AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 2003
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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EATON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
34-0196300
(IRS Employer Identification No.)
Eaton Center, 1111 Superior Avenue, Cleveland, Ohio 44114-2584, (216) 523-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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E. R. FRANKLIN, Vice President and Secretary
Eaton Corporation, Eaton Center, 1111 Superior Avenue, Cleveland, Ohio
44114-2584, (216) 523-4103
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
Copies to:
JONATHAN JEWETT
Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PRICE PER UNIT(2) OFFERING PRICE(2) FEE
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Debt Securities(3)..................... | 100% |
--------------------------------------- | ----------------------- |
Debt Warrants(4)....................... | -- |
--------------------------------------- |> $250,000,000 ----------------------- |> $250,000,000 $20,225
Preferred Shares(5).................... | -- |
--------------------------------------- | ----------------------- |
Common Shares, par value 50c per | |
share(6)............................. | -- |
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(1) In U.S. dollars or the equivalent thereof in any other currency or
currencies, currency unit or units or composite currency or currencies.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Or, in the event of the issuance of original issue discount debt securities,
such higher principal amount as may be sold for an initial public offering
price of up to $250,000,000.
(4) Debt Warrants entitling the holder to purchase Debt Securities may be sold
separately or with Debt Securities as units. It is not practicable to
determine the number of Debt Warrants and proposed maximum offering price
per Debt Warrant at this time as they will depend, among other things, on
the denominations or stated values of the Debt Securities covered by the
Debt Warrants, the duration of the Debt Warrants and prevailing interest
rates at the time of the offering.
(5) Such indeterminate number of Preferred Shares as may, from time to time, be
issued at indeterminate prices.
(6) Such indeterminate number of Common Shares as may, from time to time, be
issued at indeterminate prices, including Common Shares issuable upon
conversion of any Debt Securities and Preferred Shares that are convertible
into Common Shares. Such number of Common Shares also includes shares
initially offered or sold outside the United States that are sold or resold
in the United States. Offers and sales of such shares outside the United
States are not registered under this Registration Statement.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included
in this Registration Statement is a combined prospectus also relating to
$120,837,500 of securities previously registered under the Registration
Statement No. 33-64201, which was filed by the Registrant on Form S-3 and
declared effective on December 7, 1995 and $129,162,500 of securities previously
registered under the Registration Statement No. 33-52333, which was filed by the
Registrant on Form S-3 and declared effective on March 9, 1994. This
Registration Statement, which is a new Registration Statement, also constitutes
post-effective amendment No. 1 to Registration Statement No. 33-64201 and
post-effective amendment No. 1 to Registration Statement No. 33-52333, and each
post-effective amendment No. 1 shall hereafter become effective concurrently
with the effectiveness of this Registration Statement and in accordance with
section 8(c) of the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 2, 2003
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 2003.
$500,000,000
EATON CORPORATION
Medium-Term Notes
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TERMS OF SALE
The following terms may apply to the Notes that Eaton may sell at one or more
times. The final terms for each Note will be included in a pricing supplement.
Unless otherwise stated in a pricing supplement, Eaton will receive between $496
million and $499 million of the proceeds from the sale of the Notes, after
paying the Agents commissions of between $1 million and $4 million.
- Ranking as senior indebtedness of Eaton
- Mature 9 months to 30 years from issue date
- Fixed or floating interest rate or indexed Notes or zero-coupon or other
original issue discount Notes. The floating interest rate may be based on:
- the CD Rate
- the Commercial Paper Rate
- LIBOR
- the Federal Funds Rate
- the Prime Rate
- the Treasury Rate
- the CMT Rate
- any other rate, or combination of rates, specified by Eaton in the
pricing supplement
- Certificated or book-entry form
- Subject to repurchase and may be subject to redemption at the option of Eaton
or the holder
- Interest paid on Fixed Rate Notes semi-annually
- Interest paid on Floating Rate Notes monthly, quarterly, semiannually or
annually
- Minimum denominations of $1,000 increased in multiples of $1,000, unless
otherwise specified
- May be foreign currency or composite currency denominated
- Same day settlement and payment in immediately available funds
Investing in the Notes involves certain risks. See "Risk Factors" on page S-3.
The aggregate initial public offering price of the Notes that Eaton offers will
be limited to $500,000,000 or its equivalent in one or more foreign currencies
or composite currencies, but this limit will decrease if Eaton sells other
securities that are described in the attached prospectus.
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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 ATTACHED PROSPECTUS OR ANY PRICING SUPPLEMENT IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Eaton may sell the Notes directly or through one or more agents or dealers,
including the Agents listed below. The Agents are not required to sell any
specific number or amounts of the Notes. They will use their reasonable best
efforts to sell the Notes offered.
GOLDMAN, SACHS & CO.
JPMORGAN
CITIGROUP
MCDONALD INVESTMENTS, INC.
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Prospectus Supplement dated , 2003.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Risk Factors................................................ S-3
About this Prospectus Supplement and the Pricing
Supplements............................................... S-4
Description of Notes........................................ S-5
United States Federal Income Taxation....................... S-20
Supplemental Plan of Distribution........................... S-30
Legal Opinions.............................................. S-31
PROSPECTUS
Where You Can Find More Information......................... 2
The Company................................................. 3
Use of Proceeds............................................. 3
Ratio of Earnings to Fixed Charges.......................... 3
Prospectus.................................................. 3
Prospectus Supplement....................................... 4
Description of Debt Securities.............................. 4
Description of Debt Warrants................................ 20
Description of Preferred Shares............................. 22
Description of Common Shares................................ 26
Plan of Distribution........................................ 29
Legal Opinions.............................................. 30
Experts..................................................... 30
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You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not, and
the Agents have not, authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the Agents are not, making an offer
to sell these securities 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 the documents incorporated herein by
reference is accurate only as of their respective dates. Our business, financial
condition, results of operations and prospectus may have changed since those
dates.
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 rates or
currency indices or formulas. 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 may not be an appropriate investment for investors who
are unsophisticated with respect to foreign currency transactions or
transactions involving the type of index or formula used to determine amounts
payable. Before investing in the Notes, you should consider carefully, among
other factors, the matters described below.
EXCHANGE RATES AND EXCHANGE CONTROLS MAY ADVERSELY AFFECT OUR FOREIGN CURRENCY
NOTES OR CURRENCY INDEXED NOTES
If you invest in Foreign Currency Notes and currency Indexed Notes, your
investment will be subject to significant risks not associated with investments
in debt instruments denominated in U.S. dollars or U.S. dollar-based indices.
Such risks include the possibility of significant changes in the rate of
exchange between the U.S. dollar and your payment currency and 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 such 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. Fluctuations in exchange rates
against the U.S. dollar could 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 and premium, if any, payable
at maturity of your Notes and, generally, in the U.S. dollar-equivalent market
value of your Notes. We may further describe the currency risks with respect to
your Foreign Currency Notes or currency Indexed Notes in the applicable pricing
supplement.
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 a 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 the U.S. dollar-equivalent yield of the Notes could be affected by,
among other things, governmental actions that could change or interfere with a
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 adjustments or changes in the terms of the Foreign Currency
Notes or currency Indexed Notes if exchange rates become fixed, if any
devaluation or revaluation or imposition of exchange or other regulatory
controls or taxes occurs, or if other developments affecting the U.S. dollar or
any applicable currency occur.
The calculation agent, the paying agent and the exchange rate agent will make
calculations relating to your Foreign Currency Notes or currency Indexed Notes.
All such determinations will, in the absence of clear error, be binding on
beneficial owners of the Notes.
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.
S-3
THERE MAY BE RISKS ASSOCIATED WITH FOREIGN CURRENCY JUDGMENTS
The Senior Indenture and the 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 judgment, a court would determine the rate of conversion with
reference to the date of default, the date judgment is rendered or any other
date. The Judiciary Law of the State of 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 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.
NOTES INDEXED TO INTEREST RATE, CURRENCY OR OTHER INDICES OR FORMULAS MAY HAVE
RISKS NOT ASSOCIATED WITH A CONVENTIONAL DEBT SECURITY
If you invest in Indexed Notes, your investment will be subject to significant
risks that are not associated with an investment in a conventional debt
security. Indexation of the interest rate of a Note may result in lower interest
compared to a conventional fixed rate debt security issued at the same time, or
no interest. Indexation of the principal and premium, if any, on a Note may
result in the payment of a lower amount of principal and/or premium (or no
principal and/or premium) compared to the original purchase price of the Note.
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. Additionally, if any formula that we specify to determine the amount of
principal, premium, and/or interest payable with respect to Indexed Notes
contains a multiple or leverage factor, that feature will magnify the effect of
any change in the index. You should not take the historical experience of an
index as an indication of its future performance.
CREDIT RATINGS MAY NOT REFLECT ALL RISKS OF AN INVESTMENT IN THE NOTES
The credit ratings on the Notes may not reflect the potential impact of all
risks related to structure and other factors on the value of the Notes. In
addition, real or anticipated changes in our credit ratings will generally
affect the market value of the Notes.
ABOUT THIS PROSPECTUS SUPPLEMENT AND THE PRICING SUPPLEMENTS
We intend to use this prospectus supplement, the attached prospectus and a
related pricing supplement to offer our Notes from time to time.
This prospectus supplement provides you with certain terms of the Notes and
supplements the description of the Debt Securities contained in the attached
prospectus. If information in this prospectus supplement is inconsistent with
the prospectus, this prospectus supplement will replace the inconsistent
information in the prospectus.
Each time we issue Notes, we will prepare a pricing supplement that will contain
additional terms of the offering and the specific description of the Notes
offered. The pricing supplement may also add, update or change information in
this prospectus supplement or the attached prospectus, including provisions
describing the calculation of interest and the method of making payments under
the terms of a Note. The flexibility available to us to set or negotiate
individualized terms for Notes means that there may be transactions,
particularly with Indexed
S-4
Notes, that are quite complex. Frequently, the terms of the Notes may differ
from the terms that we describe in this prospectus supplement. Any information
in a pricing supplement that is inconsistent with this prospectus supplement
will replace the inconsistent information in this prospectus supplement.
DESCRIPTION OF NOTES
The following summary of certain terms of the Notes is not complete. For
additional terms of the Notes, you should also read the Senior Indenture under
which the Notes will be issued, which is an exhibit to our shelf registration
statement. The following description of the Notes supplements, to the extent the
descriptions are inconsistent, replaces the description of the general terms and
provisions of the Debt Securities that is found under the heading "Description
of Debt Securities" in the attached prospectus. The following descriptions will
apply to each Note unless we specify otherwise in the pricing supplement.
When we refer to you, we mean those who invest in the Notes being offered by
this prospectus supplement and the attached prospectus, whether they are the
holders or only indirect holders of those debt securities. When we refer to your
Notes, we mean the Notes in which you hold a direct or indirect interest.
GENERAL
We will offer Notes on a continuous basis. The aggregate initial public offering
price of the Notes that we offer will be limited to $500,000,000 or its
equivalent in one or more foreign currencies or composite currencies, but this
limit will decrease if we sell other securities that are described in the
attached prospectus.
The Notes are "Senior Securities", as described in the attached prospectus, and
rank equally with all of our unsecured senior debt.
The Notes offered by this prospectus supplement will form a part of the
medium-term notes due from 9 months to 30 years from date of issue under the
Senior Indenture. At May 31, 2003, we and our consolidated subsidiaries had
total consolidated senior indebtedness of $2,171 million and we had no
subordinated indebtedness outstanding.
The Senior Indenture does not limit the amount of our Notes or other debt
obligations that we may issue thereunder.
The defeasance and covenant defeasance provisions of the Senior Indenture
described under "Description of Debt Securities--Provisions Applicable to Both
the Senior and Subordinated Indentures--Defeasance" in the attached prospectus
will apply to the Notes.
Unless we specify otherwise in the applicable pricing supplement, we will
denominate the Notes in U.S. dollars and will make all payments on the Notes in
U.S. dollars. For further information regarding Foreign Currency Notes, see
"Risk Factors" and "Special Provisions Relating to Foreign Currency Notes".
You must pay the purchase price of the Notes in immediately available funds.
As used in this prospectus supplement, "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; provided, however, that with respect to
Foreign Currency Notes, such 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 the euro, such day is also
a day on which the Trans-European Automated Real-Time Gross Settlement Express
Transfer (TARGET) System is open); provided further that with respect to Notes
as to which LIBOR is an applicable interest rate basis, such day is also a
London Business Day.
"London Business Day" means a day on which commercial banks are open for
business (including dealings in the designated LIBOR Currency) in London.
"Principal Financial Center" means
S-5
- the capital city of the country issuing the specified currency; or
- the capital city of the country to which the designated LIBOR Currency
relates, as applicable,
except that, with respect to U.S. dollars, Australian dollars, Canadian dollars,
South African rand and Swiss francs, the "Principal Financial Center" will be
The City of New York, Sydney, Toronto, Johannesburg and Zurich, respectively,
and London (solely in the case of the designated LIBOR currency).
The authorized denominations of Notes denominated in U.S. dollars will be
integral multiples of $1,000. We will designate the authorized denominations of
Foreign Currency Notes in the applicable pricing supplement.
BOOK-ENTRY DEBT SECURITIES
Except under certain circumstances, we will issue Notes in book-entry form only.
This means that we will not issue actual Notes or certificates to you. Instead,
we will issue a Global Security representing Notes with similar terms, and such
Global Security will be held by The Depository Trust Company ("DTC") or its
nominee. In order to own a beneficial interest in a Note, you must be an
institution that has an account with DTC or have an account with an institution,
such as a brokerage firm, that has an account with DTC. For a more complete
description of Book-Entry Debt Securities, see "Description of Debt
Securities--Book-Entry Debt Securities" in the prospectus.
Payments of principal and premium, if any, and interest on Notes represented by
a Global Security will be made in same-day funds to DTC in accordance with
arrangements then in effect between the Trustee and DTC.
INTEREST AND INTEREST RATES
General
Each Note will begin to accrue interest, if any, from the date it is originally
issued. In the related pricing supplement, we will designate each Note as a
Fixed Rate Note, a Floating Rate Note, an Amortizing Note or an Indexed Note and
describe the method of determining the interest rate, including any spread
and/or spread multiplier. For an Indexed Note, we will describe in the related
pricing supplement the method for the calculation and payment of principal and
interest. We also may specify a maximum and a minimum interest rate in the
pricing supplement for a Floating Rate Note or Indexed Note.
We may issue a Note as a Fixed Rate Note or a Floating Rate Note, or as a Note
that combines fixed and floating rate terms.
Interest rates that we offer with respect to Notes may differ depending upon,
among other things, the aggregate principal amount of Notes purchased in any
single transaction. We may offer Notes with similar variable terms but different
interest rates, as well as Notes with different variable terms, concurrently to
different investors. We may, from time to time, change the interest rates or
formulae and other terms of Notes, but no such change will affect any Note that
we already have issued or as to which we already have accepted an offer to
purchase.
Fixed Rate Notes
In the pricing supplement for Fixed Rate Notes, we will specify a fixed interest
rate payable semiannually in arrears on each April 15 and October 15 (each an
"Interest Payment Date"), or such other dates specified in the applicable
pricing supplement, to holders of record on the corresponding Regular Record
Date. If a Fixed Rate Note is issued between a Regular Record Date and the
corresponding date which would otherwise be the initial Interest Payment Date,
we will make our first payment of interest, if any, on the Interest Payment Date
following the next Regular Record Date. The "Regular Record Date", as referred
to in this paragraph, is the close of business on the fifteenth day (whether or
not a Business Day) prior to an Interest Payment Date. We will compute interest
on Fixed Rate Notes on the basis of a 360-day year of twelve 30-day months. If
the maturity date or an Interest Payment Date for any Fixed Rate Note is not a
Business Day, we will pay principal of and premium, if any, and interest for
that Note, as applicable, on the next Business Day, and no interest will accrue
from and after the maturity date or Interest Payment Date.
S-6
Original Issue Discount Notes
We may issue original issue discount Notes (including zero-coupon Notes) ("OID
Notes"), which are Notes issued at a discount from the principal amount payable
at the maturity date. An OID Note might not have periodic interest payments. For
these Notes, interest normally accrues during the life of the Note, and you
receive it at the maturity date or upon earlier redemption. Upon a redemption,
repayment or acceleration of the maturity of an OID Note, we will determine the
amount payable to you as set forth under "--Optional Redemption, Repayment and
Repurchase". Normally, this amount is less than the amount that we would
otherwise pay at the maturity date.
Amortizing Notes
We may issue amortizing Notes, which are Fixed Rate Notes for which combined
principal and interest payments are made in installments over the life of each
Note ("Amortizing Notes"). We apply payments on Amortizing Notes first to pay
interest due and then to reduce the unpaid principal amount. We will include a
table setting forth repayment information in the related pricing supplement for
an Amortizing Note.
Floating Rate Notes
Each Floating Rate Note will have an interest rate basis or formula. We may base
that formula on
- the CD Rate;
- the Commercial Paper Rate;
- LIBOR;
- the Federal Funds Rate;
- the Prime Rate;
- the Treasury Rate;
- the CMT Rate; or
- any other rate, or combination of rates, specified in the pricing
supplement.
In the pricing supplement, we also will indicate any spread and/or spread
multiplier, which would be applied to the interest rate formula to determine the
interest rate. Any Floating Rate Note may have a maximum or minimum interest
rate limitation. In addition to any maximum interest rate limitation, the
interest rate on the Floating Rate Notes will in no event be higher than the
maximum rate permitted by New York law, as the same may be modified by United
States law for general application.
We will appoint a calculation agent to calculate interest rates on the Floating
Rate Notes. Unless we identify a different party in the pricing supplement, the
paying agent will be the calculation agent for each Note. In most cases, a
Floating Rate Note will have a specified "Interest Reset Date", "Interest
Determination Date" and "Calculation Date" associated with it. An Interest Reset
Date is the date on which the interest rate on the Note changes. An Interest
Determination Date is the date as of which the new interest rate is determined
for a particular Interest Reset Date, based on the interest rate basis or
formula as of that Interest Determination Date. The Calculation Date is the date
by which the calculation agent will determine the new interest rate that became
effective on a particular Interest Reset Date, based on the interest rate basis
or formula as of the applicable Interest Determination Date.
CHANGE OF INTEREST RATE
We may set the interest rate on each Floating Rate Note daily, weekly, monthly,
quarterly, semiannually, annually or on some other basis that we specify (each,
an "Interest Reset Date"). Unless otherwise stated in the pricing supplement,
the Interest Reset Date will be
- for Notes with interest that resets daily, each Business Day;
- for Notes (other than Treasury Rate Notes) with interest that resets
weekly, Wednesday of each week;
- for Treasury Rate Notes with interest that resets weekly, Tuesday of each
week;
- for Notes with interest that resets monthly, the third Wednesday of each
month;
- for Notes with interest that resets quarterly, the third Wednesday of
each of the four months of each year indicated in the applicable pricing
supplement;
- for Notes with interest that resets semiannually, the third Wednesday of
each of the two months of each year indicated in the applicable pricing
supplement; and
S-7
- for Notes with interest that resets annually, the third Wednesday of the
month of each year indicated in the applicable pricing supplement.
The related pricing supplement will describe the initial interest rate or
interest rate formula on each Note. That rate is effective until the following
Interest Reset Date. Thereafter, the interest rate will be the rate determined
on each Interest Determination Date. Each time a new interest rate is
determined, it becomes effective on the subsequent Interest Reset Date. If any
Interest Reset Date is not a Business Day, then the Interest Reset Date is
postponed to the next Business Day, except, in the case of a LIBOR Note, if the
next Business Day is in the next calendar month, the Interest Reset Date is the
immediately preceding Business Day.
DATE INTEREST RATE IS DETERMINED
The Interest Determination Date for all Floating Rate Notes (except LIBOR Notes
and Treasury Rate Notes) will be the second Business Day before the Interest
Reset Date. The Interest Determination Date in the case of LIBOR Notes will be
the second London Business Day immediately preceding the applicable Interest
Reset Date.
The Interest Determination Date for Treasury Rate Notes will be the day of the
week in which the Interest Reset Date falls on which Treasury bills of the same
Index Maturity are normally auctioned. Treasury bills usually are sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction usually is held on Tuesday. Sometimes, the auction is held on
the preceding Friday. If an auction is held on the preceding Friday, that day
will be the Interest Determination Date relating to the Interest Reset Date
occurring in the next week. If an auction date falls on a day that would
otherwise be an Interest Reset Date, then the Interest Reset Date will instead
be the first Business Day immediately following the auction date.
CALCULATION DATE
Unless we specify a different date in a pricing supplement, the "Calculation
Date", if applicable, relating to an Interest Determination Date will be the
earlier of,
- the tenth calendar day after such Interest Determination Date or, if that
day is not a Business Day, the next succeeding Business Day; or
- the Business Day immediately preceding the relevant Interest Payment Date
or the maturity date, as the case may be.
Upon the request of the beneficial holder of any Floating Rate Note, the
calculation agent will provide the interest rate then in effect and, if
different, the interest rate that will become effective on the next Interest
Reset Date for the Floating Rate Note.
