Filed Pursuant to Rule 424(b)(2)
Registration No. 333-92212
Prospectus Supplement
(To prospectus, dated July 22, 2002)
$1,975,000,000
McDonald's Corporation
Medium-Term Notes, Series H
Due from 1 Year to 60 Years from Date of Issue
-----------------
We may use this prospectus supplement to offer Medium-Term Notes, Series H,
with a total initial public offering price of up to $1,975,000,000 or the
equivalent in one or more foreign currencies, subject to reduction as a result
of our sale of other debt securities.
The following terms may apply to the notes. We will provide the final terms
for each note in a pricing supplement.
. Mature in 1 year to 60 years and may be subject to redemption, at our
option, or repayment, at the option of the holder.
. Denominated in U.S. dollars, unless we specify otherwise.
. Fixed or floating interest rate.
. May be issued as indexed notes.
. Certificated or book-entry form.
. Interest paid on fixed-rate notes on February 15 and August 15 of each
year, unless we specify otherwise.
. Interest paid on floating-rate notes on dates determined at the time of
issuance.
. Minimum denominations of $1,000 increased in multiples of $1,000 or other
specified denominations for notes denominated in foreign currencies.
We will receive between $1,972,037,500 and $1,960,187,500 of the proceeds
from the sale of the notes after paying the agent's commissions of between
$2,962,500 and $14,812,500. The exact proceeds we will receive will be set at
the time of issuance. We do not expect that any of the notes will be listed on
an exchange, and a market for any particular series of notes may not develop.
See "Risk Factors" beginning on page S-2 for a discussion of certain risks
that should be considered in connection with an investment in the notes.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement, the accompanying prospectus
or any pricing supplement. Any representation to the contrary is a criminal
offense.
-----------------
agents
Merrill Lynch & Co.
ABN AMRO Incorporated
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Barclays Capital
BNP PARIBAS
Deutsche Bank Securities
Fleet Securities, Inc.
Goldman, Sachs & Co.
JPMorgan
Morgan Stanley
Salomon Smith Barney
Scotia Capital
SG Cowen
SunTrust Robinson Humphrey
Westdeutsche Landesbank Girozentrale,
London Branch
-----------------
The date of this prospectus supplement is August 6, 2002.
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Risk Factors......................................... S-2
Capitalization....................................... S-4
Important Currency Information....................... S-5
Description of Notes................................. S-5
Special Provisions Relating to Foreign Currency Notes S-21
United States Tax Considerations..................... S-24
Plan of Distribution................................. S-29
Glossary............................................. S-31
Validity of the Notes................................ S-34
Prospectus
McDonald's Corporation............................... 2
Use of Proceeds...................................... 3
Selected Consolidated Financial Data................. 4
Description of Debt Securities....................... 6
Plan of Distribution................................. 11
Legal Matters........................................ 11
Experts.............................................. 11
You should rely only on the information contained or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. Neither we nor any agent has authorized any other person to
provide you with different or additional information. If anyone provides you
with different or additional information, you should not rely on it. Neither we
nor any agent is making an offer to sell the Notes in any jurisdiction where
the offer or sale is not permitted. You should assume that the information
contained or incorporated by reference in this prospectus supplement, the
accompanying prospectus and any pricing supplement is accurate only as of the
date on the front cover of the applicable document. Our business, financial
condition, results of operations and prospects may have changed since that date.
References in this prospectus supplement to "the Company," "we," "us," or
"our" are to McDonald's Corporation.
RISK FACTORS
This prospectus supplement does not describe all of the risks of an
investment in the notes, whether arising because the notes are denominated in a
currency other than the U.S. dollar or because the return on the notes is
linked to one or more interest rate or currency indices or formulas. The
information set forth in this prospectus supplement is directed to prospective
purchasers of notes who are U.S. residents. We disclaim any responsibility to
advise any other prospective purchasers with respect to any matters that may
affect the purchase, sale or holding of notes. These persons should consult
their own legal and financial advisors with regard to such matters. You should
consult your own financial and legal advisors about the risks entailed by an
investment in the notes and the suitability of your investment in the notes in
light of your particular circumstances. The notes are not an appropriate
investment for investors who are unsophisticated with respect to foreign
currency transactions or transactions involving the type of index or formula
used to determine the amount payable. You should also consider carefully, among
other factors, the matters described below.
Foreign Currency Notes Are Subject to Exchange Rate and Exchange Control Risks
An investment in a note denominated in a currency other than U.S. dollars
entails significant risks. These risks include the possibility of significant
changes in rates of exchange between the U.S. dollar and that currency and the
possibility of the imposition or modification of foreign exchange controls by
either the United States or foreign governments. These risks generally depend
on factors over which we have no control, such as economic
S-2
and political events and the supply of and demand for the relevant currencies.
Moreover, if payments on your foreign currency notes are determined by
reference to a formula containing a multiplier or leverage factor, the effect
of any change in the exchange rates between the applicable currencies will be
magnified. In recent years, rates of exchange between the U.S. dollar and
certain currencies have been highly volatile, and you should be aware that
volatility may occur in the future. Fluctuations in any particular exchange
rate that have occurred in the past, however, are not necessarily indicative of
fluctuations in the rate that may occur during the term of any note.
Depreciation of the specified currency for a note against the U.S. dollar would
result in a decrease in the effective yield of such note (on a U.S. dollar
basis) below its coupon rate and, in certain circumstances, could result in a
loss to you on a U.S. dollar basis.
Except as set forth below, if payment in respect of a note is required to be
made in a currency other than U.S. dollars, and such currency is unavailable to
us due to the imposition of exchange controls or other circumstances beyond our
control or is no longer used by the government of the relevant country (unless
otherwise replaced by the Euro) or for the settlement of transactions by public
institutions of or within the international banking community, then all
payments in respect of such note will be made in U.S. dollars until such
currency is again available to us or so 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 applicable pricing supplement. Any payment in respect of such
note so made in U.S. dollars will not constitute an event of default under the
Indenture. The paying agent will make all determinations referred to above at
its sole discretion. All determinations will, in the absence of clear error, be
binding on holders of the notes.
Redemption May Adversely Affect Your Return on the Notes
If the notes are redeemable at our option, we may choose to redeem the notes
at times when prevailing interest rates are relatively low. In addition, if the
notes are subject to mandatory redemption, we may be required to redeem the
notes also at times when prevailing interest rates are relatively low. As a
result, you generally will not be able to reinvest the redemption proceeds in a
comparable security at an effective interest rate as high as the notes being
redeemed.
Courts May Not Render Judgments for Money Damages in Any Currency Other Than
U.S. Dollars
The notes will be governed by and construed in accordance with the internal
laws of the State of Illinois. Courts in the United States customarily have not
rendered judgments for money damages denominated in any currency other than the
U.S. dollar.
Index Notes May Have Risks Not Associated with a Conventional Debt Security
An investment in indexed notes entails significant risks that are not
associated with an investment in a conventional fixed rate debt security.
Indexation of the interest rate of a note 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.
Indexation of the principal of and/or premium on a note may result in an amount
of principal and/or premium payable that is less than the original purchase
price of the note, including the possibility that no amount will be paid. The
secondary market for indexed notes will be affected by a number of factors,
independent of our creditworthiness. Such factors include the volatility of the
index selected, the time remaining to the maturity of the notes, the amount
outstanding of the notes and market interest rates. The value of an index can
depend 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 amount of principal, premium and/or interest payable with
respect to indexed notes contains a multiple or leverage factor, the effect of
any change in the index will be increased. The historical experience of an
index should not be taken as an indication of its future performance.
Accordingly, you should consult your own financial and legal advisors as to the
risks entailed by an investment in indexed notes.
S-3
There May Not Be Any Trading Market for the Notes; Many Factors Affect the
Trading and Market Value of the Notes
Upon issuance, the notes will not have an established trading market. We
cannot assure you a trading market for the notes will ever develop or be
maintained if developed. In addition to our creditworthiness, many factors
affect the trading market for, and trading value of, the notes. These factors
include:
. the complexity and volatility of the index or formula applicable to the
notes,
. the method of calculating the principal, premium and interest in respect
of the notes,
. the time remaining to the maturity of the notes,
. the outstanding amount of the notes,
. any redemption features of the notes,
. the amount of other debt securities linked to the index or formula
applicable to the notes, and
. the level, direction and volatility of market interest rates generally.
There may be a limited number of buyers when you decide to sell your notes.
This may affect the price you receive for your notes or your ability to sell
your notes at all. In addition, notes that are designed for specific investment
objectives or strategies often experience a more limited trading market and
more price volatility than those not so designed. You should not purchase notes
unless you understand and know you can bear all of the investment risks
involving the notes.
Our Credit Ratings May Not Reflect All Risks of an Investment in the Notes
The credit ratings of our medium-term note program may not reflect the
potential impact of all risks related to structure and other factors on any
trading market for, or trading value of, your notes. In addition, real or
anticipated changes in our credit ratings will generally affect any trading
market for, or trading value of, your notes.
CAPITALIZATION
The following table sets forth the capitalization of the Company and its
consolidated subsidiaries at
March 31, 2002.
March 31,
2002
------------
Outstanding
------------
(in millions
of U.S.
dollars)
Short-term debt, including current portion of long-term debt $ 566.0
Long-term debt, less current portion........................ 8,417.4
Shareholders' equity........................................ 9,576.9
---------
Total capitalization(1)..................................... $18,560.3
=========
--------
(1) At March 31, 2002, we had 3.5 billion authorized shares of common stock,
with $.01 par value, of which 1,660.6 million were issued and 1,272.0
million were outstanding. There has been no material change in our
consolidated capitalization since March 31, 2002.
S-4
IMPORTANT CURRENCY INFORMATION
You are required to pay for each note in the currency specified by us. You
may ask an agent to use its reasonable best efforts to arrange for the exchange
of U.S. dollars into the specified currency to enable you to pay for such note.
You must make this request on or before the third Business Day preceding the
delivery date for such note or by a later date if allowed by the agent. Each
exchange will be made on the terms and conditions established by the agent and
all costs will be paid by you.
DESCRIPTION OF NOTES
The following description of terms of the notes supplements the general
description of the debt securities provided in the accompanying prospectus.
However, the pricing supplement for each offering of notes will contain the
specific information and terms for that offering. The pricing supplement may
also add, update or change information contained in this prospectus supplement
or the accompanying prospectus. It is important for you to consider the
information contained in the accompanying prospectus, this prospectus
supplement and the pricing supplement in making your investment decision.
We have provided a glossary at the end of this prospectus supplement to
define any capitalized words we use but do not define in this prospectus
supplement.
General
We will issue the notes as a single series of debt securities under the
Senior Indenture between us and the Trustee. We are limited to issuing notes
with a total initial public offering price or purchase price of up to
$1,975,000,000 or the equivalent amount in one or more foreign currencies,
including the Euro. The U.S. dollar equivalent will be determined by a paying
agent chosen by us, which will initially be Bank One, N.A. In order to
determine the equivalent amount in connection with offerings in a foreign
currency, the paying agent will use the noon buying rate in The City of New
York for cable transfers in foreign currencies as certified for customs
purposes by The Federal Reserve Bank of New York. The total price of the notes
we are authorized to offer may be reduced due to our sale of other debt
securities. If payments on any notes must be made in the currency of a country
that adopts the Euro, then we may redenominate all of those notes into Euros by
giving holders notice of the redenomination as described under "Description of
Notes--Redenomination" below.
The notes will be issued in fully registered form only, without coupons.
Each note will be issued either as a "book-entry" note, represented by a
permanent global note registered in the name of The Depository Trust Company
("DTC"), or its nominee, or as a certificate issued in temporary or definitive
form. Except as described below under "Book-Entry System," book-entry notes
will not be issuable in certificated form.
The authorized denominations for notes denominated in U.S. dollars will be
$1,000 and any larger amount that is a multiple of $1,000. The authorized
denominations of notes denominated in some other specified currency will be
described in the pricing supplement.
Each note will mature on any day from 1 year to 60 years from its date of
issue. However, each note may also be subject to redemption at our option or
repayment at the option of the holder.
Unless otherwise specified in the applicable pricing supplement, the notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, in respect thereof will be made in, United States dollars.
The notes also may be denominated in, and payments of principal, premium, if
any, and/or interest, if any, in respect thereof may be made in, one or more
foreign currencies. See "Special Provisions Relating to
S-5
Foreign Currency Notes--Payment of Principal, Premium, if any, and Interest, if
any." The currency in which a note is denominated (or, if that currency is no
longer legal tender for the payment of public and private debts in the country
issuing that currency or, in the case of Euro, in the member states of the
European Union that have adopted the single currency in accordance with the
Treaty establishing the European Community, as amended by the Treaty on
European Union, the currency which is then legal tender in the related country
or in the adopting member states of the European Union, as the case may be) is
referred to as the "specified currency" with respect to the particular note.
