textron Financial of
the payment of principal of, and any premium and interest on, including any
additional amounts payable by Textron Canada Funding as described under
"Description of Debt Securities -- Payment of Additional Amounts with Respect to
the Guaranteed Debt Securities." the guaranteed debt securities when due,
whether at maturity or otherwise. Under the terms of the full and unconditional
guarantee, holders of the guaranteed debt securities will not be required to
4
exercise their remedies against Textron Canada Funding before they proceed
directly against Textron Financial. In addition, the holders of guaranteed debt
securities are entitled to enforce the provisions of the Support Agreement
against Textron Inc. See "Textron Financial Corporation."
Unless we provide otherwise in the applicable prospectus supplement, all
amounts payable by Textron Financial under its guarantee will be paid by Textron
Financial without withholding or deduction for or on account of any present or
future taxes, duties, levies, or other governmental charges of whatever nature
in effect on the date that the debt securities are originally issued or imposed
or established in the future by or on behalf of the United States or any
authority in the United States ("United States Taxes"). If Textron Financial is
so required to deduct or withhold any United States Taxes, Textron Financial
shall pay any additional amounts necessary to make the net amount receivable by
the holder of a guaranteed debt security who is a United States alien (as
defined below) after any payment, withholding or deduction in respect of those
United States Taxes equal the amount the holder would have received in the
absence of that payment, withholding or deduction. However, no "additional
amounts" will be payable with respect to:
(1) any United States Tax which would not have been so imposed but for
(a) the existence of any present or former connection between the holder
(or a fiduciary, settlor, beneficiary, member, shareholder, or holder of a
power over, the holder, if the holder is an estate, trust, partnership or
corporation) and the United States, including, without limitation, such
holder (or such fiduciary, settlor, beneficiary, member, shareholder of, or
holder of a power) being or having been a citizen or resident or treated as
a resident of the United States or being or having been engaged in a trade
or business in the United States or being or having been present in the
United States or having or having had a permanent establishment in the
United States, or (b) the holder's present or former status as a personal
holding company or foreign personal holding company or controlled foreign
corporation or passive foreign investment company for United States federal
income tax purposes or as a corporation which accumulates earnings to avoid
United States federal income tax or as a private foundation or other
tax-exempt organization,
(2) any United States Tax which would not have been so imposed but for
the presentation by the holder of a guaranteed debt security for payment on
that note on a date more than 10 days after the date on which the payment
became due and payable or the date on which payment thereof is duly
provided for, whichever occurs later,
(3) any estate, inheritance, gift, sales, transfer, personal property
or excise tax or any similar tax, assessment or governmental charge,
(4) any United States Tax which is payable otherwise than by
withholding from payments in respect of the guarantee,
(5) any United States Tax imposed on interest received by a holder or
beneficial owner of a guaranteed debt security who actually or
constructively owns 10% or more of the total combined voting power of all
classes of Textron Financial's stock entitled to vote or is a bank that
acquired a guaranteed debt security in consideration of an extension of
credit made pursuant to a loan agreement entered into in the ordinary
course of business,
(6) any United States Tax imposed as a result of the failure to comply
with (a) certification, information, documentation, reporting or other
similar requirements concerning the nationality, residence, identity or
connection with the United States of the holder or beneficial owner of the
guaranteed debt security, if such compliance is required by statute or by
regulation of the United States Treasury Department, as a precondition to
relief or exemption from such tax, assessment or other governmental charge
(including backup withholding tax) or (b) any other certification,
information, documentation, reporting or other similar requirements under
United States federal income tax laws or regulations that would establish
entitlement to otherwise applicable relief or exemption from such tax,
assessment or other governmental charge,
5
(7) any Tax required to be withheld by any paying agent from any
payment of amounts due under the guarantee, if the payment can be made
without withholding by at least one other paying agent, or
(8) any combination of items (1), (2), (3), (4), (5), (6) or (7).
Furthermore, no additional amounts shall be paid with respect to any
payment on a guarantee to a holder who is a United States alien that is a
fiduciary or partnership or other than the sole beneficial owner of that TFC
debt security to the extent that a beneficiary or settlor with respect to that
fiduciary or a member of such partnership or beneficial owner would not have
been entitled to receive the additional amounts had such beneficiary, settlor,
member or beneficial owner been the holder of the guaranteed debt security.
The term "United States alien" means any person who, for United States
federal income tax purposes, is a foreign corporation, a non-resident alien
individual, a non-resident alien fiduciary of a foreign estate or trust, or a
foreign partnership, one or more of the members of which is a foreign
corporation, a non-resident alien individual or a non-resident alien fiduciary
of a foreign estate or trust.
BOOK-ENTRY PROCEDURES
We may issue the debt securities in the form of one or more book-entry
certificates registered in the name of a depositary or a nominee of a
depositary. Unless we otherwise state in the applicable prospectus supplement,
the depositary for debt securities issued in the United States will be The
Depository Trust Company. The Depository Trust Company has informed us that its
nominee will be Cede & Co., who will be the initial registered holder of any
series of debt securities issued in the United States that are issued in
book-entry form. The depositary for debt securities issued in Canada will be The
Canadian Depository for Securities Limited, which will be described in the
applicable prospectus supplement.
