Filed Pursuant to Rule 424(b)(2)
Registration No. 333-102603
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 4, 2003) [LOGO]
International Business Machines Corporation
New Orchard Road, Armonk, New York 10504--(914)499-1900
$20,000,000,000
Medium-Term Notes
Due One Year or More from Date of Issue
We may offer our Medium-Term Notes at one or more times. The specific terms of
the particular notes being offered will be contained in a pricing supplement.
The following terms may apply to particular notes being offered:
- They may mature one year or more after issuance.
- They may bear interest at a fixed or floating rate (or both). Certain notes
issued at a discount may not bear interest. Floating interest rates may be
based on any of the following formulas or on other interest rate formulas
specified in the pricing supplement:
- CD Rate - LIBOR
- Federal Funds Rate - Prime Rate
- Treasury Rate - CMT Rate
- Commercial Paper Rate
- Any floating interest rate may be adjusted by adding or subtracting a
specified spread or margin or by applying a spread multiplier.
- Each fixed rate note will pay interest on April 1 and October 1 of each year
unless otherwise specified in the pricing supplement. Each floating rate
note will pay interest on the dates specified in the pricing supplement.
- They may be denominated in foreign or composite currencies, if specified in
the pricing supplement.
- They will not be redeemable prior to maturity and will not be subject to a
sinking fund, unless otherwise specified in the pricing supplement.
- They may be issued in certificated or book-entry form.
Generally, we will not list the notes on any securities exchange. We may,
however, from time to time do so.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-3 TO READ ABOUT CERTAIN FACTORS YOU OUGHT TO CONSIDER BEFORE BUYING THE
NOTES.
Price to Public Agents' Commissions Proceeds to Company
Per Note............. 100% .150%-.750% 99.250%-99.850%
Total................ $20,000,000,000 $30,000,000-$150,000,000 $19,850,000,000-$19,970,000,000
We may offer the notes as follows:
- Through agents who have agreed to use reasonable efforts to solicit offers
to purchase the notes. Unless otherwise specified in the pricing supplement,
we will pay the agents commissions ranging from 0.150% to 0.750% of the
principal amount of the notes offered.
- Through one or more agents purchasing the notes as principal and acting as
underwriter or dealer. We will pay those agents an underwriting discount or
commission to be negotiated at the time of sale.
- Directly to investors. We will not pay a discount or commission to any agent
if we sell the notes directly to investors.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
ABN AMRO Incorporated
Banc of America Securities LLC
Banc One Capital Markets, Inc.
BNP PARIBAS
BNY Capital Markets, Inc.
Citigroup
Credit Suisse First Boston
Deutsche Bank Securities
Goldman, Sachs & Co.
HSBC
JPMorgan
Lehman Brothers
Merrill Lynch & Co.
Morgan Stanley
UBS Investment Bank
The date of this prospectus supplement is August 21, 2003.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
About this Prospectus Supplement;
Pricing Supplements................ S-3
Risk Factors......................... S-3
Ratio of Earnings to Fixed Charges... S-5
Use of Proceeds...................... S-6
Description of the Notes............. S-6
United States Taxation............... S-18
Tax Consequences to U.S. Holders..... S-18
Tax Consequences to Non-U.S.
Holders............................ S-22
Plan of Distribution................. S-24
Legal Opinions....................... S-25
Glossary............................. S-25
PROSPECTUS
Summary.............................. 2
Ratios of Earnings From Continuing
Operations to Fixed Charges and
Earnings From Continuing Operations
to Combined Fixed Charges and
Preferred Stock Dividends.......... 3
Where You Can Find More Information.. 4
Description of the Company........... 5
Use of Proceeds...................... 5
Description of the Debt Securities... 6
Description of the Preferred Stock... 19
Description of the Depositary
Shares............................. 21
Description of the Capital Stock..... 24
Description of the Warrants.......... 24
Plan of Distribution................. 26
Legal Opinions....................... 27
Experts.............................. 27
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
CONTAINED IN THIS PROSPECTUS SUPPLEMENT, THE ATTACHED PROSPECTUS AND THE
APPLICABLE PRICING SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION AND IF YOU RECEIVE ANY UNAUTHORIZED INFORMATION YOU SHOULD
NOT RELY ON IT. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY PLACE
WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE
ATTACHED PROSPECTUS OR ANY PRICING SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE ON THE FRONT OF THE APPLICABLE DOCUMENT.
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ABOUT THIS PROSPECTUS SUPPLEMENT; PRICING SUPPLEMENTS
We may use this prospectus supplement, together with the attached prospectus
and a pricing supplement, to offer our Medium-Term Notes from time to time. The
total initial public offering price of notes that may be offered by use of this
prospectus supplement is $20,000,000,000 or the equivalent in foreign or
composite currencies. That amount will be reduced by the amount of any other
securities issued under our shelf registration statement (No. 333-102603).
This prospectus supplement sets forth terms of the notes that we may offer.
It 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 apply and will supersede that
information in the prospectus.
Each time we issue notes, we will attach a pricing supplement to this
prospectus supplement. The pricing supplement will contain the specific
description of the notes being offered and the terms of the offering. The
pricing supplement may also add, update or change information in this prospectus
supplement or the attached prospectus. Any information in the pricing
supplement, including any changes in the method of calculating interest on any
note, that is inconsistent with this prospectus supplement or prospectus will
apply and will supersede that information in this prospectus supplement or
prospectus.
It is important for you to read and consider all information contained in
this prospectus supplement and the attached prospectus and pricing supplement in
making your investment decision. You should also read and consider the
information in the documents we have referred you to in "Where You Can Find More
Information" on page 4 of the attached prospectus.
RISK FACTORS
FOREIGN CURRENCY RISKS
- Exchange Rates and Exchange Controls
If you invest in notes that are denominated in a currency other than U.S.
dollars, your investment will be subject to significant risks that are not
associated with a similar investment in notes denominated in U.S. dollars. These
risks include:
- the possibility of significant changes in rates of exchange between U.S.
dollars and the specified currency;
- the possibility of significant changes in rates of exchange between U.S.
dollars and the currency resulting from official redenomination of the
currency; and
- the possibility that the United States or any foreign government will
impose or modify foreign exchange controls.
These risks generally depend on factors over which we have no control, such as
economic and political events, and on the supply and demand for the relevant
currencies. In recent years, rates of exchange between the U.S. dollar and
certain currencies have been highly volatile. This volatility may continue in
the future. Even if fluctuations have occurred in any particular exchange rate
in the past, fluctuations may not occur in the rate during the term of any note
denominated in the foreign currency. Depreciation of the currency specified for
a note against the U.S. dollar would result in a decrease in the effective yield
of that note below its coupon rate and, in certain circumstances, could result
in a substantial loss to you on a U.S. dollar basis.
Governments have imposed from time to time, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a foreign currency at the time of payment of amounts due on a note
denominated in that currency. There can be no assurances that exchange controls
will not restrict or prohibit payments in any designated currency. Even if there
are no actual exchange controls, a currency may not be available to us
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when payments on the notes are due because of circumstances beyond our control.
WE HAVE NOT DESCRIBED ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED
IN, OR THE PAYMENT OF WHICH IS RELATED TO, A CURRENCY OTHER THAN U.S. DOLLARS.
YOU SHOULD CONSULT YOUR OWN COMPETENT FINANCIAL AND LEGAL ADVISORS ABOUT THE
RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN A CURRENCY OTHER THAN U.S.
DOLLARS. THESE NOTES ARE NOT AN APPROPRIATE INVESTMENT IF YOU HAVE NOT HAD PRIOR
EXPERIENCE WITH FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this prospectus supplement is directed to
prospective purchasers of notes who are United States residents. We are not
advising prospective purchasers who are residents of countries other than the
United States on any matters that may affect the purchase or holding of, or
receipt of payments of principal, premium or interest in respect of, notes.
These persons should consult their own advisors about those matters.
If applicable, the pricing supplement will contain a description of any
material exchange controls affecting the currency in which the notes are
denominated, if other than U.S. dollars, and any other required information
concerning such currency.
- Payment Currency
If payment on a note is required to be made in a currency other than U.S.
dollars and that currency is unavailable due to the imposition of exchange
controls or other circumstances beyond our control or is no longer used by the
government of the country issuing that currency or for the settlement of
transactions by public institutions of or within the international banking
community, then all payments on that note will be made in U.S. dollars until
such currency is again available or used. The amounts payable on any date in
such currency will be converted into U.S. dollars on the basis of the most
recently available market exchange rate for such currency or as otherwise
indicated in the pricing supplement. Any payment on the note made under these
circumstances in U.S. dollars will not constitute an event of default under the
Indenture.
- Foreign Currency Judgments
The laws of the State of New York will govern the notes. Courts in the
United States have not customarily rendered judgments for money damages
denominated in any currency other than the U.S. dollar. The Judiciary Law of the
State of New York provides, for example, that a judgment granted in connection
with an obligation denominated in a currency other than U.S. dollars will be
granted in the foreign currency of the underlying obligation and converted into
U.S. dollars at a rate of exchange on the date of the entry of the judgment.
However, a state court outside the State of New York may not follow the same
rules and procedures on conversions of foreign currency judgments.
RISKS RELATING TO INDEXED NOTES
An investment in indexed notes presents certain significant risks not
associated with other types of securities. If we issue indexed notes, we will
describe certain risks associated with any such particular indexed note more
fully in the applicable pricing supplement. Indexed notes may present a high
level of risk, and you may lose your entire investment if you purchase indexed
notes. YOU REALLY NEED TO UNDERSTAND WHAT YOUR RISKS ARE BEFORE DECIDING TO
INVEST IN THESE NOTES. WE ARE THEREFORE CAUTIONING YOU STRONGLY NOW ABOUT
INVESTING IN THESE NOTES.
The treatment of indexed notes for United States federal income tax purposes
is often unclear due to the absence of any authority specifically addressing the
issues presented by any particular indexed note. Accordingly, you, or your tax
adviser, should, in general, be competent and capable of independently
evaluating the federal income tax consequences applicable in your particular
circumstances of purchasing an indexed note. If you are not fully capable of
doing so, you really shouldn't even be thinking of buying these notes.
- Loss of Principal or Interest
The principal amount of an indexed note payable at maturity, and/or the
amount of interest payable on an interest payment date, will
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be determined by reference to one or more of the following, each of which is an
index:
- currencies, including baskets of currencies;
- commodities, including baskets of commodities;
- securities, including baskets of securities; or
- any other index.
The direction and magnitude of the change in the value of the relevant index
will determine either or both the principal amount of an indexed note payable at
maturity or the amount of interest payable on an interest payment date. The
terms of a particular indexed note may or may not include a guaranteed return of
a percentage of the face amount at maturity or a minimum interest rate.
Accordingly, if you invest in an indexed note, you may lose all or a portion of
the principal invested in an indexed note and may receive no interest on the
note.
- Volatility
Certain indices are highly volatile. The expected principal amount payable
at maturity of, or the interest rate on, an indexed note based on a volatile
index may vary substantially from time to time. Because the principal amount
payable at the maturity of, or interest payable on, an indexed note is generally
calculated based on the value of the relevant index on a specified date or over
a limited period of time, volatility in the index increases the risk that the
return on the indexed notes may be adversely affected by a fluctuation in the
level of the relevant index.
The volatility of an index may be affected by political, economic or other
events, including governmental actions, or by the activities of participants in
the relevant markets. Any of these could adversely affect the value of an
indexed note. You need to keep all of this information in mind when deciding
whether to purchase notes.
- Availability and Composition of Indices
Certain indices reference several different currencies, commodities,
securities or other financial instruments. The compiler of such an index
typically reserves the right to alter the composition of the index and the
manner in which the value of the index is calculated. Such an alteration may
result in a decrease in the value of or return on an indexed note which is
linked to such index.
An index may become unavailable due to such factors as war, natural
disasters, pestilence, cessation of publication of the index, or suspension of
or disruption in trading in the currency or currencies, commodity or
commodities, security or securities or other financial instrument or instruments
comprising or underlying such an index. If an index becomes unavailable, the
determination of principal of or interest on an indexed note may be delayed or
an alternative method may be used to determine the value of the unavailable
index. Alternative methods of valuation are generally intended to produce a
value similar to the value resulting from reference to the relevant index.
However, it is unlikely that such alternative methods of valuation will produce
values identical to those which would be produced were the relevant index to be
used. An alternative method of valuation may result in a decrease in the value
of or return on an indexed note.
Certain indexed notes are linked to indices which are not commonly utilized
or have been recently developed. The lack of a trading history may make it
difficult to anticipate the volatility or other risks to which such a note is
subject. In addition, there may be less trading in such indices or instruments
underlying such indices, which could increase the volatility of such indices and
decrease the value of or return on indexed notes relating to them.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges has been computed by dividing
earnings from continuing operations before income taxes (which excludes
(a) amortization of capitalized interest and (b) IBM's share in the income and
losses of less than 50% owned affiliates) and fixed charges (excluding
capitalized interest) by fixed charges. "Fixed charges" consist of interest
expense, capitalized interest and that portion of
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rental expense deemed to be representative of interest.
SIX MONTHS YEARS ENDED DECEMBER 31:
ENDED ----------------------------------------------------
JUNE 30, 2003 2002 2001 2000 1999 1998
------------- -------- -------- -------- -------- --------
Ratio of earnings to
fixed charges...... 8.6 6.9 7.9 7.0 7.0 4.9
USE OF PROCEEDS
Unless we otherwise specify in a pricing supplement, we will use the
proceeds from the offering of our Medium-Term Notes for general corporate
purposes.
DESCRIPTION OF THE NOTES
GENERAL
The following is a summary of important terms of the notes. A complete copy
of the indenture under which the notes will be issued is filed as an exhibit to
the registration statement. The definitions of capitalized terms used in this
prospectus supplement are provided in the Glossary.
The notes will be "debt securities," as described in the attached prospectus
and will constitute one series of debt securities issued under the indenture.
They will have the same rank as all of our other debt securities.
The notes are being offered on a continuing basis. Each note will mature on
a Business Day one year or more from its date of issue, as agreed between us and
the purchaser. Unless otherwise specified in the pricing supplement, the notes
will not be subject to redemption or repayment prior to maturity and will not be
subject to any sinking fund.
The notes may bear interest at a fixed or floating rate. Interest on
floating rate notes will be determined, and adjusted periodically, by reference
to an interest rate basis or formula, adjusted by a spread or spread multiplier,
if any. We may issue notes at prices less than their stated principal amount.
Certain of such discounted notes will be considered original issue discount
notes. Original issue discount notes may or may not bear periodic interest.
Unless otherwise specified in the pricing supplement, the amount payable to the
holder of an original issue discount note upon an acceleration of its maturity
will equal its adjusted issue price. This amount will be less than the amount
payable at maturity.
Unless otherwise specified in the pricing supplement:
- the notes will be denominated in U.S. dollars and payments of principal of
and interest on the notes will be made in U.S. dollars, and
- the authorized denominations of the notes denominated in U.S. dollars will
be U.S. $100,000 and integral multiples of U.S. $1,000 in excess of
$100,000.
If specified in the pricing supplement, the amount of principal or interest
on the notes may be determined by reference to an index.
Each note will be issued in fully registered form without coupons. Each note
will be issued initially either in certificated form or in global form and
deposited with, or on behalf of, The Depository Trust Company, as depository.
Notes issued in global form will be "book-entry notes". Beneficial interests in
a book-entry note will be shown on, and transfers of those interests will be
effected only through, records maintained by DTC or its participants. Except
under limited circumstances, book-entry notes will not be issuable in
certificated form. Payments of principal and interest on book-entry notes will
be made to DTC or its nominee. Payments to beneficial owners of interests in
book-entry notes will be made through DTC and its participants. See "Description
of the Debt Securities--Definitive Global Securities" in the attached
prospectus.
Certificated notes may be presented for registration of transfer or exchange
at the corporate trust office of the security registrar for the debt securities,
JPMorgan Chase Bank, located at Institutional Trust Services, 4 New York Plaza,
15th Floor, New York, N.Y. 10004. Unless otherwise specified in the pricing
supplement, regular interest payments on certificated notes will be payable by
check to the person in whose name a certificated note is registered at the close
of business on the applicable record date before each interest
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payment date. Interest payable on certificated notes at maturity, or upon
earlier redemption or repayment of principal, will be payable to the person to
whom principal is payable. At maturity, or upon earlier redemption or repayment,
payments of principal and interest will be made only upon presentment of the
certificated note to the paying agent.