References to "United States dollars," "U.S. dollars" or "$" are to the lawful
currency of the United States of America (the "United States").
You will be required to pay for your notes in the specified currency. At the
present time, there are limited facilities in the United States for the
conversion of U.S. dollars into foreign currencies and vice versa, and
commercial banks do not generally offer non-U.S. dollar checking or savings
account facilities in the United States. The agent from or through which a
foreign currency note is purchased may be prepared to arrange for the
conversion of U.S. dollars into the specified currency in order to enable you
to pay for your foreign currency note, provided that you make a request to that
agent on or prior to the fifth Business Day preceding the date of delivery of
the particular foreign currency note, or by any other day determined by that
agent. Each conversion will be made by an agent on the terms and subject to the
conditions, limitations and charges as that agent may from time to time
establish in accordance with its regular foreign exchange practices. You will
be required to bear all costs of exchange in respect of your foreign currency
note. See "Special Provisions Relating to Foreign Currency Notes."
The pricing supplement relating to a note will describe the following terms:
(a)the specified currency;
(b)whether the note is a fixed rate note, a floating rate note, an indexed
note or an amortizing note;
(c)the issue price;
(d)the original issue date;
(e)the stated maturity date;
(f)for a fixed rate note, the rate per year at which it will bear interest,
if any, and the dates on which interest will be payable if other than
February 15 and August 15;
(g)for a floating rate note, the base rate, the initial interest rate, the
interest reset period, the interest payment dates, the Index Maturity,
the maximum interest rate, if any, the minimum interest rate, if any,
the Spread and/or Spread Multiplier, if any, and any other terms
relating to the particular method of calculating the interest rate for
the note;
(h)whether the note is an Original Issue Discount Note;
(i)for an indexed note, the manner in which principal or interest will be
determined;
(j)whether the note may be redeemed at our option, or repaid at the
holder's option prior to the stated maturity date as described further
under "Optional Redemption, Repayment and Repurchase" below, and if so,
the terms of the redemption or repayment; and
(k)any other terms that do not conflict with the provisions of the Senior
Indenture.
Interest rates that we offer with respect to the notes may differ depending
on, among other things, the aggregate principal amount of the notes purchased
in any single transaction.
Notes with different variable terms other than interest rates may also be
offered concurrently to different investors. We may, from time to time, change
interest rates or formulas and other terms of notes, but no change of terms
will affect any note we have previously issued or as to which we have accepted
an offer to purchase.
S-6
Except as described in this prospectus supplement, there are no covenants
specifically designed to protect you against a reduction in our
creditworthiness in the event of a highly leveraged transaction or to prohibit
other transactions that may adversely affect you.
Payment of Principal and Interest
We will make payments of principal of, and premium, if any, and interest, if
any, on book-entry notes through the Trustee to DTC. See "--Book-Entry System."
If the note is a certificated security, U.S. dollar payments of interest on
notes are generally payable to the person in whose name the note is registered
at the close of business on the record date before each interest payment date.
However, interest will be payable at Maturity to the person to whom principal
is payable. The first interest payment on any note originally issued between a
record date and an interest payment date or on an interest payment date will be
made on the interest payment date after the next record date. If you hold at
least $10,000,000 (or the equivalent thereof in a specified currency other than
U.S. dollars) in aggregate principal amount of notes of like tenor and term,
you will be entitled to receive your U.S. dollar interest payments by wire
transfer, but only if the paying agent has received your wire transfer
instructions not later than 15 days before the applicable interest payment
date. Simultaneously with your election to receive payments in a currency other
than U.S. dollars, as discussed earlier, you must provide wire transfer payment
instructions to the paying agent, and all payments made in that currency will
be made by wire transfer to an account maintained by you with a bank located
outside the United States. Any payment due at Maturity will be paid in
immediately available funds upon surrender of your note at the corporate trust
office or an agency of the paying agent located in the City of Chicago. The
corporate trust office for Bank One, N.A. is located at One First National
Plaza, Chicago, Illinois. If the note is a global security, beneficial owners
will be paid in accordance with DTC's and its participants' procedures.
Book-entry notes may be transferred or exchanged only through DTC. See "--
Book-Entry System." Registration of transfer or exchange of certificated notes
will be made at the office or agency maintained by the Trustee for this purpose
in the Borough of Manhattan, The City of New York, currently the corporate
trust office of the Trustee. No service charge will be imposed for any such
registration of transfer or exchange of notes, but we may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith (other than certain exchanges not involving any
transfer).
Unless otherwise specified in the applicable pricing supplement, if the
principal of any Original Issue Discount Note is declared to be due and payable
immediately as described under "Description of Debt Securities--Events of
Default" in the accompanying prospectus, the amount of principal due and
payable will be limited to the principal amount of the note multiplied by the
sum of its issue price (expressed as a percentage of the principal amount) plus
the original issue discount amortized from the date the note was issued to the
date of declaration, which amortization shall be calculated using the "interest
method" (computed in accordance with generally accepted accounting principles
in effect on the date of declaration).
Unless otherwise specified in the applicable pricing supplement, the record
date for any interest payment date for a floating rate note will be the date
(whether or not a Business Day) 15 calendar days immediately before the
interest payment date, and for a fixed rate note will be the February 1 or
August 1 (whether or not a Business Day) immediately before the interest
payment date or Maturity, as the case may be.
Interest payments on the notes will equal the amount of interest accrued
from and including the immediately preceding interest payment date on which
interest was paid or made available for payment (or from and including the date
of issue, if no interest has been paid) to but excluding the related interest
payment date or Maturity, as the case may be.
For information on payment of principal and interest of foreign currency
notes, see "--Special Provisions Relating to Foreign Currency Notes."
S-7
Fixed Rate Notes
Each fixed rate note will bear interest from the date it is originally
issued at the rate per year stated on its face until the principal amount is
paid or made available for payment. Unless otherwise set forth in the
applicable pricing supplement, we will pay interest on each fixed rate note
semiannually in arrears on each February 15 and August 15 and at Maturity. Each
payment of interest on an interest payment date will include interest accrued
to but excluding such interest payment date. Unless otherwise specified in the
applicable pricing supplement, interest on fixed rate notes will be computed
using a 360-day year of twelve 30-day months.
If any payment date for a fixed rate note falls on a day that is not a
Business Day, we will make the payment on the next Business Day, without
additional interest.
Floating Rate Notes
Each floating rate note will have an interest rate formula. The formula may
be based on:
(a)the CD Rate;
(b)the CMT Rate;
(c)the Commercial Paper Rate;
(d)the Federal Funds Rate;
(e)LIBOR;
(f)the Prime Rate;
(g)the Treasury Rate; or
(h)another Base Rate or formula described in the pricing supplement.
The pricing supplement will also indicate any Spread and/or Spread
Multiplier, which would be applied to the interest rate formula to determine
the interest rate. Any floating rate note may have a maximum or minimum
interest rate limitation.
We have appointed a calculation agent to calculate interest rates on the
floating rate notes. Unless we choose a different party in the pricing
supplement, the paying agent will be the calculation agent for each note. Upon
request, the calculation agent will provide the current interest rate and, if
different, the interest rate that will become effective on the next Interest
Reset Date.
The interest rate on each floating rate note may be reset daily, weekly,
monthly, quarterly, semiannually or annually (this period is the "Interest
Reset Period", and the first day of each Interest Reset Period is an "Interest
Reset Date"), as specified in the pricing supplement. Unless otherwise
specified in the pricing supplement, the Interest Reset Dates will be:
(a)for floating rate notes that reset daily, each Business Day;
(b)for floating rate notes (other than Treasury Rate notes) that reset
weekly, Wednesday of each week;
(c)for Treasury Rate notes that reset weekly, Tuesday of each week (except
as provided below under "Treasury Rate Notes");
(d)for floating rate notes that reset monthly, the third Wednesday of each
month;
(e)for floating rate notes that reset quarterly, the third Wednesday of
March, June, September and December of each year;
(f)for floating rate notes that reset semiannually, the third Wednesday of
each of the two months of each year specified in the pricing supplement;
and
S-8
(g)for 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 falls on a day that is
not a Business Day, it will be postponed to the following Business Day, except
that, in the case of a LIBOR note, if that Business Day is in the next calendar
month, the Interest Reset Date will be the immediately preceding Business Day.
Unless otherwise specified on the applicable pricing supplement, floating
rate notes will accrue interest from and including the original issue date or
the last date to which interest has been paid or provided for, as the case may
be, to but excluding the applicable Interest Payment Date, as described below,
or Maturity, as the case may be.
Unless otherwise specified on the applicable pricing supplement, accrued
interest on floating rate notes will be calculated by multiplying the principal
amount of such note (or, in the case of an indexed note, unless otherwise
specified in the pricing supplement, the face amount of such indexed 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 we state otherwise in the
applicable pricing supplement, the interest factor (expressed as a decimal
calculated to seven decimal places without rounding) for each day will be
computed by dividing the interest rate in effect on that day by 360, in the
case of CD Rate notes, Commercial Paper Rate notes, Federal Funds Rate notes,
LIBOR notes and Prime Rate notes, or by the actual number of days in the year,
in the case of Treasury Rate notes or CMT Rate notes. For these calculations,
the interest rate in effect on any Interest Reset Date will be the new reset
rate.
The calculation agent will round all percentages resulting from any
calculation of the rate of interest on a floating rate note, if necessary, to
the nearest 1/100,000 of 1% (.0000001), with five one-millionths of a
percentage point rounded upward, and all currency amounts used in or resulting
from any calculation on floating rate notes will be rounded to the nearest
one-hundredth of a unit (with .005 of a unit being rounded upward).
Unless we state otherwise in the applicable pricing supplement, we will pay
interest on floating rate notes as follows:
(a)for notes that reset daily, weekly or monthly, on the third Wednesday of
each month or on the third Wednesday of March, June, September and
December of each year as specified in the applicable pricing supplement;
(b)for notes that reset quarterly, on the third Wednesday of March, June,
September, and December of each year;
(c)for notes that reset semiannually, on the third Wednesday of each of two
months of each year specified in the pricing supplement; and
(d)for notes that reset annually, on the third Wednesday of one month of
each year specified in the pricing supplement.
Each of the above dates is an "Interest Payment Date." We will also pay
interest on all notes at Maturity.
If an Interest Payment Date (other than at Maturity) for any floating rate
note falls on a day that is not a Business Day, it will be postponed to the
following Business Day, except that, in the case of a LIBOR note, if that
Business Day would fall in the next calendar month, the Interest Payment Date
will be the immediately preceding Business Day.
If the Maturity for a floating rate note falls on a day that is not a
Business Day, we will make the payment on the next Business Day, without
additional interest.
S-9
References below to information services include any successor information
services.
CD Rate Notes
Each CD Rate note will bear interest at a specified rate that will be reset
periodically based on the CD Rate and any Spread and/or Spread Multiplier. CD
Rate notes, like other notes, are not deposit obligations of a bank and are not
insured by the Federal Deposit Insurance Corporation.
"CD Rate" means:
(1) the rate on the particular Interest Determination Date for negotiable
U.S. dollar certificates of deposit having the Index Maturity specified in
the applicable pricing supplement as published in H.15(519) under the
caption "CDs (secondary market)," or
(2) if the rate referred to in clause (1) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date for negotiable U.S. dollar
certificates of deposit of the particular Index Maturity as published in
H.15 Daily Update, or other recognized electronic source used for the
purpose of displaying the applicable rate, under the caption "CDs (secondary
market)," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the calculation agent
as the arithmetic mean of the secondary market offered rates as of 10:00
A.M., New York City time, on that Interest Determination Date, of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in
The City of New York (which may include the agents or their affiliates)
selected by the calculation agent for negotiable U.S. dollar certificates of
deposit of major United States money market banks for negotiable U.S.
certificates of deposit with a remaining maturity closest to the particular
Index Maturity in an amount that is representative for a single transaction
in that market at that time, or
(4) if the dealers so selected by the calculation agent are not quoting
as mentioned in clause (3), the CD Rate in effect on the particular Interest
Determination Date or, if none, the initial interest rate.
Commercial Paper Rate Notes
Each Commercial Paper Rate note will bear interest at a specified rate that
will be reset periodically based on the Commercial Paper Rate and any Spread
and/or Spread Multiplier.