PAYMENT OF INTEREST
Unless otherwise stated in the pricing supplement, we will pay installments of
interest on Floating Rate Notes as follows:
- for Notes with interest payable monthly, on the third Wednesday of each
month;
- for Notes with interest payable quarterly, on the third Wednesday of each
of the four months of each year indicated in the applicable pricing
supplement;
- for Notes with interest payable semiannually, on the third Wednesday of
each of the two months specified in the applicable pricing supplement;
- for Notes with interest payable annually, on the third Wednesday of the
month specified in the applicable pricing supplement (each of the above,
an "Interest Payment Date"); and
- at maturity, redemption or repurchase.
Each interest payment on a Floating Rate Note will include interest accrued
from, and including, the issue date or the last Interest Payment Date, as the
case may be, to, but excluding, the following Interest Payment Date or the
maturity or redemption date, as the case may be.
We will pay installments of interest on Floating Rate Notes beginning on the
first Interest Payment Date after its issue date to the holders of record on the
corresponding Regular Record Date. If a Floating Rate Note is issued between a
Regular Record Date and the corresponding
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date, which would otherwise be the initial Interest Payment Date, we will make
our first payment of interest, if any, on the Interest Payment Date following
the next Regular Record Date. The "Regular Record Date", as referred to in this
paragraph, is the close of business on the fifteenth day (whether or not a
Business Day) prior to an Interest Payment Date. If an Interest Payment Date
(but not the maturity date) is not a Business Day, the Interest Payment Date
will be deferred until the next Business Day; however, in the case of LIBOR
Notes, the Interest Payment Date will be the preceding Business Day if the next
Business Day is in the next calendar month. If the maturity date of any Floating
Rate Note is not a Business Day, we will pay principal of and premium, if any,
and interest for that Note on the next Business Day, and no interest will accrue
from and after the maturity date.
We and the calculation agent will calculate accrued interest on a Floating Rate
Note by multiplying the principal amount of a Note by an accrued interest
factor. The accrued interest factor is the sum of the interest factors
calculated for each day in the period for which accrued interest is being
calculated. The interest factor for each day is computed by dividing the
interest rate in effect on that day by
- 360, in the case of CD Rate Notes, Commercial Paper Rate Notes, LIBOR
Notes (except where a 360-day convention is not customary, e.g., for
LIBOR Notes denominated in pounds sterling), Federal Funds Rate Notes and
Prime Rate Notes;
- 365, in the case of other LIBOR Notes (e.g., LIBOR Notes denominated in
pounds sterling); or
- the actual number of days in the year, in the case of Treasury Rate Notes
and CMT Rate Notes.
All percentages resulting from any calculation will be rounded to the nearest
one hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upward. For example, 4.567895% (or 0.04567895) will be
rounded to 4.5679% (or 0.0456790). Dollar amounts used in the calculation will
be rounded to the nearest cent (with one-half cent being rounded upward).
CALCULATION OF INTEREST
In this section, we will explain how we and the calculation agent will calculate
the interest rate on different Floating Rate Notes.
CD Rate Notes
The "CD Rate" for any Interest Determination Date is the rate on that date
for negotiable certificates of deposit having the Index Maturity described in
the related pricing supplement, as published in H.15(519) prior to 3:00 P.M.,
New York City time, on the Calculation Date, for that Interest Determination
Date under the heading "CDs (secondary market)". The "Index Maturity" is the
period to maturity of the instrument or obligation with respect to which the
related interest rate basis or formula will be calculated.
We and the calculation agent will observe the following procedures if the CD
Rate cannot be determined as described above:
- If the above rate is not published in H.15(519) by 3:00 P.M., New York
City time, on the Calculation Date, the CD Rate will be the rate on that
Interest Determination Date for negotiable certificates of deposit of the
Index Maturity described in the related pricing supplement as published
in H.15 Daily Update, or such other recognized electronic source used for
the purpose of displaying such rate, under the caption "CDs (secondary
market)".
- If that rate is not published in H.15(519), H.15 Daily Update or another
recognized electronic source by 3:00 P.M., New York City time, on the
Calculation Date, then the calculation agent will determine the CD Rate
to be the average of the secondary market offered rates as of 10:00 A.M.,
New York City time, on that Interest Determination Date, quoted by three
leading non-bank dealers of negotiable U.S. dollar certificates of
deposit of major United States money market banks in The City of New York
of the highest credit standing (in the market for negotiable certificates
of deposit) for negotiable certificates of deposit in a denomination of
$5,000,000 with a remaining maturity closest to the Index Maturity
described in the related pricing
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supplement. The calculation agent, after consultation with us, will
select the three dealers referred to above.
- If fewer than three dealers are quoting as mentioned above, the CD Rate
will remain the CD Rate then in effect on that Interest Determination
Date.
"H.15(519)" means the weekly statistical release designated as such, 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
worldwide 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.
Commercial Paper Rate Notes
The "Commercial Paper Rate" for any Interest Determination Date is the Money
Market Yield of the rate on that date for commercial paper having the Index
Maturity described in the related pricing supplement, as published in H.15(519)
prior to 3:00 P.M., New York City time, on the Calculation Date for that
Interest Determination Date under the heading "Commercial Paper--Nonfinancial".
We and the calculation agent will observe the following procedures if the
Commercial Paper Rate cannot be determined as described above:
- If the above rate is not published in H.15(519) by 3:00 P.M., New York
City time, on the Calculation Date, the Commercial Paper Rate will be the
Money Market Yield of the rate on that Interest Determination Date for
commercial paper having the Index Maturity described in the related
pricing supplement, as published in H.15 Daily Update, or such other
recognized electronic source used for the purpose of displaying such
rate, under the caption "Commercial Paper -- Nonfinancial".
- If that rate is not published in H.15(519), H.15 Daily Update or another
recognized electronic source by 3:00 P.M., New York City time, on the
Calculation Date, then the calculation agent will determine the
Commercial Paper Rate to be the Money Market Yield of the average of the
offered rates of three leading dealers of U.S. dollar commercial paper in
The City of New York as of 11:00 A.M., New York City time, on that
Interest Determination Date for commercial paper having the Index
Maturity described in the related pricing supplement placed for an
industrial issuer whose bond rating is "Aa", or the equivalent, from a
nationally recognized securities rating organization. The calculation
agent, after consultation with us, will select the three dealers referred
to above.
- If fewer than three dealers selected by the calculation agent are quoting
as mentioned above, the Commercial Paper Rate will remain the Commercial
Paper Rate then in effect on that Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
Money Market Yield = D x 360
------------- X 100
360 - (D X M)
Where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
LIBOR Notes
On each Interest Determination Date, the calculation agent will determine LIBOR
as follows:
- If the pricing supplement specifies "LIBOR Telerate", LIBOR on any
Interest Determination Date will be the rate for deposits in the LIBOR
Currency having the Index Maturity described in the related pricing
supplement on the applicable Interest Reset Date, as such rate appears on
the Designated LIBOR Page as of 11:00 A.M., London time, on that Interest
Determination Date.
- If the pricing supplement specifies "LIBOR Reuters", LIBOR on any
Interest Determination Date will be the average of the offered rates for
deposits in the LIBOR Currency having the Index Maturity described in the
related pricing supplement on the applicable Interest Reset
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Date, as such rates appear on the Designated LIBOR Page as of 11:00 A.M.,
London time, on that Interest Determination Date, if at least two such
offered rates appear on the Designated LIBOR Page.
If the pricing supplement does not specify "LIBOR Telerate" or "LIBOR Reuters",
the LIBOR Rate will be LIBOR Telerate. In addition, if the Designated LIBOR Page
by its terms provides only for a single rate, that single rate will be used
regardless of the foregoing provisions requiring more than one rate.
On any Interest Determination Date on which fewer than the required number of
applicable rates appear or no rate appears on the applicable Designated LIBOR
Page, the calculation agent will determine LIBOR as follows:
- The calculation agent will determine LIBOR on the basis of the offered
rates at which deposits in the LIBOR Currency having the Index Maturity
described in the related pricing supplement on the Interest Determination
Date and in a principal amount that is representative of a single
transaction in that market at that time are offered by four major banks
in the London interbank market at approximately 11:00 A.M., London time,
for the period commencing on the Interest Reset Date to prime banks in
the London interbank market. The calculation agent will select the four
banks and request the principal London office of each of those banks to
provide a quotation of its rate for deposits in the LIBOR Currency. If
the banks provide at least two quotations, LIBOR for that Interest
Determination Date will be the average of those quotations.
- If the banks provide fewer than two quotations as mentioned above, LIBOR
will be the average of the rates quoted by three major banks in the
Principal Financial Center selected by the calculation agent at
approximately 11:00 A.M. in the Principal Financial Center, on the
Interest Determination Date for loans to leading European banks in the
LIBOR Currency having the Index Maturity designated in the related
pricing supplement for the period commencing on the Interest Reset Date
and in a principal amount that is representative of a single transaction
in the LIBOR Currency in that market at that time. The calculation agent
will select the three banks referred to above.
- If fewer than three banks selected by the calculation agent are quoting
as mentioned above, LIBOR will remain the LIBOR then in effect on that
Interest Determination Date.
"LIBOR Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR will be calculated or, if no such currency is
specified in the applicable pricing supplement, U.S. dollars.
"Designated LIBOR Page" means:
- if the related pricing supplement specifies "LIBOR Reuters", the display
on the Reuters Monitor Money Rates Service (or any successor service) on
the page specified in such pricing supplement (or any other page as may
replace such page on such service) for the purpose of displaying the
London interbank rates of major banks for the LIBOR Currency; or
- if the related pricing supplement specifies "LIBOR Telerate" or it
specifies neither "LIBOR Reuters" nor "LIBOR Telerate" as the method of
calculating LIBOR, the display on Bridge Telerate, Inc. or any successor
service ("Telerate") on the page specified in such pricing supplement (or
any other page that may replace such page on such service) for the
purpose of displaying the London interbank rates of major banks for the
LIBOR Currency.
Federal Funds Rate Notes
The "Federal Funds Rate" for any Interest Determination Date is the rate on that
date for Federal Funds, as published in H.15(519) prior to 3:00 P.M., New York
City time, on the Calculation Date for that Interest Determination Date under
the heading "Federal Funds (Effective)", as such rate is displayed on Telerate
on page 120 (or any other page that may replace such page) ("Telerate Page
120").
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We and the calculation agent will observe the following procedures if the
Federal Funds Rate cannot be determined as described above:
- If the above rate does not appear on Telerate Page 120 or is not
published in H.15(519) by 3:00 P.M., New York City time, on the
Calculation Date, the Federal Funds Rate will be the rate on that
Interest Determination Date, as published in H.15 Daily Update, or such
other recognized electronic source used for the purpose of displaying
such rate, under the caption "Federal Funds (Effective)".
- If the above rate does not appear on Telerate Page 120 or is not
published in H.15(519) or H.15 Daily Update or such other recognized
electronic source as described above by 3:00 P.M., New York City time, on
the Calculation Date, then the calculation agent will determine the
Federal Funds Rate to be the average of the rates for the last
transaction in overnight Federal Funds arranged by three leading dealers
of Federal Funds transactions in The City of New York as of 9:00 A.M.,
New York City time, on that Interest Determination Date. The calculation
agent, after consultation with us, will select the three dealers referred
to above.
- If fewer than three brokers selected by the calculation agent are quoting
as mentioned above, the Federal Funds Rate will be the Federal Funds Rate
then in effect on that Interest Determination Date.
Prime Rate Notes
The "Prime Rate" for any Interest Determination Date is the prime rate or base
lending rate on that date, as published in H.15(519) by 3:00 P.M., New York City
time, on the Calculation Date for that Interest Determination Date under the
heading "Bank Prime Loan" or, if not published by 3:00 P.M., New York City time,
on the related Calculation Date, the rate on such Interest Determination Date as
published in H.15 Daily Update, or such other recognized electronic source used
for the purpose of displaying such rate, under the caption "Bank Prime Loan".
We and the calculation agent will observe the following procedures if the Prime
Rate cannot be determined as described above:
- If the rate is not published in H.15(519), H.15 Daily Update or another
recognized electronic source by 3:00 P.M., New York City time, on the
Calculation Date, then the calculation agent will determine the Prime
Rate to be the average of the rates of interest publicly announced by
each bank that appears on the Reuters screen designated as "USPRIME1" as
that bank's prime rate or base lending rate as in effect for that
Interest Determination Date.
- If at least one rate but fewer than four rates appear on the Reuters
screen USPRIME1 on the Interest Determination Date, then the Prime Rate
will be the average 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 Interest Determination Date by
three major money center banks in The City of New York selected by the
calculation agent.
- If the banks selected by the calculation agent are not quoting as
mentioned above, the Prime Rate will remain the Prime Rate then in effect
on the Interest Determination Date.
Treasury Rate Notes
The "Treasury Rate" for any Interest Determination Date is the rate set at the
auction of direct obligations of the United States ("Treasury bills") having the
Index Maturity described in the related pricing supplement under the caption
"INVESTMENT RATE" on the display on Telerate on page 56 (or any other page that
may replace such page) ("Telerate Page 56") or page 57 (or any other page that
may replace such page) ("Telerate Page 57") by 3:00 P.M., New York City time, on
the Calculation Date for that Interest Determination Date.
We and the calculation agent will observe the following procedures if the
Treasury Rate cannot be determined as described above:
- If the rate is not published by 3:00 P.M., New York City time, on the
Calculation
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Date, the Treasury Rate will be the auction rate of such Treasury bills
(expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) as published in H.15
Daily Update, or such recognized electronic source used for the purpose
of displaying such rate, under the caption "U.S. Government securities
Treasury bills/Auction high".
- If the rate is not published by 3:00 P.M., New York City time, on the
Calculation Date and cannot be determined as described in the immediately
preceding paragraph, the Treasury Rate will be the average auction rate
of such Treasury bills (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise announced by the United States Department of the Treasury on
the Calculation Date.
- If the results of the most recent auction of Treasury bills having the
Index Maturity described in the related pricing supplement are not
published or announced as described above by 3:00 P.M., New York City
time, on the Calculation Date, or if no auction is held on the Interest
Determination Date, then the Treasury Rate will be the rate (expressed as
a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) on such Interest Determination
Date of Treasury bills having the Index Maturity specified in the
applicable pricing supplement as published in H.15(519) under the caption
"U.S. Government securities/Treasury bills/ Secondary market" or, if not
published by 3:00 P.M., New York City time, on the related Calculation
Date, the rate on such Interest Determination Date of such Treasury bills
as published in H.15 Daily Update, or such other recognized electronic
source used for the purpose of displaying such rate, under the caption
"U.S. Government securities/Treasury bills/Secondary market".
- If such rate is not yet published in H.15(519), H.15 Daily Update or
another recognized electronic source by 3:00 P.M., New York City time, on
the related Calculation Date, then the calculation agent will determine
the Treasury Rate to be the Bond Equivalent Yield of the average of the
secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on the Interest Determination Date of three leading primary U.S.
government securities dealers (which may include the Agents or their
affiliates) for the issue of Treasury bills with a remaining maturity
closest to the Index Maturity described in the related pricing
supplement. The calculation agent will select the three dealers referred
to above.
- If fewer than three dealers selected by the calculation agent are quoting
as mentioned above, the Treasury Rate will remain the Treasury Rate then
in effect on that Interest Determination Date.
"Bond Equivalent Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
Bond Equivalent Yield = D x N
------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for Treasury Bills quoted on a
bank discount basis, "N" refers to 365 or 366 days, as applicable, and "M"
refers to the actual number of days in the applicable Interest Reset Period.
CMT Rate Notes
The "CMT Rate" for any Interest Determination Date is the rate displayed on the
Designated CMT Telerate Page by 3:00 P.M., New York City time, on the
Calculation Date for that Interest Determination Date under the caption
"-- Treasury Constant Maturities -- Federal Reserve Board Release
H.15 -- Mondays Approximately 3:45 P.M.", under the column for the Designated
CMT Maturity Index described in the related pricing supplement for:
- if the Designated CMT Telerate Page is 7051 or any successor page, the
rate on such Interest Determination Date; or
- if the Designated CMT Telerate Page is 7052 or any successor page, the
weekly or monthly average for the week or the month, as specified in the
related pricing supplement, ended immediately preced-
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ing the week or the month in which the related Interest Determination
Date occurs.
The following procedures will be used if the CMT Rate cannot be determined as
described above:
- If the relevant page does not display the rate by 3:00 P.M., New York
City time, on the Calculation Date, then the CMT Rate will be the
Treasury constant maturity rate for the Designated CMT Maturity Index, as
published in H.15(519).
- If that rate is not published in H.15(519) by 3:00 P.M., New York City
time, on the Calculation Date, then the CMT Rate will be the Treasury
constant maturity rate (or other United States Treasury rate) for the
Designated CMT Maturity Index for the Interest Determination Date as may
then be published by either the Board of Governors of the Federal Reserve
System or the United States Department of the Treasury that the
calculation agent determines (with our concurrence) to be comparable to
the rate formerly displayed on the Designated CMT Telerate Page and
published in H.15(519).
- If that information is not provided by 3:00 P.M., New York City time, on
the Calculation Date, then the calculation agent will determine the CMT
Rate to be a yield to maturity based on the arithmetic average of the
secondary market closing offered rates, as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date reported,
according to their written records, by three leading primary United
States government securities dealers (each, a "Reference Dealer") in The
City of New York. The calculation agent will select five Reference
Dealers and will eliminate the highest quotation (or, in the event of
equality, one of the highest quotations) and the lowest quotation (or, in
the event of equality, one of the lowest quotations), for the most
recently issued, direct, noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity approximately
equivalent to that of the Designated CMT Maturity Index, and a remaining
term to maturity not less than that of the Designated CMT Maturity Index
minus one year.
- If the calculation agent cannot obtain three Treasury Note quotations,
the calculation agent will determine the CMT Rate to be a yield to
maturity based on the arithmetic average of the secondary market offered
rates as of approximately 3:30 P.M., New York City time, on the Interest
Determination Date of three Reference Dealers in The City of New York
(selected using the same method described above) for Treasury Notes with
an original maturity of the number of years that is the next highest to
that of the Designated CMT Maturity Index, and with a remaining term to
maturity closest to that of the Designated CMT Maturity Index, which has
an outstanding balance of at least $100,000,000. If two such Treasury
Notes with an original maturity have remaining terms to maturity equally
close to that of the Designated CMT Maturity Index, the calculation agent
will obtain quotations for the Treasury Note with the shorter remaining
term to maturity.
- If three or four (but not five) Reference Dealers are quoting as
mentioned above, then the CMT Rate will be based on the arithmetic
average of the offered rates obtained, and neither the highest nor the
lowest of those quotations will be eliminated.
- If fewer than three Reference Dealers selected by the calculation agent
are quoting as mentioned above, the CMT Rate will remain the CMT Rate
then in effect on the Interest Determination Date.
"Designated CMT Telerate Page" means the display on Telerate, on the page
specified in the applicable pricing supplement (or any other page as may replace
such page), for the purpose of displaying Treasury Constant Maturities as
reported in H.15(519) or, if no such page is specified in the applicable pricing
supplement, page 7052 (or any other page that may replace such page).
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury
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securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified in the
applicable pricing supplement with respect to which the CMT Rate will be
calculated or, if no such maturity is specified in the applicable pricing
supplement, two years.
INDEXED NOTES
We may issue Notes for which the amount of interest or principal that you will
receive will not be known on your date of purchase. We will specify the formula
for computation of principal and premium, if any, and interest payments for
these types of Notes, which we call "Indexed Notes", by reference to securities,
financial or non-financial indices, currencies, commodities, interest rates, or
composites or baskets of any or all of the above. Examples of indexed items that
we may use include a published stock index, the common stock price of a publicly
traded company, the value of the U.S. dollar versus the Japanese yen, or the
price in a particular market of a particular commodity.
If you purchase an Indexed Note, you may receive a principal amount at maturity
that is greater than or less than the Note's face amount, and an interest rate
that is greater than or less than the interest rate that you would have earned
if you had instead purchased a conventional debt security issued by us at the
same time with the same maturity. The amount of principal and premium, if any,
and interest that you will receive will depend on the structure of the Indexed
Note and the level of the specified indexed item throughout the term of the
Indexed Note and at maturity. Specific information pertaining to the method of
determining the interest payments, principal amounts and/or premium amounts, as
well as additional risk factors unique to the Indexed Note, certain historical
information for the specified indexed item and certain additional United States
federal tax considerations will be described in the related pricing supplement.
RENEWABLE NOTES
We may issue Renewable Notes ("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 a 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 their Renewable Notes
only if the terms of the Note specifically permit partial termination. An
election to terminate the automatic extension of any portion of the Renewable
Note is irrevocable 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 Security, DTC 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
DTC or its nominee will 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 DTC participant through which it holds an interest in the
Note to notify DTC of its desire to terminate the automatic extension of the
Note. Different firms have different cutoff 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 Renewable
Note to ascertain the cutoff time by which an instruction must be given for
delivery of timely notice to DTC or its nominee.