If we use the book-entry only form, we will not issue certificates to
individual holders of the debt securities, except as set forth below or in the
applicable prospectus supplement. The Depository Trust Company and its
participating organizations will only show beneficial interests in book-entry
securities on and transfers of book-entry securities through the records that it
and its participating organizations maintain. In addition, if holders of debt
securities issued in book-entry form want to take any action, they must instruct
the participating organization through which they hold the debt securities. The
participating organization then must instruct The Depository Trust Company or
Cede & Co., as the registered holder of the debt securities, to take action.
The Depository Trust Company has provided us with the following
information. The Depository Trust Company is a limited purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the United States Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered under Section 17A of
the Securities Exchange Act of 1934. The Depository Trust Company holds
securities that its participating organizations, or direct participants, deposit
with it. The Depository Trust Company also facilitates the clearance and
settlement of securities transactions among direct participants through
electronic book-entries. This eliminates the need for physical exchange of
certificates. Direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Other
organizations, including banks, brokers, dealers and trust companies that work
with a direct participant also use The Depository Trust Company's book-entry
system. The rules that apply to The Depository Trust Company and its
participants are on file with the SEC.
If anyone wishes to purchase, sell or otherwise transfer debt securities
issued in book-entry form, they must do it through a direct or indirect
participant. Holders will not be recognized as registered holders of the debt
securities and, thus, will be permitted to exercise their rights only indirectly
through and subject to the procedures of participants and, if applicable,
indirect participants.
6
The absence of physical certificates may limit the ability of a holder to
pledge debt securities issued in book-entry form to persons or entities that do
not participate in The Depository Trust Company system, or to otherwise act with
respect to the debt securities.
The Depository Trust Company has advised us that it will only take an
action that the indenture permits a registered holder of any debt securities to
take if a participant directs it to do so.
Debt securities represented by a book-entry security will be exchangeable
for debt securities in definitive form with the same terms only if:
- The Depository Trust Company notifies the applicable issuer that it is
unwilling or unable to continue as depositary or The Depository Trust
Company ceases to be a clearing agency registered under applicable law
and the applicable issuer does not appoint a new depositary within 90
days;
- The applicable issuer determines that the book-entry security is now
exchangeable for debt securities in definitive form; or
- an event of default has occurred and is continuing with respect to the
debt securities.
If any of these events occur, The Depository Trust Company will generally notify
all direct participants of the availability of definitive debt securities.
Except as we describe in this section, a book-entry security may not be
transferred except as a whole by The Depository Trust Company to its nominee or
by its nominee to The Depository Trust Company or another of its nominees or to
a successor depositary appointed by us.
CERTAIN COVENANTS
The applicable issuer must comply with the covenants which are contained in
the indentures described below. However, the covenants may not ensure that the
holders of debt securities will receive payments of principal and interest on
the debt securities when due in the event of a highly leveraged or similar
transaction involving the applicable issuer. These types of transactions would
include a leveraged buyout or a change of control of the applicable issuer.
Also, the covenants will not limit the amount of debt the applicable issuer may
incur or the amount of dividends it may pay to its shareholder.
Except as noted below, the covenants contained in each indenture are
identical in all material respects.
Limitations on Liens
Textron Financial under its indenture and Textron Financial as guarantor
under the indenture applicable to the guaranteed debt securities will agree not
to, directly or indirectly, and will not allow any Subsidiary of it to, create,
assume or incur any Lien on any of its properties and assets or any Subsidiary
unless it grants to the holders of its outstanding debt securities or the
beneficiaries of Textron Financial's guarantee, as applicable, a Lien on the
same property or assets that is equal in seniority to the Lien. However, Textron
Financial will not be required to grant a Lien as security to the holders of its
outstanding debt securities or the beneficiaries of Textron Financial's
guarantee if it or any of its Subsidiaries merely:
- leases property to others in the ordinary course of business, or leases
or subleases property that is not necessary in the operation of its
business;
- creates, assumes or incurs any Lien if (1) the Lien secures indebtedness
for borrowed money which was used to finance the acquisition of the
property that is subject to the Lien and (2) the Lien is created at the
same time as Textron Financial or its Subsidiary acquired the property or
within 90 days after the acquisition;
7
- assumes:
-- any Lien existing on any asset of any Person at the time the Person
becomes a Subsidiary that is not created in contemplation of the
event;
-- any Lien on any asset of any Person existing at the time the Person
merges or consolidates with or into Textron Financial or a Subsidiary
that is not created in contemplation of the merger or consolidation;
and
-- any Lien existing on any asset prior to the time Textron Financial or
a Subsidiary acquires the asset if the Lien is not created in
contemplation of the acquisition;
- makes any deposit with or gives any form of security to any governmental
agency or similar body in order to enable Textron Financial or any of its
Subsidiaries to:
-- maintain self-insurance;
-- participate in any fund in connection with workmen's compensation,
unemployment insurance, old-age pensions, or other social security;
-- share in any privileges or other benefits available to corporations