"Commercial Paper Rate" means:
(1) the Money Market Yield on the particular Interest Determination Date
of the rate for commercial paper having the Index Maturity specified in the
applicable pricing supplement as published in H.15(519) under the caption
"Commercial Paper--Nonfinancial," or
(2) if the rate referred to in clause (1) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the Money Market
Yield of the rate on the particular Interest Determination Date for
commercial paper of the Index Maturity specified in the applicable pricing
supplement as published in H.15 Daily Update, or such other recognized
electronic source used for the purpose of displaying the applicable rate,
under the caption "Commercial Paper--Nonfinancial," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date shall be the Money Market Yield of
the arithmetic mean of the offered rates at approximately 11:00 A.M., New
York City time, on that Interest Determination Date of three leading dealers
of U.S. dollar commercial paper in The City of New York (which may include
the agents or their affiliates) selected by the calculation agent for
commercial paper of the particular Index Maturity specified in the
applicable pricing supplement placed for industrial issuers whose bond
rating is "AA", or the equivalent, from a nationally recognized statistical
rating organization, or
S-10
(4) if the dealers so selected by the calculation agent are not quoting
as mentioned in clause (3), the Commercial Paper Rate in effect on the
particular Interest Determination Date or, if none, the initial interest
rate.
Federal Funds Rate Notes
Each Federal Funds Rate note will bear interest at a specified rate that
will be reset periodically based on the Federal Funds Rate and any Spread
and/or Spread Multiplier.
"Federal Funds Rate" means:
(1) the rate on the particular Interest Determination Date for U.S.
dollar federal funds as published in H.15(519) under the caption "Federal
Funds (Effective)" and displayed on Moneyline Telerate (or any successor
service) on page 120 (or any other page as may replace the specified page on
that service) ("Moneyline Telerate Page 120"), or
(2) if the rate referred to in clause (1) does not so appear on Telerate
Page 120 or is not so published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on the particular Interest Determination
Date for U.S. dollar federal funds as published in H.15 Daily Update, or
such other recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "Federal Funds (Effective)," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date shall be the arithmetic mean of the
rates for the last transaction in overnight U.S. dollar federal funds
arranged by three leading brokers of U.S. dollar federal funds transactions
in The City of New York (which may include the agents or their affiliates),
selected by the calculation agent prior to 9:00 A.M., New York City time, on
that Interest Determination Date, or
(4) if the brokers so selected by the calculation agent are not quoting
as mentioned in clause (3), the Federal Funds Rate in effect on the
particular Interest Determination Date, or, if none, the initial interest
rate.
LIBOR Notes
Each LIBOR note will bear interest at a specified rate that will be reset
periodically based on LIBOR and any Spread and/or Spread Multiplier. If LIBOR
is indexed to the offered rates for deposits in a currency other than U.S.
dollars, the method for determining such rate will be specified in the pricing
supplement. If LIBOR is indexed to the offered rate for U.S. dollar deposits,
"LIBOR" shall be determined by the calculation agent as described below.
"LIBOR" means:
(1) if "LIBOR Moneyline Telerate" is specified in the applicable pricing
supplement or if neither "LIBOR Reuters" nor "LIBOR Moneyline Telerate" is
specified in the applicable pricing supplement as the method for calculating
LIBOR, the rate for deposits in the LIBOR Currency having the Index Maturity
specified in the applicable pricing supplement designated on the Interest
Determination Date, that appears on the Designated LIBOR Page as of 11:00
A.M., London time, on the particular Interest Determination Date, or
(2) if "LIBOR Reuters" is specified in the applicable pricing supplement,
the arithmetic mean of the offered rates or the offered rate, if the
Designated LIBOR Page by its terms provides only for a single rate,
calculated by the calculation agent, for deposits in the LIBOR Currency
having the Index Maturity designated in the pricing supplement, that appear
on the Designated LIBOR Page as of 11:00 A.M., London time, on the
particular Interest Determination Date, or
(3) if fewer than two offered rates appear, or no rate appears, as the
case may be, on the particular Interest Determination Date on the Designated
LIBOR Page as specified in clause (1) or (2), as applicable,
S-11
the arithmetic mean calculated by the calculation agent of at least two
offered quotations obtained by the calculation agent after requesting the
principal London offices of each of four major reference banks (which may
include the agents or their respective affiliates), in the London interbank
market to provide the calculation agent with its offered quotation for
deposits in the LIBOR Currency for the period of the particular Index
Maturity, commencing on the related Interest Reset Date, to prime banks in
the London interbank market at approximately 11:00 A.M., London time, on
that Interest Determination Date and in a principal amount that is
representative for a single transaction in the LIBOR Currency in that market
at that time, or
(4) if fewer than two offered quotations referred to in clause (3) are
provided as requested, the arithmetic mean calculated by the calculation
agent of the rates quoted at approximately 11:00 A.M., in the applicable
Principal Financial Center, on the particular Interest Determination Date by
three major banks (which may include the agents or their affiliates), in
that Principal Financial Center selected by the calculation agent for loans
in the LIBOR Currency to leading European banks, having the Index Maturity
specified in the pricing supplement and in a principal amount that is
representative for a single transaction in the LIBOR Currency in that market
at that time, or
(5) if the banks so selected by the calculation agent are not quoting as
mentioned in clause (4), LIBOR in effect on the particular Interest
Determination Date.
Treasury Rate Notes
Each Treasury Rate note will bear interest at a specified rate that will be
reset periodically based on the Treasury Rate and any Spread and/or Spread
Multiplier.
"Treasury Rate" means:
(1) the rate from the auction (the "Auction") held on the Treasury Rate
Determination Date of direct obligations of the United States ("Treasury
Bills") having the Index Maturity specified in the applicable pricing
supplement, under the caption "INVESTMENT RATE" on the display on Moneyline
Telerate (or any successor service) on page 56 (or any other page as may
replace that page on that service) ("Moneyline Telerate Page 56") or page 57
(or any other page as may replace that page on that service) ("Moneyline
Telerate Page 57"), or
(2) if the rate referred to in clause (1) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the Bond
Equivalent Yield of the rate for the applicable Treasury Bills as published
in H.15 Daily Update, or another recognized electronic source used for the
purpose of displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Auction High," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the Bond
Equivalent Yield of the auction rate of the applicable Treasury Bills as
announced by the U.S. Department of the Treasury, or
(4) if the rate referred to in clause (3) is not so announced by the U.S.
Department of the Treasury, or if the Auction is not held, the Bond
Equivalent Yield of the rate on the Treasury Rate Determination Date of the
applicable Treasury Bills as published in H.15(519) under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market," or
(5) if the rate referred to in clause (4) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
Treasury Rate Determination Date of the applicable Treasury Bills as
published in H.15 Daily Update, or another recognized electronic source used
for the purpose of displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market," or
(6) if the rate referred to in clause (5) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
Treasury Rate Determination Date calculated by the calculation
S-12
agent as the Bond Equivalent Yield of the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 P.M., New York City time, on the
Treasury Rate Determination Date, of three leading primary U.S. government
securities dealers (which may include the agents or their affiliates)
selected by the calculation agent, for the issue of Treasury Bills with a
remaining maturity closest to the Index Maturity specified in the applicable
pricing supplement, or
(7) if the dealers so selected by the calculation agent are not quoting
as mentioned in clause (6), the Treasury Rate in effect on the Treasury Rate
Determination Date, or if none, the initial interest rate.
Prime Rate Notes
Each Prime Rate note will bear interest at a specified rate that will be
reset periodically based on the Prime Rate and any Spread and/or Spread
Multiplier.
"Prime Rate" means:
(1) the rate on the particular Interest Determination Date as published
in H.15(519) under the caption "Bank Prime Loan," or
(2) if the rate referred to in clause (1) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date as published in H.15 Daily Update, or
such other recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "Bank Prime Loan," or
(3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the calculation agent
as the arithmetic mean of the rates of interest publicly announced by each
bank that appears on the Reuters Screen US PRIME 1 Page as the applicable
bank's prime rate or base lending rate as of 11:00 A.M., New York City time,
on the particular Interest Determination Date, or
(4) if fewer than four rates referred to in clause (3) are so published
by 3:00 P.M., New York City time, on the related Calculation Date, the rate
calculated by the calculation agent on the particular Interest Determination
Date as the arithmetic mean of the prime rates or base lending rates quoted
on the basis of the actual number of days in the year divided by a 360-day
year as of the close of business on the particular Interest Determination
Date by three major banks (which may include the agents or their affiliates)
in The City of New York selected by the calculation agent, or
(5) if the banks so selected by the calculation agent are not quoting as
mentioned in clause (4), the Prime Rate in effect on the particular Interest
Determination Date or, if none, the initial interest rate.
CMT Rate Notes
Each CMT Rate note will bear interest at a specified rate that will be reset
periodically based on the CMT Rate and any Spread or Spread Multiplier.
"CMT Rate" means:
(1) if CMT Moneyline Telerate Page 7051 is specified in the applicable
pricing supplement:
(a) the percentage equal to the yield for United States Treasury
securities at "constant maturity" having the Index Maturity specified in
the applicable pricing supplement as published in H.15(519) under the
caption "Treasury Constant Maturities", as the yield is displayed on
Moneyline Telerate (or any successor service) on page 7051 (or any other
page as may replace the specified page on that service) ("Moneyline
Telerate Page 7051"), for the particular Interest Determination Date, or
(b) if the rate referred to in clause (a) does not so appear on
Moneyline Telerate Page 7051, the percentage equal to the yield for
United States Treasury securities at "constant maturity" having the
particular Index Maturity and for the particular Interest Determination
Date as published in H.15(519) under the caption "Treasury Constant
Maturities," or
S-13
(c) if the rate referred to in clause (b) does not so appear in
H.15(519), the rate on the particular Interest Determination Date for
the period of the particular Index Maturity as may then be published by
either the Federal Reserve System Board of Governors or the United
States Department of the Treasury that the calculation agent determines
to be comparable to the rate which would otherwise have been published
in H.15(519), or
(d) if the rate referred to in clause (c) is not so published, the
rate on the particular Interest Determination Date calculated by the
calculation agent as a yield to maturity based on the arithmetic mean of
the secondary market bid prices at approximately 3:30 P.M., New York
City time, on that Calculation Date of three leading primary U.S.
government securities dealers in The City of New York (which may include
the agents or their affiliates) (each, a "Reference Dealer"), selected
by the calculation agent from five Reference Dealers selected by the
calculation agent and eliminating the highest quotation, or, in the
event of equality, one of the highest, and the lowest quotation or, in
the event of equality, one of the lowest, for U.S. Treasury securities
with an original maturity equal to the particular Index Maturity, a
remaining term to maturity no more than one year shorter than that Index
Maturity and in a principal amount that is representative for a single
transaction in the securities in that market at that time, or
(e) if fewer than five but more than two of the prices referred to in
clause (d) are provided as requested, the rate on the particular
Interest Determination Date calculated by the calculation agent based on
the arithmetic mean of the bid prices obtained and neither the highest
nor the lowest of the quotations shall be eliminated, or
(f) if fewer than three prices referred to in clause (d) are provided
as requested, the rate on the particular Interest Determination Date
calculated by the calculation agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices as of approximately
3:30 P.M., New York City time, on that Interest Determination Date of
three Reference Dealers selected by the calculation agent from five
Reference Dealers selected by the calculation agent and eliminating the
highest quotation or, in the event of equality, one of the highest and
the lowest quotation or, in the event of equality, one of the lowest,
for U.S. Treasury securities with an original maturity greater than the
particular Index Maturity, a remaining term to maturity closest to that
Index Maturity and in a principal amount that is representative for a
single transaction in the securities in that market at that time, or
(g) if fewer than five but more than two prices referred to in clause
(f) are provided as requested, the rate on the particular Interest
Determination Date calculated by the calculation agent based on the
arithmetic mean of the bid prices obtained and neither the highest nor
the lowest of the quotations will be eliminated, or
(h) if fewer than three prices referred to in clause (f) are provided
as requested, the CMT Rate in effect on the particular Interest
Determination Date or, if none, the initial interest rate.