The U.S. dollar equivalent of the purchase price of a note having a
designated currency other than U.S. dollars will be determined on the basis of
the noon buying rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York for
the relevant currency on the issue date. This determination will be made by us
or our agent, as exchange rate agent for the notes.
The paying agent for the notes will initially be JPMorgan Chase Bank.
PAYMENT OF PRINCIPAL AND INTEREST PAYABLE IN A CURRENCY OTHER THAN U.S. DOLLARS
The principal, premium and interest on each note are payable by us in the
currency specified for that note. Generally, if the note requires payment in a
currency other than U.S. dollars, we will convert all payments in respect of
that note into U.S. dollars. The holder of the note may, however, elect to
receive all payments on the note in the specified currency if the pricing
supplement and the note so indicate, except under the circumstances described
under "Foreign Currency Risks--Payment Currency" above. This election may be
made by delivering a written notice to the trustee at least fifteen calendar
days before the applicable payment date. The election will remain in effect
until revoked by written notice to the trustee received at least fifteen
calendar days before the applicable payment date.
In the case of a note requiring payment in a currency other than U.S.
dollars, the amount of any U.S. dollar payment on the note will be determined by
the exchange rate agent. The determination will be based on the highest firm bid
quotation expressed in U.S. dollars received by the exchange rate agent at
approximately 11:00 a.m., New York City time, on the second Business Day before
the applicable payment date, or, if no such rate is quoted on such date, the
last date on which such rate was quoted. Quotes must be received from three
recognized foreign exchange dealers in The City of New York selected by the
exchange rate agent. If three quoting dealers are not available, then two
dealers will be used. These dealers may include the agent and the exchange rate
agent. The quotes must be based on the purchase by the quoting dealer, for
settlement on the payment date, of the aggregate amount of the currency payable
on the payment date for all notes denominated in that currency. All currency
exchange costs will be borne by the registered holders of the notes by
deductions from the payments. If no bid quotations are available, payment will
be made in the specified currency, unless that currency is unavailable due to
the imposition of exchange controls or to other circumstances beyond our
control, in which case such payments will be made as described under "Foreign
Currency Risks--Payment Currency" above.
PAYMENTS AT MATURITY
Payments of principal and interest at maturity and upon redemption will be
made in immediately available funds at the office of the paying agent at the
Money Market Operations Department of JPMorgan Chase Bank, Institutional Trust
Services, 4 New York Plaza, New York, N.Y. 10004. The note must be presented at
that office in sufficient time for the paying agent to make the payment under
its usual procedures. The notes may also be presented at that office for
registration of transfer and exchange.
INTEREST AND INTEREST RATES
Unless otherwise specified in the pricing supplement, each note will accrue
interest from and including its date of issue. The pricing supplement will
designate whether a particular note bears interest at a fixed or floating rate.
In the case of a floating rate note, the pricing supplement will also specify
whether the note will bear interest based on the CD Rate, the Commercial Paper
Rate, the Federal Funds Rate, LIBOR, the Treasury Rate, the Prime
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Rate, the CMT Rate or on another interest rate basis we set forth in the pricing
supplement.
The rate of interest on floating rate notes will reset daily, weekly,
monthly, quarterly, semi-annually or annually. The reset dates will be specified
in the pricing supplement and on the face of each note. In addition, the pricing
supplement will specify the spread or spread multiplier, if any, and the maximum
interest rate or minimum interest rate, if any, applicable to each floating rate
note. The pricing supplement relating to an offering of notes may also specify,
to the extent applicable for each note:
- the calculation agent,
- Calculation Dates,
- the Index Maturity,
- the initial interest rate,
- Interest Determination Dates,
- interest payment dates, and
- record dates.
The interest rate on the notes will in no event be higher than the maximum
rate permitted by applicable law. Under New York law as in effect on the date of
this prospectus supplement, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit does not apply to notes in a principal amount
of $2,500,000 or more.
Interest on a note will be payable on the first interest payment date
following its date of issue. However, if the date of a note's issue is on or
after the record date for that interest payment date, interest will be payable
beginning on the second interest payment date following the note's issue.
If any interest payment date for any floating rate note, other than an
interest payment date that is also the maturity date of that note, falls on a
day that is not a Business Day or, in the case of a LIBOR note, a day that is
not a LIBOR Business Day, that interest payment date will be postponed to the
next day that is a Business Day or LIBOR Business Day, as the case may be and
interest will continue to accrue. However, in the case of a LIBOR Note, if the
next LIBOR Business Day is in the following calendar month, the interest payment
date will be the preceding LIBOR Business Day. If the maturity date of any
floating or fixed rate note or an interest payment date for any fixed rate note
falls on a day that is not a Business Day or LIBOR Business Day, in the case of
the maturity date of a LIBOR note, payment of principal, premium, if any, and
interest for that note will be paid on the next Business Day or LIBOR Business
Day, as the case may be. No interest on that payment will accrue from and after
that maturity date or interest payment date.
FIXED RATE NOTES
The pricing supplement relating to an offering of fixed rate notes will
designate a fixed rate of interest per year payable on the notes. The rate of
interest may be zero. Fixed rate notes may bear one or more annual rates of
interest as specified in the pricing supplement. Unless otherwise specified in
the pricing supplement:
- the interest payment dates for fixed rate notes will be April 1 and
October 1 of each year and upon maturity, or if applicable upon
redemption;
- the regular record dates for payment of interest will be March 15 and
September 15 of each year; and
- interest, if any, on fixed rate notes will be computed on the basis of a
360-day year of twelve 30-day months.
FLOATING RATE NOTES
Unless otherwise specified in the pricing supplement, JPMorgan Chase Bank
will be the calculation agent for the calculation of rates of interest payable
on floating rate notes. Upon the request of a registered holder of a floating
rate note, the calculation agent will provide the interest rate then in effect
and, if different, the interest rate which will become effective as a result of
a determination made on the most recent Interest Determination Date for that
floating rate note.
Unless otherwise specified in the pricing supplement:
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- the regular record date for payment of interest will be the fifteenth day
before the day on which interest will be paid, whether or not such day is
a Business Day or a LIBOR Business Day; and
- each interest payment on any floating rate note will include interest
accrued from and including the date of issue or the last date to which
interest has been paid, as the case may be, to but excluding the
applicable interest payment date or the date of maturity, as the case may
be.
Accrued interest on a floating rate note will be calculated by multiplying
the principal amount of the note by an accrued interest factor. The accrued
interest factor will be computed by adding the interest factors calculated for
each day in the period for which accrued interest is being calculated. Unless
otherwise specified in the pricing supplement, the interest factor for each day
is computed by dividing the interest rate in effect on that day by:
- the actual number of days in the year, in the case of CMT Rate notes and
Treasury Rate notes, or
- 360, in the case of all other floating rate notes.
The interest rate on a floating rate note in effect on any day will be:
- if the day is a Interest Reset Date, the interest rate on the Interest
Determination Date relating to that Interest Reset Date, or
- if the day is not a Interest Reset Date, the interest rate on the Interest
Determination Date relating to the preceding Interest Reset Date.
The interest rate is subject to adjustment by a spread or a spread
multiplier, if any, and to any maximum interest rate or minimum interest rate
limitation. However, the interest rate in effect for the period from the date of
issue to, but excluding, the first Interest Reset Date will be the initial
interest rate specified in the pricing supplement.
Except as otherwise specified in the pricing supplement, all percentages and
decimals resulting from any calculation of interest on floating rate notes will
be rounded, if necessary, to the nearest one-hundred thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards. For
example, 9.876545% (or .09876545) will be rounded to 9.87655% (or .0987655) and
9.876544% (or .09876544) will be rounded to 9.87654% (or .0987654). All dollar
amounts used in or resulting from any such calculation will be rounded to the
nearest cent (with one-half cent being rounded upwards).
CD RATE NOTES
A CD Rate note will bear interest at an interest rate calculated with
reference to the CD Rate and the spread or spread multiplier, if any, as
specified in the CD Rate note and the pricing supplement.
Unless otherwise specified in the pricing supplement, the "CD Rate" for any
Interest Determination Date is the rate on that date for negotiable certificates
of deposit having the Index Maturity specified in the pricing supplement, as
published in H.15(519) prior to 3:00 P.M., New York City time, on the
Calculation Date pertaining to that Interest Determination Date under the
heading "CDs (Secondary Market)".
The following procedures will be followed 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 designated in the pricing supplement as set forth in H.15
Daily Update for that day for certificates of deposit having the Index
Maturity specified in the pricing supplement under the caption "CDs
(secondary market)".
- If that rate is not published in H.15 Daily Update by 3:00 P.M., New York
City time,
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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 nonbank dealers in negotiable U.S. dollar
certificates of deposit in New York City for negotiable certificates of
deposit in a denomination of $5,000,000 of major United States
money-center banks of the highest credit standing with a remaining
maturity closest to the Index Maturity designated in the pricing
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 be the CD Rate in effect on that Interest Determination Date.
COMMERCIAL PAPER RATE NOTES
A Commercial Paper Rate note will bear interest at an interest rate
calculated with reference to the Commercial Paper Rate and the spread or spread
multiplier, if any, as specified in the Commercial Paper Rate note and the
pricing supplement.
Unless otherwise specified in the pricing supplement, 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 specified in the
pricing supplement, as published in H.15(519) prior to 3:00 P.M., New York City
time, on the Calculation Date pertaining to that Interest Determination Date
under the heading "Commercial Paper--Nonfinancial".
The following procedures will be followed 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 designated in the pricing
supplement, as published in H.15 Daily Update under the heading
"Commercial Paper--Nonfinancial".
- If that rate is not published in H.15 Daily Update 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 commercial paper
in New York City as of 11:00 A.M., New York City time, on that Interest
Determination Date for commercial paper having the Index Maturity
specified in the pricing supplement placed for an industrial issuer whose
bond rating is "AA", or the equivalent, from a nationally recognized
rating agency. 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 be the Commercial Paper
Rate in effect on that Interest Determination Date.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate notes will bear interest at an interest rate calculated
with reference to the Federal Funds Rate and the spread or spread multiplier, if
any, as specified in the Federal Funds Rate note and the pricing supplement.
Unless otherwise specified in the pricing supplement, the "Federal Funds
Rate" for any Interest Determination Date is the rate on that date for Federal
Funds, as published in H.15(519) on the Calculation Date pertaining to that
Interest Determination Date under the heading "Federal Funds (Effective)" as
displayed on Moneyline Telerate Inc. or any successor service on page 120 or any
page that replaces page 120.
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The following procedures will be followed if the Federal Funds Rate cannot
be determined as described above:
- If the above rate does not appear on Moneyline Telerate page 120 and is
not published in H.15(519) by 9:00 A.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 under the heading
"Federal Funds (Effective)".
- If that rate is not published in H.15 Daily Update 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
brokers of Federal funds transactions in New York City as of 11:00 A.M.,
New York City time, on that Interest Determination Date. The calculation
agent, after consultation with us, will select the three brokers 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
in effect on that Interest Determination Date.
LIBOR NOTES
A LIBOR note will bear interest at an interest rate, calculated with
reference to LIBOR and the spread or spread multiplier, if any, as specified in
the LIBOR note and the pricing supplement.
Unless otherwise specified in the pricing supplement, the calculation agent
will determine LIBOR as follows:
On each Interest Determination Date:
- If "LIBOR Telerate" is specified in the pricing supplement, LIBOR will be
the rate for deposits in the Index Currency having the Index Maturity
specified in the pricing supplement, as that rate appears on the
Designated LIBOR Page as of 11:00 a.m., London time, on that Interest
Determination Date.
- If "LIBOR Reuters" is specified in the pricing supplement, LIBOR will be
the average of the offered rates for deposits in the Index Currency having
the Index Maturity specified in the pricing supplement, as those 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 neither LIBOR Reuters nor LIBOR Telerate is specified, LIBOR Telerate
will be used.
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:
- LIBOR will be determined on the basis of the offered rates at which
deposits in the Index Currency having the Index Maturity designated in the
pricing supplement and in a principal amount equal to an amount of not
less than U.S. $1 million 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, on the Interest
Determination Date to prime banks in the London interbank market. The
calculation agent will select the four banks after consultation with us
and request the principal London office of each of those banks to provide
a quotation of its rate. If at least two quotations are provided, LIBOR
for that Interest Determination Date will be the average of those
quotations.
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- If fewer than two quotations are provided as mentioned above, LIBOR will
be the average of the rates quoted by three major banks in New York City
at approximately 11:00 A.M., New York City time, on the Interest
Determination Date for loans to leading European banks in the Index
Currency having the Index Maturity designated in the pricing supplement
and in a principal amount equal to an amount not less than U.S.
$1 million that is representative for a single transaction in that market
at that time. The calculation agent, after consultation with us, 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 be LIBOR in effect on the Interest
Determination Date.
TREASURY RATE NOTES
A Treasury Rate note will bear interest at an interest rate calculated with
reference to the Treasury Rate and the spread or spread multiplier, if any, as
specified in the Treasury Rate note and the pricing supplement.
Unless otherwise specified in the pricing supplement, the "Treasury Rate"
for any Interest Determination Date is the rate set at the most recent auction
of direct obligations of the United States ("Treasury bills") having the Index
Maturity designated in the pricing supplement, as that rate appears on either
Telerate Page 56 or Telerate Page 57 under the heading "INVESTMENT RATE".
The following procedures will be followed if the Treasury Rate cannot be
determined as described above:
- If the above rate is not published on Telerate Page 56 or Telerate
Page 57 by 3:00 P.M., New York City time, on the Calculation Date, the
Treasury Rate will be the auction average rate, expressed as a Bond
Equivalent Yield, as otherwise announced by the United States Department
of the Treasury.
- If the results of the most recent auction of Treasury bills having the
Index Maturity designated in the 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 in a particular week, the
Treasury Rate will be the Bond Equivalent Yield of the rate set forth in
H.15(519) for that day opposite the Index Maturity under the caption "U.S.
Government Securities/ Treasury Bills/Secondary Market".
- If the above rate is not published in H.15(519) on the Calculation Date,
the rate for that day will be the rate set forth in H.15 Daily Update, or
another recognized electronic source used for the purpose of displaying
that rate, for that day for the Index Maturity under the caption "CDs
(secondary market)".
- If the above rate is not published in H.15(519), H.15 Daily Update or
another recognized source, then the calculation agent will determine the
Treasury Rate to be a yield to maturity, expressed as a 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 United States government securities dealers
selected by the calculation agent after consultation with us for the issue
of Treasury bills with a remaining maturity closest to the Index Maturity
specified in the pricing supplement. If fewer than three dealers selected
by the calculation agent are quoting as mentioned above, the Treasury Rate
will be the Treasury Rate in effect on that Interest Determination Date.
PRIME RATE NOTES
A Prime Rate note will bear interest at an interest rate calculated with
reference to the Prime Rate and the spread or spread multiplier, if any, as
specified in the Prime Rate note and the pricing supplement.
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Unless otherwise specified in the note and the pricing supplement, 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 9:00 A.M., New York City
time, on the Calculation Date pertaining to the Interest Determination Date
under the heading "Bank Prime Loan".
The following procedures will be followed if the Prime Rate cannot be
determined as described above:
- If the above rate is not published in H.15(519) prior to 9:00 a.m., New
York City time, on the Calculation Date, then the Prime Rate will be the
rate on the Interest Determination Date as published in H.15 Daily Update
opposite the caption "Bank Prime Loan".
- If the above rate is not published in either H.15(519) or H.15 Daily
Update 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 US Prime 1 as that bank's prime rate or base lending rate
as in effect for that Interest Determination Date.
- If fewer than four rates appear on the Reuters Screen US Prime 1 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 four major banks in The
City of New York selected by the calculation agent from a list approved by
us.
- If fewer than two rates appear on the Reuters Screen US Prime 1 on the
Interest Determination Date, then the Prime Rate will be the average of
the prime rates or base lending rates furnished by the appropriate number
of substitute U.S. banks or trust companies in The City of New York that
have a total equity capital of U.S. $500,000,000 or more and are subject
to supervision or examination by federal or state authority. The
calculation agent will select the banks or trust companies referred to
above from a list approved by us.
- If the banks selected by the calculation agent are not quoting as
mentioned above, the Prime Rate will be the Prime Rate in effect on the
Interest Determination Date.
CMT RATE NOTES
A CMT Rate note will bear interest at an interest rate calculated with
reference to the CMT Rate and the spread or spread multiplier, if any, as
specified in the CMT Rate notes and the pricing supplement.