participating in any arrangement described above; or
-- for any other purpose at any time required by law or regulation in
order to transact business or exercise any privilege or license;
- deposits assets of Textron Financial or any of its Subsidiaries with any
surety company or clerk of any court, or in escrow, as collateral in
connection with any bond on appeal by Textron Financial or any of its
Subsidiaries from any judgment or decree against it, or in connection
with any other judicial proceedings by or against Textron Financial or
any of its Subsidiaries;
- incurs upon any of Textron Financial's property or assets:
-- Liens for taxes or other governmental charges which are not yet due
or are payable without penalty or which Textron Financial or any of
its Subsidiaries is contesting in good faith and for which Textron
Financial or its Subsidiary has set aside adequate reserves on its
books or its Subsidiary's books, as long as foreclosure or similar
proceedings have not been started;
-- the Liens of any judgment, if the judgment has not remained
undischarged, or unstayed on appeal or otherwise, for more than six
months;
-- undetermined Liens or charges incident to construction;
-- materialmen's, mechanics', workmen's, repairmen's or other similar
Liens arising in the ordinary course of business in respect of
obligations which are not yet due or which Textron Financial or such
Subsidiary is contesting in good faith, or deposits to obtain the
release of these Liens; or
-- any encumbrances consisting of zoning restrictions, licenses,
easements and restrictions on the use of real property and minor
defects and irregularities in the title, which do not materially
impair Textron Financial's or any of its Subsidiaries' use of the
property or decrease the value of the property for the purpose of
Textron Financial's or any Subsidiary's business;
- creates other Liens arising in the ordinary course of Textron Financial's
business which:
-- do not secure Debt;
-- do not secure any obligation in an amount exceeding $5,000,000; and
-- do not in the aggregate materially detract from the value of Textron
Financial's property or assets or materially impair the use in the
operation of its business;
8
- creates Liens not otherwise permitted securing Debt in an aggregate
principal amount at any time outstanding not to exceed 15% of Textron
Financial's Consolidated Net Tangible Assets;
- creates in favor of any lender or holder of commercial paper of Textron
Financial or any of its Subsidiaries in the ordinary course of business a
banker's lien or right to offset amounts deposited with the lender or
holder of commercial paper;
- creates or assumes Liens securing debt that a Subsidiary owes to Textron
Financial or another Subsidiary;
- creates, assumes or incurs any Lien upon any of Textron Financial's
properties or assets in connection with the sale, transfer or other
disposition of the properties or assets:
-- in connection with a securitization or other asset-based financing;
-- to a real estate investment trust or similar entity; or
-- in connection with any transaction similar to the transactions
referred to in the immediately preceding clauses;
provided, however, that any sale, transfer or disposition must be for
valid consideration and must not benefit directly or indirectly any
holder of any outstanding obligation or indebtedness of Textron Financial
or any of its subsidiaries more than any other holder if that outstanding
obligation or indebtedness did not previously benefit from a Lien; and
- causes or allows any extension, renewal or replacement of any Lien
referred to above, as long as:
-- Textron Financial or any of its Subsidiaries does not increase the
principal amount of the obligations and indebtedness secured by the
Lien, except that:
- the amount of obligations or indebtedness secured by extensions,
renewals or replacements of Liens on property acquired as a result
of defaults on receivables may exceed the principal amount prior to
the extension, renewal or replacement; and
- the amount of obligations secured by extensions, renewals or
replacements of Liens on property may exceed the amount of the
obligations prior to the extension, renewal or replacement if the
value of the property has increased and the loan to value ratio of
the refinanced obligations does not exceed the loan to value ratio
of the obligations relating to the original Lien; and
-- the extension, renewal or replacement of any Lien is limited to that
portion of the property which secured the Lien that is extended,
renewed or replaced plus improvements on the property.
Certain Definitions
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any particular time, the
aggregate amount of assets after deducting (a) all current liabilities,
excluding any liability that by its terms is extendable or renewable at the
option of the obligor to a time more than 12 months after the time the amount
thereof is computed, and (b) all goodwill, excess of cost over assets acquired,
patents, copyrights, trademarks, tradenames and other like intangibles, all as
shown in Textron Financial's and its subsidiaries' most recent consolidated
financial statements prepared in accordance with generally accepted accounting
principles.
"DEBT" of any Person means at any date, without duplication:
- all obligations of the Person for borrowed money;
- all obligations of the Person evidenced by bonds, debentures, notes or
other similar instruments;
- all obligations of the Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the
ordinary course of business;
9
- all obligations of the Person as lessee which the Person capitalizes in
accordance with generally accepted accounting principles;
- all Debt of others secured by a Lien on any asset of the Person, whether
or not the Debt is assumed by the Person; and
- all Debt of others that the Person guarantees.
However, "Debt" of Textron Financial or a Subsidiary will not include
Non-recourse Debt.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, hypothecation or encumbrance of any kind on the
asset. However, "Lien" does not mean security interests under Article 9 of the
Uniform Commercial Code, or any successor provision, or under the Personal
Property Security Act (Ontario) and its equivalent in other provinces, or any
successor to such legislation on sales of accounts or chattel paper. For the
purposes of the debt securities, Textron Financial or any Subsidiary will be
deemed to own, subject to a Lien, any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to the
asset.