(2) if CMT Moneyline Telerate Page 7052 is specified in the applicable
pricing supplement:
(a) the percentage equal to the one-week or one-month, as specified
in the applicable pricing supplement, average yield for U.S. Treasury
securities at "constant maturity" having the Index Maturity specified in
the applicable pricing supplement as published in H.15(519) opposite the
caption "Treasury Constant Maturities," as the yield is displayed on
Moneyline Telerate (or any successor service) (on page 7052 or any other
page as may replace the specified page on that service) ("Moneyline
Telerate Page 7052"), for the week or month, as applicable, ended
immediately preceding the week or month, as applicable, in which the
particular Interest Determination Date falls, or
(b) if the rate referred to in clause (a) does not so appear on
Moneyline Telerate Page 7052 by 3:00 P.M., New York City time, on the
related Calculation Date, the percentage equal to the one-week or
one-month, as specified in the applicable pricing supplement, average
yield for U.S. Treasury securities at "constant maturity" having the
particular Index Maturity and for the week or month, as applicable,
preceding the particular Interest Determination Date as published in
H.15(519) opposite the caption "Treasury Constant Maturities," or
S-14
(c) if the rate referred to in clause (b) does not so appear in
H.15(519) by 3:00 P.M., New York City time, on the related Calculation
Date, the one-week or one-month, as specified in the applicable pricing
supplement, average yield for U.S. Treasury securities at "constant
maturity" having the particular Index Maturity as otherwise announced by
the Federal Reserve Bank of New York for the week or month, as
applicable, ended immediately preceding the week or month, as
applicable, in which the particular Interest Determination Date falls, or
(d) if the rate referred to in clause (c) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on
the particular Interest Determination Date calculated by the calculation
agent as a yield to maturity based on the arithmetic mean of the
secondary market bid prices at approximately 3:30 P.M., New York City
time, on that Interest Determination Date of three Reference Dealers
selected by the calculation agent from five Reference Dealers selected
by the calculation agent and eliminating the highest quotation, or, in
the event of equality, one of the highest, and the lowest quotation or,
in the event of equality, one of the lowest, for U.S. Treasury
securities with an original maturity equal to the particular Index
Maturity, a remaining term to maturity no more than one year shorter
than that Index Maturity and in a principal amount that is
representative for a single transaction in the securities in that market
at that time, or
(e) if fewer than five but more than two of the prices referred to in
clause (d) are provided as requested, the rate on the particular
Interest Determination Date calculated by the calculation agent based on
the arithmetic mean of the bid prices obtained and neither the highest
nor the lowest of the quotations shall be eliminated, or
(f) if fewer than three prices referred to in clause (d) are provided
as requested, the rate calculated by the calculation agent shall be a
yield to maturity based on the arithmetic mean of the secondary market
bid prices as of approximately 3:30 P.M., New York City time, on that
Interest Determination Date of three Reference Dealers selected by the
calculation agent from five Reference Dealers selected by the
calculation agent and eliminating the highest quotation or, in the event
of equality, one of the highest and the lowest quotation or, in the
event of equality, one of the lowest, for U.S. Treasury Securities with
an original maturity of the number of years that is the next highest to
the Index Maturity specified in the applicable pricing supplement and a
remaining term to maturity closest to that Index Maturity and in an
amount of at least $10 million, or
(g) if fewer than five but more than two prices referred to in clause
(f) are provided as requested, the rate calculated by the calculation
agent based on the arithmetic mean of the offer prices obtained and
neither the highest or the lowest of the quotations will be eliminated,
or
(h) if fewer than three prices referred to in clause (f) are provided
as requested, the CMT Rate in effect on that Interest Determination Date
or, if none, the initial interest rate.
If two U.S. Treasury securities with an original maturity greater than the
Index Maturity specified in the applicable pricing supplement have remaining
terms to maturity equally close to the particular Index Maturity, the quotes
for the U.S. Treasury security with the shorter original remaining term to
maturity will be used.
European Monetary Union
Unless we state otherwise in a pricing supplement, to the extent legally
permissible, neither the occurrence or non-occurrence of an EMU Event, nor the
entry into force of any law, regulation, directive or order that requires us to
redenominate on terms different from those we describe below, will alter any
term of, or discharge or excuse performance under, the Senior Indenture or the
notes, nor would it permit the Trustee, the holders of the notes or us the
right unilaterally to alter or terminate the Senior Indenture or the notes or
give rise to any event of default or otherwise be the basis for any rescission
or renegotiation of the Senior Indenture or the notes. To the extent legally
permissible, the occurrence or non-occurrence of an EMU Event will be
considered to occur automatically pursuant to the terms of the notes.
S-15
An "EMU Event" means any event associated with the European Monetary Union
in the European Community, including:
(a)the fixing of exchange rates between the currency of a Participating
Member State and the Euro or between the currencies of Participating
Member States;
(b)the introduction of the Euro as the lawful currency in a Participating
Member State;
(c)the withdrawal from legal tender of any currency that, before the
introduction of the Euro, was the lawful currency in any of the
Participating Member States;
(d)the disappearance or replacement of a relevant rate option or other
price source for the currency of any Participating Member State or the
failure of the agreed price or rate sponsor or screen provider to
publish or display the required information; or
(e)any combination of the above.
Redenomination
If payments on the notes are to be made in a foreign currency and the
issuing country of that currency becomes a Participating Member State, then we
may, solely at our option and without the consent of holders or the need to
amend the Senior Indenture or the notes, redenominate all of those notes into
Euros (whether or not any other similar debt securities are so redenominated)
on any interest payment date and after the date on which that country became a
Participating Member State. We will give holders at least 30 days' notice of
the redenomination, including a description of the way we will implement it.
If we elect to redenominate a tranche of notes, the election to redenominate
will have effect, as follows:
1. each denomination will be deemed to be denominated in such amount of
Euro as is equivalent to its denomination or the amount of interest so
specified in the relevant foreign currency at the fixed conversion rate
adopted by the Council of the European Union for the relevant foreign
currency, rounded down to the nearest Euro 0.01;
2. after the redenomination date, all payments in respect of those notes,
other than payments of interest in respect of periods commencing before
the redenomination date, will be made solely in Euro as though
references in those notes to the relevant foreign currency were to Euro.
Payments will be made in Euro by credit or transfer to a Euro account
(or any other account to which Euro may be credited or transferred)
specified by the payee, or at the option of the payee, by a Euro cheque;
3. if those notes are notes which bear interest at a fixed rate and
interest for any period ending on or after the redenomination date is
required to be calculated for a period of less than one year, it will be
calculated on the basis of the applicable fraction specified in the
applicable pricing supplement;
4. if those notes are notes which bear interest at a floating rate, the
applicable pricing supplement will specify any relevant changes to the
provisions relating to interest; and
5. such other changes shall be made to the terms of those notes as we may
decide, after consultation with the Trustee, and as may be specified in
the notice, to conform them to conventions then applicable to debt
securities denominated in Euro or to enable those notes to be
consolidated with other notes, whether or not originally denominated in
the relevant foreign currency or Euro. Any such other changes will not
take effect until after they have been notified to the holders.
Indexed Notes
We may offer indexed notes under which principal or interest is determined
by reference to an index related to:
(a)the rate of exchange between the specified currency for such note and
another designated currency;
S-16
(b)the difference in the price of a specified commodity on specified dates;
(c)the difference in the level of a specified stock index, which may be
based on U.S. or foreign stocks, on specified dates; or
(d)any other objective price or economic measures described in the pricing
supplement.
We will describe the manner of determining principal and interest amounts in
the pricing supplement. We will also include historical and other information
regarding the index or indexes and information concerning tax consequences to
holders of indexed notes.
Interest payable on an indexed note will be based on the face amount of the
note. The pricing supplement will describe whether the principal payable upon
redemption or repayment prior to Maturity will be the face amount, the index
principal amount at the time of redemption or repayment or some other amount.
Amortizing Notes
We may offer amortizing notes. Unless otherwise specified in the pricing
supplement, interest on an amortizing note will be computed using a 360-day
year of twelve 30-day months. Payments on amortizing notes will be applied
first to interest due and payable and then to the unpaid principal amount.
Further information about amortizing notes will be specified in the pricing
supplement.
Book-Entry System
Upon issuance, all notes having the same original issue date and otherwise
identical terms will be represented by one or more global notes. Each global
note representing book-entry notes will be deposited with DTC. This means that
we will not issue certificates to each holder. DTC will keep a computerized
record of its participants (for example, your broker) whose clients have
purchased the notes. Unless it is exchanged in whole or in part for a
certificated note, a global note may not be transferred, except that DTC, its
nominees and their successors may transfer a global note as a whole to one
another.
Beneficial interests in global notes will be shown on, and transfers of
interests will be made only through, records maintained by DTC and its
participants. The laws of some jurisdictions require that certain purchasers
take physical delivery of securities in definitive form. These laws may impair
the ability to transfer beneficial interests in a global note.
We will wire principal and interest payments to DTC or its nominee. We and
the Trustee will treat DTC or its nominee as the owner of a global note for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on a global note to owners of
beneficial interests in a global note.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit participants' accounts on the payment date according to
their respective holdings of beneficial interests in the global note as shown
on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to participants whose accounts are credited with
notes on a record date, by using an omnibus proxy. Payments by participants to
owners of beneficial interests in a global note, and voting by participants,
will be governed by the customary practices between the participants and owners
of beneficial interests, as is the case with notes held for the account of
customers registered in "street name." However, payments will be the
responsibility of the participants and not our responsibility or that of DTC or
the Trustee.
Notes represented by a global note will be exchangeable for certificated
notes with the same terms in authorized denominations only if:
(a)DTC notifies us that it is unwilling or unable to continue as depositary
or if DTC ceases to be a clearing agency registered under applicable law
and a successor depositary is not appointed by us within 90 days; or
S-17
(b)we determine not to require all of the notes of a series to be
represented by global notes and notify the Trustee of our decision.
Information Relating to DTC
The following is based on information furnished by DTC:
DTC will act as securities depository for the book-entry notes. The
book-entry notes will be issued as fully registered securities registered in
the name of Cede & Co. (DTC's partnership nominee). One fully registered global
note will be issued for each issue of book-entry notes, each in the aggregate
principal amount of such issue, and will be deposited with DTC. If, however,
the aggregate principal amount of any issue exceeds $500,000,000, one global
note will be issued with respect to each $500,000,000 of principal amount and
an additional global note will be issued with respect to any remaining
principal amount of such issue.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of DTC ("Direct Participants")
include securities brokers and dealers (including the agents), banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange Inc., and the National Association of
Securities Dealers, Inc. Access to DTC's system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
Purchases of book-entry notes under DTC's system must be made by or through
Direct Participants, which will receive a credit for such book-entry notes on
DTC's records. The ownership interest of each actual purchaser of each
Book-Entry Note represented by a global note ("Beneficial Owner") is in turn to
be recorded on the records of Direct Participants and Indirect Participants.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through which
such Beneficial Owner entered into the transaction. Transfers of ownership
interests in a global note representing book-entry notes are to be accomplished
by entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners of a global note representing book-entry notes will
not receive certificated notes representing their ownership interests therein,
except in the event that use of the book-entry system for such book-entry notes
is discontinued.
To facilitate subsequent transfers, all global notes representing book-entry
notes which are deposited with, or on behalf of, DTC are registered in the name
of DTC's nominee, Cede & Co. The deposit of global notes with, or on behalf of,
DTC and their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the global notes representing the book-entry notes; DTC's records reflect only
the identity of the Direct Participants to whose accounts such book-entry notes
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
S-18
Neither DTC nor Cede & Co. will consent or vote with respect to the global
notes representing the book-entry notes. Under its usual procedures, DTC mails
an Omnibus Proxy to the Company as soon as possible after the applicable record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the book-entry notes are credited
on the applicable record date (identified in a listing attached to the Omnibus
Proxy).
Principal, premium, if any, and/or interest, if any, payments on the global
notes representing the book-entry notes will be made in immediately available
funds to DTC. DTC's practice is to credit Direct Participants' accounts on the
applicable payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on such date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of DTC, the
Trustee or us, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of the Company and the Trustee,
disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct Participants and Indirect
Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the book-entry notes of like tenor and terms are being redeemed, DTC's
practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
A Beneficial Owner will give notice of any option to elect to have its
book-entry notes repaid by us, through its Participant, to the Trustee, and
will effect delivery of the applicable book-entry notes by causing the Direct
Participant to transfer the Participant's interest in the global note or notes
representing such book-entry notes, on DTC's records, to the Trustee. The
requirement for physical delivery of book-entry notes in connection with a
demand for repayment will be deemed satisfied when the ownership rights in the
global note or notes representing such book-entry notes are transferred by
Direct Participants on DTC's records.
DTC may discontinue providing its services as securities depository with
respect to the book-entry notes at any time by giving reasonable notice to us
or the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, certificated notes are required to be
printed and delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, certificated
notes will be printed and delivered.
The laws of some states may require that certain purchasers of securities
take physical delivery of securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in
global notes.
The information in this section concerning DTC and DTC's system has been
obtained from sources that we believe to be reliable, but neither we nor any
agent takes any responsibility for the accuracy thereof.
Clearstream Luxembourg and Euroclear Systems
Investors may elect to hold interests in book-entry notes through either DTC
(in the United States) or Clearstream Banking, societe anonyme ("Clearstream
Luxembourg") or Euroclear Bank S.A./N.V., as operator of the Euroclear System
("Euroclear") (in Europe) if they are participants of those systems, or
indirectly, through organizations that are participants in those systems.
Clearstream Luxembourg and Euroclear will hold interests on behalf of their
participants through customers' securities accounts in Clearstream Luxembourg's
and Euroclear's names on the books of their respective depositaries, which in
turn will hold such interests in customers' securities accounts in the
depositaries' names on the books of DTC. At the present time, Citibank,
S-19
N.A. acts as the U.S. depositary for Clearstream Luxembourg and JPMorgan Chase
Bank acts as U.S. depositary for Euroclear (in such capacities as the "U.S.