Unless otherwise specified in the pricing supplement, 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 pertaining to the
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 Index Maturity specified in the pricing
supplement for:
- if the Designated CMT Telerate Page is 7051, such Interest Determination
Date; or
- if the Designated CMT Telerate Page is 7052, the week, or the month, as
applicable, ended immediately preceding the week 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 above rate is not displayed on the relevant page 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 Index Maturity, as published in
H.15(519).
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- 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
Index Maturity 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 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 average of the secondary
market bid 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 in
The City of New York selected by the calculation agent after consultation
with us. The calculation agent will select five leading primary United
States government securities dealers and will eliminate the highest and
lowest quotations or, in the event of equality, one of the highest and
lowest quotations, for the most recently issued direct noncallable fixed
rate obligations of the United States with an original maturity of
approximately the Index Maturity and a remaining term to maturity of not
less than the Index Maturity 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 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 United States government securities dealers in New York
City, selected using the same method described above, for the most
recently issued direct noncallable fixed rate obligations of the United
States with an original maturity of the number of years that is the next
highest to the Index Maturity and a remaining term to maturity closest to
the Index Maturity and in an amount of at least U.S. $100 million.
- If three or four but not five leading primary United States government
securities dealers selected by the calculation agent are quoting as
described above, then the CMT Rate will be based on the average of the bid
rates obtained and neither the highest nor the lowest of those quotations
will be eliminated.
- If fewer than three leading primary United States government securities
dealers selected by the calculation agent are quoting as described above,
the CMT Rate will be the CMT Rate in effect on the Interest Determination
Date.
AMORTIZING NOTES
We may from time to time offer notes on which a portion or all of the
principal amount is payable before the stated maturity in accordance with a
schedule, by application of a formula or by reference to an index. These notes
are referred to as "amortizing notes." Payments on amortizing notes will be
applied first to interest and then to principal. Further information concerning
additional terms and provisions of amortizing notes, including repayment
information, will be specified in the pricing supplement.
INDEXED NOTES
Notes may be issued from time to time as notes of which the principal,
premium and/or interest will be determined with reference to specified
currencies, currency units, commodities, stock, other securities, interest or
other notes, financial or non-financial indices or other factors, in each case
as set forth in the pricing supplement. These notes are referred to as "indexed
notes." As we described earlier on pages S-4 and S-5, we think these notes are
S-14
risky. Holders of indexed notes may receive a principal amount on maturity that
is greater than or less than the face amount of the notes depending upon the
relative value of the specified index. Information as to the method for
determining the amount of principal, premium and/or interest payable in respect
of indexed notes, certain historical information with respect to the specified
index and material tax considerations will be set forth in the pricing
supplement.
WE AGAIN ARE WARNING YOU THAT AN INVESTMENT IN INDEXED NOTES ENTAILS
SIGNIFICANT RISKS THAT ARE NOT ASSOCIATED WITH SIMILAR INVESTMENTS IN A
CONVENTIONAL FIXED-RATE DEBT SECURITY. KNOW WHAT YOU'RE BUYING. THESE NOTES CAN
CARRY RISKS WHICH ARE NOT RELATED TO OUR CREDITWORTHINESS. If the interest rate
on a note is indexed, it may result in an interest rate that is less than that
payable on a conventional fixed-rate debt security issued at the same time,
including the possibility that NO interest will be paid or that NEGATIVE
interest will accrue. If the principal amount of a note is indexed, the
principal amount payable at maturity may be less than the original purchase
price of the note if allowed pursuant to the terms of the note, including the
possibility that no principal will be paid. If the principal amount is used to
offset accrued negative interest, the principal amount payable at maturity may
be less than the original purchase price of the note if allowed pursuant to the
terms of the note, including the possibility that no principal will be paid. The
value of the applicable index depends on a number of interrelated factors,
including economic, financial and political events, over which we have no
control. Additionally, if the formula used to determine the principal amount or
interest payable with respect to these notes contains a multiple or leverage
factor, the effect of any change in the applicable index will be increased. The
historical experience of the relevant indices should not be taken as an
indication of future performance of the indices during the term of any note.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS
TO THE RISKS ENTAILED BY AN INVESTMENT IN INDEXED NOTES. YOU OUGHT TO MAKE SURE
YOUR ADVISORS ARE COMPETENT, AND ARE FAMILIAR WITH THESE NOTES. INDEXED NOTES
ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO HAVE NOT HAD PRIOR
EXPERIENCE WITH FOREIGN CURRENCY, CURRENCY UNIT, COMMODITIES, SECURITIES OR
OTHER INDICES, OR ANY OTHER FORM OF INDEXED NOTES.
FLOATING RATE/FIXED RATE NOTES
A note may be a floating rate note for a portion of its term and a fixed
rate note for a portion of its term. In this event, the interest rate on the
note will be determined as if it were a floating rate note and a fixed rate note
for each specified period, as shall be set out in the pricing supplement.
OTHER PROVISIONS
Any provisions with respect to a note, including the specification and
determination of one or more interest rate bases, the calculation of the
interest and/or principal payable on the note, any redemption, extension or
repayment provisions, or any other provisions relating to a note, may be
modified or supplemented to the extent not inconsistent with the terms of the
indenture, so long as the provisions are specified in the note and in the
pricing supplement.
BOOK-ENTRY NOTES
Book-entry notes of any series will be issued in the form of one or more
registered global notes that will be deposited with, or on behalf of, DTC, as
depositary, and registered in the name of DTC's nominee. The global note may not
be transferred except as a whole to another nominee of DTC or to a successor
depositary or its nominee.
Upon the issuance of the global note, DTC will credit, on its book-entry
registration and transfer system, the principal amount of the notes represented
by the global note to accounts of institutions that have accounts with DTC.
Institutions that have accounts with DTC are referred to as "participants." The
accounts to be credited will be designated by the agents, or by us if we sell
the notes directly. Owners of beneficial interests in the global note that are
not participants or persons that may hold through participants but desire to
purchase, sell or otherwise transfer ownership of the notes by
S-15
book-entry on the records of DTC may do so only through participants and persons
that may hold through participants. Because DTC can only act on behalf of
participants and persons that may hold through participants, the ability of an
owner of a beneficial interest in the global note to pledge notes to persons or
entities that do not participate in the book-entry and transfer system of DTC,
or otherwise take actions in respect of the notes, may be limited. In addition,
the laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. These limits and laws
may impair a purchaser's ability to transfer beneficial interests in the global
note.
So long as DTC, or its nominee, is the registered owner of a global note,
DTC or nominee will be considered the sole owner or holder of the notes
represented by the global note for all purposes under the indenture. Generally,
owners of beneficial interests in a global note will not be entitled to have
notes represented by a global note registered in their names, will not receive
or be entitled to receive physical delivery of notes in definitive form and will
not be considered the owners or holders of the notes under the indenture.
Principal and interest payments on notes registered in the name of DTC or
its nominee will be made to DTC or its nominee as the registered owner of the
global note. Neither us, the trustee, any paying agent or the note registrar
will have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in the global
note or for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
We expect that DTC, upon receipt of any payment of principal or interest,
will credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the global note as shown on the records of DTC. We also expect that payments
by participants to owners of beneficial interests in the global note held
through the participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
and registered in "street name," and will be the responsibility of such
participants. Owners of beneficial interests in the global note that hold
through DTC under a book-entry format (as opposed to holding certificates
directly) may experience some delay in the receipt of interest payments since
DTC will forward payments to its participants, which in turn will forward them
to persons that hold through participants.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by us or DTC within ninety days, we will
issue notes in definitive registered form in exchange for the global note. In
addition, either we or DTC may at any time, in our sole discretion, determine
not to have the notes represented by the global note and, in such event, we will
issue notes in definitive registered form in exchange for the global note. In
either instance, an owner of a beneficial interest in the global note will be
entitled to have notes equal in principal amount to the beneficial interest
registered in its name and will be entitled to physical delivery of the notes in
definitive form.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC was
created to hold securities of its participants and to facilitate the clearance
and settlement of securities transactions among its participants in those
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom own DTC. Access to DTC's book-entry system is also available to others,
including banks, brokers, dealers and trust companies, that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
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REDEMPTION AND REPURCHASE
If applicable, the pricing supplement will indicate the terms on which the
notes will be redeemable at our option. Unless otherwise specified in the
pricing supplement, notice of redemption will be provided by mailing a notice of
redemption to each holder at least 30 days and not more than 60 days before the
date fixed for redemption. If not all the notes having the same terms are to be
redeemed, the notes to be redeemed shall be selected by the trustee by a method
as the trustee deems fair and appropriate. Unless otherwise specified in the
pricing supplement, the notes will not be subject to any sinking fund.
We may at any time repurchase notes at any price in the open market or
otherwise. Notes purchased by us may, at our discretion, be held or resold or
surrendered to the trustee for cancellation.
REPAYMENT AT OPTION OF HOLDER
If applicable, the pricing supplement will indicate that the note will be
repayable at the holder's option on a date or dates prior to maturity, and at a
price or prices, set forth in the pricing supplement, together with accrued
interest to the date of repayment.
In order for a note to be repaid, the trustee must receive at least 30 days
but not more than 45 days prior to the repayment date:
1. appropriate wire instructions and
2. either
a. the note with the form entitled "Option to Elect Repayment" on the
reverse of the note duly completed, or
b. a telegram, telex, facsimile transmission 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 portion of 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, and
- a guarantee that the note to be repaid with the form entitled "Option
to Elect Repayment" on the reverse of the note duly completed will be
received by the trustee within five Business Days. The note and form
duly completed must actually be received by the trustee by the fifth
Business Day.
Exercise of the repayment option by the holder of a note shall be
irrevocable. The repayment option may be exercised by the holder of a note for
less than the entire principal amount of the note provided that the principal
amount of the note remaining outstanding after repayment is an authorized
denomination. No transfer or exchange of any note will be permitted after
exercise of a repayment option. If a note is to be repaid in part, no transfer
or exchange of the portion of the note to be repaid will be permitted after
exercise of a repayment option. All questions as to the validity, eligibility,
including time of receipt, and acceptance of any note for repayment will be
determined by us and our determination will be final, binding and
non-appealable.
If a note is represented by a global note, DTC's nominee will be the holder
of the note and therefore will be the only entity that can exercise a right to
repayment. In order to ensure that DTC's nominee will timely exercise a right to
repayment with respect to a particular note, the beneficial owner of such note
must instruct the broker or other direct or indirect participant through which
it holds an interest in such note to notify DTC of its desire to exercise a
right to repayment. Different firms have different cutoff times for accepting
instructions from their customers. Accordingly, each beneficial owner should
consult the broker or other direct or indirect participant through which it
holds an
S-17
interest in a note in order to ascertain the cutoff time by which an instruction
must be given in order for timely notice to be delivered to DTC.
UNITED STATES TAXATION
GENERAL
This section summarizes the material U.S. tax consequences to holders of
notes. It represents the views of our tax counsel. However, the discussion is
limited in the following ways:
- The discussion only covers you if you buy your notes in the initial
offering.
- The discussion only covers you if you hold your notes as a capital asset
(that is, for investment purposes), and if you do not have a special tax
status.
- The discussion does not cover tax consequences that depend upon your
particular tax situation in addition to your ownership of notes. We
suggest that you consult your own tax advisor about the consequences of
holding notes in your particular situation.
- The discussion is based on current law. Tax laws change regularly. We are
cautioning you that changes in the law may change the tax treatment of the
notes.
- The discussion does not cover state, local or foreign law.
- The discussion also does not cover every type of note that we might issue.
If we intend to issue a note of a type not described in this summary, and
we think the tax consequences are important, we'll provide additional
information in the Pricing Supplement for the note.
- The discussion does not apply to you if you are a Non- U.S. Holder (as
defined below) of notes and if you (a) own 10% or more of the voting stock
of the company, (b) are a "controlled foreign corporation" with respect to
the company, or (c) are a bank making a loan in the ordinary course of
your business.
- We have not requested any rulings from the Internal Revenue Service ("the
IRS") on the tax consequences of owning these notes. As a result, the IRS
could disagree with portions of this discussion.
IF YOU ARE CONSIDERING BUYING NOTES, WE SUGGEST THAT YOU CONSULT YOUR OWN
ADVISORS ABOUT THE TAX CONSEQUENCES OF HOLDING THE NOTES IN YOUR PARTICULAR
SITUATION. REMEMBER, TAXES ARE COMPLICATED, AND IT'S UP TO YOU TO COMPLY WITH
ALL TAX LAWS THAT APPLY TO YOU. IN THIS CONNECTION, ALWAYS MAKE SURE YOU KNOW
WHAT YOU ARE DOING, AND TAKE PARTICULAR CARE TO SELECT TAX ADVISORS WHO ARE
COMPETENT, FAMILIAR WITH YOUR SITUATION, AS WELL AS WITH THE NOTES YOU ARE
CONSIDERING.
TAX CONSEQUENCES TO U.S. HOLDERS
This section applies to you if you are a "U.S. Holder". A "U.S. Holder"
means a beneficial owner of a note that is, for U.S. federal income tax
purposes:
- an individual U.S. citizen or resident alien;
- a corporation, or entity taxable as a corporation, that was created under
U.S. law (federal or state); or
- an estate or trust whose world-wide income is subject to U.S. federal
income tax.
If a partnership holds notes, the tax treatment of a partner will generally
depend upon the status of the partner and upon the activities of the
partnership. If you are a partner of a partnership holding notes, we suggest
that you consult your tax advisor.
INTEREST
The tax treatment of interest paid on the notes depends upon whether the
interest is "Qualified Stated Interest."
"Qualified Stated Interest" is any interest that meets all the following
conditions:
- It is payable at least once each year.
- It is payable over the entire term of the note.
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- It is payable at a single fixed rate or, subject to certain conditions,
under a single formula.
- The note has a maturity of more than one year from its issue date.
If any interest on a note is Qualified Stated Interest, then
- If you are a cash method taxpayer (including most individual holders), you
must report that interest in your income when you receive it.
- If you are an accrual method taxpayer, you must report that interest in
your income as it accrues.
If any interest on a note is not Qualified Stated Interest, it is subject to the
rules for original issue discount ("OID") described below.
Special rules governing the treatment of interest paid on certain floating rate
notes and foreign currency notes are described below.
DETERMINING AMOUNT OF OID
Notes that have OID are subject to additional tax rules. The amount of OID
on a note is determined as follows:
- The amount of OID on a note is the "stated redemption price at maturity"
of the note minus the "issue price" of the note. If this amount is zero or
negative, there is no OID.
- The "stated redemption price at maturity" of a note is the total amount of
all principal and interest payments to be made on the note, other than
Qualified Stated Interest. In a typical case where all interest is
Qualified Stated Interest, the stated redemption price at maturity is the
same as the principal amount.
- The "issue price" of a note is the first price at which a substantial
amount of the notes are sold to the public.
- Under a special rule, if the OID determined under the general formula is
very small, it is disregarded and not treated as OID. This disregarded OID
is called "DE MINIMIS OID". If all the interest on a note is Qualified
Stated Interest, this rule applies if the amount of OID is less than the
following items multiplied together: (a) .25% (1/4 of 1%), (b) the number
of full years from the issue date to the maturity date of the note, and
(c) the principal amount.
ACCRUAL OF OID INTO INCOME
If a note has OID, the following consequences arise:
- You must include the total amount of OID as ordinary income over the life
of the note.
- You must include OID in income as the OID accrues on the notes, even if
you are on the cash method of accounting. This means that you are required
to report OID income, and in some cases pay tax on that income, before you
receive the cash that corresponds to that income.
- OID accrues on a note on a "constant yield" method. This method takes into
account the compounding of interest. Under this method, the accrual of OID
on a note, combined with the inclusion into income of any Qualified Stated
Interest on the note, will result in you being taxable at approximately a
constant percentage of your unrecovered investment in the note.
- The accruals of OID on a note will generally be less in the early years
and more in the later years.
- If any of the interest paid on the note is not Qualified Stated Interest,
that interest is taxed solely as OID. It is not separately taxed when it
is paid to you.
- Your tax basis in the note is initially your cost. It increases by any OID
(not including Qualified Stated Interest) you report as income. It
decreases by any principal payments you receive on the note, and by any
interest payments you receive that are not Qualified Stated Interest.
S-19
NOTES SUBJECT TO ADDITIONAL TAX RULES
Additional or different tax rules apply to several types of notes that we
may issue.