"NON-RECOURSE DEBT" of Textron Financial or a Subsidiary means any
obligations for borrowed money of Textron Financial or a Subsidiary that (1) are
secured by specific assets, (2) are not reflected in the balance sheet of
Textron Financial or a Subsidiary in accordance with generally accepted
accounting principles and (3) are issued under instruments which limit the
recourse against the obligor to the specific assets. In the case of all
Non-recourse Debt incurred after the date of the applicable indenture, if under
applicable law, a holder of the obligation could ever become entitled to
recourse against the obligor under applicable bankruptcy law, the instrument
must also contain a provision that:
- the holder's recourse claim in respect of the obligation will be
subordinate and junior to all Debt evidenced by the debt securities of
any series; and
- the holder of the obligation cannot receive any payment in respect of any
obligation, other than the proceeds of the specific assets that secure
the obligation, until Textron Financial has paid all applicable debt
securities of any series in full or have provided funds for their
payment.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"SUBSIDIARY" means at any date any entity in which Textron Financial,
directly or indirectly, owns or controls securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions.
Merger and Consolidation
Either of the issuers or the guarantor may consolidate or merge with or
into any other Person and may transfer or lease all or substantially all of its
property to any Person only if:
- the Person formed by or resulting from the consolidation or merger, or
which will receive the property, enters into a supplemental indenture in
which it
-- in the case of an issuer, assumes the due and punctual payment of the
principal, premium, and interest on the debt securities of the
applicable issuer; and
-- in the case of an issuer and the guarantor, agrees to perform and
observe each agreement or covenant under the debt securities and the
indenture of the applicable issuer and the guarantor; and
- immediately after giving effect to the consolidation, merger, transfer or
lease of property discussed above, no Event of Default and no event
which, after notice or lapse of time or both, would become an Event of
Default will have occurred and is continuing.
10
Any transfer described above, other than a lease, will concurrently release the
applicable issuer or guarantor from further obligations under the applicable
debt securities and the applicable indenture.
Events of Default, Waiver and Notice
The following will be "Events of Default" for any series of debt securities
of an issuer:
- the failure of the issuer to pay any interest or any additional amounts
on any debt securities of that series when due, and which remains unpaid
for a period of 30 days;
- the failure of the issuer to pay the principal or any premium on any debt
securities of that series when due;
- the failure of the issuer or, in the case of debt securities issued by
Textron Canada, Textron Financial as guarantor to perform, or the breach
by the issuer of, or in the case of debt securities issued by Textron
Canada, Textron Financial as guarantor of, any covenant or warranty
contained in that series of debt securities or the applicable indenture
relating to that series which remains unremedied 90 days after the
holders of at least 25% in aggregate principal amount of such series then
outstanding provide written notice of the failure or breach to the
applicable issuer;
- if any event of default under any mortgage, indenture or instrument
occurs and results in debt of the applicable issuer or, in the case of
debt securities issued by Textron Canada, the guarantor in excess of
$50,000,000 becoming or being declared due prior to the date on which it
would otherwise become due, and the acceleration is not annulled, or the
debt is not discharged, within 30 days after the holders of at least 25%
in aggregate principal amount of such series of debt securities then
outstanding provide written notice of the event of default to the
applicable issuer or, if applicable, the guarantor, as the case may be;
- if the Support Agreement ceases to be in full force and effect for any
reason or is amended or modified in any manner unless
-- prior to its termination or amendment, Standard & Poor's Corporation,
Moody's Investor Service and any other nationally recognized
statistical rating organization then rating securities of the
applicable issuer, confirm they will not downgrade or place on what is
commonly referred to as a "watch list" for possible downgrading, any
of the securities of the applicable issuer or, in the case of debt
securities issued by Textron Canada, of the guarantor, as a result of
the termination or amendment of the Support Agreement; or
-- if the termination or amendment is as a result of another Person's
assumption of the debt securities or, in the case of debt securities
issued by Textron Canada, the TFC guarantee under the provisions
described in "Merger and Consolidation" above, the senior debt
securities of the Person assuming the debt securities or, in the case
of debt securities issued by Textron Canada, the TFC guarantee are
rated by Standard & Poor's Corporation or Moody's Investor Service
immediately following the assumption at a rating equal to or greater
than the rating assigned to securities of the applicable issuer or the
guarantor by each rating agency;
- Textron Inc., Textron Financial, Textron Canada Funding (but only if
Textron Canada Funding is the issuer of the debt securities) or any
"significant subsidiary," as defined in Section 1.02(w) of Regulation S-X
of the Securities Act, or any successor provision thereto, of Textron
Financial or, if Textron Canada Funding is the issuer, of Textron Canada
Funding:
-- commences or consents to a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy or similar law or seeking the
appointment of a trustee or other similar official in respect of it
or any substantial part of its property;
-- makes a general assignment for the benefit of creditors;
11
-- fails generally or admits its inability to pay its debts as they
become due; or
-- takes any corporate action to authorize any of the foregoing;
- an involuntary case or other proceeding (1) is commenced against Textron
Inc., Textron Financial, Textron Canada Funding (but only if Textron
Canada Funding is the issuer of the debt securities) or any significant
subsidiary of Textron Financial or, if Textron Canada Funding is the
issuer, of Textron Canada Funding seeking liquidation or other relief
with respect to its debts under any bankruptcy or other similar law or
seeking the appointment of a trustee or other similar official and (2) is
not dismissed or stayed within 60 days; or
- an order for relief is entered against Textron Inc., Textron Financial,
Textron Canada Funding (but only if Textron Canada Funding is the issuer
of the debt securities) or any significant subsidiary of Textron
Financial or, if Textron Canada Funding is the issuer, of Textron Canada
Funding under the Federal bankruptcy laws or, in the case of Textron
Canada Funding, under Canadian Federal bankruptcy laws.