Depositaries"). Beneficial interests in the global securities will be held in
denominations of $1,000 and integral multiples thereof. Except as set forth
below or in the accompanying prospectus, the global security may be
transferred, in whole but not in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Clearstream Luxembourg has advised us that it is incorporated under the laws
of Luxembourg as a professional depositary. Clearstream Luxembourg holds
securities for its participating organizations ("Clearstream Luxembourg
Participants") and facilitates the clearance and settlement of securities
transactions between Clearstream Luxembourg Participants through electronic
book-entry changes in accounts of Clearstream Luxembourg Participants, thereby
eliminating the need for physical movement of certificates. Clearstream
Luxembourg provides to Clearstream Luxembourg Participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream Luxembourg interfaces with domestic markets in several countries.
As a professional depositary, Clearstream Luxembourg is subject to regulation
by the Luxembourg Monetary Institute. Clearstream Luxembourg Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the agents or their affiliates.
Indirect access to Clearstream Luxembourg is also available to others, such as
banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Clearstream Luxembourg Participant either
directly or indirectly.
Distributions with respect to notes held beneficially through Clearstream
Luxembourg will be credited to cash accounts of Clearstream Luxembourg
Participants in accordance with its rules and procedures, to the extent
received by the U.S. Depositary for Clearstream Luxembourg.
Euroclear has advised us that it was created in 1968 to hold securities for
participants of Euroclear ("Eur-oclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries. Euroclear is operated by Euroclear Bank S.A./N.V., as
operator of the Euroclear System (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for Euroclear on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
agents or their affiliates. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear system, and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities
and cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of, or relationship with, persons
holding through Euroclear Participants.
Distributions with respect to notes held beneficially through Euroclear will
be credited to the cash accounts of Euroclear Participants in accordance with
the Terms and Conditions, to the extent received by the U.S. Depositary of
Euroclear.
S-20
Global Clearance and Settlement Procedures
Initial settlement for the notes will be made in immediately available
funds. Secondary market trading between Participants will occur in the ordinary
way in accordance with DTC's rules. Secondary market trading between
Clearstream Luxembourg Participants and/or Euroclear Participants will occur in
the ordinary way in accordance with the applicable rules and operating
procedures of Clearstream Luxembourg and Euroclear and will be settled using
the procedures applicable to conventional eurobonds in immediately available
funds.
Cross-market transfers between persons holding directly or indirectly
through DTC on the one hand, and directly or indirectly through Clearstream
Luxembourg or Euroclear Participants, on the other, will be effected within DTC
in accordance with DTC's rules on behalf of the relevant European international
clearing system by its U.S. Depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its rules
and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its U.S. Depositary to
take action to effect final settlement on its behalf by delivering or receiving
notes in DTC, and making or receiving payment in accordance with normal
procedures. Clearstream Luxembourg Participants and Euroclear Participants may
not deliver instructions directly to their respective U.S. Depositories.
Because of time-zone differences, credits of notes received in Clearstream
Luxembourg or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following DTC settlement date. Such credits, or any transactions in the
notes settled during such processing, will be reported to the relevant
Euroclear Participants or Clearstream Luxembourg Participants on that business
day. Cash received in Clearstream Luxembourg or Euroclear as a result of sales
of notes by, or through a Clearstream Luxembourg Participant or a Euroclear
Participant to a Participant will be received with value on the business day of
settlement in DTC but will be available in the relevant Clearstream Luxembourg
or Euroclear cash account only as of the business day following settlement in
DTC.
Although DTC, Clearstream Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of securities among
participants of DTC, Clearstream Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
General
Unless otherwise specified in the applicable pricing supplement, foreign
currency notes will not be sold in, or to residents of, the country issuing the
specified currency. The information set forth in this prospectus supplement is
directed to prospective purchasers who are United States residents and, with
respect to foreign currency notes, is by necessity incomplete. We and the
agents disclaim any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to any matters
that may affect the purchase, holding or receipt of payments of principal of,
and premium, if any, and interest, if any, on, their foreign currency notes.
These purchasers should consult their own financial and legal advisors with
regard to these risks. See "Risk Factors--Foreign Currency Notes Are Subject to
Exchange Rate and Exchange Control Risks."
Payment of Principal, Premium, if any, and Interest, if any
Unless otherwise specified in the applicable pricing supplement, we are
obligated to make payments of principal of, and premium, if any, and interest,
if any, on, a foreign currency note in the specified currency. Any amounts so
payable by us in the specified currency will be converted by the exchange rate
agent named in the applicable pricing supplement (the "exchange rate agent")
into United States dollars for payment to the registered holders thereof unless
otherwise specified in the applicable pricing supplement or a registered holder
elects, in the manner described below, to receive these amounts in the
specified currency.
S-21
Any United States dollar amount to be received by a registered holder of a
foreign currency note will be based on the highest bid quotation in The City of
New York received by the exchange rate agent at approximately 11:00 A.M., New
York City time, on the second Business Day preceding the applicable payment
date from three recognized foreign exchange dealers (one of whom may be the
exchange rate agent) selected by the exchange rate agent and approved by us for
the purchase by the quoting dealer of the specified currency for United States
dollars for settlement on that payment date in the aggregate amount of the
specified currency payable to all registered holders of foreign currency notes
scheduled to receive United States dollar payments and at which the applicable
dealer commits to execute a contract. All currency exchange costs will be borne
by the registered holders of foreign currency notes by deductions from any
payments. If three bid quotations are not available, payments will be made in
the specified currency.
Registered holders of foreign currency notes may elect to receive all or a
specified portion of any payment of principal, premium, if any, and/or
interest, if any, in the specified currency by submitting a written request to
the Trustee at its corporate trust office in The City of New York on or prior
to the applicable record date or at least fifteen calendar days prior to the
maturity, as the case may be. This written request may be mailed or hand
delivered or sent by cable, telex or other form of facsimile transmission. This
election will remain in effect until revoked by written notice delivered to the
Trustee on or prior to a record date or at least fifteen calendar days prior to
the maturity, as the case may be. Registered holders of foreign currency notes
to be held in the name of a broker or nominee should contact their broker or
nominee to determine whether and how an election to receive payments in the
specified currency may be made.
Unless otherwise specified in the applicable pricing supplement, if the
specified currency is other than United States dollars, a Beneficial Owner of a
global security which elects to receive payments of principal, premium, if any,
and/or interest, if any, in the specified currency must notify the Participant
through which it owns its interest on or prior to the applicable record date or
at least fifteen calendar days prior to the maturity, as the case may be, of
its election. The applicable Participant must notify the depositary of its
election on or prior to the third Business Day after the applicable record date
or at least twelve calendar days prior to the maturity, as the case may be, and
the depositary will notify the Trustee of that election on or prior to the
fifth Business Day after the applicable record date or at least ten calendar
days prior to the maturity, as the case may be. If complete instructions are
received by the Participant from the applicable Beneficial Owner and forwarded
by the Participant to the depositary, and by the depositary to the Trustee, on
or prior to such dates, then the applicable Beneficial Owner will receive
payments in the specified currency.
We will make payments of the principal of, and premium, if any, and/or
interest, if any, on, foreign currency notes which are to be made in United
States dollars in the manner specified herein with respect to notes denominated
in United States dollars. See "Description of Notes--General." We will make
payments of interest, if any, on foreign currency notes which are to be made in
the specified currency on an Interest Payment Date other than the maturity by
check mailed to the address of the registered holders of their foreign currency
notes as they appear in the Security Register, subject to the right to receive
these interest payments by wire transfer of immediately available funds under
the circumstances described under "Description of Notes--General." We will make
payments of principal of, and premium, if any, and/or interest, if any, on,
foreign currency notes which are to be made in the specified currency on the
maturity by wire transfer of immediately available funds to an account with a
bank designated at least fifteen calendar days prior to the maturity by the
applicable registered holder, provided the particular bank has appropriate
facilities to make these payments and the particular foreign currency note is
presented and surrendered at the office or agency maintained by the Trustee for
this purpose in the Borough of Manhattan, The City of New York, in time for the
Trustee to make these payments in accordance with its normal procedures.
Availability of Specified Currency
If the specified currency for foreign currency notes is not available for
any required payment of principal, premium, if any, and/or interest, if any,
due to the imposition of exchange controls or other circumstances
S-22
beyond our control, we will be entitled to satisfy our obligations to the
registered holders of these foreign currency notes by making payments in United
States dollars on the basis of the Market Exchange Rate, computed by the
exchange rate agent, on the second Business Day prior to the particular payment
or, if the Market Exchange Rate is not then available, on the basis of the most
recently available Market Exchange Rate.
The "Market Exchange Rate" for a specified currency other than United States
dollars means the noon dollar buying rate in The City of New York for cable
transfers for the specified currency as certified for customs purposes (or, if
not so certified, as otherwise determined) by the Federal Reserve Bank of New
York.
All determinations made by the exchange rate agent shall be at its sole
discretion and shall, in the absence of manifest error, be conclusive for all
purposes and binding on the registered holders of the foreign currency notes.
Judgments
Under current Illinois law, a state court in the State of Illinois may, at
the request of the claimant, render a judgment in respect of a foreign currency
note in the specified currency. Any such judgment made in the specified
currency would be payable in that currency or, at the option of the payor, in
the amount of United States dollars which would purchase that currency as of
the banking day next preceding the date on which the money is paid to the
claimant. Accordingly, registered holders of foreign currency notes may be
subject to exchange rate fluctuations between the date of the calculation of
the amount due under a foreign currency judgment (if paid in United States
dollars) and the date of payment. A non-Illinois state court may not follow the
same rules and procedures with respect to payments and conversions of foreign
currency judgments.
We will indemnify the registered holder of any note against any loss
incurred by that holder as a result of any judgment or order being given or
made for any amount due under the particular note and that amount due being
paid by us (whether due to the requirements of a judgment or order or
otherwise) in a currency (the "Judgment Currency") other than the specified
currency, and as a result of any variation between:
the rate of exchange at which the specified currency amount is converted
into the Judgment Currency for the purpose of calculation of the payment
of the amount due; and
the rate of exchange at which the registered holder, on the date of
payment of that judgment or order, is able to purchase the specified
currency with the amount of the Judgment Currency actually received.
Other Provisions; Addenda
We may modify any provisions of a note by using the section marked "Other
Provisions" on the face of the note or by providing an addendum to the note,
and, in each case, as specified in the applicable pricing supplement.
Optional Redemption, Repayment and Repurchase
The pricing supplement for a note will indicate whether we will have the
option to redeem the note before the stated maturity and the price and date or
dates on which redemption may occur. If we are allowed to redeem a note, we may
exercise the option by causing the Trustee or the paying agent to mail notice
of redemption to the holders at least 30 but not more than 60 days before the
redemption date. If a note is only redeemed in part, we will issue a new note
or notes for the unredeemed portion.
The pricing supplement relating to a note will also indicate whether you
will have the option to elect repayment by us prior to the stated maturity and
the price and the date or dates on which repayment may occur.
S-23
For a note to be repaid, the paying agent must receive, at least 30 but not
more than 45 days prior to an optional repayment date, such note with the form
entitled "Option to Elect Repayment" on the reverse of the note completed. You
may also send the paying agent a facsimile 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 describing the
particulars of the repayment including a guarantee that the note and the form
entitled "Option to Elect Repayment" will be received by the paying agent no
later than five Business Days after such facsimile or letter. If you present a
note for repayment, that act will be irrevocable. You may exercise the
repayment option for less than the entire principal of the note, provided the
remaining principal outstanding is an authorized denomination. If you elect
partial repayment, your note will be cancelled, and we will issue a new note or
notes for the remaining amount.
DTC or its nominee will be the holder of each global note and will be the
only party that can exercise a right of repayment. If you are a beneficial
owner of a global note and you want to exercise your right of repayment, you
must instruct your broker or indirect participant through which you hold your
interest to notify DTC. You should consult your broker or such indirect
participant to discuss the appropriate cut-off times and any other requirements
for giving this instruction.
Regardless of anything in this prospectus supplement to the contrary, if a
note is an Original Issue Discount Note (other than an indexed note), the
amount payable in the event of redemption or repayment prior to its stated
maturity will be the amortized face amount on the redemption or repayment date,
as the case may be. The amortized face amount of an Original Issue Discount
Note will be equal to (1) the issue price plus (2) that portion of the
difference between the issue price and the principal amount of the note that
has accrued at the yield to maturity described in the pricing supplement
(computed in accordance with generally accepted U.S. bond yield computation
principles) by the redemption or repayment date. However, in no case will the
amortized face amount of an Original Issue Discount Note exceed its principal
amount.
We may at any time purchase notes at any price in the open market or
otherwise. We may hold, resell or surrender for cancellation any notes that we
purchase.