Short-Term Notes: Special tax rules apply to notes with a maturity of one
year or less. These are referred to by tax professionals as "short-term notes."
Since we may issue notes under our program with a maturity of one year or more,
these special tax rules relating to "short-term notes" will apply only to those
notes we issue with a maturity of one year.
- No interest on these notes is Qualified Stated Interest. Otherwise, the
amount of OID is calculated in the same manner as described above.
- You may make certain elections concerning the method of accrual of OID on
short-term notes over the life of the notes.
- If you are an accrual method taxpayer, a bank, a securities dealer, or in
certain other categories, you must include OID in income as it accrues.
- If you are a cash method taxpayer not subject to the accrual rule
described above, you do not include OID in income until you actually
receive payments on the note. Alternatively, you can elect to include OID
in income as it accrues.
- Two special rules apply if you are a cash method taxpayer and you do not
include OID in income as it accrues. First, if you sell the note or it is
paid at maturity, and you have a taxable gain, then the gain is ordinary
income to the extent of the accrued OID on the note at the time of the
sale that you have not yet taken into income. Second, if you borrow money
(or do not repay outstanding debt) to acquire or hold the note, then while
you hold the note you cannot deduct any interest on the borrowing that
corresponds to accrued OID on the note until you include the OID in your
income.
Floating Rate Notes: floating rate notes are subject to special OID rules.
- If the interest rate is based on a single fixed formula based on objective
financial information (which may include a fixed interest rate for the
initial period), all the interest will be Qualified Stated Interest. The
amount of OID (if any), and the method of accrual of OID, will then be
calculated by converting the Note's initial floating rate into a fixed
rate and by applying the general OID rules described above.
- If the note has more than one formula for interest rates, it is possible
that the combination of interest rates might create OID. We suggest that
you consult your tax advisor concerning the OID accruals on such a note.
Foreign Currency Notes: A "foreign currency note" is a note denominated in a
currency other than U.S. dollars. Special tax rules apply to these notes:
- If you are a cash method taxpayer, you will be taxed on the U.S. dollar
value of any foreign currency you receive as Qualified Stated Interest.
The dollar value will be determined as of the date when you receive the
payments.
- If you are an accrual method taxpayer, you must report Qualified Stated
Interest in income as it accrues. You can use the average foreign currency
exchange rate during the relevant interest accrual period (or, if that
period spans two taxable years, during the portion of the interest accrual
period in the relevant taxable year). In this case, you will make an
adjustment upon receipt of the foreign currency to reflect actual exchange
rates at that time. Certain alternative elections may also be available.
- Any OID on foreign currency notes will be determined in the relevant
foreign currency. You must accrue OID in the same manner that an accrual
basis holder accrues income as Qualified Stated Interest.
- Your initial tax basis in a foreign currency note is the amount of U.S.
dollars you pay for the note (or, if you pay in foreign currency, the
value of that foreign currency on the purchase date).
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Adjustments are made to reflect OID and other items as described above.
- If you collect foreign currency upon the maturity of the note, or if you
sell the note for foreign currency, your gain or loss will be based on the
U.S. dollar value of the foreign currency you receive other than amounts
received with respect to accrued but unpaid interest, which are accounted
for in the manner described above for interest payments. For a publicly
traded foreign currency note, this value is determined for cash basis
taxpayers on the settlement date for the sale of the note, and for accrual
basis taxpayers on the trade date for the sale (although such taxpayers
can also elect the settlement date). You will then have a tax basis in the
foreign currency equal to the value reported on the sale.
- Any gain or loss on the sale or retirement of a note will be ordinary
income or loss to the extent it arises from currency fluctuations between
your purchase date and sale date. Any gain or loss on the sale of foreign
currency will also be ordinary income or loss.
Other Categories of Notes: Additional rules may apply to certain other
categories of notes. The Pricing Supplement for these notes may describe these
rules. In addition, we suggest that you consult your own competent tax advisor
in these situations. These categories of notes include:
- notes with contingent payments;
- notes that you can put to us before their maturity;
- notes that are callable by us before their maturity, other than typical
calls at a premium;
- indexed notes with an index tied to currencies; and
- notes that are extendable at your option or at our option.
PREMIUM AND DISCOUNT
Additional special rules apply in the following situations involving
discount or premium:
- If you buy a note in the initial offering for more than its stated
redemption price at maturity, the excess amount you pay will be "bond
premium". You can use bond premium to reduce your taxable interest income
over the life of your note.
- Similarly, if a note has OID and you buy it in the initial offering for
more than the issue price, the excess (up to the total amount of OID) is
called "acquisition premium". The amount of OID you are required to
include in income will be reduced by this amount over the life of the
note.
- If you buy a note in the initial offering for less than the initial
offering price to the public, special rules concerning "market discount"
may apply.
Appropriate adjustments to tax basis are made in these situations. We suggest
that you consult your tax advisor if you are in one of these situations.
ACCRUAL ELECTION
You can elect to be taxed on the income from the note in a different manner
than described above. Under the election:
- No interest is Qualified Stated Interest.
- You include amounts in income as it economically accrues to you. The
accrual of income is in accordance with the constant yield method, based
on the compounding of interest. The accrual of income takes into account
stated interest, OID (including DE MINIMIS OID), market discount, and
premium.
- Your tax basis is increased by all accruals of income and decreased by all
payments you receive on the note.
SALE OR RETIREMENT OF NOTES
On your sale or retirement of your note:
- You will have taxable gain or loss equal to the difference between the
amount received by you and your tax basis in the note. Your tax basis in
the note is your cost, subject to certain adjustments.
- Your gain or loss will generally be capital gain or loss, and will be
long-term capital
S-21
gain or loss if you held the note for more than one year.
- If (a) you purchased the note with DE MINIMIS OID, (b) you did not make
the election to accrue all OID into income, and (c) you receive the
principal amount of the note upon the sale or retirement, then you will
generally have capital gain equal to the amount of the DE MINIMIS OID.
- If you sell the note between interest payment dates, a portion of the
amount you receive reflects interest that has accrued on the note but has
not yet been paid by the sale date. That amount is accounted for as if it
was a payment of interest (as described above) and not as sale proceeds.
- All or part of your gain may be ordinary income rather than capital gain
in certain cases. These cases include sales of short-term notes, notes
with market discount, notes with contingent payments, or foreign currency
notes. WE URGE YOU TO TALK WITH YOUR TAX ADVISOR TO BETTER UNDERSTAND IF
THESE RULES APPLY TO YOUR PARTICULAR SITUATION.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the tax rules, information has to be reported to the IRS. As to this
information reporting to the IRS:
- Assuming you hold your notes through a broker or other securities
intermediary, the intermediary must provide information to the IRS
concerning interest, OID and retirement proceeds on your notes, unless an
exemption applies.
- Similarly, unless an exemption applies, you must provide the intermediary
with your Taxpayer Identification Number for its use in reporting
information to the IRS. If you are an individual, this is generally your
social security number. You are also required to comply with other IRS
requirements concerning information reporting.
- If you are subject to these requirements but do not comply, the
intermediary must backup withhold a specified percentage (currently 28%)
of all amounts payable to you on the notes (including principal payments).
If the intermediary withholds payments, you may use the withheld amount as
a credit against your federal income tax liability.
- All individuals are subject to these requirements. Some holders, including
all corporations, tax-exempt organizations and individual retirement
accounts, are exempt from these requirements.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
This section applies to you if you are a "Non-U.S. Holder." A "Non-U.S.
Holder" means a beneficial owner of a note that is, for U.S. federal income tax
purposes:
- an individual that is a nonresident alien;
- a corporation organized or created under non-U.S. law; or
- an estate or trust that is not taxable in the U.S. on its worldwide
income.
WITHHOLDING TAXES
Generally, payments of principal, interest and OID on the notes will not be
subject to U.S. withholding taxes.
However, for the exemption from withholding taxes to apply to you, you must
meet one of the following requirements:
- You provide your name, address, and a signed statement that you are the
beneficial owner of the note and are not a U.S. Holder. This statement is
generally made on Form W-8BEN.
- You hold your notes directly through a "qualified intermediary", and the
qualified intermediary has sufficient information in its files indicating
that you are not a U.S. Holder. A qualified intermediary is a bank, broker
or other intermediary that (1) is either a U.S. or non-U.S. entity,
(2) is acting out of a non-U.S. branch or office and (3) has signed an
agreement with the IRS providing that it will administer all or part of
the U.S. tax withholding rules under specified procedures.
S-22
- You or your agent claim an exemption from withholding tax under an
applicable tax treaty. This claim is generally made on Form W-8BEN. In
some cases, you may instead be permitted to provide documentary evidence
of your claim to the intermediary, or a qualified intermediary may already
have some or all of the necessary evidence in its files.
- You or your agent claim an exemption from withholding tax on the ground
that the income is effectively connected with the conduct of a trade or
business in the U.S. This claim is generally made on Form W-8ECI.
We suggest that you consult your own tax advisor about the specific methods for
satisfying these requirements.
SALE OR RETIREMENT OF NOTES
If you sell a note or it is redeemed, you will not be subject to federal
income tax on any gain unless one of the following applies:
- The gain is connected with a trade or business that you conduct in the
U.S.
- You are an individual, you are present in the U.S. for at least 183 days
during the year in which you dispose of the note, and certain other
conditions are satisfied.
- The gain represents accrued interest or OID, in which case the rules for
interest would apply. Even if you sell a note or it is redeemed at a loss,
the rules for interest would apply.
U.S. TRADE OR BUSINESS
If you hold your note in connection with a trade or business that you are
conducting in the U.S.:
- Any interest on the note, and any gain from disposing of the note,
generally will be subject to income tax as if you were a U.S. Holder.
- If you are a corporation, you may be subject to the "branch profits tax"
on your earnings that are connected with your U.S. trade or business,
including earnings from the note. This tax is 30%, but may be reduced or
eliminated by an applicable income tax treaty.
ESTATE TAXES
If you are an individual, your notes will not be subject to U.S. estate tax
when you die. However, this rule only applies if, at your death, payments on the
notes were not connected to a trade or business that you were conducting in the
U.S.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. rules concerning information reporting and backup withholding are
described above. These rules apply to Non-U.S. Holders as follows:
- Principal and interest payments you receive will be automatically exempt
from the usual rules if you provide the tax certifications needed to avoid
withholding tax on interest, as we've described above. The exemption does
not apply if the recipient of the applicable form knows or has reason to
know that the form is false. In addition, interest payments made to you
may be reported to the IRS on Form 1042-S.
- Sale proceeds you receive on a sale of your notes through a broker may be
subject to information reporting and/or backup withholding if you are not
eligible for an exemption. In particular, information reporting and backup
reporting may apply if you use the U.S. office of a broker, and
information reporting (but not backup withholding) may apply if you use
the foreign office of a broker that has certain connections to the U.S. In
general, you may file Form W-8BEN to claim an exemption from information
reporting and backup withholding.
AS WITH ALL OF THESE TAX RULES, WE NOTE AGAIN THAT THEY'RE COMPLEX. WE URGE YOU
TO BE SMART AND CONSULT WITH YOUR OWN COMPETENT ADVISORS ABOUT THESE IMPORTANT
LAWS AND HOW THEY APPLY TO YOUR OWN PARTICULAR SITUATION.
S-23
PLAN OF DISTRIBUTION
We may sell the notes:
- through agents,
- through underwriters or dealers, or
- directly to purchasers.
DISTRIBUTION THROUGH AGENTS
We may sell the notes on a continuing basis through agents that become
parties to an agency agreement, a form of which is filed as an exhibit to the
registration statement. Each agent's obligations are separate and several from
those of any other agent. Each agent will use reasonable efforts when requested
by us to solicit purchases of the notes.
We will have the sole right to accept offers to purchase notes and may, in
our absolute discretion, reject any proposed purchase of notes in whole or in
part. Each agent will have the right, in its discretion reasonably exercised, to
reject in whole or in part any proposed purchase of notes through it.
We will pay each agent a commission to be negotiated at the time of sale.
Unless otherwise specified in the pricing supplement, the commission may range
from .15% to .750% of the principal amount of each note sold through that agent,
depending on its stated maturity.
As of the date of this prospectus supplement, the agents include ABN AMRO
Incorporated, Banc of America Securities LLC, Banc One Capital Markets, Inc.,
BNP Paribas Securities Corp., BNY Capital Markets, Inc., Citigroup Global
Markets Inc., Credit Suisse First Boston LLC, Deutsche Bank Securities Inc.,
Goldman, Sachs & Co., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc.,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated, and UBS Securities LLC.
DISTRIBUTION THROUGH UNDERWRITERS
We may also sell notes to any agent, acting as principal, for its own
account or for resale to one or more investors or other purchasers, including
other broker-dealers.
The agents may sell any notes they have purchased as principal to any dealer
at a discount. Unless otherwise specified in the pricing supplement, the
discount allowed to any dealer will not be in excess of the discount to be
received by the agent from us. Unless otherwise specified in the pricing
supplement, any note sold to an agent as principal will be purchased by that
agent at a price equal to 100% of the principal amount of that note less a
percentage ranging from .150% to .750% of that principal amount, depending upon
the note's stated maturity. The notes may be resold by the agent to investors
and other purchasers from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale, or the notes may be resold to certain dealers as
described above. After the initial public offering of any notes, the public
offering price and discount may be changed.
DIRECT SALES
We may sell notes directly to investors, without the involvement of any
agent or underwriter. In this case, we would not be obligated to pay any
commission or discount in connection with the sale.
GENERAL INFORMATION
The name of any agents or other persons through which we sell any notes, as
well as any commissions or discounts payable to those agents or other persons,
will be set forth in the pricing supplement.
Any agent, underwriter or dealer that participates in the offering of the
notes may be an "underwriter" within the meaning of the Securities Act of 1933.
We have agreed to indemnify each agent and certain other persons against certain
liabilities, including liabilities under the Securities Act.
We may replace the agents or appoint additional agents in connection with
the offering of the notes from time to time.
The notes will not be listed on any securities exchange. The agents have
advised us that they may from time to time purchase and sell the notes in the
secondary market. However, no agent is obligated to do so and any agent may
discontinue making a market in the notes at any time without notice. No
assurance can be
S-24
given as to the existence or liquidity of any secondary market for the notes.
The agents, as well as other agents to or through which we may sell notes,
and their affiliates may engage in transactions with us and perform services for
us in the ordinary course of business. JPMorgan Chase Bank, the trustee, is an
affiliate of J.P. Morgan Securities Inc., one of the agents.
In connection with certain offerings of the notes, the agents may engage in
overallotment, stabilizing transactions and syndicate covering transactions in
accordance with Regulation M under the Securities Exchange Act of 1934.
Overallotment involves sales in excess of the offering size, which create a
short position for the agents. Stabilizing transactions involve bids to purchase
the notes in the open market for the purpose of pegging, fixing or maintaining
the price of the notes. Syndicate covering transactions involve purchases of the
notes in the open market after the distribution has been completed in order to
cover short positions. Stabilizing transactions and syndicate covering
transactions may cause the price of the notes to be higher than it would
otherwise be in the absence of those transactions. Those activities, if
commenced, may be discontinued at any time.
LEGAL OPINIONS
Opinions regarding the validity of the notes being offered will be issued
for us by Stuart S. Moskowitz, Senior Counsel of the Company, and for the agents
by Davis Polk & Wardwell, New York, New York. Mr. Moskowitz, together with
members of his family, owns, has options to purchase and has other interests in
shares of common stock of IBM.
In the opinions described above, assumptions will be made regarding future
action required to be taken by us and the appropriate trustee in connection with
the issuance and sale of any particular notes, the specific terms of those notes
and other matters which may affect the validity of those notes but which cannot
be ascertained on the date of the relevant opinion.
GLOSSARY
Set forth below are definitions of some of the terms used in this prospectus
supplement and not defined in the attached prospectus.
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula:
DXN
Bond Equivalent Yield = ----------- X 100
360-(DXM)
where "D" refers to the annual rate for Treasury bills, quoted on a bank
discount basis and expressed as a decimal, "N" refers to the actual number of
days in the year for which interest is being calculated, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
"Business Day" means, unless otherwise specified in the pricing supplement,
any day that is not a Saturday or Sunday and that, in New York City, is not a
day on which banking institutions generally are authorized or required by law or
executive order to close.