In case an Event of Default other than one described in the last three
bullet-points above occurs and is continuing with respect to a particular series
of debt securities, then the holders of at least 25% in aggregate principal
amount of that particular series of debt securities then outstanding may declare
the principal of all outstanding debt securities of that particular series to be
immediately due and payable. If an Event of Default described in the last three
bullet-points occurs and is continuing with respect to a particular series of
debt securities, the principal of all outstanding debt securities of that
particular series will automatically become due and payable. Upon any
acceleration, any premium and interest on the debt securities so accelerated
will also become immediately due and payable. At any time after an acceleration
but before the holders of debt securities obtain a judgment or decree for
payment of money due, the holders of a majority in aggregate principal amount of
outstanding debt securities may rescind and annul the acceleration and its
consequences, provided all required payments, other than as a result of the
acceleration, shall have been made and all Events of Default are cured or
waived.
The holders of a majority in aggregate principal amount of any series of
outstanding debt securities may waive, on behalf of all of the holders of that
series, any Event of Default and its consequences or past defaults, except a
default in the payment of the principal of, or premium, if any, or interest, if
any, on, debt securities of that particular series or a default under a covenant
or agreement that cannot be modified without the consent of the holder of each
debt security that is affected.
If a default or an Event of Default occurs and continues for any series of
debt securities, the holders of at least a majority in aggregate principal
amount then outstanding for any series of debt securities may direct the time,
method and place of conducting any proceeding or remedy available to the
trustee, or exercising any power given to the trustee under the applicable
indenture for that series of debt securities.
The trustee does not have to exercise any of its rights or powers under the
applicable indenture at the direction of any holders of debt securities unless
the holders offer the trustee reasonable security or indemnity against expenses
and liabilities.
We must file with the trustee, annually, a written statement regarding the
presence or absence of certain defaults.
DEFEASANCE
Defeasance and Discharge
Each indenture provides that the issuer and, if applicable, the guarantor,
will be discharged from all of its non-administrative obligations in respect of
the debt securities of any series if the issuer deposits with the trustee, in
trust, money and/or U.S. government obligations, or in the event of debt
securities denominated in Canadian dollars, Canadian government obligations,
which will provide enough money to pay the principal and interest on the debt
securities of the series on the stated due dates of these payments in accordance
with the terms of the applicable indenture and the debt securities of that
series.
12
An issuer may establish this trust only if, among other things, it delivers
to the trustee an opinion of counsel stating that the holders of the debt
securities of the series will not recognize income, gain or loss for federal
income tax purposes as a result of the defeasance and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if the defeasance had not occurred.
Defeasance of Limitations on Liens Covenant and Related Events of Default
Each indenture provides that the issuer and, if applicable, the guarantor,
may be released from its obligation to comply with the restrictive covenant
regarding limitations on Liens and it would no longer trigger Events of Default
under the applicable indenture and the applicable debt securities of a series
with respect to this covenant, if the issuer deposits with the trustee, in
trust, money and/or U.S. government obligations, or in the event of debt
securities denominated in Canadian dollars, Canadian government obligations,
which, through the payment of interest and principal thereon, will provide
enough money to pay the principal and interest on the debt securities of that
series on the stated due dates of these payments in accordance with the terms of
the applicable indenture and the debt securities of that series. The obligations
of each of the issuers and, if applicable, the guarantor, under the respective
indentures and the debt securities of that series and other Events of Default
would remain in full force and effect.
An issuer may establish this trust only if, among other things, it delivers
to the trustee an opinion of counsel stating that the holders of the debt
securities of the series will not recognize income, gain or loss for federal
income tax purposes as a result of the defeasance of the covenant and Events of
Default described above and will be subject to federal income tax on the same
amounts and in the same manner and at the same times as would have been the case
if the defeasance had not occurred.
If an issuer exercises the option described in this section and the debt
securities of the series are declared due and payable because of the occurrence
of any Event of Default, the amount of money and U.S. government obligations, or
in the event of debt securities denominated in Canadian dollars, Canadian
government obligations, on deposit with the trustee will be sufficient to pay
amounts due on the debt securities of that series at the time of their stated
maturity but may not be sufficient to pay amounts due on the debt securities of
that series at the time of the acceleration resulting from the Event of Default.