EXTENDIBLE NOTES
We may issue Notes whose stated maturity date may be extended at our 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 (but not to exceed 30 years from the date of issue).
We may exercise our option to extend an Extendible Note by notifying the Trustee
(or any duly appointed paying agent) at least 50 but not
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more than 60 days prior to the then effective maturity date. If we elect to
extend an Extendible Note, the Trustee (or paying agent) will mail, at least 40
days prior to the maturity date, to the registered holder of an Extendible Note
a notice (the "Extension Notice") informing the holder of our election, the new
maturity date and any updated terms. Upon the mailing of an Extension Notice,
the maturity of such Note will be extended automatically as set forth in the
Extension Notice.
However, we may, not later than 20 days prior to the maturity date of an
Extendible Note (or, if such date is not a Business Day, on the immediately
succeeding Business Day), at our 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 Trustee (or paying agent) to mail notice of such higher interest rate or
higher spread and/or spread multiplier to the holder of an Extendible Note. The
notice will be irrevocable.
If we elect 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 us on the then
effective maturity date. In order for an Extendible Note to be so repaid on the
maturity date, we must receive, at least 15 days but not more than 30 days prior
to the maturity date,
- the Note with the form "Option to Elect Repayment" on the reverse of the
Note duly completed; or
- a facsimile transmission, telex or letter from a member of a national
securities exchange or the National Association of Securities Dealers,
Inc. or a commercial bank or trust company in the United States setting
forth the name of the holder of the Note, the principal amount of the
Note, the principal amount of the Note to be repaid, the certificate
number or a description of the tenor and terms of the Note, a statement
that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed
form entitled "Option to Elect Repayment" on the reverse of the Note,
will be received by the Trustee (or paying agent) not later than the
fifth Business Day after the date of the facsimile transmission, telex or
letter; provided, however, that the facsimile transmission, telex or
letter will only be effective if the Trustee or paying agent receives the
Note and form duly completed by that fifth Business Day. A holder of an
Extendible Note may exercise this option 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.
If a Note is represented by a Global Security, DTC 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 DTC 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 DTC of its desire to exercise a right of
repayment. Different firms have different cutoff 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 cutoff time by which an instruction must be given for
timely notice to be delivered to DTC or its nominee.
DEBT WARRANTS
We may issue Notes paired with Debt Warrants. In that case, the related pricing
supplement will include a description of the Debt Warrants that we determine to
issue with the Notes.
OPTIONAL REDEMPTION, REPAYMENT AND REPURCHASE
We will indicate in the pricing supplement for a Note whether we will have the
option to redeem the Note before the stated maturity and the price or prices at
which, and date or dates on which, redemption may occur. If we are allowed to
redeem a Note, we may exercise the option by notifying the Trustee at least 60
days prior to the redemption date. At least 30 but not more than 60 days before
the redemption date, the
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Trustee will mail notice or cause the paying agent to mail notice of redemption
to the holders. If we redeem a Note in part, we will issue a new Note or Notes
for the unredeemed portion.
We also will indicate in the pricing supplement for a Note whether you will have
the option to elect repayment by us prior to the stated maturity and the price
or prices at which, and the date or dates on which, repayment may occur.
For a Note to be repaid at your option, the paying agent must receive, at least
30 but not more than 60 days prior to an optional repayment date, such Note with
the form entitled "Option to Elect Repayment" on the reverse of the Note duly
completed. If you present a Note for repayment, such act will be irrevocable.
You may exercise the repayment option for less than the entire principal of the
Note, provided the remaining principal outstanding is an authorized
denomination. If you elect partial repayment, your Note will be canceled, and we
will issue a new Note or Notes for the remaining amount.
DTC or its nominee will be the holder of each Global Security and will be the
only party that can exercise a right of repayment. If you are a beneficial owner
of a Global Security and you want to exercise your right of repayment, you must
instruct your broker or indirect participant through which you hold an interest
in the Note to notify DTC. You should consult your broker or such indirect
participant to discuss the appropriate cutoff times and any other requirements
for giving this instruction. The giving of any such instruction will be
irrevocable.
If a Note is an OID Note (other than an Indexed Note), the amount payable in the
event of redemption or repayment prior to its stated maturity will be the
amortized face amount on the redemption or repayment date, as the case may be.
The amortized face amount of an OID Note will be equal to
- the issue price, plus
- that portion of the difference between the issue price and the principal
amount of the Note that has accrued at the yield to maturity described in the
pricing supplement (computed in accordance with generally accepted U.S. bond
yield computation principles) by the redemption or repayment date. However, in
no case will the amortized face amount of an OID Note exceed its principal
amount.
We may purchase Notes at any time and at any price, in the open market or
otherwise. We may hold, resell or surrender for cancellation any Notes that we
purchase.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless we indicate otherwise in the applicable pricing supplement, we will
denominate the Notes in U.S. dollars, we will pay the principal of and premium,
if any, and interest on the Notes in U.S. dollars, and you must pay the purchase
price of the Notes in immediately available U.S. dollar funds. If any of the
Notes ("Foreign Currency Notes") are to be denominated or payable in a currency
other than U.S. dollars, the following provisions will apply in addition to,
and, to the extent inconsistent therewith, will replace, the description of
general terms and provisions of Notes set forth in the attached prospectus and
elsewhere in this prospectus supplement.
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 prospectus supplement. If we furnish
you any information concerning exchange rates, we do so 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.
CURRENCIES
We may offer Foreign Currency Notes denominated and/or payable in a specified
currency or specified currencies. Unless we indicate otherwise in the applicable
pricing supplement, you are required to pay for Foreign Currency Notes
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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 third Business Day preceding the date of delivery of the Foreign Currency
Notes, or by such other day as determined by the Agent who presents such offer
to purchase Foreign Currency Notes to us, such 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 terms and subject to conditions, limitations and charges as the Agents
may from time to time establish in accordance with their regular foreign
exchange practices. If you purchase Foreign Currency Notes, you will bear all
costs of exchange which are related to your purchase.
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 currency unit, will include a
description thereof and a description of provisions for payment in the event the
currency unit is no longer used for the purposes for which it was established.
PAYMENT OF PRINCIPAL AND INTEREST
If you are a holder of Foreign Currency Notes, we will pay you 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. 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 for most foreign currencies.
If you hold Foreign Currency Notes, we will base any U.S. dollar amount that you
receive on the highest bid quotation in The City of New York received by the
exchange rate agent that we have specified in the applicable pricing supplement
at approximately 11:00 A.M., New York City time, on the second Business Day
preceding the applicable payment date from three recognized foreign exchange
dealers (one of whom may be the exchange rate agent) for the purchase by the
quoting dealer of the specified currency for U.S. dollars for settlement on such
payment date in the aggregate amount of the specified currency payable to all
holders of Foreign Currency Notes scheduled to receive U.S. dollar payments and
at which the applicable dealer commits to execute a contract. The exchange rate
agent will select, and we may approve, the recognized foreign dealers who
provide the bid quotations. If three bid quotations are not available, we will
make payments in the specified currency. All currency exchange costs relating to
the payment will be borne by the holders of the Foreign Currency Note by
deductions from such payments.
Unless we indicate otherwise in the applicable pricing supplement, as a holder
of Foreign Currency Notes, you may elect to receive payment of the principal of
and premium, if any, and 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 City of New York on or prior to the Regular
Record Date or at least 15 calendar days prior to maturity, as the case may be.
You may make this request in writing (mailed or hand delivered) or by facsimile
transmission or telex. As a holder of a Foreign Currency Note, you may elect to
receive payment in the specified currency for all principal and interest
payments 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 on or
prior to the Regular Record Date or at least 15 calendar days prior to the
maturity date, as the case may be.
If a Note is represented by a Global Security, 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, DTC
currently will only accept payments in U.S. dollars. As a result, if the
specified currency of
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a Note is other than U.S. dollars, a beneficial owner of the related Global
Security who elects to receive payments in the specified currency must notify
the participant through which it owns its interest on or prior to the applicable
Record Date or at least 15 calendar days prior to the maturity date, as the case
may be, of such beneficial owner's election. The participant must notify DTC of
such election on or prior to the third Business Day after such Record Date or at
least 12 calendar days prior to the maturity date, as the case may be, and DTC
will notify the Trustee of such election on or prior to the fifth Business Day
after such Record Date or at least ten calendar days prior to the maturity date,
as the case may be. If the participant receives complete instructions from the
beneficial owner that 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. See "Description of Debt
Securities -- Book-Entry Debt Securities".
We will pay principal and premium, if any, and interest on Foreign Currency
Notes to be paid in U.S. dollars in the manner specified in the attached
prospectus and this prospectus supplement with respect to Notes denominated in
U.S. dollars. See "Description of Notes--General". We will pay interest on
Foreign Currency Notes to be paid in the specified currency by wire transfer to
a bank account maintained by the holder in the country of the specified currency
or, in the case of euros, a bank account maintained by the holder in any of the
participating states, or, if appropriate wire transfer instructions are not
received by the Trustee on or prior to the applicable Regular Record Date, by
check mailed on the relevant Interest Payment Date, made payable to the persons
entitled thereto, to the address of such holders as they appear in the Security
Register. The principal of Foreign Currency Notes, together with interest
accrued and unpaid thereon, due at the maturity date will be paid in immediately
available funds upon surrender of such Notes at the corporate trust office of
the Trustee in The City of New York, or, at our option, by wire transfer to such
bank account.
PAYMENT CURRENCY
If a specified currency is not available for the payment of principal and
premium, if any, or interest with respect to a Foreign Currency Note due to the
imposition of exchange controls or other circumstances beyond our control, we
will be entitled to satisfy our obligations to holders of Foreign Currency Notes
by making such 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 such payment or, if not
then available, on the basis of the most recently available Market Exchange Rate
or as otherwise indicated in an applicable pricing supplement. Any payment made
in U.S. dollars under such circumstances where the required payment is in a
specified currency will not constitute a default under the Senior Indenture with
respect to the Notes.
All determinations referred to above which are made by the exchange rate agent
will be at its sole discretion and will, in the absence of clear 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.
S-19
UNITED STATES FEDERAL INCOME TAXATION
In the opinion of Shearman & Sterling LLP, our special U.S. federal income tax
counsel, the following summary accurately describes the material U.S. federal
income tax consequences of the purchase, ownership, and disposition of a Note,
subject to the limitations stated below. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (including
proposed Regulations and temporary Regulations) promulgated thereunder, rulings,
official pronouncements and judicial decisions, all as in effect on the date of
this prospectus supplement and all of which are subject to change, possibly with
retroactive effect, or to different interpretations. This summary provides
general information only and does not address all of the U.S. federal income tax
consequences that may be applicable to a holder of a Note. It does not address
all of the tax consequences that may be relevant to certain types of holders
subject to special treatment under the U.S. federal income tax law, such as
individual retirement and other tax-deferred accounts, dealers in securities or
currencies, financial institutions, life insurance companies, tax-exempt
organizations, persons holding Notes as a hedge or hedged against currency risk,
as a position in a straddle for tax purposes, as part of a "synthetic security"
or other integrated investment comprised of a Note and one or more other
investments, United States persons (as defined below) whose functional currency
is other than the U.S. dollar, or to certain U.S. expatriates. It also does not
discuss the tax consequences to subsequent purchasers of Notes and is limited to
investors who hold Notes as a capital asset within the meaning of Section 1221
of the Code. The U.S. federal income tax consequences of purchasing, holding or
disposing of a particular Note will depend, in part, on the particular terms of
such Note as set forth in the applicable pricing supplement. The federal income
tax consequences of purchasing, holding or disposing of certain Floating Rate
Notes, Foreign Currency Notes (other than Single Foreign Currency Notes, as
defined below), Amortizing Notes, Floating Rate/Fixed Rate Notes, Indexed Notes,
Renewable Notes, Extendible Notes, Notes paired with Debt Warrants and Bearer
Securities will be set out in the applicable pricing supplement. Persons
considering the purchase of Notes should consult their own tax advisors
concerning the application of the U.S. federal income tax law to their
particular situations, as well as any tax consequences arising under the law of
any state, local or foreign tax jurisdiction.
"Single Foreign Currency Note" means a Note on which all payments a holder is
entitled to receive are denominated in or determined by reference to the value
of a single Foreign Currency. "Foreign Currency" means a currency or currency
unit, other than a hyperinflationary currency, as defined in the Code, or the
U.S. dollar.
UNITED STATES PERSONS
For purposes of the following discussion, "United States person" means an
individual who is a citizen or resident of the United States, an estate subject
to U.S. federal income taxation without regard to the source of its income, a
corporation or other business entity treated as a corporation for U.S. federal
income tax purposes created or organized in or under the laws of the United
States, any state thereof or the District of Columbia, or a trust if a valid
election to be treated as a United States person, as defined in the Code, is in
effect with respect to such trust or both:
- a court within the United States is able to exercise primary supervision over
the administration of the trust, and
- one or more United States persons have the authority to control all
substantial decisions of the trust
If a partnership (including for this purpose any entity treated as a partnership
for U.S. federal income tax purposes) is a beneficial owner of the Notes, the
treatment of a partner in the partnership will generally depend upon the status
of the partner and upon the activities of the partnership. A holder of Notes
that is a partnership and partners in such partnership should consult their tax
advisors.
The following discussion pertains only to a holder of a Note who is a beneficial
owner of such Note and who is a United States person.
Payments of Interest on Notes that are not Discount Notes
Except as discussed below under "Discount Notes" and "Short-Term Notes", payment
of
S-20
interest on a Note will be taxable to a holder as ordinary interest income at
the time it is accrued or received in accordance with the holder's method of tax
accounting. If the payment is denominated in or determined with reference to a
single Foreign Currency, the amount required to be included in income by a cash
basis holder will be the U.S. dollar value of the amount paid (determined on the
basis of the "spot rate" on the date such payment is received), regardless of
whether the payment is in fact converted into U.S. dollars. No exchange gain or
loss will be recognized with respect to the receipt of such payment.
Except in the case of a Spot Rate Convention Election (as defined below), a
holder of a Single Foreign Currency Note who uses the accrual method of
accounting or is otherwise required to accrue interest income prior to receipt
will be required to include in income for each taxable year the U.S. dollar
value of the interest that has accrued during such year, determined by
translating such interest at the average rate of exchange for the period or
periods during which such interest has accrued. The average rate of exchange for
an interest accrual period (or partial period) is the simple average of the spot
exchange rates for each Business Day of such period (or such other average that
is reasonably derived and consistently applied by the holder). Upon receipt of
an interest payment, such holder will recognize ordinary gain or loss in an
amount equal to the difference between the U.S. dollar value of the Foreign
Currency received (determined on the basis of the "spot rate" on the date such
payment is received) or, in the case of interest received in U.S. dollars rather
than in Foreign Currency, the amount so received and the U.S. dollar value of
the interest income that such holder has previously included in income with
respect to such payment. Any such gain or loss generally will not be treated as
interest income or expense, except to the extent provided by administrative
pronouncements of the Internal Revenue Service (the "Service").
A holder may elect (a "Spot Rate Convention Election") to translate accrued
interest into U.S. dollars at the "spot rate" on the last day of an accrual
period for the interest, or, in the case of an accrual period that spans two
taxable years, at the "spot rate" on the last day of the taxable year.
Additionally, if a payment of interest is received within five Business Days of
the last day of the accrual period, an electing holder may instead translate
such accrued interest into U.S. dollars at the "spot rate" on the day of
receipt. Any such election will apply to all debt instruments held by the United
States person at the beginning of the first taxable year to which the election
applies or thereafter acquired by the United States person and cannot be revoked
without the consent of the Service.
For purposes of this discussion, the "spot rate" generally means a rate that
reflects a fair market rate of exchange available to the public for currency
under a "spot contract" in a free market and involving representative amounts. A
"spot contract" is a contract to buy or sell a currency on the nearest
conventional settlement date, generally two Business Days following the date of
the execution of the contract. If such a spot rate cannot be demonstrated, the
Service has the authority to determine the spot rate.
Purchase, Sale, Exchange or Retirement of Notes
A holder's tax basis in a Note generally will be the U.S. dollar cost of the
Note to such holder (which, in the case of a Note purchased with Foreign
Currency, will be determined by translating the purchase price at the spot rate
on the date of purchase or, in the case of a Note that is traded on an
established securities market as defined in applicable Treasury Regulations, on
the settlement date if the holder is a cash basis taxpayer or an accrual basis
taxpayer that so elects), increased by any original issue discount, market
discount or acquisition discount (all as defined below) previously included in
the holder's gross income (as described below), and reduced by any amortized
premium (as described below) taken into account by the holder and any principal
payments and payments of stated interest that are not payments of qualified
stated interest (as defined below) received by the holder.
Upon the sale, exchange or retirement of a Note, a holder generally will
recognize gain or loss equal to the difference between the amount realized on
the sale, exchange or retirement (or the U.S. dollar value of the
S-21
amount realized in a Foreign Currency at the spot rate on the date of the sale,
exchange or retirement or, in the case of a Note that is traded on an
established securities market as defined in applicable Treasury Regulations, on
the settlement date if the holder is a cash basis taxpayer or an accrual basis
taxpayer that so elects), except to the extent such amount is attributable to
accrued but unpaid interest, and the holder's tax basis in the Note. Except with
respect to:
- gains or losses attributable to changes in exchange rates (as described in the
next paragraph);
- gains attributable to market discount (as described below); and
- gains on the disposition of a Short-Term Note (as described below);
gain or loss so recognized will be capital gain or loss and will be long-term
capital gain or loss, if, at the time of the sale, exchange or retirement, the
Note was held for more than one year. Under current law, long-term capital gains
of individuals are, under certain circumstances, taxed at lower rates than items
of ordinary income. The deductibility of capital losses is subject to
limitations.
Gain or loss recognized by a holder on the sale, exchange or retirement of a
Single Foreign Currency Note that is attributable to changes in exchange rates
will be treated as ordinary income or loss and generally will not be treated as
interest income or expense except to the extent provided by administrative
pronouncements of the Service. Gain or loss attributable to changes in exchange
rates is recognized on the sale, exchange or retirement of a Single Foreign
Currency Note only to the extent of the total gain or loss recognized on such
sale, exchange or retirement.
Exchange of Foreign Currency
A holder's tax basis in Foreign Currency purchased by the holder generally will
be the U.S. dollar value thereof at the spot rate on the date such Foreign
Currency is purchased. A holder's tax basis in Foreign Currency received as
interest on, or on the sale, exchange or retirement of, a Single Foreign
Currency Note will be the U.S. dollar value thereof at the spot rate at the time
such Foreign Currency is received. The amount of gain or loss recognized by a
holder on a sale, exchange or other disposition of Foreign Currency will be
equal to the difference between:
- the amount of U.S. dollars, the U.S. dollar value at the spot rate of the
Foreign Currency, or the fair market value in U.S. dollars of the property
received by the holder in the sale, exchange or other disposition; and
- the holder's tax basis in the Foreign Currency.
Accordingly, a holder that purchases a Note with Foreign Currency will recognize
gain or loss in an amount equal to the difference, if any, between such holder's
tax basis in the Foreign Currency and the U.S. dollar value at the spot rate of
the Foreign Currency on the date of purchase. Generally, any such gain or loss
will be ordinary income or loss and will not be treated as interest income or
expense, except to the extent provided by administrative pronouncements of the
Service.
Subsequent Interest Periods and Extension of Maturity
If so specified in the pricing supplement relating to a Note, we may have the
option:
- to reset the interest rate, in the case of a Fixed Rate Note, or to reset the
spread, the spread multiplier or other formulae by which the interest rate
basis is adjusted, in the case of a Floating Rate Note; and/or
- to extend the maturity of such Note.
See "Description of Notes -- Interest and Interest Rates" and "Description of
Notes -- Extendible Notes". The treatment of a holder of Notes with respect to
which such an option has been exercised who does not elect to have us repay such
Notes will depend on the terms established for such Notes by us pursuant to the
exercise of such option (the "revised terms"). Depending on the particular
circumstances, such holder may be treated as having surrendered such Notes for
new Notes with the revised terms in either a taxable exchange or a
recapitalization qualifying for nonrecognition of gain or loss.
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Discount Notes
The following summary is a general description of U.S. federal income tax
consequences to holders of Notes issued with original issue discount ("Discount
Notes") and is based on the provisions of the Code as in effect on the date
hereof and on certain Treasury Regulations promulgated thereunder relating to
original issue discount (the "OID Regulations").
For U.S. federal income tax purposes, "original issue discount" is the excess of
the stated redemption price at maturity of each Discount Note over its issue
price, if such excess is greater than or equal to a de minimis amount (generally
1/4 of 1% of the Discount Note's stated redemption price at maturity multiplied
by the number of complete years to maturity from the issue date). The issue
price of an issue of Discount Notes that are issued for cash will be equal to
the first price at which a substantial amount of such Notes is sold for money.