"Calculation Date" means, with respect to any Interest Determination Date,
the date on which the calculation agent is to calculate an interest rate for a
floating rate note. Unless otherwise specified in the note and the pricing
supplement, the Calculation Date pertaining to an Interest Determination Date
for a floating rate note will be the first to occur of:
- the tenth calendar day after that Interest Determination Date or, if that
day is not a Business Day, the next succeeding Business Day or
- the Business Day preceding the applicable interest payment date or date of
maturity, redemption or repayment, of that note, as the case may be.
However, LIBOR will be calculated on the Interest Determination Date.
"Designated CMT Telerate Page" means the display on the Moneyline Telerate
Inc., or any successor service, on the page specified in the pricing supplement,
or any other page that replaces that page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no page is
specified, page 7052.
S-25
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is designated in the
pricing supplement, the display on the Reuters Monitor Money Rates Service, or a
successor nominated as the information vendor, for the purpose of displaying the
London interbank rates of major banks for the applicable Index Currency, or
(b) if "LIBOR Telerate" is designated in the pricing supplement, the display on
the Moneyline Telerate Inc., or a successor nominated as the information vendor,
for the purpose of displaying the London interbank rates of major banks for the
applicable Index Currency. If neither LIBOR Reuters nor LIBOR Telerate is
specified, LIBOR for the applicable Index Currency will be determined as if
LIBOR Telerate had been specified.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates", or any successor publication, published by the Board
of Governors of the Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world wide 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.
"Index Currency" means the currency, including composite currencies,
specified in the pricing supplement as the currency for which LIBOR shall be
calculated. If no currency is specified, the Index Currency will be U.S.
dollars.
"Index Maturity" means the period of time designated as the representative
maturity of the certificates of deposit, the commercial paper, deposits in the
Index Currency or the Treasury bills, respectively, by reference to transactions
in which the CD Rate, the Commercial Paper Rate, LIBOR, the Treasury Rate and
the CMT Rate, respectively, are to be calculated, as set forth in the pricing
supplement.
"Interest Determination Date" means the date as of which the interest rate
for a floating rate note is to be calculated, to be effective as of the
following Interest Reset Date and calculated on the related Calculation Date.
However, LIBOR will be calculated on the Interest Determination Date. Unless
otherwise specified in the pricing supplement:
- the Interest Determination Date pertaining to an Interest Reset Date for a
CD Rate Note, Commercial Paper Rate Note, Federal Funds Rate Note, Prime
Rate Note or CMT Rate Note will be the second Business Day preceding that
Interest Reset Date;
- the Interest Determination Date pertaining to a Interest Reset Date for a
LIBOR Note will be the second business day in London preceding that
Interest Reset Date. A business day in London will be any day on which
dealings in deposits in U.S. dollars are transacted in the London
interbank market; and
- the Interest Determination Date pertaining to a Interest Reset Date for a
Treasury Rate Note will be the day of the week during which that Interest
Reset Date falls on which Treasury bills of the Index Maturity designated
in the pricing supplement are auctioned. Treasury bills are usually sold
at auction on Monday of each week, unless that day is a legal holiday, in
which case the auction is usually held on the following Tuesday or may be
held on the preceding Friday. If, as the result of a legal holiday, an
auction is held on the preceding Friday, that Friday will be the Interest
Determination Date pertaining to the Interest Reset Date occurring in the
following week.
"Interest Reset Date" means the date on which a floating rate note will
begin to bear interest at the interest rate determined as of any Interest
Determination Date. Unless otherwise specified in the applicable note and
pricing supplement, the Interest Reset Dates will be:
- in the case of floating rate notes that reset daily, each Business Day;
- in the case of floating rate notes, other than Treasury Rate notes, that
reset weekly, Wednesday of each week;
- in the case of Treasury Rate notes that reset weekly, Tuesday of each
week;
S-26
- in the case of floating rate notes that reset monthly, the third Wednesday
of each month;
- in the case of floating rate notes that reset quarterly, the third
Wednesday of March, June, September and December of each year;
- in the case of floating rate notes that reset semi-annually, the third
Wednesday of each of two months of each year specified in the pricing
supplement; and
- in the case of floating rate notes that reset annually, the third
Wednesday of one month of each year specified in the pricing supplement.
If an Interest Reset Date for any floating rate note would otherwise be a day
that is not a Business Day, or, in the case of a LIBOR note, a day that is not a
LIBOR Business Day, that Interest Reset Date will be postponed to the next
Business Day or LIBOR Business Day, as the case may be. However, in the case of
a LIBOR note, if that LIBOR Business Day is in the following calendar month,
that Interest Reset Date will be the preceding LIBOR Business Day. If a Treasury
bill auction, as described in the definition of "Interest Determination Date,"
will be held on any day that would otherwise be a Interest Reset Date for a
Treasury Rate note, then that Interest Reset Date will instead be the Business
Day immediately following that auction date.
"LIBOR" means London Inter-Bank Offered Rates.
"LIBOR Business Day" means any day that is not a Saturday or Sunday and
that, in the City of New York or the City of London, is not a day on which
banking institutions generally are authorized or required by law or executive
order to close.
"Money Market Yield" means a yield calculated in accordance with the
following formula:
DX360
Money Market Yield = ----------- X 100
360-(DXM)
where "D" refers to the annual rate for the 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.
"Reuters Screen US Prime 1 Page" means the display on the Reuters Monitor
Money Rates Service on the page designated as "US Prime 1," or any other page
that replaces that page on that service for the purpose of displaying prime
rates or base lending rates of major United States banks.
"Telerate Page 56" and "Telerate Page 57" mean the displays designated on
Moneyline Telerate, Inc. as Page 56 or Page 57, or any page that replaces either
Page 56 or Page 57 on that service, or another service that is nominated as the
information vendor, for the purpose of displaying Treasury bill auction rates.
S-27
PROSPECTUS
INTERNATIONAL BUSINESS MACHINES CORPORATION
New Orchard Road
Armonk, New York 10504
(914) 499-1900
$20,000,000,000
DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
CAPITAL STOCK
WARRANTS
---------------------
WE WILL PROVIDE SPECIFIC TERMS OF THESE SECURITIES IN SUPPLEMENTS TO THIS
PROSPECTUS.
YOU SHOULD READ THIS PROSPECTUS AND ANY SUPPLEMENT CAREFULLY BEFORE YOU INVEST.
------------------------
These securities have not been approved by the Securities and Exchange
Commission or any state securities commission, nor have these organizations
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is February 4, 2003.
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the terms
of our securities, you should carefully read this document with the attached
prospectus supplement. Together these documents will give the specific terms of
the securities we are offering. You should also read the documents we have
incorporated by reference into this prospectus for information on us and our
financial statements. Certain capitalized terms used in this summary are defined
elsewhere in this prospectus.
THE SECURITIES WE MAY OFFER
This prospectus is part of a registration statement (No. 333-102603) that we
filed with the SEC utilizing a "shelf" registration process. Under this shelf
process, we may offer from time to time up to $20,000,000,000 of any of the
following securities, either separately or in units: DEBT, PREFERRED STOCK,
DEPOSITARY SHARES, CAPITAL STOCK AND WARRANTS. This prospectus provides you with
a general description of the securities we may offer. Each time we offer
securities, we will provide you with a prospectus supplement that will describe
the specific amounts, prices and terms of the securities being offered. The
prospectus supplement may also add, update or change information contained in
this prospectus.
DEBT SECURITIES
We may offer unsecured general obligations of our company, which may be
senior or subordinated. The senior debt securities and the subordinated debt
securities are together referred to in this prospectus as the "debt securities".
The senior debt securities will have the same rank as all of our other
unsecured, unsubordinated debt. The subordinated debt securities will be
entitled to payment only after payment on our senior indebtedness. Senior
indebtedness includes all indebtedness for money borrowed by us, except
indebtedness that is stated to be not superior to, or to have the same rank as,
the subordinated debt securities. In addition, the subordinated debt securities
will be effectively subordinated to creditors of our subsidiaries.
The senior debt securities will be issued under an indenture between us and
JPMorgan Chase Bank, as the trustee. The subordinated debt securities will be
issued under an indenture between us and the trustee we name in the prospectus
supplement. We have summarized general features of the debt securities from the
indentures. We encourage you to read the indentures which are exhibits to the
registration statement and our recent periodic and current reports that we file
with the SEC.
GENERAL INDENTURE PROVISIONS THAT APPLY TO SENIOR AND SUBORDINATED DEBT
SECURITIES
Neither indenture limits the amount of debt that we may issue. In addition,
neither indenture provides holders any protection should there be a
recapitalization or restructuring involving our company.
The indentures allow us to merge or consolidate with another company, or to
sell all or most of our assets to another company. If these events occur, the
other company will be required to assume our responsibilities relating to the
debt securities, and we will be released from all liabilities and obligations.
The indentures provide that holders of a majority of the outstanding
principal amount of any series of debt securities may vote to change our
obligations or your rights concerning that series. However, to change the amount
or timing of principal, interest or other payments under the debt securities,
every holder in the series must consent.
We may discharge our obligations under the indenture relating to the senior
debt securities by depositing with the trustee sufficient funds or government
obligations to pay the senior debt securities when due.
2
EVENTS OF DEFAULT. Each indenture provides that the following are events of
default:
- If we do not pay interest for 30 days after its due date.
- If we do not pay principal or premium when due.
- If we do not make any sinking fund payment for 30 days after its due date.
- If we continue to breach a covenant for 90 days after notice.
- If we enter bankruptcy or become insolvent.
If an event of default occurs under any series of debt securities, the
trustee or holders of 25% of the outstanding principal amount of that series may
declare the principal amount of the series immediately payable. However, holders
of a majority of the principal amount may rescind this action.
GENERAL INDENTURE PROVISIONS THAT APPLY ONLY TO SENIOR DEBT SECURITIES
The indenture relating to the senior debt securities contains covenants
restricting our ability to incur secured indebtedness and enter into sale and
leaseback transactions.
GENERAL INDENTURE PROVISIONS THAT APPLY ONLY TO SUBORDINATED DEBT SECURITIES
The subordinated debt securities will be subordinated to all senior
indebtedness. In addition, claims of our subsidiaries' creditors generally will
have priority with respect to the subsidiaries' assets and earnings over the
claims of our creditors, including holders of the subordinated debt securities.
The subordinated debt securities, therefore, will be effectively subordinated to
creditors of our subsidiaries.
The indenture relating to the subordinated debt securities does not provide
holders any protection in the event of a highly leveraged transaction.
PREFERRED STOCK AND DEPOSITARY SHARES
We may issue our preferred stock, par value $0.01 per share, in one or more
series. Our Board of Directors will determine the dividend, voting, conversion
and other rights of the series being offered and the terms and conditions
relating to its offering and sale at the time of the offer and sale. We may also
issue fractional shares of preferred stock that will be represented by
depositary shares and depositary receipts.
CAPITAL STOCK
We may issue our capital stock, par value $0.20 per share. Holders of
capital stock are entitled to receive dividends if and when those dividends are
declared by our Board of Directors, subject to rights of preferred stockholders.
Each holder of capital stock is entitled to one vote per share. The holders of
capital stock have no preemptive rights or cumulative voting rights.
WARRANTS
We may issue warrants for the purchase of debt securities, preferred stock
or capital stock. We may issue warrants independently or together with other
securities.
RATIO OF EARNINGS FROM CONTINUING OPERATIONS TO FIXED CHARGES AND EARNINGS FROM
CONTINUING OPERATIONS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
We compute the ratio of earnings from continuing operations to fixed charges
by dividing earnings from continuing operations before income taxes (which
excludes (a) amortization of capitalized interest and (b) IBM's share in the
income and losses of less than 50% owned affiliates) and fixed charges
(excluding capitalized interest) by fixed charges. Fixed charges consist of
interest expense, capitalized interest and that portion of rental expense deemed
to be representative of interest.
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The ratio of earnings from continuing operations to combined fixed charges
and preferred stock dividends includes in the ratio computation preferred stock
dividends representing the pre-tax earnings that would be required to cover
those dividend requirements based on IBM's effective income tax rates for the
respective periods.
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------
SEPTEMBER 30, 2002 2001 2000 1999 1998 1997
------------------ -------- -------- -------- -------- --------
Ratio of earnings from continuing operations to
fixed charges.................................... 5.9 7.9 7.0 7.0 4.9 5.1
Ratio of earnings from continuing operations to
combined fixed charges and preferred stock
dividends........................................ 5.9 7.8 6.9 6.9 4.8 5.0
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room in Washington, D.C. Please call the SEC at
1-800-SEC-0330 for further information on their public reference room. Our SEC
filings are also available to the public at the SEC's web site at
(http://www.sec.gov).
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it. This means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until our offering is completed:
i. Annual Report on Form 10-K for the year ended December 31, 2001;
ii. Quarterly report on Form 10-Q for the quarters ended March 31,
2002, June 30, 2002 and September 30, 2002; and
iii. Current Reports on Form 8-K, filed on January 17, 2002,
January 29, 2002, April 8, 2002, April 17, 2002, May 9, 2002, June 4, 2002,
July 1, 2002, July 9, 2002, July 17, 2002, July 30, 2002, August 13, 2002,
August 28, 2002, September 9, 2002, October 16, 2002, October 29, 2002,
November 4, 2002, November 14, 2002, November 26, 2002, December 4, 2002,
December 31, 2002, January 2, 2003 and January 17, 2003.
We encourage you to read our periodic and current reports. Not only do we
think these items are interesting reading, we think these reports provide
additional information about our company which prudent investors find important.
You may request a copy of these filings at no cost, by writing to or telephoning
our transfer agent at the following address:
Equiserve Trust Company, N.A.
P.O. Box 43072
Providence, Rhode Island 02940
(781) 575-2727
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of the
document.
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DESCRIPTION OF THE COMPANY
We were originally incorporated in the State of New York on June 16, 1911,
as the Computing-Tabulating-Recording Co. (C-T-R). C-T-R was a consolidation of
the Computing Scale Co. of America, the Tabulating Machine Co., and The
International Time Recording Co. of New York. In 1924, C-T-R adopted the name
International Business Machines Corporation, also known more simply as IBM.
We use advanced information technology to provide customer solutions. We
operate primarily in a single industry using several segments that create value
by offering a variety of solutions that include, either singularly or in some
combination, technologies, systems, products, services, software and financing.
Organizationally, our major operations comprise a Global Services segment;
three hardware product segments--Enterprise Systems, Personal and Printing
Systems and Technology; a Software segment; a Global Financing segment and an
Enterprise Investments segment. The segments are determined based on several
factors, including customer base, homogeneity of products, technology and
delivery channels.
We offer our products through our global sales and distribution
organizations. The sales and distribution organizations have both a geographic
focus (in the Americas, Europe/Middle East/Africa, and Asia Pacific) and a
specialized and global industry focus. In addition, these organizations include
a global sales and distribution effort devoted exclusively to small and medium
businesses. We also offer our products through a variety of third party
distributors and resellers, as well as through our on-line channels.
USE OF PROCEEDS
Unless we otherwise specify in the applicable prospectus supplement, the net
proceeds we receive from the sale of the securities offered by this prospectus
and the accompanying prospectus supplement will be used for general corporate
purposes. General corporate purposes may include the repayment of debt,
investments in or extensions of credit to our subsidiaries, redemption of any
preferred stock we may issue, or the financing of possible acquisitions or
business expansion. The net proceeds may be invested temporarily or applied to
repay short-term debt until they are used for their stated purpose.
5
DESCRIPTION OF THE DEBT SECURITIES
The following description of the terms of the debt securities sets forth
general terms that may apply to the debt securities. The particular terms of any
debt securities will be described in the prospectus supplement relating to those
debt securities.
The debt securities will be either our senior debt securities or our
subordinated debt securities. The senior debt securities will be issued under an
indenture dated as of October 1, 1993, as supplemented on December 15, 1995,
between us and JPMorgan Chase Bank, as trustee. This indenture is referred to as
the "senior indenture". The subordinated debt securities will be issued under an
indenture to be entered into between us and the trustee named in a prospectus
supplement. This indenture is referred to as the "subordinated indenture". The
senior indenture and the subordinated indenture are together called the
"indentures".
The following is a summary of the most important provisions of the
indentures. Copies of the entire indentures are exhibits to the registration
statement of which this prospectus is a part. Section references below are to
the section in the applicable indenture. The referenced sections of the
indentures are incorporated by reference. We encourage you to read our
indentures.
GENERAL
Neither indenture limits the amount of debt securities that we may issue.