UNITED STATES TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax considerations
that may be relevant to a holder of a note that is a U.S. holder. For the
purposes of this discussion, a U.S. holder is an individual who is a citizen or
resident of the United States, a United States domestic corporation, or any
other person that is subject to United States federal income tax on a net
income basis in respect of its investment in a note. This summary is based on
laws, regulations, rulings and decisions now in effect, which may change. Any
change could apply retroactively and could affect the continued validity of
this summary. This summary deals only with U.S. holders that hold notes as
capital assets. It does not address specific tax considerations applicable to
investors that may be subject to special tax rules, such as pass-through
entities (e.g. partnerships) or persons who hold the notes through pass-through
entities, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, traders in
securities or commodities that elect mark to market treatment, persons that
will hold notes as a hedge against currency or other risks or as a position in
a "straddle" or conversion transaction, tax exempt organizations, holders who
are not U.S. holders, or persons that have a "functional currency" other than
the U.S. dollar.
This section deals only with notes that are due to mature 30 years or less
from the date on which they are issued. The United States federal income tax
consequences of owning notes that are due to mature more than 30 years from
their date of issue will be discussed in the applicable pricing supplement.
You should consult your tax adviser about the tax consequences of holding
notes, including the relevance to your particular situation of the
considerations discussed below, as well as of state, local or other tax laws.
S-24
Payments or Accruals of Interest
Payments of or accruals of "qualified stated interest" (as defined below) on
a note will be taxable to a U.S. holder as ordinary interest income at the time
that the holder accrues or receives such amounts (in accordance with the
holder's method of tax accounting). If a U.S. holder using the cash method of
tax accounting receives payments of interest pursuant to the terms of a note in
a currency or currency unit other than U.S. dollars (a "foreign currency"), the
amount of interest income to be included in income by the holder will be the
U.S. dollar value of the foreign currency payment based on the exchange rate in
effect on the date of receipt regardless of whether the payment is converted
into U.S. dollars. In the case of a U.S. holder who uses the accrual method of
accounting or who is otherwise required to accrue interest prior to receipt,
the amount of interest income will be based on the average exchange rate in
effect during the interest accrual period (or with respect to an interest
accrual period that spans two taxable years, at the average exchange rate for
the partial period within the taxable year). Alternatively, an accrual basis
U.S. holder may elect to translate all interest income on foreign
currency-denominated notes at the spot rate on the last day of the accrual
period (or the last day of the taxable year, in the case of an accrual period
that spans more than one taxable year) or on the date the holder receives the
interest payment if that date is within five business days of the end of the
accrual period. A U.S. holder that makes this election must apply it
consistently to all debt instruments from year to year and cannot change the
election without the consent of the Internal Revenue Service. A U.S. holder
that uses the accrual method of accounting for tax purposes will recognize
foreign currency gain or loss on the receipt of a foreign currency interest
payment if the exchange rate in effect on the date the payment is received
differs from the rate applicable to a previous accrual of that interest income.
This foreign currency gain or loss will be treated as ordinary income or loss,
but generally will not be treated as an adjustment to interest income received
on the note.
Purchase, Sale and Retirement of Notes
A U.S. holder's tax basis in a note generally will equal the cost of the
note to that holder, increased by any amounts includible in income by the
holder as original issue discount and market discount, and reduced by any
amortized premium (each as described below) and any payments other than
qualified stated interest made on the note. The cost to a U.S. holder of a note
denominated in a foreign currency will be the U.S. dollar value of the foreign
currency purchase price on the date of purchase calculated at the exchange rate
in effect on that date. In the case of a foreign currency note that is traded
on an established securities market, a cash-basis U.S. holder (or, if it so
elects, an accrual-basis U.S. holder) will determine the U.S. dollar value of
the cost of the note by translating the amount paid at the spot rate of
exchange on the settlement date of the purchase. The amount of any subsequent
adjustments to the holder's tax basis in a note in respect of foreign
currency-denominated original issue discount, market discount and premium will
be determined in the manner described below. The conversion of U.S. dollars to
a foreign currency and the immediate use of that currency to purchase a note
generally will not result in taxable gain or loss for a U.S. holder.
Upon the sale, exchange or retirement of a note, a U.S. holder generally
will recognize gain or loss equal to the difference between the amount realized
on the transaction (less any accrued qualified stated interest, which will be
taxable as such) and the U.S. holder's tax basis in the note. If a U.S. holder
receives foreign currency in respect of the sale, exchange or retirement of a
foreign currency note, the amount realized generally will be the dollar value
of the foreign currency the holder receives calculated at the exchange rate in
effect on the date the foreign currency note is disposed of or retired. In the
case of a foreign currency note that is traded on an established securities
market, a cash-basis U.S. holder (or, if it so elects, an accrual-basis U.S.
holder) will determine the U.S. dollar value of the amount realized by
translating the amount at the spot rate of exchange on the settlement date of
the sale, exchange or retirement.
The election available to accrual-basis U.S. holders in respect of the
purchase and sale of foreign currency notes traded on an established securities
market, which is discussed in the two preceding paragraphs, must be applied
consistently to all debt instruments from year to year and cannot be changed
without the consent of the Internal Revenue Service.
S-25
Except as discussed below with respect to market discount and foreign
currency gain or loss, gain or loss recognized by a U.S. holder on the sale,
exchange or retirement of a note generally will be long-term capital gain or
loss if the U.S. holder has held the note for more than one year. The Internal
Revenue Code of 1986, provides preferential treatment under certain
circumstances for net long-term capital gains recognized by individual
investors. Net long-term capital gain recognized by an individual U.S. holder
generally will be subject to a maximum tax rate of 20% for notes held more than
one year. The ability of U.S. holders to offset capital losses against ordinary
income is limited.
Notwithstanding the foregoing, gain or loss recognized by a U.S. holder on
the sale, exchange or retirement of a foreign currency note generally will be
treated as ordinary income or loss to the extent that the gain or loss is
attributable to changes in exchange rates during the period in which the holder
held the note. This foreign currency gain or loss will not be treated as an
adjustment to interest income that the holder receives on the note.
Original Issue Discount
U.S. holders of Original Issue Discount Notes generally will be subject to
the special tax accounting rules for original issue discount obligations
provided by the Internal Revenue Code and certain Treasury regulations. U.S.
holders of these notes should be aware that, as described in greater detail
below, they generally must include original issue discount in ordinary gross
income for U.S. federal income tax purposes as it accrues, in advance of the
receipt of cash attributable to that income.
In general, each U.S. holder of an Original Issue Discount Note with a
maturity greater than one year, whether the U.S. holder uses the cash or the
accrual method of tax accounting, will be required to include in ordinary gross
income the sum of the "daily portions" of original issue discount on that note
for all days during the taxable year that the holder owns the note. The daily
portions of original issue discount on an Original Issue Discount Note are
determined by allocating to each day in any accrual period a ratable portion of
the original issue discount allocable to that period. Accrual periods may be
any length and may vary in length over the term of an Original Issue Discount
Note, so long as no accrual period is longer than one year and each scheduled
payment of principal or interest occurs on the first or last day of an accrual
period. In the case of an initial holder, the amount of original issue discount
on an Original Issue Discount Note allocable to each accrual period is
determined by (i) multiplying the "adjusted issue price" (as defined below) of
the note at the beginning of the accrual period by a fraction, the numerator of
which is the annual yield to maturity of the note and the denominator of which
is the number of accrual periods in a year and (ii) subtracting from that
product the amount (if any) payable as qualified stated interest allocable to
that accrual period. The term "qualified stated interest" generally means
stated interest that is unconditionally payable in cash or property (other than
debt instruments issued by us) at least annually during the entire term of an
Original Issue Discount Note at a single fixed interest rate or, subject to
certain conditions, based on one or more interest indices.
In the case of an Original Issue Discount Note that is a floating rate note
qualifying as a variable rate debt instrument as defined in the Treasury
Regulations, both the "annual yield to maturity" and the "qualified stated
interest" will be determined for these purposes as though the note will bear
interest in all periods at a fixed rate generally equal to the rate that would
be applicable to interest payments on the note on its date of issue or, in the
case of some floating rate notes, the rate that reflects the yield that is
reasonably expected for the note. Accordingly, the stated interest that is
payable at least annually on a floating rate note generally will be treated as
"qualified stated interest" and such a note will not be an Original Issue
Discount Note solely as a result of the fact that it provides for interest at a
variable rate. If a floating rate note does not qualify as a "variable rate
debt instrument," the note will be subject to special rules that govern the tax
treatment of debt obligations that provide for contingent payments. (Additional
rules may apply if interest on a floating rate note is based on more than one
interest index. We will provide detailed guidance of the tax considerations
relevant to U.S. holders of any such notes in the pricing supplement.)
The "adjusted issue price" of an Original Issue Discount Note at the
beginning of any accrual period will generally be the sum of its issue price
(including any accrued interest) and the amount of original issue discount
S-26
allocable to all prior accrual periods, reduced by the amount of all payments
other than any qualified stated interest payments on the note in all prior
accrual periods. All payments on an Original Issue Discount Note (other than
qualified stated interest) will generally be viewed first as payments of
previously accrued original issue discount (to the extent of the previously
accrued discount), with payments considered made from the earliest accrual
periods first, and then as a payment of principal. The "annual yield to
maturity" of a note is the discount rate (appropriately adjusted to reflect the
length of accrual periods) that causes the present value on the issue date of
all payments on the note to equal the issue price. As a result of this
"constant yield" method of including original issue discount income, the
amounts so includible in gross income by a U.S. holder in respect of an
Original Issue Discount Note denominated in U.S. dollars are generally lesser
in the early years and greater in the later years than amounts that would be
includible on a straight-line basis.
A U.S. holder generally may make an irrevocable election to include in its
income its entire return on a note (i.e., the excess of all remaining payments
to be received on the note, including payments of qualified stated interest,
over the amount paid by the holder for the note) under the constant yield
method described above. For notes purchased at a premium or bearing market
discount in the hands of the U.S. holder, the holder making this election will
also be deemed to have made the election (discussed below in "Premium and
Market Discount") to amortize premium or to accrue market discount in income
currently on a constant yield basis.
In the case of an Original Issue Discount Note that is also a foreign
currency note, a U.S. holder should determine the U.S. dollar amount includible
as original issue discount for each accrual period by (i) calculating the
amount of original issue discount allocable to each accrual period in the
foreign currency using the constant yield method, and (ii) translating the
foreign currency amount so received at the average exchange rate in effect
during that accrual period (or, with respect to an interest accrual period that
spans two taxable years, at the average exchange rate for each partial period).
Alternatively, the holder may translate the foreign currency amount so derived
at the spot rate of exchange on the last day of the accrual period (or the last
day of the taxable year, for an accrual period that spans two taxable years) or
at the spot rate of exchange on the date of receipt, if that date is within
five business days of the last day of the accrual period, provided that the
U.S. holder has made the election described under "Payments or Accruals of
Interest" above. Because exchange rates may fluctuate, a U.S. holder of an
Original Issue Discount Note that is also a foreign currency note may recognize
a different amount of original issue discount income in each accrual period
than would the holder of an otherwise similar Original Issue Discount Note
denominated in U.S. dollars. Upon the receipt of an amount attributable to
original issue discount (whether in connection with a payment of an amount that
is not qualified stated interest or the sale or retirement of the Original
Issue Discount Note), a U.S. holder will recognize ordinary income or loss
measured by the difference between the amount received (translated into U.S.
dollars at the exchange rate in effect on the date of receipt or on the date of
disposition of the Original Issue Discount Note, as the case may be) and the
amount accrued (using the exchange rate applicable to such previous accrual).
A subsequent U.S. holder of an Original Issue Discount Note that purchases
the note at a cost less than its "remaining redemption amount", or an initial
United States holder that purchases an Original Issue Discount Note at a price
other than the note's issue price, also generally will be required to include
in gross income the daily portions of original issue discount, calculated as
described above. However, if the subsequent holder acquires the Original Issue
Discount Note at a price greater than its adjusted issue price, the holder may
reduce its periodic inclusions of original issue discount income to reflect the
premium paid over the adjusted issue price. The remaining redemption amount for
an Original Issue Discount Note is the total of all future payments to be made
on the note other than qualified stated interest.
Certain of the Original Issue Discount Notes may be redeemed prior to
maturity, either at our option or at the option of the holder, or may have
special repayment or interest rate reset features as indicated in the pricing
supplement. Original Issue Discount Notes containing these features may be
subject to rules that differ from the general rules discussed above. If you
purchase Original Issue Discount Notes with these features, you should
carefully examine the pricing supplement and consult your tax adviser about
them since the tax consequences of original issue discount will depend, in
part, on the particular terms and features of the notes.
S-27
Short-Term Notes
The rules described above will also generally apply to Original Issue
Discount Notes with maturities of one year or less ("short-term notes"), but
with some modifications.