CHANGES TO EACH INDENTURE
Under each indenture, the applicable issuer may modify its rights and
obligations and the rights of the holders of its debt securities with the
consent of the holders of at least a majority of the principal amount of the
outstanding debt securities of all series issued under the applicable indenture
affected by the modification. However, an issuer is required to get the consent
of the holder of each debt security affected to make the following modifications
of the debt securities:
- an extension of the fixed maturity of any debt security;
- a reduction of the principal amount payable on any debt security;
- a reduction in the rate of interest, or change in the calculation of
interest, payable on any debt security;
- a change in any obligation to pay any additional amounts or reduce any
additional amounts payable on any debt security;
- a change in currency in which payments are made;
- an extension of the time of payment of interest;
- a modification that affects adversely any right of a holder of a debt
security to repayment;
- a reduction in the principal amount of an original issue discount debt
security due and payable upon acceleration of the maturity;
13
- a reduction in the portion of the principal amount of a debt security
payable in bankruptcy;
- a reduction in amounts payable upon redemption;
- a reduction in the rate of interest payable on overdue amounts;
- a modification that impairs the right of any holder of any debt security
to institute suit for the enforcement of any required payment on the debt
security on or after the fixed maturity of the debt security;
- a reduction in the percentage of holders of the outstanding debt
securities of each series required to consent to any modification
discussed above; and
- a modification of the terms and conditions of the guarantee by Textron
Financial of the due and punctual payment of principal, premium or
interest on the guaranteed securities in a manner adverse to holders of
the applicable series of debt securities.
Under each indenture, the applicable issuer can make modifications to the
indenture with the consent of the trustee but without the consent of any holders
of debt securities to evidence the merger of the issuer or guarantor or the
replacement of the trustee and for other purposes set forth in the indentures.
PAYMENT OF ADDITIONAL AMOUNTS WITH RESPECT TO THE TFC DEBT SECURITIES
Unless Textron Financial provides otherwise in the applicable prospectus
supplement, all amounts of principal of, and any premium and interest on, TFC
debt securities issued by Textron Financial outside the United States will be
paid by Textron Financial without withholding or deduction for any United States
Taxes. If Textron Financial is so required to deduct or withhold any United
States Taxes, Textron Financial shall pay any additional amounts necessary to
make the net amount receivable by the holder of a TFC debt security who is a
United States alien after any payment, withholding or deduction in respect of
those United States Taxes equal the amount the holder would have received in the
absence of that payment, withholding or deduction. However, these "additional
amounts" will not include:
(1) any United States Tax which would not have been so imposed but for
(a) the existence of any present or former connection between the holder
(or a fiduciary, settlor, beneficiary, member, shareholder, or holder of a
power over, the holder, if the holder is an estate, trust, partnership or
corporation) and the United States, including, without limitation, such
holder (or such fiduciary, settlor, beneficiary, member, shareholder of, or
holder of a power) being or having been a citizen or resident or treated as
a resident of the United States or being or having been engaged in a trade
or business in the United States or being or having been present in the
United States or having or having had a permanent establishment in the
United States, or (b) the holder's present or former status as a personal
holding company or foreign personal holding company or controlled foreign
corporation or passive foreign investment company for United States federal
income tax purposes or as a corporation which accumulates earnings to avoid
United States federal income tax or as a private foundation or other
tax-exempt organization,
(2) any United States Tax which would not have been so imposed but for
the presentation by the holder of a TFC debt security for payment on that
note on a date more than 10 days after the date on which the payment became
due and payable or the date on which payment thereof is duly provided for,
whichever occurs later,
(3) any estate, inheritance, gift, sales, transfer, personal property
or excise tax or any similar tax, assessment or governmental charge,
(4) any United States Tax which is payable otherwise than by
withholding from payments in respect of the TFC debt security,
(5) any United States Tax imposed on interest received by a holder or
beneficial owner of a TFC debt security who actually or constructively owns
10% or more of the total combined voting
14
power of all classes of Textron Financial's stock entitled to vote or is a
bank that acquired a TFC debt security in consideration of an extension of
credit made pursuant to a loan agreement entered into in the ordinary
course of business,
(6) any United States Tax imposed as a result of the failure to comply
with (a) certification, information, documentation, reporting or other
similar requirements concerning the nationality, residence, identity or
connection with the United States of the holder or beneficial owner of the
TFC debt security, if such compliance is required by statute or by
regulation of the United States Treasury Department, as a precondition to
relief or exemption from such tax, assessment or other governmental charge
(including backup withholding tax) or (b) any other certification,
information, documentation, reporting or other similar requirements under
United States federal income tax laws or regulations that would establish
entitlement to otherwise applicable relief or exemption from such tax,
assessment or other governmental charge,
(7) any Tax required to be withheld by any paying agent from any
payment of the principal of, any premium or any interest on any TFC debt
security, if the payment can be made without withholding by at least one
other paying agent, or
(8) any combination of items (1), (2), (3), (4), (5), (6) or (7).
Furthermore, no additional amounts shall be paid with respect to any
payment on a TFC debt security to a holder who is a United States alien that is
a fiduciary or partnership or other than the sole beneficial owner of that TFC
debt security to the extent that a beneficiary or settlor with respect to that
fiduciary or a member of such partnership or beneficial owner would not have
been entitled to receive the additional amounts had such beneficiary, settlor,
member or beneficial owner been the holder of the TFC debt security.
OPTIONAL TAX REDEMPTION
Unless Textron Financial provides otherwise in the applicable prospectus
supplement, except in the case of TFC debt securities that have a variable rate
of interest and that may be redeemed on any interest payment date, Textron
Financial may redeem each series of TFC debt securities at its option in whole
but not in part at any time, if Textron Financial would be required to pay
additional amounts, as a result of any change in the tax laws of the United
States or by any authority or agency of or in the United States having power to
tax that becomes effective on or after the date of issuance of that series, as
explained above under "Payment of Additional Amounts with Respect to the TFC
Debt Securities".