Each indenture provides that debt securities may be issued up to the principal
amount authorized by us from time to time. The senior debt securities will be
unsecured and will have the same rank as all of our other unsecured and
unsubordinated debt. The subordinated debt securities will be unsecured and will
be subordinated and junior to all senior indebtedness.
The debt securities may be issued in one or more separate series of senior
debt securities and/or subordinated debt securities. The prospectus supplement
relating to the particular series of debt securities being offered will specify
the particular amounts, prices and terms of those debt securities. These terms
may include:
- the title of the debt securities;
- any limit upon the aggregate principal amount of the debt securities;
- the maturity date or dates, or the method of determining the maturity
dates;
- the interest rate or rates, or the method of determining those rates;
- the interest payment dates and, for debt securities in registered form,
the regular record dates;
- the places where payments may be made;
- any mandatory or optional redemption provisions;
- any sinking fund or analogous provisions;
- any conversion or exchange provisions;
- any terms for the attachment to the debt securities of warrants, options
or other rights to purchase or sell our securities;
- the portion of principal amount of the debt security payable upon
acceleration of maturity if other than the full principal amount;
- any deletions of, or changes or additions to, the events of default or
covenants;
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- if other than U.S. dollars, the currency or currencies, composite
currencies, in which payments on the debt securities will be payable and
whether the holder may elect payment to be made in a different currency;
- the method of determining the amount of any payments on the debt
securities which are linked to an index;
- whether the debt securities will be issued in fully registered form
without coupons or in bearer form, with or without coupons, or any
combination of these, and whether they will be issued in the form of one
or more global securities in temporary or definitive form;
- any terms relating to the delivery of the debt securities if they are to
be issued upon the exercise of warrants;
- whether and on what terms we will pay additional amounts to holders of the
debt securities that are not U.S. persons for any tax, assessment or
governmental charge withheld or deducted and, if so, whether and on what
terms we will have the option to redeem the debt securities rather than
pay the additional amounts; and
- any other specific terms of the debt securities.
(Sections 202 and 301)
Unless we otherwise specify in the prospectus supplement:
- the debt securities will be registered debt securities;
- registered debt securities denominated in U.S. dollars will be issued in
denominations of $1,000 or an integral multiple of $1,000; and
- bearer debt securities denominated in U.S. dollars will be issued in
denominations of $5,000.
Debt securities may bear legends required by United States Federal tax law
and regulations. (Section 401)
If any of the debt securities are sold for any foreign currency or currency
unit, or if any payments on the debt securities are payable in any foreign
currency or currency unit, the prospectus supplement will contain any
restrictions, elections, tax consequences, specific terms and other information
relating to the debt securities and the foreign currency or currency unit.
Some of the debt securities may be issued as original issue discount debt
securities. Original issue discount securities bear no interest or bear interest
at below-market rates. These are sold at a discount below their stated principal
amount. If we issue these securities, the prospectus supplement will describe
any special tax, accounting or other information which we think is important. We
encourage you to consult with your own competent tax and financial advisors on
these important matters.
EXCHANGE, REGISTRATION AND TRANSFER
Debt securities may be transferred or exchanged at the corporate trust
office of the security registrar or at any other office or agency which is
maintained for these purposes. No service charge will be payable upon the
transfer or exchange, except for any applicable tax or governmental charge.
The designated security registrar in the United States for the senior debt
securities is JPMorgan Chase Bank, located at 4 New York Plaza, 15th Floor, New
York, New York 10004. The security registrar for the subordinated debt
securities will be designated in a prospectus supplement.
If debt securities are issuable in both registered and bearer form, the
bearer securities will be exchangeable for registered securities. If a bearer
security with related coupons is surrendered in exchange for a registered
security between a record date and the date set for the payment of interest,
7
the bearer security will be surrendered without the coupon relating to that
interest payment. That interest payment will be made only to the holder of the
coupon when due.
In the event of any redemption in part of any series of debt securities, we
will not be required to:
- issue, register the transfer of, or exchange, debt securities of any
series between the opening of business 15 business days before any
selection of debt securities of that series to be redeemed and the close
of business on:
- the day of mailing of the relevant notice of redemption (if debt
securities of the series are issuable only in registered form), and
- the day of the first publication of the relevant notice of redemption
(if the debt securities of the series are issuable in bearer form) or,
- the day of mailing of the relevant notice of redemption (if the debt
securities of the series are issuable in bearer and registered form)
and there is no publication;
- register the transfer of, or exchange, any registered security selected
for redemption, in whole or in part, except the unredeemed portion of any
registered security being redeemed in part; or
- exchange any bearer security selected for redemption, except to exchange
it for a registered security which is simultaneously surrendered for
redemption.
(Section 404)
PAYMENT AND PAYING AGENT
We will pay principal, interest and any premium on fully registered
securities in the designated currency or currency unit at the office of the
paying agent. Payment of interest on fully registered securities may be made by
check mailed to the persons in whose names the debt securities are registered on
days specified in the indentures or any prospectus supplement. (Sections 406 and
410)
We will pay principal, interest and any premium on bearer securities in the
designated currency or currency unit at the office of the paying agent or agents
outside of the United States. Payments will be made at the offices of the paying
agent in the United States only if the designated currency is U.S. dollars and
payment outside of the United States is illegal or effectively precluded.
(Sections 410 and 1102)
If any amount payable on any debt security or coupon remains unclaimed at
the end of two years after the amount became due and payable, the paying agent
will release any unclaimed amounts to us. (Section 1103)
Our paying agent in the United States for the senior debt securities is
JPMorgan Chase Bank, located at 4 New York Plaza, 15th Floor, New York, New York
10004. If and when we issue subordinated debt securities, we'll designate the
paying agent for those subordinated debt securities in the applicable prospectus
supplement.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global certificates. Those certificates will be deposited
with a depositary that we will identify in a prospectus supplement. Global debt
securities may be issued in either registered or bearer form and can be in
either temporary or definitive form. All global securities in bearer form will
be deposited with a depositary outside of the United States. We will describe
the specific terms of the depositary arrangement relating to a series of debt
securities in the prospectus supplement.
8
Other than for payments, we can treat a person having a beneficial interest
in a definitive global security as the holder of the principal amount of
outstanding debt securities represented by the global security. For these
purposes, we can rely upon a written statement delivered to the trustee by the
holder of the definitive global security, or, in the case of a definitive global
security in bearer form, by Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System, and Clearstream Banking, societe
anonyme (Clearstream, Luxembourg). (Section 411)
Neither we, the trustee nor any of our respective agents will be responsible
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a global security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. (Section 411)
Unless we otherwise specify in a prospectus supplement, we anticipate that
the following provisions will apply to our depositary arrangements:
TEMPORARY GLOBAL SECURITIES
All or any portion of the debt securities of a series that are issuable in
bearer form initially may be represented by one or more temporary global
securities, without interest coupons. The temporary global securities will be
deposited with a depositary in London for Euroclear and Clearstream for credit
to the accounts of the beneficial owners of the debt securities or to such other
accounts as they may direct.
On and after an exchange date provided in the applicable prospectus
supplement, each temporary global security will be exchangeable for definitive
debt securities in bearer form, registered form, definitive global bearer form
or a combination of these, as will be specified in the prospectus supplement.
No bearer security delivered in exchange for a portion of a temporary global
security will be mailed or delivered to any location in the United States.
(Sections 402 and 403)
Interest on a temporary global security will be paid to Euroclear and/or
Clearstream for the portion held for its account only after a certificate is
delivered to the trustee stating that the portion:
- is not beneficially owned by a United States person;
- has not been acquired by or on behalf of a United States person or for
offer to resell or for resale to a United States person or any person
inside the United States; or
- if a beneficial interest has been acquired by a United States person,
that:
- such person is a financial institution (as defined in the Internal
Revenue Code), purchasing for its own account or has acquired the debt
security through a financial institution; and
- that the debt securities are held by a financial institution that has
agreed in writing to comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Internal Revenue Code and the
regulations thereunder, and that it did not purchase for resale inside
the United States.
The certificate must be based on statements provided by the beneficial
owners of interests in the temporary global security. Each of Euroclear and
Clearstream will credit the interest received by it to the accounts of the
beneficial owners of the debt security, or to other accounts as they may direct.
(Section 403)
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DEFINITIVE GLOBAL SECURITIES
BEARER SECURITIES. The applicable prospectus supplement will describe the
exchange provisions, if any, of debt securities issuable in definitive global
bearer form. We will not deliver any bearer securities in exchange for a portion
of a definitive global security to any location in the United States. (Section
404)
U.S. BOOK-ENTRY SECURITIES. Debt securities of a series represented by a
definitive global registered security and deposited with or on behalf of a
depositary in the United States will be registered in the name of the depositary
or its nominee. These securities are referred to as "book-entry securities".
When a global security is issued and deposited with the depositary, the
depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts represented by that global security to the accounts
of institutions that have accounts with the depositary or its nominee.
Institutions that have accounts with the depositary or its nominee are referred
to as "participants".
The accounts to be credited shall be designated by the underwriters or
agents for the sale of such book-entry securities or by us, if we offer and sell
those securities directly.
Ownership of book-entry securities are limited to participants or persons
that may hold interests through participants. In addition, ownership of these
securities will be evidenced only by, and the transfer of that ownership will be
effected only through, records maintained by the depositary or its nominee or by
participants or persons that hold through other participants.
So long as the depositary, or its nominee, is the registered owner of a
global security, that depositary or nominee will be considered the sole owner or
holder of the book-entry securities represented by the global security for all
purposes under the indenture. Payments of principal, interest and premium on
those securities will be made to the depositary or its nominee as the registered
owner or the holder of the global security.
Owners of book-entry securities:
- will not be entitled to have the debt securities registered in their
names;
- will not be entitled to receive physical delivery of the debt securities
in definitive form; and
- will not be considered the owners or holders of those debt securities
under the indenture.
The laws of some jurisdictions require that purchasers of securities take
physical delivery of the securities in definitive form. These laws may impair
the ability to purchase or transfer book-entry securities.
We expect that the depositary for book-entry securities of a series will
immediately credit participants' accounts with payments received by the
depositary or nominee in amounts proportionate to the participants' beneficial
interests as shown on the records of such depositary.
We also expect that payments by participants to owners of beneficial
interests in a global security held through the participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name". The payments by participants to the owners of beneficial
interests will be the responsibility of those participants.
PRACTICAL IMPLICATIONS OF HOLDING DEBT SECURITIES IN STREET NAME
Investors who hold debt securities in accounts at banks or brokers will not
generally be recognized by us as the legal holders of debt securities. Since we
recognize as the holder the bank or broker, or the financial institution the
bank or broker uses to hold its debt securities, it is the responsibility of
these intermediary banks, brokers and other financial institutions to pass along
principal, interest and
10
other payments on the debt securities, either because they agree to do so in
their agreements with their customers, or because they are legally required to
do so. If you hold debt securities in street name, you really ought to check
with your own institution to find out:
- How it handles securities payments and notices;
- Whether it imposes additional fees or charges;
- How it would handle voting and related issues if ever required;
- How it would pursue or enforce rights under the debt securities if there
were a default or other event triggering the need for direct holders to
act to protect their interests; and
- Whether and how it would react on other matters which are important to
persons who hold debt securities in "street name".
COVENANTS
LIMITATION ON MERGER, CONSOLIDATION AND CERTAIN SALES OF ASSETS. We may,
without the consent of the holders of the debt securities, merge into or
consolidate with any other corporation, or convey or transfer all or
substantially all of our properties and assets to another person provided that:
- the successor is a U.S. corporation;
- the successor assumes on the same terms and conditions all the obligations
under the debt securities and the indentures; and
- immediately after giving effect to the transaction, there is no default
under the applicable indenture. (Section 901)
The remaining or acquiring corporation will take over all of our rights and
obligations under the indentures. (Section 902)
SATISFACTION AND DISCHARGE; DEFEASANCE
We may be discharged from our obligations on the debt securities of any
series that have matured or will mature or be redeemed within one year if we
deposit with the trustee enough cash to pay all the principal, interest and any
premium due to the stated maturity date or redemption date of the debt
securities. (Section 501)
Each indenture contains a provision that permits us to elect:
1. to be discharged after 90 days from all of our obligations (subject to
limited exceptions) with respect to any series of debt securities then
outstanding; and/or
2. to be released from our obligations under the following covenants and
from the consequences of an event of default or cross-default resulting
from a breach of these covenants:
a. the limitations on mergers, consolidations and sale of assets,
b. the limitations on sale and leaseback transactions under the senior
indenture, and
c. the limitations on secured indebtedness under the senior indenture.
To make either of the above elections, we must deposit in trust with the
trustee enough money to pay in full the principal, interest and premium on the
debt securities. This amount may be made in cash and/or U.S. government
obligations, if the debt securities are denominated in U.S. dollars. This amount
may be made in cash, and/or foreign government securities if the debt securities
are denominated in a foreign currency. As a condition to either of the above
elections, we must deliver to
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the trustee an opinion of counsel that the holders of the debt securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of the action. (Section 503)
If either of the above events occur, the holders of the debt securities of
the series will not be entitled to the benefits of the indenture, except for
registration of transfer and exchange of debt securities and replacement of
lost, stolen or mutilated debt securities. (Sections 501 and 503)
EVENTS OF DEFAULT, NOTICE AND WAIVER
If an event of default for any series of debt securities occurs and
continues, the trustee or the holders of at least 25% in principal amount of the
debt securities of the series may declare the entire principal amount of all the
debt securities of that series to be due and payable immediately.
The declaration may be annulled and past defaults may be waived by the
holders of a majority of the principal amount of the debt securities of that
series. However, payment defaults that are not cured may only be waived by all
holders of the debt securities. (Sections 602 and 613)
Each indenture defines an event of default in connection with any series of
debt securities as one or more of the following events:
- we fail to pay interest on any debt security of the series for 30 days
when due;
- we fail to pay the principal or any premium on any debt securities of the
series when due;
- we fail to make any sinking fund payment for 30 days when due;
- we fail to perform any other covenant in the debt securities of the series
or in the applicable indenture relating to debt securities of that series
for 90 days after being given notice; and
- we enter into bankruptcy or become insolvent.
An event of default for one series of debt securities is not necessarily an
event of default for any other series of debt securities. (Section 601)
Each indenture requires the trustee to give the holders of a series of debt
securities notice of a default for that series within 90 days unless the default
is cured or waived. However, the trustee may withhold this notice if it
determines in good faith that it is in the interest of those holders. The
trustee may not, however, withhold this notice in the case of a payment default.
(Section 702)
Other than the duty to act with the required standard of care during an
event of default, a trustee is not obligated to exercise any of its rights or
powers under the indenture at the request or direction of any of the holders of
debt securities, unless the holders have offered to the trustee reasonable
indemnification. (Section 703)
Generally, the holders of a majority in principal amount of outstanding debt
securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or exercising any trust or
other power conferred on the trustee. (Section 612)
Each indenture includes a covenant that we will file annually with the
trustee a certificate of no default, or specifying any default that exists.
(Section 1106)
Street name and other indirect holders should consult their banks and
brokers for information on their requirements for giving notice or taking other
actions upon a default.
MODIFICATION OF THE INDENTURES
Together with the trustee, we may modify the indentures without the consent
of the holders for limited purposes, including adding to our covenants or events
of default, establishing forms or terms of
12
debt securities, curing ambiguities and other purposes which do not adversely
affect the holders in any material respect. (Section 1001)
Together with the trustee, we may also make modifications and amendments to
each indenture with the consent of the holders of a majority in principal amount
of the outstanding debt securities of all affected series. However, without the
consent of each affected holder, no modification may:
- change the stated maturity of any debt security;
- reduce the principal, premium (if any) or rate of interest on any debt
security;
- change any place of payment or the currency in which any debt security is
payable;
- impair the right to enforce any payment after the stated maturity or
redemption date;
- adversely affect the terms of any conversion right;
- reduce the percentage of holders of outstanding debt securities of any
series required to consent to any modification, amendment or waiver under
the indenture;
- change any of our obligations for any outstanding series of debt
securities to maintain an office or agency in the places and for the
purposes specified in the indenture for that series; or
- change the provisions in the indenture that relate to its modification or
amendment.
(Section 1002)
MEETINGS
The indentures contain provisions for convening meetings of the holders of
debt securities of a series. (Section 1401)
A meeting may be called at any time by the trustee, upon request by us or
upon request by the holders of at least 10% in principal amount of the
outstanding debt securities of the series. In each case, notice will be given to
the holders of debt securities of the series. (Section 1402)
Persons holding a majority in principal amount of the outstanding debt
securities of a series will constitute a quorum at a meeting. A meeting called
by us or the trustee that did not have a quorum may be adjourned for not less
than 10 days, and if there is not a quorum at the adjourned meeting, the meeting
may be further adjourned for not less than 10 days.