For this purpose, sales to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers are ignored. The stated redemption price at maturity of a Discount
Note is the sum of all payments provided by the Discount Note, other than
payments of qualified stated interest. Under the OID Regulations, "qualified
stated interest" includes stated interest that is unconditionally payable in
cash or property (other than debt instruments of the issuer) at least annually
at a single fixed rate (with certain exceptions for lower rates paid during some
periods) or certain variable rates as described below. Interest is payable at a
single fixed rate only if the rate appropriately takes into account the length
of the interval between payments. Except as described below with respect to
Short-Term Notes, a holder of a Discount Note will be required to include
original issue discount in taxable income as it accrues before the receipt of
cash attributable to such income, regardless of such holder's method of
accounting for tax purposes. Special rules for Variable Rate Notes (as defined
below under "Variable Rate Notes") are described below under "Variable Rate
Notes".
The amount of original issue discount includible in taxable income by the
initial holder of a Discount Note is the sum of the daily portions of original
issue discount with respect to such Note for each day during the taxable year on
which such holder held such Note ("accrued original issue discount"). Generally,
the daily portion of the original issue discount is determined by allocating to
each day in any "accrual period" a ratable portion of the original issue
discount allocable to such accrual period. Under the OID Regulations, the
"accrual periods" for a Discount Note may be selected by each holder, may be of
any length, and may vary in length over the term of a Discount Note, provided
that each accrual period is no longer than one year and each scheduled payment
of principal or interest occurs either on the first day or final day of an
accrual period. The amount of original issue discount allocable to each accrual
period is equal to the excess, if any, of:
- the product of a Discount Note's adjusted issue price at the beginning of such
accrual period and its yield to maturity (determined on the basis of
compounding at the close of each accrual period and adjusted for the length of
such accrual period) over
- the amount of qualified stated interest, if any, payable on such Discount Note
and allocable to such accrual period.
The "adjusted issue price" of a Discount Note at the beginning of any accrual
period generally is the sum of the issue price of a Discount Note plus the
accrued original issue discount allocable for all prior accrual periods, reduced
by any prior payment on the Discount Note other than a payment of qualified
stated interest. Under these rules, a holder of a Discount Note generally will
have to include in taxable income increasingly greater amounts of original issue
discount in successive accrual periods.
Original issue discount on a Discount Note that is also a Single Foreign
Currency Note will be determined for any accrual period in the applicable
Foreign Currency and then translated into U.S. dollars in the same manner as
interest income accrued by a holder on the accrual basis, including the
application of a Spot Rate Convention Election. See "Payments of Interest on
Notes that are not Discount Notes". Likewise, upon receipt of payment
attributable to original issue discount (whether in connection with a payment of
interest or the sale, ex-
S-23
change or retirement of a Discount Note), a holder will recognize exchange gain
or loss to the extent of the difference between such holder's basis in the
accrued original issue discount (determined in the same manner as for accrued
interest) and the U.S. dollar value of such payment (determined by translating
any Foreign Currency received at the spot rate on the date of payment).
Generally, any such exchange gain or loss will be ordinary income or loss and
will not be treated as interest income or expense, except to the extent provided
in administrative pronouncements of the Service. For this purpose, all payments
on a Note will be viewed first as the payment of qualified stated interest
(determined under the original issue discount rules), second as the payment of
previously accrued original issue discount (to the extent thereof), with
payments considered made for the earliest accrual periods first, and thereafter
as the payment of principal.
If a holder's tax basis in a Discount Note immediately after purchase exceeds
the adjusted issue price of the Discount Note (the amount of such excess is
considered "acquisition premium") but is not greater than the stated redemption
price at maturity of such Discount Note, the amount includible in income in each
taxable year as original issue discount is reduced (but not below zero) by that
portion of the excess properly allocable to such year.
If a holder purchases a Discount Note for an amount in excess of the stated
redemption price at maturity, the holder does not include any original issue
discount in income and generally may be subject to the "bond premium" rules
discussed below. See "Amortizable Bond Premium". If a holder has a tax basis in
a Discount Note that is less than the adjusted issue price of such Discount
Note, the difference may be subject to the market discount provisions discussed
below. See "Market Discount".
Under the OID Regulations, a holder of a Note may elect to include in gross
income all interest that accrues on such Note using the constant yield method.
For this purpose, interest includes stated interest, acquisition discount,
original issue discount, de minimis original issue discount, market discount, de
minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. Special rules apply to elections made with
respect to Notes issued with amortizable bond premium or market discount. Once
made with respect to a Note, the election cannot be revoked without the consent
of the Service. A holder considering an election under these rules should
consult a tax advisor.
Market Discount
If a holder purchases a Note (other than a Discount Note or a Short-Term Note)
for an amount that is less than its stated redemption price at maturity, or
purchases a Discount Note for less than its "revised issue price" (as defined
under the Code) as of the purchase date, the amount of the difference will be
treated as "market discount" unless such difference is less than a specified de
minimis amount. Under the market discount rules of the Code, a holder will be
required to treat any partial principal payment (or, in the case of a Discount
Note, any payment that does not constitute qualified stated interest) on, or any
gain realized on the sale, exchange or retirement of, a Note as ordinary income
to the extent of the market discount which has not previously been included in
income and is treated as having accrued on such Note at the time of such payment
or disposition. Further, a disposition of a Note by gift (and in certain other
circumstances) could result in the recognition of market discount income,
computed as if such Note had been sold at its then fair market value. In
addition, a holder who purchases a Note with market discount may be required to
defer the deduction of all, or a portion, of the interest paid or accrued on any
indebtedness incurred or maintained to purchase or carry such Note until the
maturity of the Note, or its earlier disposition in a taxable transaction.
Market discount is considered to accrue ratably during the period from the date
of acquisition to the maturity date of a Note, unless the holder elects to
accrue market discount under the rules applicable to original issue discount. A
holder may elect to include market discount in income (generally as ordinary
income) currently as it accrues, in which case the rules described above
regarding the deferral of interest deduc-
S-24
tions and ordinary income treatment upon disposition or partial principal
payment will not apply. Such election will apply to all debt instruments
acquired by the holder on or after the first day of the first taxable year to
which such election applies and may be revoked only with the consent of the
Service.
With respect to a Single Foreign Currency Note, market discount is determined in
the applicable Foreign Currency. In the case of a holder who does not elect
current inclusion, accrued market discount is translated into U.S. dollars at
the spot rate on the date of disposition. No part of such accrued market
discount is treated as exchange gain or loss. In the case of a holder who elects
current inclusion, the amount currently includible in income for a taxable year
is the U.S. dollar value of the market discount that has accrued during such
year, determined by translating such market discount at the average rate of
exchange for the period or periods during which it accrued. Such an electing
holder will recognize exchange gain or loss with respect to accrued market
discount under the same rules that apply to accrued interest on a Single Foreign
Currency Note received by a holder on the accrual basis. See "Payments of
Interest on Notes that are not Discount Notes".
Amortizable Bond Premium
Generally, if a holder's tax basis in a Note held as a capital asset exceeds the
stated redemption price at maturity of such Note, such excess may constitute
amortizable bond premium that the holder may elect to amortize as an offset to
interest income on the Note under the constant interest rate method over the
period from the holder's acquisition date to the Note's maturity date. Any such
election will apply to all debt instruments acquired by the holder on or after
the first day of the first taxable year to which such election applies and may
be revoked only with the consent of the Service. Under certain circumstances,
amortizable bond premium may be determined by reference to an early call date.
Special rules apply with respect to Single Foreign Currency Notes.
Variable Rate Notes
A "Variable Rate Note" is a Note that
(1) has an issue price that does not exceed the total noncontingent principal
payments by more than the lesser of:
(a) the product of:
- the total noncontingent principal payments;
- the number of complete years to maturity from the issue date; and
- .015; or
(b) 15 percent of the total noncontingent principal payments; and
(2) does not provide for stated interest other than stated interest compounded
or paid at least annually at:
(a) one or more "qualified floating rates";
(b) a single fixed rate and one or more qualified floating rates;
(c) a single "objective rate"; or
(d) a single fixed rate and a single objective rate that is a "qualified inverse
floating rate".
A qualified floating rate or objective rate in effect at any time during the
term of the instrument must be set at a "current value" of that rate. A "current
value" of a rate is the value of the rate on any day that is no earlier than
three months prior to the first day on which that value is in effect and no
later than one year following that first day.
A variable rate is a "qualified floating rate" if
(1) variations in the value of the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds in the currency
in which the Note is denominated; or
(2) it is equal to the product of such a rate and either:
(a) a fixed multiple that is greater than .65 but not more than 1.35; or
(b) a fixed multiple greater than .65 but not more than 1.35, increased or
decreased by a fixed rate.
S-25
If a Note provides for two or more qualified floating rates that
- are within 0.25 percent of each other on the issue date; or
- can reasonably be expected to have approximately the same values throughout
the term of the Note,
the qualified floating rates together constitute a single qualified floating
rate. A rate is not a qualified floating rate, however, if the rate is subject
to certain restrictions (including caps, floors, governors, or other similar
restrictions) unless such restrictions are fixed throughout the term of the Note
or are not reasonably expected to significantly affect the yield on the Note.
An "objective rate" is a rate, other than a qualified floating rate, that is
determined using a single, fixed formula and that is based on objective
financial or economic information. A rate will not qualify as an objective rate
if it is based on information that is within the control of the issuer (or a
related party) or that is unique to the circumstances of the issuer (or a
related party), such as dividends, profits, or the value of the issuer's stock
(although a rate does not fail to be an objective rate merely because it is
based on the credit quality of the issuer). A variable rate is not an objective
rate, however, if it is reasonably expected that the average value of the rate
during the first half of the Note's term will be either significantly less than
or significantly greater than the average value of the rate during the final
half of the Note's term. An objective rate is a "qualified inverse floating
rate" if
- the rate is equal to a fixed rate minus a qualified floating rate; and
- the variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate.
If interest on a Note is stated at a fixed rate for an initial period of one
year or less followed by either a qualified floating rate or an objective rate
for a subsequent period, and
- the fixed rate and the qualified floating rate or objective rate have values
on the issue date of the Note that do not differ by more than 0.25 percent; or
- the value of the qualified floating rate or objective rate is intended to
approximate the fixed rate,
then the fixed rate and the qualified floating rate or the objective rate
constitute a single qualified floating rate or objective rate.
Under these rules, CD Rate Notes, Commercial Paper Rate Notes, LIBOR Notes,
Federal Funds Rate Notes, Prime Rate Notes, Treasury Rate Notes, and CMT Rate
Notes generally will be treated as Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a single
qualified floating rate or objective rate and the interest is unconditionally
payable in cash at least annually, all stated interest on the Note is qualified
stated interest, and the amount of original issue discount, if any, is
determined by using, in the case of a qualified floating rate or qualified
inverse floating rate, the value as of the issue date of the qualified floating
rate or qualified inverse floating rate, or, in the case of any other objective
rate, a fixed rate that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or a single objective rate, or at a single fixed rate
(other than at a single fixed rate for an initial period), the amount of
interest and original issue discount accruals on the Note are generally
determined by
- determining a fixed rate substitute for each variable rate provided under the
Variable Rate Note (generally the value of each variable rate as of the issue
date or, in the case of an objective rate that is not a qualified inverse
floating rate, a rate that reflects the reasonably expected yield on the
Note);
- constructing the equivalent fixed rate debt instrument (using the fixed rate
substitute described above);
- determining the amount of qualified stated interest and original issue
discount with respect to the equivalent fixed rate debt instrument; and
- making the appropriate adjustments for actual variable rates during the
applicable accrual period.
S-26
If a Variable Rate Note provides for stated interest, either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and original
issue discount accruals are determined as in the immediately preceding paragraph
with the modification that the Variable Rate Note is treated, for purposes of
the first three steps of the determination, as if it provided for a qualified
floating rate (or a qualified inverse floating rate, as the case may be) rather
than the fixed rate. The qualified floating rate (or qualified inverse floating
rate) replacing the fixed rate must be such that the fair market value of the
Variable Rate Note, as of the issue date, would be approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
the qualified floating rate (or qualified inverse floating rate) rather than the
fixed rate.
Short-Term Notes
In general, an individual or other cash method holder of a Note that matures one
year or less from the date of its issuance (a "Short-Term Note") is not required
to accrue original issue discount on such Note unless it has elected to do so.
Holders who report income for U.S. federal income tax purposes under the accrual
method, however, and certain other holders, including banks, dealers in
securities and electing holders, are required to accrue original issue discount
(unless the holder elects to accrue "acquisition discount" in lieu of original
issue discount) on such Note. "Acquisition discount" is the excess of the
remaining stated redemption price at maturity of the Short-Term Note over the
holder's tax basis in the Short-Term Note at the time of the acquisition. In the
case of a holder who is not required, and does not elect, to accrue original
issue discount or acquisition discount on a Short-Term Note, any gain realized
on the sale, exchange or retirement of such Short-Term Note will be ordinary
income to the extent of the original issue discount accrued through the date of
such sale, exchange or retirement. Such a holder will be required to defer,
until such Short-Term Note is sold or otherwise disposed of, the deduction of a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Short-Term Note. Original issue discount or acquisition
discount on a Short-Term Note accrues on a straight-line basis unless an
election is made to use the constant yield method (based on daily compounding).
In the case of a Short-Term Note that is also a Single Foreign Currency
Note, the amount of original issue discount or acquisition discount subject to
current accrual and the amount of any exchange gain or loss on a sale, exchange
or retirement are determined under the same rules that apply to accrued interest
on a Single Foreign Currency Note held by a holder on the accrual basis. See
"Payments of Interest on Notes that are not Discount Notes".
A holder which is not required to, and which does not elect to, accrue original
issue discount, or acquisition discount, will determine exchange gain or loss
with respect to accrued original issue (or acquisition) discount on a sale,
exchange, retirement or on maturity of a Short-Term Note in the same manner that
a cash basis holder would account for interest income on a Single Foreign
Currency Note.
The market discount rules will not apply to a Short-Term Note.
Notes Subject to Contingencies Including Optional Redemption
In general, the following rules apply if a Note provides for an alternative
payment schedule applicable upon the occurrence of a contingency or
contingencies and the timing and amounts of the payments that comprise each
payment schedule are known as of the issue date, and one of such payment
schedules is more likely than not to occur or the Note provides us or the holder
with an unconditional option or options exercisable on one or more dates during
the term of the Note. If based on all the facts and circumstances as of the
issue date a single payment schedule for a debt instrument, including the stated
payment schedule, is significantly more likely than not to occur, then, in
general, the yield and maturity of the Note are computed based on this payment
schedule.
Notwithstanding the general rules for determining yield and maturity in the case
of Notes subject to contingencies, if we have or the
S-27
holder has an unconditional option or options that, if exercised, would require
payments to be made on the Notes under an alternative payment schedule or
schedules, then (i) in the case of an option or options exercisable by us, we
will be deemed to exercise or not exercise an option or combination of options
in the manner that minimizes the yield on the Note and (ii) in the case of an
option or options of the holder, the holder will be deemed to exercise or not
exercise an option or combination of options in the manner that maximizes the
yield on the Note. For purposes of those calculations, the yield on the Note is
determined by using any date on which the Note may be redeemed or repurchased as
the maturity date and the amount payable on such date in accordance with the
terms of the Note as the principal amount at maturity.
If a contingency (including the exercise of an option) actually occurs or does
not occur contrary to an assumption made according to the above rules (a "change
in circumstances") then, except to the extent that a portion of the Note is
repaid as a result of a change in circumstances and solely for purposes of the
accrual of original issue discount, the Note is treated as retired and then
reissued on the date of the change in circumstances for an amount equal to the
Note's adjusted issue price on that date.
NON-UNITED STATES PERSONS
Subject to the discussion of backup withholding below, payments of principal,
premium, if any, and interest (including original issue discount) by us or our
agent (in its capacity as such) to any holder who is a beneficial owner of a
Note but is not a United States person will generally not be subject to U.S.
federal withholding tax, provided that, in the case of premium, if any, and
interest (including original issue discount)
(1) such holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote;
(2) such holder is not a controlled foreign corporation for United States tax
purposes that is related to us through stock ownership;
(3) such holder is not a bank receiving interest described in Code Section
881(c)(3)(A); and
(4) either
(a) the beneficial owner of the Note certifies to us or our agent, under
penalties of perjury, that such owner is not a United States person and
provides its name and address (which certification can be made on IRS Form
W-8BEN or a suitable substitute); or
(b) a securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "financial institution") certifies to us or our agent, under penalties of
perjury, that the certification described in clause (4)(a) above has been
received from the beneficial owner by it or by another financial institution
acting for the beneficial owner and delivers to us or our agent a copy of
the certification described in clause (4)(a) above.
In the case of Notes held by a foreign partnership or foreign trust:
- the certification described in clause (4)(a) above must be provided by the
partners or beneficiaries rather than by the foreign partnership or foreign
trust; and
- the partnership or trust must provide certain information, including a United
States taxpayer identification number.
A look-through rule would apply in the case of tiered partnerships.
If a holder of a Note who is not a United States person cannot satisfy the
requirements of the "portfolio interest" exception described above, payments of
interest (including original issue discount) made to such holder generally will
be subject to a 30% withholding tax (or such lower rate as may be provided by an
applicable income tax treaty between the United States and a foreign country)
unless another exemption applies and such holder complies with Internal Revenue
Service certification requirements. Any prospective investor who could not
satisfy the portfolio interest requirements described above should consult its
tax advisor prior to making an investment in the Notes.
If a holder of a Note who is not a United States person is engaged in a trade or
business in the United States and premium, if any, or interest (including
original issue discount) on the Note
S-28
is effectively connected with the conduct of such trade or business, such
holder, although exempt from U.S. federal withholding tax (by reason of the
delivery of a properly completed Form W-8ECI or suitable substitute), will be
subject to U.S. federal income tax on such premium, if any, and interest
(including original issue discount) in the same manner as if it were a United
States person. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits, as defined in the Code, for the taxable year, subject to
adjustments.
Subject to the discussion of "backup" withholding below, any capital gain
realized upon the sale, exchange or retirement of a Note by a holder who is not
a United States person will not be subject to United States federal income or
withholding taxes unless
- such gain is effectively connected with a United States trade or business
of the holder; or
- in the case of an individual, such holder is present in the United States
for 183 days or more in the taxable year of the retirement or disposition
and certain other conditions are met.
Notes held by an individual, who at the time of death is neither a citizen nor a
resident of the United States for U.S. federal estate tax purposes, will not be
subject to U.S. federal estate tax, provided that the income from the Notes was
not or would not have been effectively connected with a U.S. trade or business
of such individual and that such individual qualified for the exemption from
U.S. federal withholding tax (without regard to the certification requirements)
that is described above.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The "backup" withholding and information reporting requirements may apply to
certain payments of principal of and premium, if any, and interest (including
original issue discount) on a Note and to certain payments of proceeds of the
sale or retirement of a Note. We, our agent, a broker, the Trustee or any paying
agent, as the case may be, will be required to withhold tax from any payment
that is subject to backup withholding at a rate of 28% of such payment if the
holder fails to furnish his taxpayer identification number (social security
number or employer identification number), to certify that such holder is not
subject to backup withholding, or to otherwise comply with the applicable
requirements of the backup withholding rules. Certain holders (including, among
others, corporations) are not subject to the backup withholding and reporting
requirements.
Backup withholding and information reporting generally will not apply to
payments made by us or our agent (in its capacity as such) to a holder of a Note
who has provided the required certification under penalties of perjury that such
holder is not a United States person as set forth in clause (4) under
"Non-United States Persons" or has otherwise established an exemption (provided
that neither we nor such agent has actual knowledge or reason to know that the
holder is a United States person or that the conditions of any other exemption
are not in fact satisfied). However, we and other payors may be required to
report payments of interest on your Notes on IRS Form 1042-S even if the
payments are not otherwise subject to information reporting requirements.
Any amounts withheld under the backup withholding rules from a payment to a
holder may be claimed as a credit against such holder's U.S. federal income tax
liability, provided required information is furnished to the Service. Holders
should consult their own tax advisors regarding the filing of a U.S. tax return
and the claiming of a credit or refund of such backup withholding.
WE HAVE INCLUDED THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE FOR YOUR
GENERAL INFORMATION. IT MAY NOT BE APPLICABLE DEPENDING UPON YOUR PARTICULAR
SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
S-29
SUPPLEMENTAL PLAN OF DISTRIBUTION
Eaton and Goldman, Sachs & Co., J.P. Morgan Securities Inc., Citigroup Global
Markets Inc. and McDonald Investments (the "Agents") have entered into a
distribution agreement with respect to the Notes. Subject to certain conditions,
the Agents have agreed to use their reasonable best efforts to solicit purchases
of the Notes. Eaton has the right to accept offers to purchase Notes and may
reject any proposed purchase of the Notes. The Agents may also reject any offer
to purchase Notes. Eaton will pay the Agents a commission on any Notes sold
through the Agents. Unless otherwise specified in the pricing supplement, the
commission will range from 0.125% to 0.750% of the principal amount of the
Notes, depending on the maturity of the Notes.