First, the original issue discount rules treat none of the interest on a
short-term note as qualified stated interest, but treat a short-term note as
having original issue discount. Thus, all short-term notes will be Original
Issue Discount Notes. Except as noted below, a cash-basis U.S. holder of a
short-term note that does not identify the short-term note as part of a hedging
transaction will generally not be required to accrue original issue discount
currently, but will be required to treat any gain realized on a sale, exchange
or retirement of the note as ordinary income to the extent such gain does not
exceed the original issue discount accrued with respect to the note during the
period the holder held it. A U.S. holder may not be allowed to deduct all of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a short-term note until the Maturity of the note or its
earlier disposition in a taxable transaction. Notwithstanding the foregoing, a
cash-basis U.S. holder of a short-term note may elect to accrue original issue
discount on a current basis (in which case the limitation on the deductibility
of interest described above will not apply). A U.S. holder using the accrual
method of tax accounting and some cash method holders (including banks,
securities dealers, regulated investment companies and certain trust funds)
generally will be required to include original issue discount on a short-term
note in gross income on a current basis. Original issue discount will be
treated as accruing for these purposes on a ratable basis or, at the election
of the holder, on a constant yield basis based on daily compounding.
Second, any U.S. holder of a short-term note (whether a cash- or
accrual-basis holder) can elect to accrue the "acquisition discount", if any,
with respect to the note on a current basis. Acquisition discount is the excess
of the remaining redemption amount of the note at the time of acquisition over
the purchase price. Acquisition discount will be treated as accruing ratably
or, at the election of the holder, under a constant yield method based on daily
compounding. If a U.S. holder elects to accrue acquisition discount, the
original issue discount rules will not apply.
Finally, the market discount rules described below will not apply to
short-term notes.
As described above, certain of the notes may be subject to special
redemption features. These features may affect the determination of whether a
note has a maturity of one year or less and thus is a short-term note. If you
purchase notes with these features, you should carefully examine the pricing
supplement and consult your tax adviser about these features.
Premium and Market Discount
A U.S. holder that purchases a note at a cost greater than the note's
remaining redemption amount will be considered to have purchased the note at a
premium, and may elect to amortize the premium as an offset to interest income,
using a constant yield method, over the remaining term of the note. This
election, once made, generally applies to all debt instruments held or
subsequently acquired by the holder during or after the first taxable year to
which the election applies. The election may not be revoked without the consent
of the Internal Revenue Service. A U.S. holder that elects to amortize the
premium must reduce its tax basis in the note by the amount of the premium
amortized during its holding period. Original Issue Discount Notes purchased at
a premium will not be subject to the original issue discount rules described
above. In the case of premium on a foreign currency note, the holder should
calculate the amortization of the premium in the foreign currency. Amortization
deductions attributable to a period reduce interest payments in respect of that
period, and therefore are translated into U.S. dollars at the rate used by the
U.S. holder for those interest payments. Exchange gain or loss will be realized
with respect to amortized premium on a foreign currency note based on the
difference between the exchange rate computed on the date or dates the premium
is amortized against interest payments on the note and the exchange rate on the
date when the holder acquired the note. For a U.S. holder that does not elect
to amortize premium, the amount of premium will be included in the holder's tax
basis when the note matures or is disposed of. Therefore, a U.S. holder that
does not elect to amortize premium and that holds the note to Maturity must
generally treat the premium as capital loss when the note matures.
S-28
If a U.S. holder purchases a note at a price that is lower than the note's
remaining redemption amount, or in the case of an Original Issue Discount Note,
the note's adjusted issue price, by 0.25% or more of the remaining redemption
amount (or adjusted issue price), multiplied by the number of remaining whole
years to maturity, the note will be considered to bear "market discount" in the
hands of the holder. In this case, gain realized by the holder on the
disposition of the note generally will be treated as ordinary interest income
to the extent of the market discount that accrued on the note while held by the
holder. In addition, the holder could be required to defer the deduction of a
portion of the interest paid on any indebtedness incurred or continued to
purchase or carry the note. In general, market discount will be treated as
accruing ratably over the term of the note, or, at the election of the holder,
under a constant yield method. A U.S. holder must accrue market discount on a
foreign currency note in the specified currency. The amount includible in
income by a U.S. holder in respect of accrued market discount will be the U.S.
dollar value of the accrued amount, generally calculated at the exchange rate
in effect on the date that the note is disposed of.
A U.S. holder may elect to include market discount in gross income currently
as it accrues (on either a ratable or constant yield basis), in lieu of
treating a portion of any gain realized on a sale of the note as ordinary
income. If a U.S. holder elects to include market discount on a current basis,
the interest deduction deferral rule described above will not apply. The
election, once made, applies to all market discount debt instruments acquired
by the United States holder on or after the first day of the first taxable year
to which the election applies. The election may not be revoked without the
consent of the Internal Revenue Service. Any accrued market discount on a
foreign currency note that is currently includible in income will be translated
into U.S. dollars at the average exchange rate for the accrual period (or
portion thereof within the holder's taxable year).
Indexed Notes and Other Notes Providing for Contingent Payment
Special rules govern the tax treatment of debt obligations that provide for
contingent payments ("contingent debt obligations"). These rules generally
require accrual of interest income on a constant yield basis in respect of
contingent debt obligations at a yield determined at the time of issuance of
the obligation, and may require adjustments to these accruals when any
contingent payments are made. We will provide a detailed description of the tax
considerations relevant to U.S. holders of any contingent debt obligations in
the pricing supplement.
Information Reporting and Backup Withholding
The paying agent will be required to file information returns with the
Internal Revenue Service with respect to payments made to certain U.S. holders.
In addition, certain U.S. holders may be subject to a backup withholding tax
(currently at a rate of 30%) in respect of these payments if they do not
provide their taxpayer identification numbers to the paying agent.
PLAN OF DISTRIBUTION
We are offering the notes on a continuing basis for sale to or through the
agents. The agents, individually or in a syndicate, may purchase notes, as
principal, from us from time to time for resale to investors and other
purchasers at varying prices relating to prevailing market prices at the time
of resale as determined by the applicable agent or, if so specified in the
applicable pricing supplement, for resale at a fixed offering price. However,
we may agree with an agent for that agent to utilize its reasonable efforts on
an agency basis on our behalf to solicit offers to purchase notes at 100% of
the principal amount thereof, unless otherwise specified in the applicable
pricing supplement. We will pay a commission to an agent, ranging from .150% to
..750% of the principal amount of each note, depending upon its stated maturity,
sold through that agent as our agent. We will negotiate commissions with
respect to notes with stated maturities in excess of 30 years that are sold
through an agent as our agent at the time of the related sale. The following
table describes the potential proceeds we will receive but does not include
expenses, including reimbursement of certain of the agents' expenses, payable
by us which we estimate to be $576,700:
S-29
Agents' Commissions and
Price to Public Discounts Proceeds to the Company
--------------- ------------------------- --------------------------------
Per Note 100% .150% to .750% 99.850% to 99.250%
Total... $1,975,000,000 $2,962,500 to $14,812,500 $1,972,037,500 to $1,960,187,500
Unless otherwise specified in the pricing supplement, any note sold to an
agent as principal will be purchased at a price equal to 100% of the principal
amount minus a discount equal to the commission that would be paid on an agency
sale of a note of identical maturity. We reserve the right to withdraw, cancel
or modify the offer made hereby without notice and may reject offers in whole
or in part (whether placed directly by us or through an agent). Each agent will
have the right, in its discretion reasonably exercised, to reject in whole or
in part any offer to purchase notes received by it on an agency basis.
Agents may sell notes purchased from us as principal to other dealers for
resale to investors and other purchasers and may provide any portion of the
discount received in connection with their purchase from us to such dealers.
After the initial public offering of the notes, the public offering price, the
concession and the discount may be changed.
The notes will not have an established trading market when issued. Also, the
notes will not be listed on any securities exchange. The agents may, from time
to time, make a market in the notes, but are not obligated to do so and may
discontinue any market-making at any time without notice.
The agents may, from time to time, purchase and sell notes in the secondary
market, but the agents are not obligated to do so, and there can be no
assurance that a secondary market for the notes will develop or be maintained
or that there will be liquidity in the secondary market if one develops.
In connection with an offering of notes purchased by one or more agents as
principal on a fixed public offering price basis, the applicable agents will be
permitted to engage in certain transactions that stabilize the price of notes.
These transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of notes. If those agents create a short
position in notes, i.e., if they sell notes in an amount exceeding the amount
referred to in the applicable pricing supplement, they may reduce that short
position by purchasing notes in the open market. In general, purchases of notes
for the purpose of stabilization or to reduce a short position could cause the
price of notes to be higher than it might be in the absence of these type of
purchases.
Neither we nor any agent makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described in the
immediately preceding paragraph may have on the price of notes. In addition,
neither we nor any agent makes any representation that the agents will engage
in any such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The agents may be deemed to be "underwriters" within the meaning of the
Securities Act. We have agreed to indemnify the agents against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that they may be required to make in connection with such
indemnification.
Westdeutsche Landesbank Girozentrale, London Branch, is not a registered
broker-dealer in the United States. Notes offered in this prospectus supplement
and underwritten by Westdeutsche Landesbank Girozentrale, London Branch, will
be sold only outside the United States in transactions not requiring it to
register as a broker-dealer under United States laws. Westdeutsche Landesbank
Girozentrale, London Branch's identification as an agent in this prospectus
supplement should not be deemed to be an offer by it to sell notes in the
United States or a solicitation of an offer by persons in the United States to
buy notes from it.
The notes have not been and will not be registered under the Securities and
Exchange Law of Japan. We and the agents will not offer or sell any note
directly or indirectly in Japan or to residents of Japan or for the benefit
S-30
of any Japanese person (which term means any person resident in Japan,
including any corporation or other entity organized under the laws of Japan) or
to others for reoffering or resale directly or indirectly in Japan or to any
Japanese person except in circumstances that result in compliance with any
applicable laws, regulations and ministerial guidelines of Japan taken as a
whole.
In the ordinary course of its business, the agents and their affiliates have
engaged, and may in the future engage, in investment and commercial banking
transactions with us and certain of our affiliates, for which they were, and
may be, paid customary fees and expenses.
GLOSSARY
The following is a glossary of terms used in this prospectus supplement.
"Bond Equivalent Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
Bond Equivalent Yield = _D X N_ X 100
360-(D X M)
where "D" refers to the applicable annual rate for Treasury Bills quoted on a
bank discount basis and expressed as a decimal, "N" refers to 365 or 366, as
the case may be, and "M" refers to the actual number of days in the applicable
Interest Reset Period.
"Business Day" means any day, other than Saturday or Sunday, that is (1)
neither a legal holiday nor a day on which banking institutions are authorized
or required by law, regulation or executive order to close in (a) The City of
New York, (b) the City of Chicago or (c) if the specified currency for a note
is other than U.S. dollars or Euro, the Principal Financial Center of the
country issuing such currency; (2) if the specified currency for the note is
Euro, a day on which the TARGET System is operating or in any other place or
any other days as may be specified in the pricing supplement; and (3) if the
note is a LIBOR note, a London Business Day.
"Calculation Date" means the date by which the calculation agent calculates
an interest rate for a floating rate note, which will be one of the following:
"Prime Rate"--the earlier of (1) the tenth calendar day after the related
Prime Rate Interest Determination Date or, if such day is not a Business
Day, the next Business Day, or (2) the Business Day immediately before the
applicable interest payment date or Maturity, as the case may be.
"CD Rate"--the earlier of (1) the tenth calendar day after the related CD
Rate Interest Determination Date or, if such day is not a Business Day, the
next Business Day, or (2) the Business Day immediately before the applicable
interest payment date or Maturity, as the case may be.
"CMT Rate"--the earlier of (1) the tenth day after the related CMT Rate
Interest Determination Date or, if such day is not a Business Day, the next
Business Day, or (2) the Business Day immediately before the applicable
interest payment date or Maturity, as the case may be.
"Commercial Paper Rate"--the earlier of (1) the tenth calendar day after
the related Commercial Paper Rate Interest Determination Date or, if such
day is not a Business Day, the next Business Day, or (2) the Business Day
immediately before the applicable interest payment date or Maturity, as the
case may be.
"LIBOR"--the LIBOR Interest Determination Date.
"Treasury Rate"--the earlier of (1) the tenth calendar day after the
related Treasury Rate Interest Determination Date or, if such day is not a
Business Day, the next Business Day, or (2) the Business Day immediately
before the applicable interest payment date or Maturity, as the case may be.
S-31
"Federal Funds Rate"--the earlier of (1) the tenth calendar day after the
related Federal Funds Effective Rate Interest Determination Date or, if such
day is not a Business Day, the next Business Day, or (2) the Business Day
immediately before the applicable interest payment date or Maturity, as the
case may be.
"CMT Moneyline Telerate Page" means the display on the Moneyline Telerate
Service on the page designated in the applicable pricing supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)). If no such
page is specified in the applicable pricing supplement, the CMT Moneyline
telerate Page shall be 7052, for the most recent week.