Generally, any resolution presented at a meeting at which a quorum is
present may be adopted by the affirmative vote of the holders of a majority in
principal amount of the outstanding debt securities of that series. However, to
change the amount or timing of payments under the debt securities, every holder
in the series must consent.
In addition, if the indenture provides that an action may be taken by the
holders of a specified percentage in principal amount of outstanding debt
securities of a series, that action may be taken at a meeting at which a quorum
is present by the affirmative vote of the holders of such specified percentage
in principal amount of the outstanding debt securities of that series. Any
resolution passed or decision taken at any meeting of holders of debt securities
of any series duly held in accordance with an indenture will be binding on all
holders of debt securities of that series and the related coupons.
(Section 1404)
NOTICES TO HOLDERS
In most instances, notices to holders of bearer securities will be given by
publication at least once in a daily newspaper in The City of New York and in
London. Notices may also be published in another city or cities as may be
specified in the securities. In addition, notices to holders of bearer
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securities will be mailed to those persons whose names and addresses were
previously filed with the applicable trustee. Notice to holders of registered
securities will be given by mail to the addresses of the holders as they appear
in the security register. (Section 106)
TITLE
Title to any bearer securities and any related coupons will pass by
delivery. We, the trustee and any agent of ours or the trustee may treat the
holder of any bearer security or related coupon as the absolute owner of that
security for all purposes. We may also treat the registered owner of any
registered security as the absolute owner of that security for all purposes.
(Section 407)
REPLACEMENT OF SECURITIES AND COUPONS
We think it's very important for you to keep your securities safe. If you
don't, you'll have to follow these procedures. We'll replace debt securities or
coupons that have been mutilated, but you'll have to pay for the replacement,
and you'll have to surrender the mutilated debt security or coupon to the
security registrar first. Debt securities or coupons that become destroyed,
stolen or lost will only be replaced by us, again at your expense, upon your
providing evidence of destruction, loss or theft which we and the security
registrar are willing to accept. In the case of a destroyed, lost or stolen debt
security or coupon, we may also require you, as the holder of the debt security
or coupon, to indemnify the security registrar and us before we'll go about
issuing any replacement debt security or coupon. (Section 405)
GOVERNING LAW
The indentures, the debt securities and the coupons will be governed by, and
construed under, the laws of the State of New York.
OUR RELATIONSHIP WITH THE TRUSTEE
We may from time to time maintain lines of credit, and have other customary
banking relationships, with the trustee under the senior indenture or the
trustee under the subordinated indenture.
SENIOR DEBT SECURITIES
The senior debt securities will be unsecured and will rank equally with all
of our other unsecured and non-subordinated debt.
COVENANTS IN THE SENIOR INDENTURE
LIMITATION ON SECURED INDEBTEDNESS. Neither we nor any Restricted
Subsidiary will create, assume, incur or guarantee any Secured Indebtedness
without securing the senior debt securities equally and ratably with, or prior
to, that Secured Indebtedness, UNLESS the sum of the following amounts would not
exceed 10% of Consolidated Net Tangible Assets:
- the total amount of all Secured Indebtedness that the senior debt
securities are not secured equally and ratably with, and
- the discounted present value of all net rentals payable under leases
entered into in connection with sale and leaseback transactions entered
into after July 15, 1985.
You should note that we don't include in this calculation any leases entered
into by a Restricted Subsidiary before the time it became a Restricted
Subsidiary. (Section 1104 of Senior Indenture)
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LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. Neither we nor any
Restricted Subsidiary will enter into any lease longer than three years covering
any of our Principal Property or any Restricted Subsidiary that is sold to any
other person in connection with that lease unless either:
1. the sum of the following amounts does not exceed 10% of Consolidated Net
Tangible Assets:
- the discounted present value of all net rentals payable under all these
leases entered into after July 15, 1985; and
- the total amount of all Secured Indebtedness that the senior debt
securities are not secured equally and ratably with.
We don't include in this calculation any leases entered into by a
Restricted Subsidiary before the time it became a Restricted Subsidiary.
or
2. an amount equal to the greater of the following amounts is applied
within 180 days to the retirement of our long-term debt or the debt of a
Restricted Subsidiary:
- the net proceeds to us or a Restricted Subsidiary from the sale; and
- the discounted present value of all net rentals payable under the
lease.
Amounts applied to debt which is subordinated to the senior debt
securities or which is owing to us or a Restricted Subsidiary will not be
included in this calculation. (Section 1105 of Senior Indenture)
We think it's important for you to be aware that this limitation on sale and
leaseback transactions won't apply to any leases that we may enter into relating
to newly acquired, improved or constructed property.
We think it's also important for you to note that the holders of a majority
in principal amount of all affected series of outstanding debt securities may
waive compliance with each of the above covenants. (Section 1107 of Senior
Indenture)
DEFINITIONS
"Secured Indebtedness" means our indebtedness or indebtedness of a
Restricted Subsidiary for borrowed money secured by any lien on, or any
conditional sale or other title retention agreement covering, any Principal
Property or any stock or indebtedness of a Restricted Subsidiary. Excluded from
this definition is all indebtedness:
- outstanding on July 15, 1985, secured by liens, or arising from
conditional sale or other title retention agreements, existing on that
date;
- incurred after July 15, 1985 to finance the acquisition, improvement or
construction of property, and either secured by purchase money mortgages
or liens placed on the property within 180 days of acquisition,
improvement or construction or arising from conditional sale or other
title retention agreements;
- secured by liens on Principal Property or on the stock or indebtedness of
Restricted Subsidiaries, and, in either case, existing at the time of its
acquisition;
- owing to us or any Restricted Subsidiary;
- secured by liens, or conditional sale or other title retention devices,
existing at the time a corporation became or becomes a Restricted
Subsidiary after July 15, 1985;
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- constituting our guarantees of Secured Indebtedness and Attributable Debt
of any Restricted Subsidiaries and guarantees by a Restricted Subsidiary
of Secured Indebtedness and Attributable Debt of ours and any other
Restricted Subsidiaries;
- arising from any sale and leaseback transaction;
- incurred to finance the acquisition or construction of property secured by
liens in favor of any country or any political subdivision; and
- constituting any replacement, extension or renewal of any indebtedness to
the extent the amount of indebtedness is not increased.
"Principal Property" means land, land improvements, buildings and associated
factory, laboratory and office equipment constituting a manufacturing,
development, warehouse, service or office facility owned by or leased to us or a
Restricted Subsidiary which is located within the United States and which has an
acquisition cost plus capitalized improvements in excess of 0.15% of
Consolidated Net Tangible Assets as of the date of such determination. Principal
Property does not include:
- products marketed by us or our subsidiaries;
- any property financed through the issuance of tax-exempt governmental
obligations;
- any property which our Board of Directors determines is not of material
importance to us and our Restricted Subsidiaries taken as a whole; or
- any property in which the interest of us and all of our subsidiaries does
not exceed 50%.
"Consolidated Net Tangible Assets" means the total assets of us and our
subsidiaries, less current liabilities and intangible assets. We include in
intangible assets the balance sheet value of:
- all trade names, trademarks, licenses, patents, copyrights and goodwill;
- organizational and development costs;
- deferred charges other than prepaid items such as insurance, taxes,
interest, commissions, rents and similar items and tangible items we are
amortizing; and
- unamortized debt discount and expense minus unamortized premium.
We don't include in intangible assets any program products.
"Attributable Debt" means the discounted present value of a lessee's
obligation for rental payments under a sale and leaseback transaction of
Principal Property, reduced by amounts owed by any sublessee for rental
obligations during the remaining term of that transaction. The discount rate we
use for the Attributable Debt is called the "Attributable Interest Rate." We
compute the Attributable Interest Rate as the weighted average of the interest
rates of all securities then issued and outstanding under the Senior Indenture.
"Restricted Subsidiary" means:
1. any of our subsidiaries:
a. which has substantially all its property in the United States;
b. which owns or is a lessee of any Principal Property; and,
c. in which our investment and the investment of our subsidiaries
exceeds 0.15% of Consolidated Net Tangible Assets as of the date of
such determination; and
2. any other subsidiary the Board of Directors may designate as a
Restricted Subsidiary.
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"Restricted Subsidiary" doesn't include financing subsidiaries and
subsidiaries formed or acquired after July 15, 1985 for the purpose of acquiring
the stock, business or assets of another person and that have not and do not
acquire all or any substantial part of our business or assets or the business or
assets of any Restricted Subsidiary. (Section 101 of Senior Indenture)
SUBORDINATED DEBT SECURITIES
The subordinated debt securities will be unsecured. The subordinated debt
securities will be subordinate in right of payment to all senior indebtedness.
(Section 1501 of Subordinated Indenture)
In addition, claims of our subsidiaries' creditors generally will have
priority with respect to the assets and earnings of the subsidiaries over the
claims of our creditors, including holders of the subordinated debt securities,
even though those obligations may not constitute senior indebtedness. The
subordinated debt securities, therefore, will be effectively subordinated to
creditors, including trade creditors of our subsidiaries.
The subordinated indenture defines "senior indebtedness" to mean the
principal of, premium, if any, and interest on:
- all indebtedness for money borrowed or guaranteed by us other than the
subordinated debt securities, unless the indebtedness expressly states to
have the same rank as, or to rank junior to, the subordinated debt
securities; and
- any deferrals, renewals or extensions of any senior indebtedness.
However, the term "senior indebtedness" will not include:
- any of our obligations to our subsidiaries;
- any liability for Federal, state, local or other taxes owed or owing by
us;
- any accounts payable or other liability to trade creditors arising in the
ordinary course of business, including guarantees of instruments
evidencing those liabilities;
- any indebtedness, guarantee or obligation of ours which is expressly
subordinate or junior in right of payment in any respect to any other
indebtedness, guarantee or obligation of ours, including any senior
subordinated indebtedness and any subordinated obligations;
- any obligations with respect to any capital stock; or
- any indebtedness incurred in violation of the Subordinated Indenture.
There is no limitation on our ability to issue additional senior
indebtedness. The senior debt securities constitute senior indebtedness under
the subordinated indenture. The subordinated debt securities will rank equally
with our other subordinated indebtedness.
Under the subordinated indenture, no payment may be made on the subordinated
debt securities and no purchase, redemption or retirement of any subordinated
debt securities may be made in the event:
- any senior indebtedness is not paid when due, or
- the maturity of any senior indebtedness is accelerated as a result of a
default, unless the default has been cured or waived and the acceleration
has been rescinded or that senior indebtedness has been paid in full.
We may, however, pay the subordinated debt securities without regard to the
above restriction if the representatives of the holders of the applicable senior
indebtedness approve the payment in writing to us and the trustee.
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The representatives of the holders of senior indebtedness may notify us and
the trustee in writing of a default which can result in the acceleration of that
senior indebtedness' maturity without further notice or the expiration of any
grace periods. In this event, we may not pay the subordinated debt securities
for 179 days after receipt of that notice. If the holders of senior indebtedness
or their representatives have not accelerated the maturity of the senior
indebtedness at the end of the 179 day period, we may resume payments on the
subordinated debt securities. Not more than one such notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to senior indebtedness during that period. (Section 1503 of Subordinated
Indenture)
In the event we pay or distribute our assets to creditors upon a total or
partial liquidation, dissolution or reorganization of us or our property, the
holders of senior indebtedness will be entitled to receive payment in full of
the senior indebtedness before the holders of subordinated debt securities are
entitled to receive any payment. Until the senior indebtedness is paid in full,
any payment or distribution to which holders of subordinated debt securities
would be entitled but for the subordination provisions of the subordinated
indenture will be made to holders of the senior indebtedness. (Section 1502 of
Subordinated Indenture)
If a distribution is made to holders of subordinated debt securities that,
due to the subordination provisions, should not have been made to them, those
holders of subordinated debt securities are required to hold it in trust for the
holders of senior indebtedness, and pay it over to them as their interests may
appear. (Section 1505 of Subordinated Indenture)
If payment of the subordinated debt securities is accelerated because of an
event of default, either we or the trustee will promptly notify the holders of
senior indebtedness or their representatives of the acceleration. We may not pay
the subordinated debt securities until five business days after the holders of
senior indebtedness or their representatives receive notice of the acceleration.
Thereafter, we may pay the subordinated debt securities only if the
subordination provisions of the subordinated indenture otherwise permit payment
at that time. (Section 1505 of Subordinated Indenture)
As a result of the subordination provisions contained in the subordinated
indenture, in the event of insolvency, our creditors who are holders of senior
indebtedness may recover more, ratably, than the holders of subordinated debt
securities. In addition, our creditors who are not holders of senior
indebtedness may recover less, ratably, than holders of senior indebtedness and
may recover more, ratably, than the holders of subordinated indebtedness. It's
important to keep this in mind if you decide to hold our subordinated debt
securities.
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DESCRIPTION OF THE PREFERRED STOCK
The following is a description of general terms and provisions of the
preferred stock. The particular terms of any series of preferred stock will be
described in the applicable prospectus supplement.
All of the terms of the preferred stock are, or will be, contained in our
Certificate of Incorporation and the certificate of amendment relating to each
series of the preferred stock, which will be filed with the Securities and
Exchange Commission at or before the time we issue a series of the preferred
stock.
We are authorized to issue up to 150,000,000 shares of preferred stock, par
value $.01 per share. As of the date of this Prospectus, we have no shares of
preferred stock outstanding. Subject to limitations prescribed by law, the Board
of Directors is authorized at any time to:
- issue one or more series of preferred stock;
- determine the designation for any series by number, letter or title that
shall distinguish the series from any other series of preferred stock; and
- determine the number of shares in any series.
The Board of Directors is authorized to determine, for each series of
preferred stock, and the prospectus supplement will set forth with respect to
the series the following information:
- whether dividends on that series of preferred stock will be cumulative,
noncumulative or partially cumulative;
- the dividend rate (or method for determining the rate);
- the liquidation preference per share of that series of preferred stock, if
any;
- any conversion provisions applicable to that series of preferred stock;
- any redemption or sinking fund provisions applicable to that series of
preferred stock;
- the voting rights of that series of preferred stock, if any; and
- the terms of any other preferences or rights, if any, applicable to that
series of preferred stock.
The preferred stock, when issued, will be fully paid and nonassessable.
DIVIDENDS
Holders of preferred stock will be entitled to receive, when, as and if
declared by our Board of Directors, cash dividends at the rates and on the dates
as set forth in the prospectus supplement. Generally, no dividends will be
declared or paid on any series of preferred stock unless full dividends for all
series of preferred stock, including any cumulative dividends still owing, have
been or contemporaneously are declared and paid. When those dividends are not
paid in full, dividends will be declared pro-rata so that the amount of
dividends declared per share on each series of preferred stock will bear to each
other series the same ratio that accrued dividends per share for each respective
series of preferred stock bear to aggregate accrued dividends for all
outstanding shares of preferred stock. In addition, generally, unless all
dividends on the preferred stock have been paid, no dividends will be declared
or paid on the capital stock and we may not redeem or purchase any capital
stock.
Payment of dividends on any series of preferred stock may be restricted by
loan agreements, indentures and other transactions we may enter into.
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CONVERTIBILITY
No series of preferred stock will be convertible into, or exchangeable for,
other securities or property except as set forth in the applicable prospectus
supplement.
REDEMPTION AND SINKING FUND
No series of preferred stock will be redeemable or receive the benefit of a
sinking fund except as set forth in the applicable prospectus supplement.
Shares of preferred stock that we redeem or otherwise reacquire will resume
the status of authorized and unissued shares of preferred stock undesignated as
to series, and will be available for subsequent issuance. There are no
restrictions on repurchase or redemption of the preferred stock while there is
any arrearage on sinking fund installments except as may be set forth in a
prospectus supplement.
LIQUIDATION
In the event we voluntarily or involuntarily liquidate, dissolve or wind up
our affairs, the holders of each series of preferred stock will be entitled to
receive the liquidation preference per share specified in the prospectus
supplement, plus any accrued and unpaid dividends. Holders of preferred stock
will be entitled to receive these amounts before any distribution is made to the
holders of capital stock.
If the amounts payable to preferred stockholders are not paid in full, the
holders of preferred stock will share ratably in any distribution of assets
based upon the aggregate liquidation preference for all outstanding shares for
each series. After the holders of shares of preferred stock are paid in full,
they will have no right or claim to any of our remaining assets.