Except in the case of outstanding original issued discount TFC debt
securities, which may be redeemed at the redemption price specified by the terms
of that series of TFC debt securities, the redemption price will be equal to the
principal amount plus accrued interest to the date of redemption.
In both of these cases, however, Textron Financial will not be permitted to
redeem a series of TFC debt securities if it can avoid either the payment of
additional amounts, or deductions or withholding, as the case may be by using
reasonable measures available to it.
CONCERNING THE TRUSTEE
We enter into a variety of banking transactions with the trustee in the
ordinary course of our business.
GOVERNING LAW
The debt securities and the indentures will be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
conflict of law principles.
15
PLAN OF DISTRIBUTION
We may sell the debt securities described in this prospectus:
- to or through underwriters or dealers;
- through agents; or
- directly to one or more purchasers (except with respect to sales in
Canada).
BY UNDERWRITERS
If we use underwriters in the sale, the underwriters will acquire debt
securities for their own account. The underwriters may resell the debt
securities in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The obligations of the underwriters to purchase the securities will be subject
to certain conditions. The underwriters may from time to time modify any initial
public offering price and any discounts or concessions allowed or re-allowed or
paid to dealers.
BY AGENTS
We may sell debt securities of any series through agents that we designate.
The agents will agree to use their reasonable best efforts to solicit purchases
for the period of their appointment.
DIRECT SALES
We may directly sell debt securities of any series. In this case, no
underwriters or agents would be involved. Direct sales of debt securities will
not occur in Canada.
GENERAL INFORMATION
Underwriters, dealers and agents that participate in the distribution of
the debt securities may be underwriters, as defined in the Securities Act of
1933, and any discounts, concessions or commissions that we pay them and any
profit on their resale of the debt securities offered by this prospectus may be
treated as underwriting discounts, concessions and commissions under the
Securities Act. We will identify any underwriters or agents and describe their
compensation in a prospectus supplement.
We may have agreements with the underwriters, dealers and agents who
participate in the sale of debt securities to indemnify them against certain
civil liabilities, including liabilities under the Securities Act, or to
contribute with respect to payments which the underwriters, dealers or agents
may be required to make.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our subsidiaries in the ordinary course of their
businesses.
The debt securities of a series, when first issued, will have no
established trading market. Any underwriters or agents to or through whom we
sell debt securities of a series for public offering and sale may make a market
in the debt securities, but will not be obligated to do so and could stop doing
so at any time without notice. We cannot assure you that a market for any series
of debt securities we issue will exist.
If we indicate in a prospectus supplement, we will authorize underwriters
or our agents to solicit offers by certain institutional investors to purchase
debt securities from us which will be paid for and delivered on a future date
specified in the prospectus supplement. The obligations of any purchasers under
these delayed delivery and payment arrangements will not be subject to any
conditions except that the purchase at delivery must not be prohibited under the
laws of any jurisdiction in the United States or Canada to which the
institutional investor is subject.
16
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 (File No. 333-72676)
with the SEC under the Securities Act of 1933, covering the debt securities to
be offered from time to time by this prospectus. This prospectus does not
contain all of the information included in the registration statement.
Textron Financial also files annual, quarterly and special reports, and
other information with the SEC. Our parent company, Textron Inc., also files
annual, quarterly and special reports, and other information with the SEC.
Textron Inc.'s and Textron Financial's SEC filings are available to the public
over the Internet from the SEC's web site at http://www.sec.gov. You may also
read and copy any document Textron Financial or Textron Inc. filings at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms and their copy charges.
The SEC allows us to "incorporate by reference" in this prospectus the
information in documents Textron Financial files with it. This means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
prospectus, and information in documents that we file later with the SEC will
automatically update and supersede information contained in documents filed
earlier with the SEC or contained in this prospectus. We incorporate by
reference in this prospectus Textron Financial's Annual Report on Form 10-K for
the fiscal year ended December 30, 2000, Textron Financial's quarterly reports
on Form 10-Q for the fiscal quarters ended March 31, 2001, and June 30, 2001,
and September 30, 2001 and any future filings that Textron Financial may make
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we, or our agents, sell all of the securities that
may be offered by this prospectus.
You may request a copy of these documents at no cost to you by writing or
telephoning us at the following address:
Textron Financial Corporation
40 Westminster Street
P.O. Box 6687
Providence, Rhode Island 02940-6687
Attention: Treasurer
(401) 621-4200
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of the securities described in this prospectus in any country, state or
province where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
Textron Canada Funding is currently not subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, for
the reasons set forth under the caption "Textron Financial Canada Funding Corp."
above.