Eaton may also sell Notes to the Agents who purchase the Notes as principals for
their own accounts. If no other discount is agreed upon and disclosed in the
pricing supplement, any such sale will be made at a discount equal to the
discount set forth on the cover page hereof. Any Notes the Agents purchase as
principal may be resold at the market price or at other prices determined by the
Agents at the time of resale. Eaton may also sell Notes directly on its own
behalf. No commissions will be paid on Notes sold directly by Eaton.
The Agents may resell any Notes they purchase to other brokers or dealers at a
discount, which may include all or part of the discount the Agents received from
Eaton. Unless otherwise stated, this discount will equal the applicable
commission on an agency sale of Notes of the same maturity. If all the Notes are
not sold at the initial offering price, the Agents may change the offering price
and the other selling terms.
In connection with an offering, the Agents may purchase and sell Notes in the
open market. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the Agents of a greater number of Notes than they are
required to purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the Notes while the offering is in progress.
The Agents also may impose a penalty bid. This occurs when a particular Agent
repays to the Agents a portion of the underwriting discount received by it
because the Agents have repurchased Notes sold by or for the account of such
Agent in stabilizing or short covering transactions.
These activities by the Agents may stabilize, maintain or otherwise affect the
market price of the Notes. As a result, the price of the Notes may be higher
than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the Agents at any time.
These transactions may be effected in the over-the-counter market or otherwise.
The Agents, whether acting as agents or principals, may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 (the "Act").
Eaton has agreed to indemnify the several Agents against certain liabilities,
including liabilities under the Act.
The Agents may sell to dealers, who may resell to investors, and the Agents may
pay all or part of the discount or commission they receive from Eaton to the
dealers. Such dealers may be deemed to be "underwriters" within the meaning of
the Act.
The Notes are a new issue of securities with no established trading market and
are not expected to be listed on a securities exchange. No assurance can be
given as to the liquidity of the trading market for the Notes.
Eaton estimates that its share of the total expenses of the offering, excluding
discounts and commissions, will be approximately $500,000.
Unless otherwise indicated in the applicable pricing supplement, the purchase
price of the Notes will be required to be paid in immediately available funds in
The City of New York.
The Agents and their affiliates have engaged, and may in the future engage, in
commercial and/or investment banking transactions with us and our affiliates.
They have received customary fees and commissions for these transactions.
JPMorgan Chase Bank (formerly known as Chemical Bank), an affiliate of JPMorgan,
is Trustee under the Senior Indenture under which the Notes will be issued.
S-30
LEGAL OPINIONS
The validity of the Notes will be passed upon for us by J. Robert Horst, Vice
President and General Counsel, and for any underwriters, dealers or agents by
Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022. Mr.
Horst is paid a salary by Eaton and participates in various employee benefit
plans offered to officers of Eaton generally.
S-31
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 2, 2003
EATON LOGO
EATON CORPORATION
By this prospectus, we offer
up to $500,000,000 of the following:
DEBT SECURITIES DEBT WARRANTS WITH
PREFERRED SHARES DEBT SECURITIES AS UNITS
COMMON SHARES DEBT WARRANTS WITH
DEBT WARRANTS PREFERRED SHARES AS UNITS
We will provide the specific terms and the public offering prices of these
securities in supplements to this prospectus. This prospectus may not be used to
sell securities unless accompanied by a prospectus supplement. You should read
this prospectus and the prospectus supplements carefully before you invest.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2003.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on its public reference room. Our SEC filings are also available to
the public from the SEC's web site at http://www.sec.gov. Our common shares are
listed on the New York Stock Exchange, the Chicago Stock Exchange, the Pacific
Exchange and the London Stock Exchange, and information about us also is
available there.
This prospectus is part of a registration statement that we have filed with
the SEC. The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to other documents that we identify as part of this prospectus.
Our subsequent filings of similar documents with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings we make with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (1) after the date of
the filing of this registration statement and before its effectiveness and (2)
until our offering of securities has been completed.
- Annual Report on Form 10-K for the year ended December 31, 2002.
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
- Current Report on Form 8-K dated January 21, 2003.
You may obtain a copy of these filings, at no cost, by writing to or
telephoning us at the following address:
Eaton Corporation
Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114-2584
Attn: Shareholder Relations
(216) 523-5000
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. This prospectus is an offer to
sell or buy only the securities described in this document, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of the date of this prospectus.
2
THE COMPANY
We are a global diversified industrial manufacturer of highly engineered
products which serve the industrial, vehicle, construction, commercial and
aerospace markets. Our principal products include fluid power systems,
electrical power quality, distribution and control products, automotive engine
air management and fuel economy products and intelligent truck systems for fuel
economy and safety. We sell our products in more than 50 countries.
Our operations are categorized into these four business segments:
- Fluid Power
- Industrial and Commercial Controls
- Automotive
- Truck
Our principal executive office is located at Eaton Center, 1111 Superior
Avenue, Cleveland, Ohio 44114-2584, and our telephone number is (216) 523-5000.
USE OF PROCEEDS
Except as may be described otherwise in a prospectus supplement, we will
use the net proceeds from the sale of the securities under this prospectus for
general corporate purposes, which may include additions to working capital,
acquisitions, or the retirement of existing indebtedness via repayment,
redemption or exchange.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our ratio of earnings to fixed charges for the
three months ended March 31, 2003 and for each of the five years in the period
ended December 31, 2002.
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED --------------------------------
MARCH 31, 2003 2002 2001 2000 1999 1998
------------------ ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges..... 3.83 3.71 2.44 3.25 5.31 5.42
For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consist of consolidated pretax income before adjustment for minority
interests in consolidated subsidiaries or income (loss) of equity investees,
plus (1) amortization of capitalized interest, (2) distributed income of equity
investees and (3) fixed charges described below, excluding capitalized interest.
"Fixed charges" consist of (1) interest expensed, (2) interest capitalized, (3)
amortization of debt issue costs and (4) that portion of rent expense estimated
to represent interest. Because we have not had any Preferred Shares outstanding
during the last five years and have, therefore, not paid any dividends on
Preferred Shares, our ratio of earnings to combined fixed charges and Preferred
Share dividends has been the same as the ratio of earnings to fixed charges for
each of the above periods.
PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may
sell any combination of debt securities, warrants to purchase debt securities,
preferred shares and common shares with a par value of $.50 per share in one or
more offerings up to a total dollar amount of $500 million or the equivalent if
any of the securities are denominated in a currency, currency unit or composite
currency other than the U.S. dollar.
3
PROSPECTUS SUPPLEMENT
This prospectus provides you with a general description of the debt
securities, debt warrants, preferred shares and common shares we may offer. Each
time we sell securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add to or change information contained in this prospectus.
If so, the prospectus supplement should be read as superseding this prospectus.
You should read both this prospectus and any prospectus supplement, together
with additional information described under the heading "Where You Can Find More
Information".
The prospectus supplement to be attached to the front of this prospectus
will describe:
- the terms of any debt securities that we offer, including the terms
under the caption "Provisions Applicable to Both the Senior and
Subordinated Indentures -- General";
- the terms of any debt warrants that we offer, including the exercise
price, detachability, expiration date and other terms;
- the terms of any preferred shares that we offer, including the
specific designations and dividend, redemption, liquidation, voting
and other rights not described in this prospectus and any terms for
conversion or exchange;
- the terms of any common shares that we offer; and
- any initial public offering price, the purchase price and net proceeds
to our company and the other specific terms related to our offering of
such Securities.
For more details on the terms of the Securities, you should read the
exhibits filed with our registration statements.
DESCRIPTION OF DEBT SECURITIES
We may issue debt securities from time to time in one or more distinct
series. This section summarizes the material terms of the debt securities that
are common to all series. Most of the financial and other terms of any series of
debt securities that we offer will be described in a prospectus supplement to be
attached to the front of this prospectus. Since the terms of specific debt
securities may differ from the general information we have provided below, you
should rely on information in the prospectus supplement that is inconsistent
with the information below. As used in this section, "we", "us", "our" and "our
company" refer to Eaton Corporation and not to its subsidiaries, unless the
context otherwise requires.
The debt securities are governed by a document called an "Indenture." An
Indenture is a contract between us and a financial institution acting as Trustee
on your behalf. The Trustee has two main roles. First, the Trustee can enforce
your rights against us if we default. There are some limitations on the extent
to which the Trustee acts on your behalf, described later beginning on page 10
of this prospectus. Second, the Trustee performs certain administrative duties
for us.
Senior securities will be issued under an Indenture dated as of April 1,
1994, as supplemented from time to time (the "Senior Indenture"), which we
entered into with Chemical Bank, as trustee (the "Senior Trustee"), and
subordinated securities will be issued under a separate indenture (the
"Subordinated Indenture"), which we will enter into with a trustee (the
"Subordinated Trustee") if we decide to issue any subordinated securities.
JPMorgan Chase Bank (formerly known as Chemical Bank), is acting as Senior
Trustee. The term "Trustee" refers to either the Senior Trustee or the
Subordinated Trustee, as appropriate. We will refer to the Senior Indenture and
the Subordinated Indenture, as executed, together as the "Indentures" and each
as an "Indenture". The Indentures are subject to and governed by the Trust
Indenture Act of 1939.
4
The Indentures and associated documents contain the full legal text of the
matters described in this section. We have filed the form of each Indenture as
an exhibit to a registration statement that we have filed with the SEC. See
"Where You Can Find More Information" on page 2 of this prospectus for
information on how to obtain copies of the Indentures.
Because this section is a summary of the material terms of the Indentures,
it does not describe every aspect of the debt securities. This summary is
qualified in its entirety by the provisions of the Indentures, including
definitions of certain terms used in the Indentures. For example, in this
section, we use capitalized words to signify terms that are specifically defined
in the Indentures. Some of the definitions are repeated in this prospectus, but
for the rest you will need to read the Indentures. We also include references in
parentheses to certain sections of the Indentures or the Trust Indenture Act.
Whenever we refer to particular sections or defined terms of the Indentures,
those sections or defined terms are incorporated by reference in this prospectus
or in the prospectus supplement. Unless otherwise noted, the section numbers
refer to the applicable section for both Indentures.
PROVISIONS APPLICABLE TO BOTH THE SENIOR AND SUBORDINATED INDENTURES
GENERAL
The debt securities will be our unsecured obligations. The senior
securities will rank equally with all of our other unsecured and unsubordinated
indebtedness. The subordinated securities will be subordinated in right of
payment to the prior payment in full of our Senior Indebtedness as described
below under "--Subordinated Indenture Provisions--Subordination".
Under the Indentures, we may issue any debt securities offered under this
prospectus and the attached prospectus supplement and any debt securities
issuable upon the exercise of debt warrants or upon conversion or exchange of
other offered securities, as well as other unsecured debt securities.
With respect to the offered debt securities and any underlying debt
securities, you should read the prospectus supplement for the following and
other terms, which will be established by authority of our Board of Directors
before the issuance of the debt securities:
- the title of the debt securities and whether they will be senior
securities or subordinated securities, including whether subordinated
securities are convertible subordinated securities;
- the total principal amount of the debt securities and any limit on the
total principal amount of debt securities of each series;
- the date or dates when the principal of the debt securities will be
payable or how those dates will be determined;
- the interest rate or rates which the debt securities will bear, if
any, or how such rate or rates will be determined, the date or dates
from which interest will accrue, if any, or how such date or dates
will be determined, the interest payment dates, the record dates for
such payments, if any, or how such date or dates will be determined
and the basis upon which interest will be calculated, if other than
that of a 360-day year of twelve 30-day months;
- whether the amount of payments of principal of (or premium, if any) or
interest on the debt securities will be determined with reference to
an index, formula or other method (which could be based on one or more
Currencies, commodities, equity indices or other indices) and how such
amounts will be determined;
- any optional redemption provisions;
- any sinking fund or other provisions that would obligate us to
repurchase or redeem the debt securities;
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- if other than U.S. dollars, the Currency or Currencies of the debt
securities;
- if other than denominations of $1,000 in the case of Registered
Securities and $5,000 in the case of Bearer Securities, the
denominations in which the offered debt securities will be issued;
- if not the principal amount of the debt securities, the portion of the
principal amount at which the debt securities will be issued and, if
not the principal amount of the debt securities, the portion of the
principal amount payable upon acceleration of the maturity of the debt
securities or how that portion will be determined;
- the form of the debt securities, including whether the debt securities
are to be issuable in permanent or temporary global form, as
Registered Securities, Bearer Securities or both, any restrictions on
the offer, sale or delivery of Bearer Securities, and the terms, if
any, upon which you may exchange Bearer Securities for Registered
Securities and vice versa (if permitted by applicable laws and
regulations);
- any modifications or additions to the provisions of Article Fourteen
of the applicable Indenture described under "Defeasance and Covenant
Defeasance" if that Article is applicable to the debt securities;
- any changes or additions to the Events of Default or our covenants
with respect to the debt securities;
- the place or places, if any, other than or in addition to The City of
New York, of payment, transfer, conversion and/or exchange of the debt
securities, and where notices or demands to or upon us in respect of
the debt securities may be served;
- whether we or a holder may elect payment of the principal or interest
in one or more Currencies other than that in which such debt
securities are stated to be payable, and the period or periods within
which, and the terms and conditions upon which, that election may be
made, and the time and manner of determining the exchange rate between
the Currency or Currencies in which they are stated to be payable and
the Currency or Currencies in which they are to be so payable;
- if other than the Trustee, the identity of each Security Registrar
and/or Paying Agent;
- the designation of the Exchange Rate Agent, if applicable;
- the Person to whom any interest on any Registered Security of the
series will be payable, if other than the registered holder at the
close of business on the record date, the manner in which, or the
Person to whom any interest on any Bearer Security of the series will
be payable, if not upon presentation and surrender of the coupons
relating to the Bearer Security as they mature, and the extent to
which, or the manner in which, any interest payable on a temporary
Global Security on an Interest Payment Date will be paid if not in the
manner provided in the applicable Indenture;
- whether and under what circumstances we will pay additional amounts as
contemplated by Section 1005 of the applicable Indenture ("Additional
Amounts") in respect of any tax, assessment or governmental charge
and, if so, whether we will have the option to redeem the debt
securities rather than pay the Additional Amounts (and the terms of
any such option);
- any provisions granting special rights to the holders of the debt
securities upon the occurrence of specified events;
- in the case of subordinated securities, any terms modifying the
subordination provisions;
- in the case of convertible subordinated securities, any terms by which
they may be convertible into common shares;
6
- if we issue the debt securities in definitive form, the terms and
conditions under which definitive securities will be issued;
- if we issue the debt securities upon the exercise of debt warrants,
the time, manner and place for them to be authenticated and delivered;
- the manner for paying principal and interest and the manner for
transferring the debt securities; and
- any other terms of the debt securities that are consistent with the
requirements of the Trust Indenture Act.
For purposes of this prospectus, any reference to the payment of principal
of (or premium, if any) or interest on debt securities will include Additional
Amounts if required by the terms of the debt securities.
The Indentures do not limit the amount of debt securities that we are
authorized to issue from time to time. (Section 301) When a single Trustee is
acting for all debt securities issued under an Indenture, those Securities are
called the "Indenture Securities." Each Indenture also provides that there may
be more than one Trustee thereunder, each for a series of Indenture Securities.
See "Resignation of Trustee" on page 16 of this prospectus. At a time when two
or more Trustees are acting under either Indenture, each with respect to only
certain series, the term "Indenture Securities" means the series of debt
securities for which each respective Trustee is acting. If there is more than
one Trustee under either Indenture, the powers and trust obligations of each
Trustee will apply only to the Indenture Securities for which it is Trustee. If
two or more Trustees are acting under either Indenture, then the Indenture
Securities for which each Trustee is acting would be treated as if issued under
separate indentures.
We may issue Indenture Securities with terms different from those of
Indenture Securities already issued. Without the consent of the holders thereof,
we may reopen a previous issue of a series of Indenture Securities and issue
additional Indenture Securities of that series unless the reopening was
restricted when that series was created.
If any series of debt securities are sold for, payable in or denominated in
one or more foreign Currencies, we will specify applicable restrictions,
elections, tax consequences, specific terms and other information in the
applicable prospectus supplement.
There is no requirement that we issue debt securities in the future under
the Indentures, and we may use other indentures or documentation, containing
different provisions in connection with future issues of such other debt
securities.
We may issue the debt securities as "original issue discount securities,"
which are debt securities, including any zero-coupon debt securities, that are
issued and sold at a discount from their stated principal amount. Original issue
discount securities provide that, upon acceleration of their maturity, an amount
less than their principal amount will become due and payable. We will describe
United States federal income tax consequences and other considerations
applicable to original issue discount securities in any prospectus supplement
relating to them.
CONVERSION AND EXCHANGE
If you may convert or exchange debt securities for other Securities, the
prospectus supplement will explain terms and conditions of such conversion or
exchange, including:
- the conversion price or exchange ratio (or the calculation method);
- the conversion or exchange period (or how such period will be
determined);
- if conversion or exchange will be mandatory, at your option or at our
option;
7
- provisions for adjustment of the conversion price or the exchange
ratio; and
- provisions affecting conversion or exchange in the event of the
redemption of the debt securities.
The terms may also include provisions under which the number or amount of
other Securities to be received by the holders of such debt securities upon
conversion or exchange would be calculated according to the market price of such
other Securities as of a time stated in the prospectus supplement.
ADDITIONAL MECHANICS
Form, Exchange and Transfer
We may issue debt securities as follows:
- as Registered Securities;
- as Bearer Securities (with interest coupons attached unless otherwise
stated in the prospectus supplement) (Section 201);
- as both Registered Securities and Bearer Securities;
- in denominations that are even multiples of $1,000 for Registered
Securities and even multiples of $5,000 for Bearer Securities (Section
302); or
- in global form. See "--Book-Entry Debt Securities".
You may have your Registered Securities separated into smaller
denominations or combined into larger denominations, as long as the total
principal amount is not changed. (Section 305) This is called an "exchange." If
provided in the prospectus supplement, you may exchange your Bearer Securities
with all unmatured coupons, except as provided below, and all matured coupons
which are in default for Registered Securities of the same series as long as the
total principal amount is not changed. Bearer Securities surrendered in exchange
for Registered Securities between a Regular Record Date or a Special Record Date
and the relevant interest payment dates will be surrendered without the coupon
relating to such interest payment dates. Interest will not be payable in respect
of the Registered Security issued in exchange for that Bearer Security, but will
be payable only to the holder of such coupon when due in accordance with the
terms of the applicable Indenture. Unless we specify otherwise in the prospectus
supplement, we will not issue Bearer Securities in exchange for Registered
Securities. (Section 305)
You may transfer Registered Securities of a series and you may exchange
debt securities of a series at the office of the Trustee. The Trustee will act
as our agent for registering Registered Securities in the names of holders and
transferring debt securities. We may designate someone else to perform this
function. Whoever maintains the list of registered holders is called the
"Security Registrar". The Security Registrar also will perform transfers.
(Section 305)
You will not be required to pay a service charge to transfer or exchange
debt securities, but you may be required to pay for any tax or other
governmental charge associated with the exchange or transfer. The transfer or
exchange will be made only if the Security Registrar is satisfied with your
proof of ownership. (Section 305)
If we designate additional transfer agents, we will name them in the
accompanying prospectus supplement. We may cancel the designation of any
particular transfer agent. We may also approve a change in the office through
which any transfer agent acts.
If we redeem less than all of the Securities of a redeemable series, we may
block the transfer or exchange of Securities during the period beginning 15 days
before the day we mail the notice of redemption or publish the notice (in the
case of Bearer Securities) and ending on the day of that
8
mailing or publication, as the case may be, in order to freeze the list of
holders to prepare the mailing. We may also decline to register transfers or
exchanges of debt securities selected for redemption, except that we will
continue to permit transfers and exchanges of the unredeemed portion of any debt
security being partially redeemed. (Section 305)
If the offered debt securities are redeemable, we will describe the
procedures for redemption in the accompanying prospectus supplement.
IN THIS "ADDITIONAL MECHANICS" SECTION OF THIS PROSPECTUS, "YOU" MEANS
DIRECT HOLDERS AND NOT INDIRECT HOLDERS OF DEBT SECURITIES.
PAYMENT AND PAYING AGENTS
We will pay interest to you, if you are listed in the Trustee's records as
the owner of your debt security at the close of business on a particular day in
advance of each due date for interest on your debt security. Interest will be
paid to you if you are listed as the owner even if you no longer own the debt
security on the interest due date. That particular day, usually about two weeks
in advance of the interest due date, is called the "Regular Record Date" and is
defined in the prospectus supplement. Persons who are listed in the Trustee's
records as the owners of debt securities at the close of business on a
particular day are referred to as "holders". (Section 307) Holders buying and
selling debt securities must work out between themselves the appropriate
purchase price since we will pay all the interest for an interest period to the
holders on the Regular Record Date. The most common manner is to adjust the
sales price of the debt securities to prorate interest fairly between buyer and
seller based on their respective ownership periods within the particular
interest period.