Neither the par value nor the liquidation preference is indicative of the
price at which the preferred stock will actually trade on or after the date of
issuance.
VOTING
Generally, the holders of preferred stock will not be entitled to vote.
However, if the equivalent of six quarterly dividends payable on any series of
preferred stock is in default, the number of directors constituting our Board of
Directors will be increased by two and the holders of such series of preferred
stock, voting together as a class with all other series of preferred stock
entitled to vote on such election of directors, will be entitled to elect those
additional directors. In the event of this type of default, the Board of
Directors will call a special meeting for the holders of all affected series
within 10 business days of the default for the purpose of electing the
additional directors. Alternatively, the holders of record of a majority of the
outstanding shares of all affected series who are entitled to participate in the
election of directors may elect those additional directors by written consent.
If all accumulated dividends on any series of preferred stock have been paid in
full, the holders of shares of that series will no longer have the right to vote
on directors, the term of office of each director so elected will terminate, and
the number of our directors will, without further action, be reduced by two.
Unless we otherwise specify in a prospectus supplement, the vote of the
holders of a majority of the outstanding shares of each series of preferred
stock voting together as a class, is required to authorize any amendment,
alteration or repeal of our Certificate of Incorporation or any certificate of
amendment which would adversely affect the powers, preferences, or special
rights of the preferred stock including authorizing any class of stock with
superior dividend and liquidation preferences.
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NO OTHER RIGHTS
The shares of a series of preferred stock will not have any preemptive
rights, preferences, voting powers or relative, participating, optional or other
special rights except as set forth above or in the prospectus supplement, the
Certificate of Incorporation or certificate of amendment or as otherwise
required by law.
TRANSFER AGENT AND REGISTRAR
We'll designate the transfer agent for each series of preferred stock in the
prospectus supplement.
DESCRIPTION OF THE DEPOSITARY SHARES
We may, at our option, elect to offer fractional shares of preferred stock,
rather than full shares of preferred stock. If we do, we will issue to the
public receipts for depositary shares, and each of these depositary shares will
represent a fraction of a share of a particular series of preferred stock. Each
owner of a depositary share will be entitled, in proportion to the applicable
fractional interest in shares of preferred stock underlying that depositary
share, to all rights and preferences of the preferred stock underlying that
depositary share. Those rights include dividend, voting, redemption and
liquidation rights.
The shares of preferred stock underlying the depositary shares will be
deposited with a depositary under a deposit agreement between us, the depositary
and the holders of the depositary receipts evidencing the depositary shares. The
depositary will be a bank or trust company selected by us. The depositary will
also act as the transfer agent, registrar and dividend disbursing agent for the
depositary shares.
Holders of depositary receipts agree to be bound by the deposit agreement,
which requires holders to take certain actions such as filing proof of residence
and paying certain charges.
The following is a summary of the most important terms of the depositary
shares. The deposit agreement, our Certificate of Incorporation and the
certificate of amendment for the applicable series of preferred stock that are,
or will be, filed with the SEC will set forth all of the terms relating to the
depositary shares.
DIVIDENDS
The depositary will distribute all cash dividends or other cash
distributions received relating to the series of preferred stock underlying the
depositary shares, to the record holders of depositary receipts in proportion to
the number of depositary shares owned by those holders on the relevant record
date. The record date for the depositary shares will be the same date as the
record date for the preferred stock.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary receipts
that are entitled to receive the distribution. However, if the depositary
determines that it is not feasible to make the distribution, the depositary may,
with our approval, adopt another method for the distribution. The method may
include selling the property and distributing the net proceeds to the holders.
LIQUIDATION PREFERENCE
In the event of our voluntary or involuntary liquidation, dissolution or
winding up, the holders of each depositary share will be entitled to receive the
fraction of the liquidation preference accorded each share of the applicable
series of preferred stock, as set forth in the applicable prospectus supplement.
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REDEMPTION
If a series of preferred stock underlying the depositary shares is subject
to redemption, the depositary shares will be redeemed from the proceeds received
by the depositary resulting from the redemption, in whole or in part, of
preferred stock held by the depositary. Whenever we redeem any preferred stock
held by the depositary, the depositary will redeem, as of the same redemption
date, the number of depositary shares representing the preferred stock so
redeemed. The depositary will mail the notice of redemption to the record
holders of the depositary receipts promptly upon receiving the notice from us
and not less than 35 nor more than 60 days prior to the date fixed for
redemption of the preferred stock and the depositary shares.
VOTING
Upon receipt of notice of any meeting at which the holders of preferred
stock are entitled to vote, the depositary will mail the information contained
in the notice of meeting to the record holders of the depositary receipts
underlying the preferred stock. Each record holder of those depositary receipts
on the record date will be entitled to instruct the depositary as to the
exercise of the voting rights pertaining to the amount of preferred stock
underlying that holder's depositary shares. The record date for the depositary
shares will be the same date as the record date for the preferred stock. The
depositary will try, as far as practicable, to vote the preferred stock
underlying the depositary shares in a manner consistent with the instructions of
the holders of the depositary receipts. We will agree to take all action which
may be deemed necessary by the depositary in order to enable the depositary to
do so. The depositary will not vote the preferred stock to the extent that it
does not receive specific instructions from the holders of depositary receipts.
WITHDRAWAL OF PREFERRED STOCK
Owners of depositary shares are entitled, upon surrender of depositary
receipts at the principal office of the depositary and payment of any unpaid
amount due the depositary, to receive the number of whole shares of preferred
stock underlying the depositary shares. Partial shares of preferred stock will
not be issued. These holders of preferred stock will not be entitled to deposit
the shares under the deposit agreement or to receive depositary receipts
evidencing depositary shares for the preferred stock.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may be amended at any time and from time to
time by agreement between us and the depositary. However, any amendment which
materially and adversely alters the rights of the holders of depositary shares,
other than any change in fees, will not be effective unless the amendment has
been approved by at least a majority of the depositary shares then outstanding.
The deposit agreement may be terminated by us or the depositary only if:
- all outstanding depositary shares have been redeemed; or
- there has been a final distribution relating to the preferred stock in
connection with our dissolution, and that distribution has been made to
all the holders of depositary shares.
CHARGES OF DEPOSITARY
We'll pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We'll also pay charges
of the depositary in connection with the initial deposit of the preferred stock
and the initial issuance of the depositary shares, any redemption of the
preferred stock and all withdrawals of preferred stock by owners of depositary
shares. Holders of
22
depositary receipts will pay transfer, income and other taxes and governmental
charges and certain other charges as provided in the deposit agreement. In
certain circumstances, the depositary may refuse to transfer depositary shares,
withhold dividends and distributions, and sell the depositary shares evidenced
by the depositary receipt, if the charges are not paid.
REPORTS TO HOLDERS
The depositary will forward to the holders of depositary receipts all
reports and communications we deliver to the depositary that we are required to
furnish to the holders of the preferred stock. In addition, the depositary will
make available for inspection by holders of depositary receipts at the principal
office of the depositary--and at other places as it thinks is advisable--any
reports and communications we deliver to the depositary as the holder of
preferred stock.
LIABILITY AND LEGAL PROCEEDINGS
Neither we nor the depositary will be liable if either of us are prevented
or delayed by law or any circumstance beyond our control in performing our
obligations under the deposit agreement. Our obligations and those of the
depositary will be limited to performance in good faith of our duties under the
deposit agreement. Neither we nor the depositary will be obligated to prosecute
or defend any legal proceeding in respect of any depositary shares or preferred
stock unless satisfactory indemnity is furnished. We and the depositary may rely
on written advice of counsel or accountants, on information provided by holders
of depositary receipts or other persons believed in good faith to be competent
to give such information and on documents believed to be genuine and to have
been signed or presented by the proper persons.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering a notice to us of its
election to do so. We may also remove the depositary at any time. Any such
resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. The successor depositary must
be appointed within 60 days after delivery of the notice for resignation or
removal. In addition, the successor depositary must be a bank or trust company
having its principal office in the United States of America and must have a
combined capital and surplus of at least $150,000,000.
FEDERAL INCOME TAX CONSEQUENCES
Owners of the depositary shares will be treated for Federal income tax
purposes as if they were owners of the preferred stock underlying the depositary
shares. Accordingly, the owners will be entitled to take into account for
Federal income tax purposes income and deductions to which they would be
entitled if they were holders of the preferred stock. In addition:
- no gain or loss will be recognized for Federal income tax purposes upon
the withdrawal of preferred stock in exchange for depositary shares;
- the tax basis of each share of preferred stock to an exchanging owner of
depositary shares will, upon the exchange, be the same as the aggregate
tax basis of the depositary shares exchanged; and
- the holding period for preferred stock in the hands of an exchanging owner
of depositary shares will include the period during which the person owned
the depositary shares.
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DESCRIPTION OF THE CAPITAL STOCK
As of the date of this prospectus, we are authorized to issue up to
4,687,500,000 shares of capital stock, $0.20 par value per share. As of
December 31, 2002, 1,920,957,772 shares of capital stock were issued and
1,722,366,896 were outstanding.
DIVIDENDS. Holders of capital stock are entitled to receive dividends, in
cash, securities, or property, as may from time to time be declared by our Board
of Directors, subject to the rights of the holders of the preferred stock.
VOTING. Each holder of capital stock is entitled to one vote per share on
all matters requiring a vote of the stockholders.
RIGHTS UPON LIQUIDATION. In the event of our voluntary or involuntary
liquidation, dissolution, or winding up, the holders of capital stock will be
entitled to share equally in our assets available for distribution after payment
in full of all debts and after the holders of preferred stock have received
their liquidation preferences in full.
MISCELLANEOUS. Shares of capital stock are not redeemable and have no
subscription, conversion or preemptive rights.
DESCRIPTION OF THE WARRANTS
We may issue warrants for the purchase of debt securities, preferred stock
or capital stock. Warrants may be issued independently or together with our debt
securities, preferred stock or capital stock and may be attached to or separate
from any offered securities. Each series of warrants will be issued under a
separate warrant agreement to be entered into between us and a bank or trust
company, as warrant agent. The warrant agent will act solely as our agent in
connection with the warrants and will not have any obligation or relationship of
agency or trust for or with any holders or beneficial owners of warrants. A copy
of the warrant agreement will be filed with the SEC in connection with the
offering of warrants.
DEBT WARRANTS
The prospectus supplement relating to a particular issue of warrants to
issue debt securities will describe the terms of those warrants, including the
following:
- the title of the warrants;
- the offering price for the warrants, if any;
- the aggregate number of the warrants;
- the designation and terms of the debt securities purchasable upon exercise
of the warrants;
- if applicable, the designation and terms of the debt securities that the
warrants are issued with and the number of warrants issued with each debt
security;
- if applicable, the date from and after which the warrants and any debt
securities issued with them will be separately transferable;
- the principal amount of debt securities that may be purchased upon
exercise of a warrant and the price at which the debt securities may be
purchased upon exercise;
- the dates on which the right to exercise the warrants will commence and
expire;
- if applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time;
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- whether the warrants represented by the warrant certificates or debt
securities that may be issued upon exercise of the warrants will be issued
in registered or bearer form;
- information relating to book-entry procedures, if any;
- the currency or currency units in which the offering price, if any, and
the exercise price are payable;
- if applicable, a discussion of material United States federal income tax
considerations;
- anti-dilution provisions of the warrants, if any;
- redemption or call provisions, if any, applicable to the warrants; and
- any additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
STOCK WARRANTS
The prospectus supplement relating to a particular issue of warrants to
issue capital stock or preferred stock will describe the terms of the warrants,
including the following:
- the title of the warrants;
- the offering price for the warrants, if any;
- the aggregate number of the warrants;
- the designation and terms of the capital stock or preferred stock that may
be purchased upon exercise of the warrants;
- if applicable, the designation and terms of the securities that the
warrants are issued with and the number of warrants issued with each
security;
- if applicable, the date from and after which the warrants and any
securities issued with the warrants will be separately transferable;
- the number of shares of capital stock or preferred stock that may be
purchased upon exercise of a warrant and the price at which the shares may
be purchased upon exercise;
- the dates on which the right to exercise the warrants commence and expire;
- if applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time;
- the currency or currency units in which the offering price, if any, and
the exercise price are payable;
- if applicable, a discussion of material United States federal income tax
considerations;
- antidilution provisions of the warrants, if any;
- redemption or call provisions, if any, applicable to the warrants;
- any additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants; and
- any other information we think is important about the warrants.
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PLAN OF DISTRIBUTION
We may sell the securities:
- through underwriters;
- through agents; or
- directly to purchasers.
In this connection, we may also make sales through the Internet or through
other electronic means. Since we may from time to time elect to offer securities
directly to the public, with or without the involvement of agents, underwriters
or dealers, utilizing the Internet (sometimes referred to as the "world wide
web") or other forms of electronic bidding or ordering systems for the pricing
and allocation of such securities, you'll want to pay particular attention to
the description of that system we'll provide in a prospectus supplement.
Such a system may allow bidders to directly participate, through electronic
access to an auction site, by submitting conditional offers to buy that are
subject to acceptance by us, and which may directly affect the price or other
terms and conditions at which such securities are sold. Such a bidding or
ordering system may present to each bidder, on a so-called "real-time" basis,
relevant information to assist in making a bid, such as the clearing spread at
which the offering would be sold, based on the bids submitted, and whether a
bidder's individual bids would be accepted, prorated or rejected. For example,
in the case of a note, the clearing spread could be indicated as a number of
"basis points" above an index treasury note. Of course, many pricing methods can
and may also be used.
Upon completion of such an auction process, securities will be allocated
based on prices bid, terms of bid or other factors. The final offering price at
which securities would be sold and the allocation of securities among bidders
would be based in whole or in part on the results of the Internet or other
electronic bidding process or auction.
Many variations of Internet or other electronic auction or pricing and
allocation systems are likely to be developed in the future as new technology
evolves, and we may utilize such systems in connection with the sale of
securities. The specific rules of such an auction would be described to
potential bidders in a prospectus supplement. You should review carefully the
auction and other rules we will describe in a prospectus supplement in order to
understand and participate intelligently in the applicable offering.
We'll describe in a prospectus supplement, the particular terms of the
offering of the securities, including the following:
- the names of any underwriters;
- the purchase price and the proceeds we will receive from the sale;
- any underwriting discounts and other items constituting underwriters'
compensation;
- any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers;
- any securities exchanges on which the securities of the series may be
listed; and
- any other information we think is important.
If we use underwriters in the sale, the securities will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, either at a fixed public
offering price, or at varying prices determined at the time of sale.
The securities may be either offered to the public through underwriting
syndicates represented by managing underwriters or by underwriters without a
syndicate. The obligations of the underwriters to
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purchase securities will be subject to conditions precedent, and the
underwriters will be obligated to purchase all the securities of a series if any
are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
Securities may be sold directly by us or through agents designated by us
from time to time. Any agent involved in the offer or sale of the securities for
which this prospectus is delivered will be named, and any commissions payable by
us to that agent will be set forth, in the prospectus supplement. Unless
otherwise indicated in the prospectus supplement, any agent will be acting on a
best efforts basis for the period of its appointment.
We may authorize agents or underwriters to solicit offers by certain types
of institutions to purchase securities from us at the public offering price set
forth in the prospectus supplement pursuant to delayed delivery contracts. These
contracts will provide for payment and delivery on a specified date in the
future. The conditions to these contracts and the commissions payable for
solicitation of such contracts will be set forth in the applicable prospectus
supplement.
Agents and underwriters may be entitled to indemnification by us against
civil liabilities arising out of this prospectus, including liabilities under
the Securities Act of 1933, or to contribution for payments which the agents or
underwriters may be required to make relating to those liabilities. Agents and
underwriters may be customers of, engage in transactions with, or perform
services for, us in the ordinary course of business.
Each series of securities will be a new issue of securities with no
established trading market. Any underwriter may make a market in the securities,
but won't be obligated to do so, and may discontinue any market making at any
time without notice. We can't and won't give any assurances as to the liquidity
of the trading market for any of our securities.
LEGAL OPINIONS
The legality of the securities will be passed upon by Mr. Daniel E.
O'Donnell, our Vice President, Assistant General Counsel and Secretary.
Mr. O'Donnell, together with members of his family, owns, has options to
purchase and has other interests in shares of our common stock.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Current Report on Form 8-K dated November 4, 2002 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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