Each of Textron Financial and Textron Canada Funding will become reporting
issuers or acquire equivalent status in each of the Provinces of Canada where
this prospectus is filed effective upon receipts being issued for the final
Canadian prospectus. Pursuant to applicable securities legislation, Textron
Financial will be permitted to satisfy the continuous disclosure requirements of
securities legislation in these Provinces essentially by: (i) complying with
applicable requirements of the U.S. federal securities laws applicable to it;
(ii) filing its continuous disclosure documents with the securities commissions
or similar regulatory authority in each of the above Provinces in the manner and
in the time required under U.S. federal securities laws; and (iii) where
applicable, sending the continuous disclosure documents to securityholders of
Textron Financial having an address in any of the above Provinces. Application
has been made to the securities commissions or similar regulatory authorities in
such Provinces for relief under applicable securities legislation that will
permit Textron Canada Funding to also satisfy the continuous
17
disclosure requirements of securities legislation in these Provinces on the
basis of Textron Financial's compliance with the foregoing requirements, and it
is expected that such relief will be obtained substantially on the basis sought.
Such continuous disclosure documents will be filed until such time as there are
no Canadian issued public debt securities outstanding and will be accessible at
the website maintained by Canadian securities regulatory authorities,
www.sedar.com.
LEGAL OPINIONS
Edwards & Angell, LLP will issue for us an opinion about the legality of
the TFC debt securities and the Textron Financial guarantee. Edwards & Angell,
LLP and Stewart McKelvey Stirling Scales will issue for us opinions about the
legality of the guaranteed debt securities.
Any underwriters will be advised about the validity of the debt securities
by their own legal counsel.
EXPERTS
The consolidated financial statements of Textron Financial appearing in
Textron Financial's Annual Report on Form 10-K for the year ended December 30,
2000, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing. Any audited financial statements and schedules that are
incorporated or that are deemed to be incorporated by reference into this
prospectus that are the subject of a report by independent accountants will be
so incorporated by reference in reliance upon such reports and upon the
authority of such firms as experts in accounting and auditing to the extent
covered by consents of these accountants filed with the SEC.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase securities
within two business days after receipt or deemed receipt of a prospectus and any
amendment. In several of the provinces of Canada, the securities legislation
further provides a purchaser with remedies for rescission or, in some
jurisdictions, damages if the prospectus and any amendment contains a
misrepresentation or is not delivered to the purchaser, provided that such
remedies for rescission or damages are exercised by the purchaser within the
time limit prescribed by the securities legislation of the purchaser's province.
The purchaser should refer to the applicable provisions of the securities
legislation of their province for particulars of these rights or consult with a
legal adviser. Rights and remedies also may be available to purchasers under
U.S. law; purchasers may wish to consult with a U.S. legal adviser for
particulars of these rights.
18
CERTIFICATE OF TEXTRON FINANCIAL CORPORATION
Dated: November 30, 2001
This MJDS prospectus, together with documents incorporated in this
prospectus by reference, will, as of the date of each supplement to this
prospectus, constitute full, true and plain disclosure of all material facts
relating to the securities offered by this MJDS prospectus and the supplement as
required by the Provinces of Alberta, British Columbia, Manitoba, Ontario,
Quebec, Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island and
Newfoundland and will not contain any misrepresentation likely to affect the
value or the market price of the securities to be distributed.
<Table>
*(Signed) Stephen A. Giliotti (Signed) Thomas J. Cullen
Chairman, President & Chief Executive Vice President & Chief
Executive Officer Financial Officer
On behalf of the Board of Directors:
*(Signed) Lewis B. Campbell *(Signed) Ted R. French
Director Director
</Table>
Each person whose signature appears above, except for Thomas J. Cullen,
constitutes and appoints and hereby authorizes Elizabeth C. Perkins and William
J. Clegg and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated above.
<Table>
*By: (Signed) William J. Clegg
-------------------------------------------
Attorney-in-Fact
</Table>
19
CERTIFICATE OF TEXTRON FINANCIAL CANADA FUNDING CORP.
Dated: November 30, 2001
This MJDS prospectus, together with documents incorporated in this
prospectus by reference, will, as of the date of each supplement to this
prospectus, constitute full, true and plain disclosure of all material facts
relating to the securities offered by this MJDS prospectus and the supplement as
required by the Provinces of Alberta, British Columbia, Manitoba, Ontario,
Quebec, Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island and
Newfoundland and will not contain any misrepresentation likely to affect the
value or the market price of the securities to be distributed.
<Table>
*(Signed) Christopher J. Sadler (Signed) Thomas J. Cullen
President (Chief Executive Vice President and
Executive Officer) Chief Financial Officer
On behalf of the Board of Directors:
*(Signed) Simon B. Scott *(Signed) Buell J. Carter, Jr.
Director Director
</Table>
Each person whose signature appears above, except for Thomas J. Cullen,
constitutes and appoints and hereby authorizes Elizabeth C. Perkins and William
J. Clegg and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated above.
<Table>
*By: (Signed) William J. Clegg
-------------------------------------------
Attorney-in-Fact
</Table>
20
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[TEXTRON LOGO]
U.S. $3,000,000,000
TEXTRON FINANCIAL CORPORATION
MEDIUM-TERM NOTES, SERIES E
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
U.S. $2,600,000,000
TEXTRON FINANCIAL CANADA FUNDING CORP.
MEDIUM-TERM NOTES, SERIES E-CAD
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
----------------------------------
PROSPECTUS SUPPLEMENT
----------------------------------
RBC CAPITAL MARKETS INC.
BMO NESBITT BURNS INC.
SCOTIA CAPITAL INC.
NOVEMBER 30, 2001
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