We will deposit interest, principal and any other money due on the debt
securities with the Paying Agent that we name in the prospectus supplement.
IF YOU PLAN TO HAVE A BANK OR BROKERAGE FIRM HOLD YOUR SECURITIES, YOU
SHOULD ASK THEM FOR INFORMATION ON HOW YOU WILL RECEIVE PAYMENTS. (Section 305)
If we issue Bearer Securities, unless we provide otherwise in the
prospectus supplement, we will maintain an office or agency outside the United
States for the payment of all amounts due on the Bearer Securities. If we list
the debt securities on any stock exchange located outside the United States, we
will maintain an office or agency for those debt securities in any city located
outside the United States required by that stock exchange. (Section 1002) We
will specify the initial locations of such offices and agencies in the
prospectus supplement. Unless otherwise provided in the prospectus supplement,
we will make payment of interest on any Bearer Securities on or before Maturity
only against surrender of coupons for such interest installments as they mature.
(Section 1001) Unless otherwise provided in the prospectus supplement, we will
not make payment with respect to any Bearer Security at any of our offices or
agencies in the United States or by check mailed to any address in the United
States or by transfer to an account maintained with a bank located in the United
States. Notwithstanding the foregoing, we will make payments of principal of
(and premium, if any) and interest on Bearer Securities payable in U.S. dollars
at the office of our Paying Agent in The City of New York if (but only if)
payment of the full amount in U.S. dollars at all offices or agencies outside
the United States is illegal or effectively precluded by exchange controls or
other similar restrictions. (Section 1002)
We may from time to time designate additional offices or agencies, approve
a change in the location of any office or agency and, except as provided above,
rescind the designation of any office or agency. (Section 1002)
EVENTS OF DEFAULT
You will have special rights if an Event of Default occurs as to the debt
securities of your series which is not cured, as described later in this
subsection. (Section 501) Please refer to the prospectus supplement for
information about any changes to the Events of Default or our covenants
9
that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
What Is an Event of Default? The term "Event of Default" as to the debt
securities of your series means any of the following:
- we do not pay the principal of (or premium, if any) on a debt security
of such series on its due date;
- we do not pay interest on a debt security of such series within 30
days of its due date;
- we do not make or satisfy any sinking fund payment in respect of debt
securities of such series within 30 days of its due date;
- we remain in breach of a covenant in respect of debt securities of
such series for 60 days after we receive a written notice of default
stating we are in breach. The notice must be sent by either the
Trustee or holders of 25% of the principal amount of debt securities
of such series;
- we file for bankruptcy, or certain other events in bankruptcy,
insolvency or reorganization occur; or
- there occurs any other Event of Default as to debt securities of the
series described in the prospectus supplement. (Section 501)
An Event of Default for a particular series of debt securities does not
necessarily constitute an Event of Default for any other series of debt
securities issued under an Indenture.
The Trustee may withhold notice to the holders of debt securities of a
particular series of any default if it considers its withholding of notice to be
in the interest of the holders of that series, except that the Trustee may not
withhold notice if the default is in the payment of principal of (or premium, if
any) or interest on the debt securities. (Section 601)
Remedies if an Event of Default Occurs. If an Event of Default has occurred
and we have not cured it, the Trustee or the holders of 25% in principal amount
of the debt securities of the affected series may declare the entire principal
amount of all the debt securities of that series to be due and immediately
payable by notifying us (or the Trustee, if the holders give notice) in writing.
This is called a declaration of acceleration of maturity. A declaration of
acceleration of maturity may be canceled by the holders of at least a majority
in principal amount of the debt securities of the affected series by notifying
us (or the Trustee, if the holders give notice) in writing. (Section 502)
Except in cases of default, where the Trustee has some special duties, the
Trustee is not required to take any action under the Indenture at the request of
any holders unless the holders offer the Trustee reasonable protection from
expenses and liability (called an "indemnity"). (Section 602 and Trust Indenture
Act Section 315) If reasonable indemnity is provided, the holders of a majority
in principal amount of the Outstanding debt securities of the relevant series
may direct the time, method and place of conducting any lawsuit or other formal
legal action seeking any remedy available to the Trustee. The Trustee may refuse
to follow those directions in certain circumstances. (Section 512) No delay or
omission in exercising any right or remedy will be treated as a waiver of that
right, remedy or Event of Default. (Section 511)
Before you are allowed to bypass the Trustee and bring your own lawsuit or
other formal legal action or take other steps to enforce your rights or protect
your interest relating to the debt securities, the following must occur:
- you must give the Trustee written notice that an Event of Default has
occurred and remains uncured (Section 507);
10
- the holders of 25% in principal amount of all outstanding debt
securities of the relevant series must make a written request that the
Trustee take action because of the default (Section 507) and must
offer reasonable indemnity to the Trustee against the cost and other
liabilities of taking that action (Section 602);
- the Trustee must not have instituted a proceeding for 60 days after
receipt of the above notice and offer of indemnity (Section 507); and
- the holders of a majority in principal amount of the debt securities
must not have given the Trustee a direction inconsistent with the
above notice during such 60-day period. (Section 507)
However, you are entitled at any time to bring a lawsuit for the payment of
money due on your debt securities on or after the due date. (Section 508)
Holders of a majority in principal amount of the debt securities of the
affected series may waive any past defaults other than the following:
- the payment of principal, any premium, interest or Additional Amounts
on any debt security or related coupon; or
- in respect of a covenant that under Article Ten of the applicable
Indenture cannot be modified or amended without the consent of each
holder. (Section 513)
IF YOUR SECURITIES ARE HELD FOR YOU BY A BANK OR BROKERAGE FIRM, YOU SHOULD
CONSULT THEM FOR INFORMATION ON HOW TO GIVE NOTICE OR DIRECTION TO THE TRUSTEE
OR MAKE A REQUEST OF THE TRUSTEE AND HOW TO MAKE OR CANCEL A DECLARATION OF
ACCELERATION.
Each year, we will furnish the Trustee with a written statement of certain
of our officers certifying that, to their knowledge, we are in compliance with
the Indenture and the debt securities, or else specifying any default. (Section
1004)
MERGER, CONSOLIDATION OR SALE OF ASSETS
Under the terms of the Indentures, we are generally permitted to
consolidate or merge with another firm. We are also permitted to sell or
transfer our assets substantially as an entirety to another firm (Section 801).
However, we may not take any of these actions unless all of the following
conditions are met:
- where we merge or consolidate out of existence or sell or transfer our
assets substantially as an entirety, the resulting firm must agree to
be legally responsible for all obligations under the debt securities
and the applicable Indenture (Section 801);
- the merger, consolidation or sale or transfer of assets substantially
as an entirety must not cause a default on the debt securities. For
purposes of this no-default test, a default would include an Event of
Default that has occurred and not been cured, as described on page 10
of this prospectus under "--What Is an Event of Default?" (Section
801);
- where we merge or consolidate out of existence or sell or transfer our
assets substantially as an entirety, the resulting firm (if a
corporation) must be a corporation organized under the laws of the
United States or any state thereof or the District of Columbia
(Section 801);
- under the Senior Indenture, we may not merge, consolidate or sell or
transfer our assets substantially as an entirety if, as a result, any
of our property or assets or any property or assets of a Restricted
Subsidiary (as defined) would become subject to any mortgage, lien or
other encumbrance unless either:
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- the mortgage, lien or other encumbrance could be created pursuant
to Section 1009 of such Indenture (see "--Senior Indenture
Provisions--Limitation on Liens" on page 17) without equally and
ratably securing the Indenture Securities; or
- the Indenture Securities are secured equally and ratably with or
prior to the debt secured by the mortgage, lien or other
encumbrance (Section 803);
- we must deliver certain certificates and documents to the Trustee
(Section 801); and
- we must satisfy any other requirements specified in the prospectus
supplement.
MODIFICATION OR WAIVER
There are three types of changes we can make to the Indentures and the debt
securities.
Changes Requiring Your Approval. First, there are changes that cannot be
made to your debt securities without your specific approval. (Section 902)
Following is a list of those types of changes:
- a change of the Stated Maturity of the principal of or interest on a
debt security;
- a reduction of any amounts due on a debt security;
- a reduction of the amount of principal payable upon acceleration of
the Maturity of a Security following a default;
- an adverse effect on any right of repayment at your option;
- a change of the place (except as otherwise described in this
prospectus) or Currency of payment on a debt security;
- impairment of your right to sue for payment;
- with respect to debt securities issued under the Subordinated
Indenture, an adverse effect on the right to convert any debt
securities as provided in Article 15 of the Subordinated Indenture;
- a modification of the subordination provisions in the Subordinated
Indenture in a manner that is adverse to you as a holder of the
Subordinated Securities;
- a reduction of the percentage of holders of debt securities whose
consent is needed to modify or amend the Indenture;
- a reduction of the percentage of holders of debt securities whose
consent is needed to waive compliance with certain provisions of the
Indenture or to waive certain defaults;
- a modification of any other aspect of the provisions of the Indenture
dealing with modification and waiver of past defaults (Section 513),
the quorum or voting requirements of the debt securities (Section 1504
of the Senior Indenture and Section 1704 of the Subordinated
Indenture) or provisions relating to the waiver of certain covenants
(Section 1011 of the Senior Indenture and Section 1008 of the
Subordinated Indenture), except to increase any percentage of consents
required to amend an Indenture or for any waiver or to add certain
provisions that cannot be modified without the approval of each holder
under Section 902; or
- a change of any of our obligations to pay Additional Amounts.
Changes Requiring a Majority Vote. The second type of change to the
Indenture and the Outstanding debt securities is the kind that requires a vote
in favor by holders of Outstanding debt securities owning a majority of the
principal amount of the particular series affected. Most changes fall into this
category, except for clarifying changes and certain other changes that would not
adversely affect holders of the Outstanding debt securities in any material
respect. The same vote
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would be required for us to obtain a waiver of all or part of certain covenants
in the applicable Indenture (Section 1011 of the Senior Indenture and Section
1008 of the Subordinated Indenture) or a waiver of a past default. However, we
cannot obtain a waiver of a payment default or any other aspect of the
Indentures or the Outstanding debt securities listed in the first category
described previously under "--Changes Requiring Your Approval" unless we obtain
your individual consent to the waiver. (Section 902)
Changes Not Requiring Approval. The third type of change does not require
any vote by you as holders of Outstanding debt securities. This type is limited
to clarifications and certain other changes that would not adversely affect
holders of the Outstanding debt securities in any material respect. (Section
901)
Further Details Concerning Voting. When taking a vote, we will use the
following rules to decide how much principal amount to attribute to a debt
security:
- for original issue discount securities, we will use the principal
amount that would be due and payable on the voting date if the
Maturity of the debt securities were accelerated to that date because
of a default;
- for debt securities whose principal amount is not known (for example,
because it is based on an index), we will use a special rule for that
debt security described in the prospectus supplement; and
- for debt securities denominated in one or more foreign Currencies or
Currency units, we will use the U.S. dollar equivalent.
Debt securities will not be considered Outstanding, and therefore not
eligible to vote, if we have deposited or set aside in trust for you money for
their payment or redemption. Debt securities will also not be eligible to vote
if they have been fully defeased as described later under "Defeasance and
Covenant Defeasance". (Section 101)
We will generally be entitled to set any day as a record date for the
purpose of determining the holders of debt securities that are entitled to vote
or take other action under the applicable Indenture. If we set a record date for
a vote or other action to be taken by holders of a particular series, that vote
or action may be taken only by persons who are holders of debt securities of
that series on the record date. (Section 104)
IF YOUR SECURITIES ARE HELD BY A BANK OR BROKERAGE FIRM, YOU SHOULD CONSULT
THEM FOR INFORMATION ON HOW APPROVAL MAY BE GRANTED OR DENIED IF WE SEEK TO
CHANGE THE APPLICABLE INDENTURE OR THE DEBT SECURITIES OR REQUEST A WAIVER.
Each Indenture contains provisions for convening meetings of the holders of
debt securities issued as Bearer Securities. (Section 1501 of the Senior
Indenture and Section 1701 of the Subordinated Indenture) A meeting may be
called at any time by the applicable Trustee, and also, upon request, by us or
by the holders of at least 10% in principal amount of the Outstanding debt
securities of that series, upon notice given as provided in the applicable
Indenture. (Section 1502 of the Senior Indenture and Section 1702 of the
Subordinated Indenture)
Except for any consent that must be given by the holder of each debt
security affected thereby, as described above, the holders of a majority in
principal amount of the Outstanding debt securities of a series may adopt any
resolution presented at a meeting at which a quorum is present. However, any
resolution with respect to any action which the Indenture expressly provides may
be taken by a specified percentage less than a majority in principal amount of
the Outstanding debt securities of a series may be adopted at a meeting at which
a quorum is present by vote of that specified percentage. Any resolution passed
or decision taken at any meeting of holders of debt securities of a series in
accordance with the applicable Indenture will be binding on all holders of debt
securities of that series and any related coupons. The quorum at any meeting
called to adopt a resolution will
13
be persons holding or representing a majority in principal amount of the
Outstanding debt securities of a series, except that if any action is to be
taken at such meeting which may be given by the holders of not less than a
specified percentage in principal amount of the Outstanding debt securities of a
series, the persons holding or representing such specified percentage in
principal amount of the Outstanding debt securities of that series will
constitute a quorum. (Section 1504 of the Senior Indenture and Section 1704 of
the Subordinated Indenture)
Notwithstanding the above, if any action is to be taken at a meeting of
holders of debt securities of a series that the applicable Indenture expressly
provides may be taken by the holders of a specified percentage in principal
amount of all Outstanding debt securities affected thereby or of the holders of
such series and one or more additional series:
- there will be no minimum quorum requirement for that meeting; and
- the principal amount of the Outstanding debt securities of that series
that vote in favor of such action will be taken into account in
determining whether that action has been taken under such Indenture.
(Section 1504 of the Senior Indenture and Section 1704 of the
Subordinated Indenture)
DEFEASANCE AND COVENANT DEFEASANCE
The following discussion of defeasance and covenant defeasance will be
applicable to your series of debt securities only if we choose to have them
apply to that series. If we do so choose, we will specify the choice in the
prospectus supplement. (Section 1401)
Defeasance. If there is a change in U.S. federal tax law, as described
below, we can legally release ourselves from all payment and other obligations
on the debt securities (called "defeasance") if we put in place the following
other arrangements for you to be repaid:
- We must deposit in trust for your benefit and the benefit of all other
direct holders of the debt securities a combination of money and U.S.
government or U.S. government agency obligations that will generate
enough cash to make interest, principal and any other payments on the
debt securities on their various due dates.
- We must deliver to the Trustee a legal opinion confirming that there
has been a change in current federal tax law or an IRS ruling that
lets us make the above deposit without causing you to be taxed on the
debt securities any differently than if we did not make the deposit
and just repaid the debt securities ourselves. (Sections 1402 and
1404) Under current federal tax law, the deposit and our legal release
from the debt securities would be treated as though we paid you your
share of the cash and notes or bonds at the time the cash and notes or
bonds are deposited in trust in exchange for your debt securities, and
you would recognize gain or loss on the debt securities at the time of
the deposit.
If we ever did accomplish defeasance, as described above, you would have to
rely solely on the trust deposit for repayment of the debt securities. You could
not look to us for repayment in the event of any shortfall. Conversely, the
trust deposit would most likely be protected from claims of our lenders and
other creditors if we ever become bankrupt or insolvent. You would also be
released from the subordination provisions on the subordinated debt securities
described later under "Subordination" on page 19 of this prospectus. If we
accomplish a defeasance, we would retain only the obligations to register the
transfer or exchange of the debt securities, to maintain an office or agency in
respect of the debt securities and to hold moneys for payment in trust.
Covenant Defeasance. Under current federal tax law, we can make the same
type of deposit described above and be released from some of the restrictive
covenants in the Indentures. These covenants relate to "Limitation on Liens" and
"Limitation on Sale and Leaseback Transactions" described in Sections 1009 and
1010 respectively of the Senior Indenture and are summarized
14
beginning on page 17 of this prospectus. We can also be released from any other
covenant in the Indentures which may be specified in the prospectus supplement
if we make the same type of deposit described above. This is called "covenant
defeasance". In that event, you would lose the protection of those covenants but
would gain the protection of having money and debt securities set aside in trust
to repay the debt securities. You also would be released from the subordination
provisions on the subordinated securities described under "Subordination" on
page 19 of this prospectus. In order to achieve covenant defeasance, we must do
the following:
- deposit in trust for your benefit and the benefit of all other direct
holders of the debt securities a combination of money and U.S.
government or U.S. government agency obligations that will generate
enough cash to make interest, principal and any other payments on the
debt securities on their various due dates; and
- deliver to the Trustee a legal opinion of our counsel confirming that,
under current federal income tax law, we may make the above deposit
without causing you to be taxed on the debt securities any differently
than if we did not make the deposit and just repaid the debt
securities ourselves.
If we accomplish covenant defeasance, you can still look to us for
repayment of the debt securities if there were a shortfall in the trust deposit
or the Trustee is prevented from making payment. In fact, if one of the
remaining Events of Default occurred, such as our bankruptcy, and the debt
securities become immediately due and payable, there may be such a shortfall.
Depending on the event causing the default, you may not be able to obtain
payment of the shortfall.
BOOK-ENTRY DEBT SECURITIES
We may issue debt securities of a series in whole or in part in global form
that we will deposit with, or on behalf of, a depositary that we identify in a
prospectus supplement. Global securities may be issued in either registered or
bearer form and in either temporary or permanent form (each, a "Global
Security"). Global Securities will be registered in the name of a financial
institution we select, and the debt securities included in the Global Securities
may not be transferred to the name of any other direct holder unless the special
circumstances described below occur. The financial institution that acts as the
sole direct holder of the Global Security is called the "Depositary". Any person
wishing to own a debt security must do so indirectly by virtue of an account
with a broker, bank or other financial institution that, in turn, has an account
with the Depositary.
Special Investor Considerations for Global Securities. Our obligations, as
well as the obligations of the Trustee and those of any third parties employed
by us or the Trustee, run only to Persons who are registered as holders of debt
securities. For example, once we make payment to the registered holder, we have
no further responsibility for the payment even if that holder is legally
required to pass the payment along to you but does not do so. As an indirect
holder, an investor's rights relating to a Global Security will be governed by
the account rules of the investor's financial institution and of the Depositary,
as well as general laws relating to debt securities transfers.
You should be aware that when we issue debt securities in the form of
Global Securities:
- you cannot get debt securities registered in your own name;
- you cannot receive physical certificates for your interest in the debt
securities;
- you must look to your own bank or brokerage firm for payments on the
debt securities and protection of your legal rights relating to the
debt securities;
- you may not be able to sell interests in the debt securities to some
insurance companies and other institutions that are required by law to
hold the physical certificates of debt securities that they own;
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- the Depositary's policies will govern payments, transfers, exchanges
and other matters relating to your interest in the Global Security. We
and the Trustee have no responsibility for any aspect of the
Depositary's actions or for its records of ownership interests in the
Global Security. We and the Trustee also do not supervise the
Depositary in any way; and
- the Depositary will usually require that interests in a Global
Security be purchased or sold within its system using same-day funds.
Special Situations when Global Security Will be Terminated. In a few
special situations described later, a Global Security will terminate and
interests in it will be exchanged for physical certificates representing debt
securities. After that exchange, the choice of whether to hold debt securities
directly or indirectly through an account at your bank or brokerage firm will be
up to you. You must consult your own bank or broker to find out how to have
interests in debt securities transferred to your own name, so that they will be
direct holders.
The special situations for termination of a Global Security are:
- when the Depositary notifies us that it is unwilling, unable or no
longer qualified to continue as Depositary (unless a replacement
Depositary is named);
- when an Event of Default on the debt securities has occurred and has
not been cured; and
- when and if we decide to terminate a Global Security.
The prospectus supplement may list situations for terminating a Global
Security that would apply only to the particular series of debt securities
covered by the prospectus supplement. When a Global Security terminates, the
Depositary (and neither we nor the Trustee) is responsible for deciding the
names of the institutions that will be the initial direct holders. (Section 302)
Unless otherwise provided in the prospectus supplement, debt securities that are
represented by a Global Security will be issued in denominations of $1,000 and
any integral multiple thereof and will be issued in registered form only,
without coupons.
RESIGNATION OF TRUSTEE
Each Trustee may resign or be removed with respect to one or more series of
Indenture Securities, and a successor Trustee may be appointed to act with
respect to such series. (Section 608) In the event that two or more persons are
acting as Trustee with respect to different series of Indenture Securities under
one of the Indentures, each such Trustee will be a Trustee of a trust separate
and apart from the trust administered by any other such Trustee (Section 609),
and any action described herein to be taken by the "Trustee" may then be taken
by each such Trustee with respect to, and only with respect to, the one or more
series of Indenture Securities for which it is Trustee.
SENIOR INDENTURE PROVISIONS
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Under the terms of the Senior Indenture, we will not, and will not permit
any Restricted Subsidiary (as defined) to, sell or transfer any manufacturing
plant owned by us or any Restricted Subsidiary with the intention of taking back
a lease on such property unless:
- the sale or transfer of property is made within 120 days after the
later of the date of
- the acquisition of such property,
- the completion of construction of such property, or
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- the commencement of full operation thereof;
- such lease has a term, including permitted extensions and renewals, of
not more than three years, and it is intended that the use by us or
the Restricted Subsidiary of the manufacturing plant covered by such
lease will be discontinued on or before the expiration of such term;
- the amount that we realize from such sale or transfer, together with
the value (as defined) of then outstanding Sale and Leaseback
Transactions not otherwise permitted by the Senior Indenture and the
outstanding aggregate principal amount of mortgage, pledge or lien
indebtedness not otherwise permitted by the Senior Indenture will not
exceed 10% of our Consolidated Net Tangible Assets (as defined); or
- we will cause an amount equal to the value (as defined) of the
manufacturing plant to be sold or transferred and leased to be applied
to the retirement (other than any mandatory retirement) within 120
days of the effective date of such Sale and Leaseback Transaction of
either the Indenture Securities or other funded indebtedness which is
equal in rank to the Indenture Securities, or both. (Section 1010 of
the Senior Indenture)
These provisions are intended to preserve our assets and to limit our
ability to incur leases which effectively constitute indebtedness.
LIMITATION ON LIENS
Under the terms of the Senior Indenture, with certain exceptions, we will
not, directly or indirectly, and we will not permit any Restricted Subsidiary
to, create or assume any mortgage, pledge or other lien of or upon any of our or
their assets unless all of the outstanding Indenture Securities of each series
are secured by such mortgage, pledge or lien equally and ratably with any and
all other obligations and indebtedness thereby secured for so long as any such
other obligations and indebtedness will be so secured. Among the exceptions are:
- the creation of any mortgage or other lien on any of our property or
property of any Restricted Subsidiary to secure indebtedness incurred
prior to, at the time of, or within 120 days after the later of, the
acquisition, the completion of construction or the commencement of
full operation of such property; and
- mortgages or liens on any property that we or any Restricted
Subsidiary acquire after the date of the Senior Indenture existing at
the time of such acquisition; provided that we incur the secured
indebtedness for the purpose of financing all or any part of the
acquisition or construction of any such property.
In addition, we or any Restricted Subsidiary may create or assume any
mortgage, pledge or other lien not otherwise permitted by the Senior Indenture
for the purpose of securing indebtedness or other obligations so long as the
aggregate of all such indebtedness and other obligations then outstanding,
together with the value of all outstanding Sale and Leaseback Transactions not
otherwise permitted, will not exceed 10% of Consolidated Net Tangible Assets.
(Section 1009 of the Senior Indenture)
DEFINITIONS
The Senior Indenture defines the term "Consolidated Net Tangible Assets" as
our total assets and those of our consolidated subsidiaries, including the
investment in (at equity) and the net amount of advances to and accounts
receivable from corporations which are not consolidated subsidiaries, less the
following:
- our current liabilities and those of our consolidated subsidiaries,
including an amount equal to indebtedness required to be redeemed by
reason of any sinking fund payment
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due in 12 months or less from the date as of which current liabilities
are to be determined;
- all of our other liabilities and those of our consolidated
subsidiaries other than Funded Debt (as defined), deferred income
taxes and liabilities for employee post-retirement health plans
recognized in accordance with Statement of Financial Accounting
Standards No. 106;
- all of our and our consolidated subsidiaries' depreciation and
valuation reserves and all other reserves (except for reserves for
contingencies which have not been allocated to any particular
purpose);
- the book amount of all our and our consolidated subsidiaries'
segregated intangible assets, including, but without limitation, such
items as goodwill, trademarks, trade names, patents and unamortized
debt discount and expense, less unamortized debt premium; and
- appropriate adjustments on account of minority interests of other
persons holding stock in subsidiaries.
Consolidated Net Tangible Assets is to be determined on a consolidated
basis in accordance with generally accepted accounting principles and as
provided in the Senior Indenture. (Section 101 of the Senior Indenture)
The Senior Indenture defines the term "Restricted Subsidiary" as any of our
subsidiaries except:
- any subsidiary substantially all the assets of which are located, or
substantially all of the business of which is carried on, outside of
the United States and Canada, or any subsidiary substantially all the
assets of which consist of stock or other securities of such a
subsidiary;
- any subsidiary principally engaged in the business of financing notes
and accounts receivable and any subsidiary substantially all the
assets of which consist of the stock or other securities of such
subsidiary; or
- any subsidiary acquired or organized after the date of the Indenture,
unless our Board of Directors has designated it as a Restricted
Subsidiary and such designation will not result in the breach of any
covenant or agreement in the Senior Indenture. (Section 101 of the
Senior Indenture)
The Senior Indenture defines the term "Funded Debt" as indebtedness for
borrowed money owed or guaranteed by us or any of our consolidated subsidiaries,
and any other indebtedness which under generally accepted accounting principles
would appear as debt on the balance sheet of such corporation, which matures by
its terms more than twelve months from the date as of which Funded Debt is to be
determined or is extendible or renewable at the option of the obligor to a date
more than twelve months from the date as of which Funded Debt is to be
determined. (Section 101 of the Senior Indenture)
For purposes of the Limitation on Liens and Limitation on Sale and
Leaseback Transactions, the Senior Indenture defines the term "value" with
respect to a manufacturing plant as the amount equal to the greater of:
- the net proceeds of the sale or transfer of such manufacturing plant;
or
- the fair value of such manufacturing plant at the time of entering
into such Sale and Leaseback Transaction, as determined by our Board
of Directors.
This amount is divided first by the number of full years of the term of the
lease and then multiplied by the number of full years of such term remaining at
the time of determination, without
18
regard to renewal or extension options contained in such lease. (Section 1010 of
the Senior Indenture)
SUBORDINATED INDENTURE PROVISIONS
SUBORDINATION
Article 16 of the Subordinated Indenture provides that the payment of
principal of (premium, if any) and interest on subordinated securities will be
subordinated in right of payment to the prior payment in full of Senior
Indebtedness. We may make no payment with respect to subordinated securities
while a default exists with respect to our Senior Indebtedness.
The Subordinated Indenture defines "Senior Indebtedness" as:
- indebtedness of our company, whether outstanding on the date of the
Subordinated Indenture or thereafter created, incurred, assumed or
guaranteed for money borrowed from banks or other lending institutions
and any other indebtedness or obligations of our company evidenced by
a bond, debenture, note or other similar instrument, including without
limitation, overdrafts, letters of credit issued for our account and
commercial paper;
- any other indebtedness that constitutes purchase money indebtedness
for payment of which we are directly or contingently liable (excluding
trade accounts payable);
- any direct or contingent indebtedness or obligation represented by
guarantees or instruments having a similar effect that we enter into
(whether prior to the date of the Subordinated Indenture or
thereafter) with reference to lease or purchase money obligations of a
subsidiary or affiliate of our company or any other corporation in
which we hold or have an option to purchase 50% or more of the
outstanding capital stock; and
- renewals, extensions and refundings of any indebtedness described in
the three bullet points above, unless in any case the terms of the
instrument creating or evidencing such indebtedness provide that the
indebtedness is on a parity with or is junior to the Subordinated
Indebtedness.
Any indebtedness that becomes indebtedness of our company by operation of
merger, consolidation or other acquisition will constitute Senior Indebtedness
if that indebtedness would have been Senior Indebtedness had it been issued by
us. By reason of this subordination, in the event that we become insolvent,
holders of our Senior Indebtedness may receive more, ratably, and holders of
Subordinated Indebtedness may receive less, ratably, than our other creditors.
The Subordinated Indenture does not limit our ability to issue Senior
Indebtedness.
If this prospectus is being delivered in connection with a series of
subordinated debt, the accompanying prospectus supplement or the information
incorporated by reference will set forth the approximate amount of Senior
Indebtedness outstanding as of a recent date.
THE TRUSTEES UNDER THE INDENTURES
JPMorgan Chase Bank is the Trustee under the Senior Indenture. We may
appoint JPMorgan Chase Bank as trustee under the Subordinated Indenture.
JPMorgan Chase Bank is among the banks with which we maintain ordinary banking
relationships. JPMorgan Chase Bank also serves as trustee under other indentures
under which our 7.65% Debentures due 2029 ("7.65% Debentures"), 6 1/2%
Debentures due 2025 ("6 1/2% Debentures"), 7 5/8% Debentures due 2024 ("7 5/8%
Debentures"), 5.75% Notes due 2012 ("5.75% Notes"), 8% Debentures due 2006 ("8%
Debentures") and 6.95% Notes due 2004 ("6.95% Notes") are outstanding.
In the event that a default occurs under either Indenture or under the
indentures which govern the 7.65% Debentures, the 6 1/2% Debentures, the 7 5/8%
Debentures, the 5.75% Notes, the 8%
19
Debentures or the 6.95% Notes at a time when Indenture Securities are
outstanding under the Subordinated Indenture, unless the default is cured or
waived within 90 days, the provisions of the Trust Indenture Act require that,
if JPMorgan Chase Bank is Subordinated Trustee, it must resign as Trustee under
either the Subordinated Indenture or each of the Senior Indenture, the 7.65%
Debentures indenture, the 6 1/2% Debentures indenture, the 7 5/8% Debentures
indenture, the 5.75% Notes indenture, the 8% Debentures indenture and the 6.95%
Notes indenture. In such circumstance, we expect that JPMorgan Chase Bank would
resign as Trustee under the Subordinated Indenture.
FOREIGN CURRENCY RISKS--FLUCTUATIONS AND CONTROLS
Debt securities denominated or payable in foreign currencies may entail
significant risks. For example, the value of the currencies, in comparison to
United States dollars, may decline, or foreign governments may impose or modify
controls regarding the payment of foreign currency obligations. These events may
cause the value of debt securities denominated or payable in those foreign
currencies to fall substantially. These risks will vary depending upon the
foreign currency or currencies involved and will be more fully described in the
applicable prospectus supplement.
DESCRIPTION OF DEBT WARRANTS
We may issue, either together with other debt securities or preferred
shares or separately, debt warrants to purchase underlying debt securities. We
will issue debt warrants, if any, under warrant agreements (each, a "debt
warrant agreement") that would be between us and a bank or trust company, as
warrant agent (the "debt warrant agent"), that we will describe in a prospectus
supplement. The form of the debt warrant agreement is contained in a
registration statement that we have filed with the SEC. See "Where You Can Find
More Information" on page 2 of this prospectus for information on how to obtain
a copy of the debt warrant agreement. The following is a summary of the material
terms of the debt warrant agreement. This summary is not complete and is
qualified in its entirety by reference to all the provisions of the debt warrant
agreement and the accompanying debt warrant certificates, including the
definitions therein of certain terms.
GENERAL
You should read the prospectus supplement for the terms of the offered debt
warrants, including the following:
- the initial offering price;
- the title and aggregate number of such debt warrants;
- the designation, aggregate principal amount and other terms of the
senior securities purchasable upon exercise of the debt warrants;
- if applicable, the designation and terms of the debt securities or
preferred shares with which the debt warrants are issued and the
number of debt warrants issued with each debt security or preferred
share;
- if applicable, the date on and after which the debt warrants and the
related debt securities or preferred shares will be separately
transferable;
- the principal amount of senior securities purchasable upon exercise of
one debt warrant and the price at which such principal amount of
senior securities may be purchased upon such exercise;
- the date on which the right to exercise the debt warrants will
commence and the date on which such right will expire;
20
- if applicable, a discussion of United States federal income tax
consequences applicable to the exercise of the debt warrants and to
the senior securities purchasable upon the exercise of the debt
warrants;
- the identity of the debt warrant agent;
- whether the debt warrants represented by the debt warrant certificates
will be issued in registered or bearer form, and, if registered, where
they may be transferred or registered; and
- any other terms of the debt warrants.
Debt warrant certificates may be exchanged for new debt warrant
certificates of different denominations and, if in registered form, may be
presented for registration of transfer, and may be exercised at the corporate
trust office of the debt warrant agent or any other office indicated in the
prospectus supplement relating thereto. (Section 3.01 of the debt warrant
agreement)
EXERCISE OF DEBT WARRANTS
Each offered debt warrant will entitle the holder thereof to purchase such
amount of underlying debt securities at the exercise price set forth in, or
calculable from, the prospectus supplement relating to such offered debt
warrants. After the close of business on the expiration date, unexercised debt
warrants will become void.
You may exercise debt warrants by payment to the debt warrant agent of the
applicable exercise price and by delivery to the debt warrant agent of the
related debt warrant certificate, properly completed. Debt warrants will be
deemed to have been exercised upon receipt of the exercise price, subject to the
receipt by the debt warrant agent, within five business days thereafter, of the
debt warrant certificate or certificates evidencing the debt warrants. Upon
receipt of such payment and the properly completed debt warrant certificates at
the corporate trust office of the debt warrant agent or any other office
indicated in the prospectus supplement, we will, as soon as practicable, deliver
the amount of the underlying debt securities purchased upon such exercise. If
fewer than all of the debt warrants represented by any debt warrant certificate
are exercised, a new debt warrant certificate will be issued for the unexercised
debt warrants. If you hold a debt warrant, you must pay any tax or other
governmental charge that may be imposed in connection with any transfer involved
in the issuance of underlying debt securities purchased upon such exercise.
MODIFICATIONS
There are three types of changes we can make to the debt warrant agreement
and the offered debt warrants.
Changes Requiring Your Approval. First, there are changes that cannot be
made to your debt warrants without your specific approval. Those types of
changes include modifications and amendments that:
- accelerate the expiration date;
- increase the exercise price;
- reduce the number of outstanding debt warrants, the consent of the
holders of which is required for any such modification or amendment;
or
- otherwise materially and adversely affect the rights of the holders of
the debt warrants.
Changes Requiring a Majority Vote. The second type of change to the debt
warrant agreement and the offered debt warrants is the kind that requires a vote
in favor by holders of debt warrants
21
owning a majority of the principal amount of the particular series affected.
Most changes fall into this category.
Changes Not Requiring Approval. The third type of change does not require
any vote by holders of debt warrants. This type of change is limited to
clarifications and other changes that would not adversely affect holders of the
debt warrants.
NO RIGHTS AS HOLDERS OF UNDERLYING DEBT SECURITIES
Before you exercise the warrants, you are not entitled to payments of
principal of (or premium, if any) or interest on the related underlying debt
securities or to exercise any other rights whatsoever as a holder of the
underlying debt securities.
DESCRIPTION OF PREFERRED SHARES
The following description sets forth the general terms and provisions of
the preferred shares. If we offer preferred shares, we will describe the
specific designation and rights in a prospectus supplement, and we will file a
description with the SEC.
GENERAL
Our Board of Directors is authorized without further shareholder action to
issue one or more series of up to 14,106,394 preferred shares. The Board of
Directors can also determine the number of shares, dividend rates, dividend
payment dates, and dates from which dividends will be cumulative, redemption
rights or prices, sinking fund provisions, liquidation prices, conversion rights
and restrictions on the issuance of shares of the same series or any other class
or series. As of the date of this prospectus, no preferred shares are issued or
outstanding.
The preferred shares will have the dividend, liquidation, redemption,
voting rights and conversion rights set forth below unless otherwise provided in
the prospectus supplement relating to a particular series of offered preferred
shares.
We will set forth the following terms of the offered preferred shares in
the prospectus supplement:
- the title and stated value of the offered preferred shares, the
liquidation preference per share and the number of shares offered;
- the price at which we will issue the offered preferred shares;
- the dividend rates and dates on which dividends will be payable, as
well as the dates from which dividends will commence to cumulate or
the method(s) of calculation thereof;
- the period or periods within which, the price or prices at which, and
the terms and conditions upon which the offered preferred shares may
be redeemed, in whole or in part, at our option, if we are to have
that option;
- our obligation, if any, to redeem or purchase the offered preferred
shares pursuant to any sinking fund or analogous provisions or at the
option of a holder thereof, and the period or periods within which,
the price or prices at which, and the terms and conditions upon which
the offered preferred shares will be redeemed or purchased in whole or
in part pursuant to such obligation;
- any rights on the part of the holder to convert the offered preferred
shares into our common shares;
- any additional dividend, liquidation, redemption, sinking fund, voting
and other rights, preferences, privileges, limitations and
restrictions;
22
- the terms of any debt warrants that we will offer together with or
separately from the offered preferred shares;
- the national securities exchanges, if any, upon which the offered
preferred shares will be listed;
- the procedures for any auction or remarketing, if any, of the offered
preferred shares; and
- any other terms of the offered preferred shares.
The preferred shares will be fully paid and nonassessable, and for each
share issued a sum equal to the stated value will be credited to our preferred
stock account.
We have adopted a rights plan and are subject to certain provisions of Ohio
law, each of which may have the effect of delaying, deferring or preventing a
change in control of our company. See "Description of Common Shares--Rights
Plan" and "--Certain Ohio Statutes".
DIVIDENDS
As a holder of offered preferred shares, you will be entitled to receive
cash dividends, when and as declared by the Board of Directors out of our assets
legally available for payment, at such rate and on such quarterly dates as will
be set forth in the applicable prospectus supplement. Each dividend will be
payable to holders of record as they appear on our stock books on the record
dates fixed by the Board of Directors. Dividends will be cumulative from and
after the date set forth in the applicable prospectus supplement.
If we have not paid or declared and set apart for payment full cumulative
dividends on any preferred shares for any dividend period or we are in default
with respect to the redemption of preferred shares or any sinking fund for any
preferred shares, we may not do the following:
- declare any dividends (except a dividend payable in shares ranking
junior to the preferred shares) on, or make any distribution (except
as aforesaid) on, the common shares or any of our other shares; or
- make any payment on account of the purchase, redemption or other
retirement of our common shares or any of our other shares except out
of the proceeds of the sale of common shares or any other shares
ranking junior to the preferred shares.
If dividends on preferred shares are in arrears, and there will be
outstanding shares of any other series of preferred shares ranking on a parity
as to dividends with the preferred shares, we, in making any dividend payment on
account of such arrears, are required to make payments ratably upon all
outstanding preferred shares and such other series of preferred shares in
proportion to the respective amounts of dividends in arrears on such preferred
shares and shares of such other series.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of our company, the holders of the offered preferred shares will be
entitled to receive liquidating distributions in the amount set forth in the
applicable prospectus supplement plus all accrued and unpaid dividends. This
distribution will be made out of our assets available for distribution to
shareholders and will be made before any distribution is made to holders of our
common shares. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of our company, the amounts payable with respect to the preferred
shares and any of our other shares ranking on a parity with the preferred shares
are not paid in full, the holders of those shares will share ratably in any such
distribution of our assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders of preferred
shares will not be entitled to any further participation in any distribution of
our assets. A consolidation or
23
merger of our company with or into any other corporation or corporations or a
sale of all or substantially all of our assets will not be deemed to be a
liquidation, dissolution or winding up of our company.
REDEMPTION
The offered preferred shares will be redeemable in whole or in part at our
option, at the times and at the redemption prices that we set forth in the
applicable prospectus supplement.
We may not redeem less than all the outstanding shares of any series of
preferred shares unless full cumulative dividends have been paid or declared and
set apart for payment upon all outstanding shares of such series of preferred
shares for all past dividend periods. In addition, all of our matured
obligations with respect to all sinking funds, retirement funds or purchase
funds for all series of preferred shares then outstanding must have been met.
VOTING RIGHTS
The holders of the offered preferred shares are entitled to one vote per
share on all matters presented to our shareholders.
If the equivalent of six quarterly dividends payable on any series of
preferred shares are in default, whether or not declared or consecutive, the
holders of all outstanding series of preferred shares, voting as a single class
without regard to series, will be entitled to elect two directors until all
dividends in default have been paid or declared and set apart for payment. The
holders of preferred shares will not have or exercise such special class voting
rights except at meetings of the shareholders for the election of directors at
which the holders of not less than a majority of the outstanding preferred
shares of all series are present in person or by proxy.
The affirmative vote of the holders of at least two-thirds of the
outstanding preferred shares, voting as a single class without regard to series,
will be required for any amendment of our Amended Articles of Incorporation or
Amended Regulations that will adversely affect the preferences, rights or voting
powers of the preferred shares. If not all series of preferred shares would be
affected as to their preferences, rights or voting powers, only the consent of
holders of at least two-thirds of the shares of each series that would be
affected, voting separately as a class, will be required. A two-thirds vote is
also required to issue any class of stock that will have preference as to
dividends or distribution of assets over any outstanding series of preferred
shares.
The affirmative vote of the holders of a majority of the outstanding
preferred shares will be necessary to increase the authorized number of
preferred shares or to authorize any shares ranking on a parity with the
preferred shares. The Regulations may be amended to increase the number of
directors, without the vote of the holders of outstanding preferred shares.
CONVERSION RIGHTS
We will state in the prospectus supplement for any series of offered
preferred shares whether shares in that series are convertible into common
shares. Unless otherwise provided in the applicable prospectus supplement, if a
series of preferred shares is convertible into common shares, holders of
convertible preferred shares of that series will have the right, at their option
and at any time, to convert any of those convertible preferred shares in
accordance with their terms. However, if that series of convertible preferred
shares is called for redemption, the conversion rights pertaining to them will
terminate at the close of business on the date before the redemption date.
Unless we specify otherwise in the applicable prospectus supplement, the
conversion rate is subject to adjustment in certain events, including the
following:
- the issuance of common shares or capital shares of any other class as
a dividend or distribution on the common shares;
24
- subdivisions and combinations of the common shares;
- the issuance of certain rights or warrants to all holders of common
shares entitling those holders to subscribe for or purchase common
shares, or securities convertible into common shares, within the
period specified in the prospectus supplement at less than the current
market price as defined in the Certificate of Designations for such
series of convertible preferred shares; and
- the distribution of evidences of indebtedness or assets or rights or
warrants to all holders of common shares (excluding cash dividends,
distributions, rights or warrants, referred to above).
No adjustments in the conversion rate will be made as a result of regular
quarterly or other periodic or recurrent cash dividends or distributions or for
cash dividends or distributions to the extent paid from retained earnings. No
adjustment in the conversion price will be required unless such adjustment would
require a change of at least 1% in the conversion price then in effect or a
period of three years will have elapsed from the date of occurrence of any event
requiring any such adjustment; provided that any adjustment that would otherwise
be required to be made will be carried forward and taken into account in any
subsequent adjustment. We reserve the right to make such increases in the
conversion rate in addition to those required in the foregoing provisions as we,
in our discretion, determine to be advisable in order that certain stock-related
distributions or subdivisions of the common shares hereafter made by us to our
shareholders will not be taxable. Except as stated above, the conversion rate
will not be adjusted for the issuance of common shares or any securities
convertible into or exchangeable for common shares, or securities carrying the
right to purchase any of the foregoing.
In the case of:
- any reclassification or change of the common shares;
- a consolidation or merger involving our company; or
- a sale or conveyance to another corporation of the property and assets
of our company as an entirety or substantially as an entirety,
in each case as a result of which holders of common shares will be entitled to
receive stock, securities, or other property or assets, including cash, with
respect to or in exchange for such common shares, the holders of the convertible
preferred shares then outstanding will be entitled thereafter to convert those
convertible preferred shares into the kind and amount of shares and other
securities or property which they would have received upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
had those convertible preferred shares been converted into common shares
immediately prior to the reclassification, change, consolidation, merger,
combination, sale or conveyance.
In the event of a taxable distribution to holders of common shares or other
transaction which results in any adjustment of the conversion rate, the holders
of convertible preferred shares may, in certain circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend; in certain other circumstances, the absence of such an adjustment may
result in a taxable dividend to the holders of common shares or the convertible
preferred shares.
DESCRIPTION OF COMMON SHARES
The following is a summary of the material provisions concerning the common
shares contained in our Amended Articles of Incorporation ("Articles") and our
Amended Regulations ("Regulations"), as affected by debt agreements. Reference
is made to such Articles and Regulations, which we
25
have filed with the SEC. See "Where You Can Find More Information" on page 2 of
this prospectus for information on how to obtain a copy of the Articles and
Regulations.
AUTHORIZED NUMBER
The Articles authorize the issuance of up to 300,000,000 common shares.
Common shares issued and outstanding totaled 71,114,820 on May 31, 2003 and
74,858,997 on June 6, 2003, immediately after a public offering of 3,700,000
common shares. The outstanding common shares are fully paid and non-assessable,
and shareholders are not subject to any liability for calls and assessments. The
Articles also authorize the issuance of up to 14,106,394 preferred shares.
Currently, there are no preferred shares issued and outstanding.
DIVIDENDS
Holders of common shares may receive dividends that our Board of Directors
declares.
VOTING RIGHTS
Each common share entitles the holder to one vote. Directors are elected by
cumulative voting, which means that each common share entitles the holder to the
number of votes equal to the number of directors to be elected. All votes in
respect of such share may be cast for one or more of the directors to be
elected. Cumulative voting may have the effect of increasing minority
shareholders' representation on the Board of Directors.
The Articles provide that action may be taken by the vote of the holders of
shares entitling them to exercise a majority of the voting power of the Company,
except in each case as is otherwise provided in the Articles or Regulations. The
Articles and Regulations provide for a voting proportion, which is different
from that provided by statutory law, in order for shareholders to take action in
certain circumstances, including the following:
(1) two-thirds vote required to fix or change the number of directors;
(2) two-thirds vote required for removal of directors;
(3) fifty percent of the outstanding shares required to call a special
meeting of shareholders;
(4) two-thirds vote required to amend the Regulations without a
meeting;
(5) two-thirds vote required to amend the provisions described in
items (1) and (4) above and this provision, unless such action is
recommended by two-thirds of the members of the Board of Directors;
(6) two-thirds vote required to approve certain transactions, such as
the sale, exchange, lease, transfer or other disposition by the Company of
all, or substantially all, of its assets or business, or the consolidation
of the Company or its merger into another corporation, or certain other
mergers and majority share acquisitions; and
(7) two-thirds vote required to amend the provisions described in item
(6) above, or this provision.
The requirement of a two-thirds vote in certain circumstances may have the
effect of delaying, deferring or preventing a change in control of our company.
RIGHTS PLAN
We have adopted a rights plan, which may have the effect of delaying or
preventing a change in control of our company. This plan attached to each common
share one right (a "Right") that, when exercisable, entitles the holder of the
Right to purchase one one-hundredth of a share of Series A
26
Participating Preferred Stock at a purchase price of $250, subject to
adjustment. If certain takeover events occur, exercise of the Rights would
entitle the holders thereof (other than the acquiring person or group) to
receive common shares or common stock of a surviving corporation, or cash,
property or other securities, with a market value equal to twice the purchase
price. Those takeover events include a person or group becoming the owner of 20%
or more of the common shares or the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 20% or more of
the outstanding common shares. Accordingly, exercise of the Rights may cause
substantial dilution to a person who attempts to acquire our company.
The Rights automatically attach to each outstanding common share, including
any shares offered pursuant to the applicable prospectus supplement. There is no
monetary value presently assigned to the Rights, and they will not trade
separately from the common shares unless and until they become exercisable. The
Rights, which expire on July 12, 2005, may be redeemed, at the option of our
Board of Directors, at a price of $.01 per Right at any time prior to a group or
person acquiring ownership of 20% or more of the outstanding common shares. The
Rights Agreement may have certain antitakeover effects, although it is not
intended to preclude any acquisition or business combination that is at a fair
price and otherwise in the best interests of our company and our shareholders as
determined by our Board of Directors. However, a shareholder could potentially
disagree with the Board's determination of what constitutes a fair price or the
best interests of our company and our shareholders.
The description and terms of the Rights are set forth in a Rights Agreement
(the "Rights Agreement") between us and Equiserve Trust Company N.A. (formerly
known as First Chicago Trust Company of New York), as Rights Agent. We have
filed a copy of the Rights Agreement as an exhibit to the registration statement
of which this prospectus forms a part. See "Where You Can Find More Information"
on page 2 of this prospectus for information on how to obtain a copy of the
Rights Agreement. The above description of the Rights is a summary of the
material terms of the Rights, does not purport to be complete and is qualified
in its entirety by reference to the Rights Agreement.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of our company, after the payment or provision for payment of our
debts and other liabilities and the preferential amounts to which holders of our
preferred shares are entitled, if any such preferred shares are then
outstanding, the holders of the common shares are entitled to share pro rata in
our assets remaining for distribution to shareholders.
MISCELLANEOUS RIGHTS, LISTING AND TRANSFER AGENTS
Our common shares have no preemptive or conversion rights and there are no
redemption or sinking fund provisions applicable thereto.
Our outstanding common shares are listed on the New York Stock Exchange,
the Chicago Stock Exchange, the Pacific Exchange and the London Stock Exchange.
Equiserve Trust Company N.A. is the transfer agent and registrar for our common
shares.
CLASSIFICATION OF BOARD OF DIRECTORS
Our Board of Directors is divided into three approximately equal classes,
having staggered terms of office of three years each. The effect of a classified
Board of Directors, where cumulative voting is in effect, is to require the
votes of more shares to elect one or more members of the Board of Directors than
would be required if the Board of Directors were not classified. Additionally,
the effect of a classified Board of Directors may be to make it more difficult
to acquire control of our company.
27
CERTAIN OHIO STATUTES
Various laws may affect the legal or practical ability of shareholders to
dispose of shares of our company. Such laws include the Ohio statutory
provisions described below.
Chapter 1704 of the Ohio Revised Code prohibits an interested shareholder
(defined as a beneficial owner, directly or indirectly, of ten percent (10%) or
more of the voting power of any issuing public Ohio corporation) or any
affiliate or associate of an interested shareholder (as defined in Section
1704.01 of the Ohio Revised Code) from engaging in certain transactions with the
corporation during the three-year period after the interested shareholder's
share acquisition date.
The prohibited transactions include mergers, consolidations, majority share
acquisitions, certain asset sales, loans, certain sales of shares, dissolution,
and certain reclassifications, recapitalizations, or other transactions that
would increase the proportion of shares held by the interested shareholder.
After expiration of the three-year period, the corporation may participate
in such a transaction with an interested shareholder only if, among other
things:
- the transaction receives the approval of the holders of two-thirds of
all the voting shares and the approval of the holders of a majority of
the disinterested voting shares (shares not held by the interested
shareholder); or
- the transaction meets certain criteria designed to ensure that the
remaining shareholders receive fair consideration for their shares.
The prohibitions do not apply if, before the interested shareholder becomes
an interested shareholder, the board of directors of the corporation approves
either the interested shareholder's acquisition of shares or the otherwise
prohibited transaction. The restrictions also do not apply if a person
inadvertently becomes an interested shareholder or was an interested shareholder
prior to the adoption of the statute on April 11, 1990, unless, subject to
certain exceptions, the interested shareholder increases his, her or its
proportionate share interest on or after April 11, 1990.
Pursuant to Ohio Revised Code Section 1707.043, a public corporation formed
in Ohio may recover profits that a shareholder makes from the sale of the
corporation's securities within eighteen (18) months after making a proposal to
acquire control or publicly disclosing the possibility of a proposal to acquire
control. The corporation may not, however, recover from a person who proves in a
court of competent jurisdiction either of the following:
- that his, her or its sole purpose in making the proposal was to
succeed in acquiring control of the corporation and there were
reasonable grounds to believe that such person would acquire control
of the corporation; or
- such person's purpose was not to increase any profit or decrease any
loss in the stock, and the proposal did not have a material effect on
the market price or trading volume of the stock.
Also, before the corporation may obtain any recovery, the aggregate amount of
the profit realized by such person must exceed $250,000. Any shareholder may
bring an action on behalf of the corporation if a corporation fails or refuses
to bring an action to recover these profits within sixty (60) days of a written
request. The party bringing such an action may recover attorneys' fees if the
court having jurisdiction over such action orders recovery of any profits.
CONTROL SHARE ACQUISITION ACT
We are also subject to Ohio's Control Share Acquisition Act (Ohio Revised
Code 1701.831). The Control Share Acquisition Act provides that, with certain
exceptions, a person may acquire beneficial ownership of shares in certain
ranges (one-fifth or more but less than one-third, one-third or more but less
than a majority, or a majority or more) of the voting power of the outstanding
shares of an Ohio corporation meeting certain criteria, which our company meets,
only if such person has
28
submitted an "acquiring person statement" and the proposed acquisition has been
approved by the vote of a majority of the shares of the corporation represented
at a special meeting called for such purpose and by a majority of such shares of
the corporation excluding "interested shares," as defined in Section 1701.01 of
the Ohio Revised Code.
PLAN OF DISTRIBUTION
We may sell the offered securities as follows:
- through agents;
- to or through underwriters; or
- directly to other purchasers.
We will identify any underwriters or agents and describe their compensation
in a prospectus supplement.
We, directly or through agents, may sell, and the underwriters may resell,
the offered securities in one or more transactions, including negotiated
transactions. These transactions may be:
- at a fixed public offering price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices; or
- at negotiated prices.
In connection with the sale of offered securities, the underwriters or
agents may receive compensation from us or from purchasers of the offered
securities for whom they may act as agents. The underwriters may sell offered
securities to or through dealers, who may also receive compensation from
purchasers of the offered securities for whom they may act as agents.
Compensation may be in the form of discounts, concessions or commissions.
Underwriters, dealers and agents that participate in the distribution of the
offered securities may be underwriters as defined in the Securities Act of 1933,
and any discounts or commissions received by them from us and any profit on the
resale of the offered securities by them may be treated as underwriting
discounts and commissions under the Securities Act of 1933.
We will indemnify the underwriters and agents against certain civil
liabilities, including liabilities under the Securities Act of 1933.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our affiliates in the ordinary course of their
business.
If we indicate in the prospectus supplement relating to a particular series
or issue of offered securities, we will authorize underwriters, dealers or
agents to solicit offers by certain institutions to purchase such offered
securities from us pursuant to delayed delivery contracts providing for payment
and delivery at a future date. Such contracts will be subject only to those
conditions that we specify in the prospectus supplement, and we will specify in
the prospectus supplement the commission payable for solicitation of such
contracts.
LEGAL OPINIONS
The validity of the offered securities will be passed upon for us by J.
Robert Horst, Vice President and General Counsel, and for any underwriters,
dealers or agents by Shearman & Sterling LLP, 599 Lexington Avenue, New York,
New York 10022. Mr. Horst is paid a salary by our company and participates in
various employee benefit plans offered to officers of our company generally.
29
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2002, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
30
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSE OF ISSUANCE AND DISTRIBUTION
Filing fee for Registration Statement....................... $ 20,225
Legal Fees and Expenses..................................... 100,000
Rating Agency Fees.......................................... 140,000
Blue Sky Fees and Expenses.................................. 5,000
Printing and Engraving Fees................................. 75,000
Accounting Fees and Expenses................................ 135,000
Trustee's and Depositary's Fees and Expenses................ 12,700
Miscellaneous Expenses...................................... 10,000
--------
Total............................................. $497,925
========
The foregoing expenses, except for the filing fee for the Registration
Statement, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph (E) of Section 1701.13 of the Ohio Revised Code grants each
corporation organized under the laws of the State of Ohio, such as Eaton
Corporation, power to indemnify its directors, officers and other specified
persons. Provisions relating to indemnification of directors and officers of
Eaton Corporation and other specified persons have been adopted pursuant to the
Ohio law and are contained in Article IV, Section 2 of Eaton Corporation's
Amended Regulations. Under the Amended Regulations, Eaton Corporation shall
indemnify any director, officer of other specified person against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him by reason of the fact that he is or was
such director, officer or other specified person, to the full extent permitted
by applicable law. The foregoing statement is subject to, and only part of, the
detailed provisions of the Ohio Revised Code and Eaton Corporation's Amended
Regulations referred to herein.
Eaton Corporation has entered into Indemnification Agreements with all of
its officers and directors. The Agreements provide the Eaton Corporation shall
indemnify such directors of officers to the full extent permitted by law against
expenses actually and reasonably incurred by them in connection with any claim
filed against them by reason of anything done or not done by them in such
capacity. The Agreements also require Eaton Corporation to maintain director and
officer insurance which is no less favorable to the director and officer than
the insurance in effect on the date of the Agreements, and to establish and
maintain an escrow account of up to $10 million to fund Eaton Corporation's
obligations under the Agreements, except that Eaton Corporation is required to
fund the escrow only upon the occurrence of a change of control of Eaton
Corporation, as defined under the Agreements.
Eaton Corporation also maintains insurance coverage for the benefit of
directors and officers with respect to many types of claims that may be made
against them, some of which claims may be in addition to those described in
Section 2 of Article IV of the Amended Regulations.
Eaton Corporation and its officers, directors and controlling persons may
receive indemnification against certain liabilities pursuant to the terms of any
underwriting agreement or similar agreement entered into with respect to the
Securities registered hereunder.
ITEM 16. EXHIBITS
See the index to exhibits that appears immediately following the signature
pages to this registration statement.
31
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
32
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO, ON JULY 2, 2003.
EATON CORPORATION
By /s/ RICHARD H. FEARON
Richard H. Fearon
Executive Vice President -- Chief
Financial and
Planning Officer
By /s/ EARL R. FRANKLIN
Earl R. Franklin
Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
NAME TITLE DATE
---- ----- ----
* Chairman and Chief Executive Officer;
--------------------------------------- President; (Principal Executive
Alexander M. Cutler Officer); Director
* Executive Vice President -- Chief
--------------------------------------- Financial and Planning Officer;
Richard H. Fearon (Principal Financial Officer)
* Vice President and Controller;
--------------------------------------- (Principal Accounting Officer)
Billie K. Rawot
* Director
---------------------------------------
Michael J. Critelli
* Director
---------------------------------------
Ernie Green
* Director
---------------------------------------
Ned C. Lautenbach
* Director
---------------------------------------
Deborah L. McCoy
* Director
---------------------------------------
John R. Miller
* Director
---------------------------------------
Victor A. Pelson
* Director
---------------------------------------
Gary L. Tooker
*By /s/ DAVID M. O'LOUGHLIN
-------------------------------
David M. O'Loughlin,
Attorney-in-Fact
for the officers and directors
signing in the capacities
indicated
July 2, 2003
EXHIBIT INDEX
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------- -----------
***1(a) -- Form of Underwriting Agreement (or similar agreement) and
Underwriting Agreement Basic Provisions.
*1(b) Form of Distribution Agreement among Eaton Corporation,
Goldman Sachs & Co., J.P. Morgan Securities Inc., Citigroup
Global Markets Inc. and McDonald Investments Inc.
4(a) -- Form of Senior Indenture between the Company and JPMorgan
Chase Bank (formerly known as Chemical Bank), filed as
Exhibit 4(a) to Registration Statement No. 33-52333 and
incorporated herein by reference.
4(b) -- Form of Fixed Rate Senior Note, filed as Exhibit 4(b) to
Registration Statement No. 33-52333 and incorporated herein
by reference.
4(c) -- Form of Subordinated Indenture between the Company and
JPMorgan Chase Bank (formerly known as Chemical Bank), filed
as Exhibit 4(c) to Registration Statement No. 33-52333 and
incorporated herein by reference.
4(d) -- Form of Fixed Rate Subordinated Note, filed as Exhibit 4(d)
to Registration Statement No. 33-52333 and incorporated
herein by reference.
4(e) -- Form of Debt Warrant Agreement between the Company and the
Debt Warrant Agent, including a form of Debt Warrant
Certificate, filed as Exhibit 4(c) to Registration Statement
No. 33-48851 and incorporated herein by reference.
4(f) -- Amended Articles of Incorporation, adopted on April 27,
1994, filed as Exhibit 3(a) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2002,
File No. 1-1396 and incorporated herein by reference.
4(g) -- Amended Regulations, adopted on April 26, 2000, filed as
Exhibit 3(b) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2002, File No. 1-1396 and
incorporated herein by reference.
**4(h) -- Rights Agreement dated as of June 1, 1997, filed as Exhibit
4(h) to Registration Statement No. 333-74355 and
incorporated herein by reference.
4(i) -- Form of Medium-Term Note (Fixed Rate), filed as Exhibit 4(i)
to the Registrant's Current Report on Form 8-K dated
February 2, 2000 and incorporated by reference herein.
4(j) -- Form of Medium-Term Note (Floating Rate), filed as Exhibit
4(j) to the Registrant's Current Report on Form 8-K dated
February 2, 2000 and incorporated by reference herein.
4(k) -- Form of Medium-Term Note (Single Indexed Note--Fixed Rate),
filed as Exhibit 4(k) to the Registrant's Current Report on
Form 8-K dated February 2, 2000 and incorporated by
reference herein.
4(l) -- Form of Medium-Term Note (Single Indexed Note--Floating
Rate), filed as Exhibit 4(l) to the Registrant's Current
Report on Form 8-K dated February 2, 2000 and incorporated
by reference herein.
***5 -- Opinion of J. R. Horst, Vice President and General Counsel,
as to validity of the Securities.
***8 -- Tax opinion of Shearman & Sterling LLP with respect to
medium-term note program.
**12 -- Computation of Ratio of Earnings to Fixed Charges filed as
Exhibit 12 to the Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 2003 and incorporated herein
by reference.
***23(a) -- Consent of Ernst & Young LLP.
***23(b) -- Consent of J. R. Horst, Vice President and General Counsel,
contained in his opinion filed as Exhibit 5 to this
Registration Statement.
***23(c) -- Consent of Shearman & Sterling LLP, contained in their
opinion filed as Exhibit 8 to this Registration Statement.
**24 -- Power of Attorney filed as Exhibit 24 to Registration
Statement No. 333-105786 and incorporated herein by
reference.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------- -----------
***25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of JPMorgan Chase Bank (formerly known as
Chemical Bank) with respect to the Senior Indenture and
Subordinated Indenture.
---------------
* To be filed as an exhibit to a Current Report on Form 8-K.
** Filed previously.
*** Filed herewith.