"Composite Quotations" means the daily statistical release entitled
"Composite 3:30 P.M. Quotations for U.S. Government Securities" published by
the Federal Reserve Bank of New York.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is specified in
the applicable pricing supplement, the display on the Reuters Monitor Money
Rates Service, or any successor service, for the purpose of displaying the
London interbank rates of major banks for the applicable LIBOR Currency, or (b)
if "LIBOR Moneyline Telerate" is specified in the applicable pricing supplement
or neither "LIBOR Reuters" nor "LIBOR Moneyline Telerate" is specified as the
method for calculating LIBOR, the display on the Moneyline Telerate Service, or
any successor service, for the purpose of displaying the London interbank rates
of major banks for the applicable LIBOR Currency.
"Fixed Conversion Rate" with respect to any specified currency means the
irrevocably fixed conversion rate between the Euro and such specified currency
adopted by the Council of the European Union according to Article 109 1(4)
first sentence of the Treaty of Rome.
"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 Maturity" for any note is the period of maturity of the instrument,
obligation or index from which the Base Rate is calculated.
"Interest Determination Date" means the date as of which the interest rate
for a floating rate note is to be determined, to be effective as of the
following Interest Reset Date and calculated no later than the related
Calculation Date (except in the case of LIBOR, which is calculated on the
related LIBOR Interest Determination Date). The Interest Determination Dates
will be indicated in the applicable pricing supplement and in the note.
"LIBOR Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR shall be calculated, or, if no currency is
specified in the applicable pricing supplement, U.S. dollars.
"London Business Day" means a day on which banking institutions are open for
business (including dealings in LIBOR Currency) in London.
"Maastricht Treaty" means the treaty on European Union which was signed in
Maastricht on February 1, 1992 and came into force on November 1, 1993.
"Maturity" means the date on which the principal of a note or an installment
of principal becomes due and payable as provided in the note or in the Senior
Indenture, whether at stated maturity or by declaration of acceleration, call
for redemption or otherwise.
S-32
"Money Market Yield" shall be a yield calculated in accordance with the
following formula and expressed as a percentage:
Money Market Yield = _D X 360 X 100_
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the period for which accrued interest is being
calculated.
"Original Issue Discount Note" means (i) any note where the difference
between (x) the first price at which a substantial amount of the notes that are
part of the same issue is sold for money (other than to an underwriter,
placement agent or wholesaler) and (y) the stated redemption price at the
maturity of the note is at least 0.25% of that stated redemption price
multipled by the number of full years from the issue date to the stated
maturity; and (ii) any other note we designate as issued with original issue
discount for U.S. federal income tax purposes. The stated redemption price at
Maturity of an Original Issue Discount Note is the total of all payments to be
made under the Original Issue Discount Note, other than payments of qualified
stated interest.
"Participating Member State" means a member state of the European Union that
adopts the Euro in accordance with the Treaty of Rome.
"Principal Financial Center" will be the capital city of the country of the
specified currency or LIBOR Currency, as the case may be, except that with
respect to Australian dollars, Canadian dollars, U.S. dollars, Swiss francs and
Euro, the Principal Financial Center shall be Sydney, Toronto, The City of New
York, Zurich and (solely in the case of the LIBOR Currency) London,
respectively.
"Reuters Screen US PRIME 1 Page" means the display on the Reuter Monitor
Money Rates Service (or any successor service) on the "US PRIME 1" page (or any
other page as may replace that page on that service) for the purpose of
displaying prime rates or base lending rates of major U.S. banks.
"Senior Indenture" means the Indenture for Senior Debt Securities dated
October 19, 1996 between McDonald's Corporation and the Trustee, as
supplemented.
"Spread" means the number of basis points (one basis point equals one
one-hundredth of a percentage point) that may be specified in the applicable
pricing supplement as being applicable to the interest rate of a floating rate
note.
"Spread Multiplier" means the percentage that may be specified in the
applicable pricing supplement as being applicable to the interest rate of a
floating rate note.
"Treasury Rate Determination Date" for each Interest Reset Period will be
the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury Bills would normally be auctioned. Treasury
Bills are normally sold at auction on Monday of each week, unless that day is a
legal holiday, in which case the auction is normally held on the following
Tuesday, except that such auction may be held on the preceding Friday. If, as
the result of a legal holiday, an auction is so held on the preceding Friday,
such Friday will be the Treasury Rate Determination Date pertaining to the
Interest Reset Period commencing in the next succeeding week. If an auction
date shall fall on any day that would otherwise be an Interest Reset Date for a
Treasury Rate note, then such Interest Reset Date shall instead be the Business
Day immediately following such auction date.
"Treaty of Rome" means the Treaty of Rome of March 25, 1957, as amended by
the Single European Act of 1986 and the Maastricht Treaty, establishing the
European Community, as amended from time to time.
S-33
"Trustee" means Wachovia Bank, National Association (formerly, First Union
National Bank) or its successor.
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for the agents by Sidley
Austin Brown & Wood LLP, New York, New York.
S-34
PROSPECTUS
McDONALD'S CORPORATION
Debt Securities
We may use this prospectus to issue from time to time one or more series of
debt securities which may be either senior debt securities or subordinated debt
securities with a total initial public offering price or purchase price of up
to $1,975,000,000, or the equivalent thereof in one or more foreign currencies.
Debt securities of each series will be offered on terms to be determined at the
time of sale. We may sell debt securities for U.S. dollars or a foreign
currency, and payments on debt securities may be made in U.S. dollars or a
foreign currency. Debt securities may be issuable as individual securities in
registered form without coupons, or as one or more global securities in
registered form. We will provide the specific terms of an offering of debt
securities, including the designation as senior debt securities or subordinated
debt securities, in an accompanying prospectus supplement or pricing supplement.
The debt securities will be unsecured. Unless otherwise specified in a
prospectus supplement, the senior debt securities will rank equally with all of
our other unsecured and unsubordinated indebtedness. The subordinated debt
securities will be subordinated to all of our senior indebtedness.
We may offer debt securities in any of the following ways:
. directly;
. through agents;
. through dealers; or
. through one or more underwriters or a syndicate of underwriters in an
underwritten offering.
We will describe how a particular offering of debt securities will be made
in the prospectus supplement or pricing supplement for the offering.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------------
The date of this prospectus is July 22, 2002.
McDONALD'S CORPORATION
General
We are a Delaware corporation organized on March 1, 1965 as the successor to
an Illinois corporation formed in 1956. Our principal executive offices are at
One McDonald's Plaza, Oak Brook, Illinois 60523, telephone: (630) 623-3000, and
our registered office in Delaware is located at 1013 Centre Road, Wilmington,
Delaware 19805.
We and our subsidiaries develop, operate, franchise and service a worldwide
system of restaurants that prepare, assemble, package and sell a limited menu
of value-priced foods. These restaurants are operated by us and our
subsidiaries or, under the terms of franchise agreements, by franchisees who
are independent third parties, or by affiliates operating under joint-venture
agreements between us or our subsidiaries and local business people.
We operate primarily in the quick-service hamburger restaurant business
under the McDonald's brand. We also operate other restaurant concepts: Boston
Market, Chipotle and Donatos Pizzeria. In addition, we have a minority interest
in Pret A Manger. McDonald's restaurant business comprises virtually all of our
consolidated operating results.
Our restaurants offer a substantially uniform menu consisting of hamburgers
and cheeseburgers, including the Big Mac and Quarter Pounder with Cheese, the
Filet-O-Fish, several chicken sandwiches, french fries, Chicken McNuggets,
salads, milk shakes, McFlurries, sundaes and cones, pies, cookies and soft
drinks and other beverages. In addition, we sell a variety of products during
limited promotional time periods. Our restaurants operating in the United
States and certain international markets are open during breakfast hours and
offer a full or limited breakfast menu, including the Egg McMuffin and the
Sausage McMuffin with Egg sandwiches, hotcakes and sausage, three varieties of
biscuit sandwiches, bagel sandwiches and muffins. We test new products on an
ongoing basis.
We and our subsidiaries, franchisees and affiliates purchase food products
and packaging from numerous independent suppliers. Quality specifications for
both raw and cooked food products are established and strictly enforced.
Alternative sources of these items are generally available. Quality assurance
labs in the U.S., Europe, and the Pacific work to ensure that our high
standards are consistently met. The quality assurance process involves ongoing
testing and on-site inspections of suppliers' facilities. Independently owned
and operated distribution centers distribute products and supplies to most of
our restaurants. The restaurants then prepare, assemble and package these
products using specially designed production techniques and equipment to obtain
uniform standards of quality.
Our restaurants are located in all fifty of the United States and the
District of Columbia and in many foreign locations, principally Japan, Canada,
Germany, England, France, Australia and Brazil. At March 31, 2002, 29,163
McDonald's restaurants existed worldwide, of which 13,148 were located in the
United States and 16,015 in 120 other countries. Additionally, 1,029
restaurants existed that operate under the other restaurant concepts,
substantially all of which are located in the United States. An additional 324
restaurants, which are comprised of quick-service hamburger restaurants and
other restaurant concepts, were under construction at March 31, 2002, including
230 outside the United States.
Where to Get More Information
We have filed a registration statement with the Securities and Exchange
Commission (the "SEC") relating to the debt securities. This prospectus does
not contain all of the information described in the registration statement. For
further information, you should refer to the registration statement.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference room at
2
450 Fifth Street, N.W., in Washington, D.C. 20549. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference room. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov (this uniform resource locator
(URL) is an inactive textual reference only and is not intended to incorporate
the SEC web site into this prospectus).
The following documents that we have filed with the SEC are incorporated
into this prospectus by reference and considered a part of this prospectus:
(a) Our Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
(b) Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002;
and
(c)Our Current Reports on Form 8-K filed as of January 25, February 14,
April 22, and June 17, 2002.
Later information that we file with the SEC will update and/or supersede this
information. We are also incorporating by reference all documents that we file
with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, after the date of this prospectus and prior
to the termination of the offering of the debt securities.
We will provide any of the above documents (including any exhibits that are
specifically incorporated by reference in them) to each person, including any
beneficial owner, to whom a prospectus is delivered. You may request these
documents at no cost. Written or telephone requests should be directed to:
McDonald's Shareholder Services, McDonald's Corporation, Kroc Drive, Oak Brook,
Illinois 60523, telephone: (630) 623-7428.
USE OF PROCEEDS
Unless otherwise stated in the applicable prospectus supplement, we intend
to use the net proceeds from the sale of the debt securities for general
corporate purposes, which may include refinancing of debt, capital expenditures
such as the acquisition and development of our brand restaurants and the
purchase of our common stock under our ongoing share repurchase program.
Specific allocations of the proceeds for such purposes have not been made at
this time.
3
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary sets forth selected consolidated financial data for
the Company and its subsidiaries for the three months ended March 31, 2002 and
2001 and for each of the years in the five-year period ended December 31, 2001.
The selected consolidated financial data for the five years ended December 31,
2001 have been derived from the Company's consolidated financial statements,
which have been audited by Ernst & Young LLP, independent auditors. Income
statement data for the three-month periods ended March 31, 2002 and 2001, and
balance sheet data as of March 31, 2002 and March 31, 2001, are derived from
the unaudited consolidated financial statements and include, in the opinion of
management, all normal recurring adjustments necessary to present fairly the
data for such periods. The operating results for the three-months ended March
31, 2002 are not necessarily indicative of the results you can expect for the
full fiscal year ending December 31, 2002. The following summary should be read
in conjunction with the consolidated financial statements of the Company and
the notes thereto included in the documents incorporated herein by reference.
See "McDonald's Corporation--Where to Get More Information."
Quarters Ended
March 31, Years Ended December 31,
------------------ -------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------- ------- ------- ------- ------- ------- -------
(U.S. dollars in millions, except per share of Common Stock data)
Systemwide sales (unaudited) (1)...... $ 9,698 $ 9,650 $40,630 $40,181 $38,491 $35,979 $33,638
======= ======= ======= ======= ======= ======= =======
Income statement data:
Total revenues........................ $ 3,597 $ 3,512 $14,870 $14,243 $13,259 $12,421 $11,409
Income before provision for income
taxes and cumulative effect of
accounting change................... 537(2) 556 2,330(3) 2,882 2,884 2,307(5) 2,407
Income before cumulative effect of
accounting change................... 352(2) 378 1,637(3) 1,977 1,948 1,550(5) 1,642
Net income............................ 253(2) 378(4) 1,637(3),(4) 1,977(4) 1,948(4) 1,550(5) 1,642
======= ======= ======= ======= ======= ======= =======
Balance sheet data:
Shareholders' equity at end of period. $ 9,577 $ 8,931 $ 9,488 $ 9,204 $ 9,639 $ 9,465 $ 8,852
Total debt at end of period........... 8,983 8,560 8,918 8,474 7,252 7,043 6,463
Total assets at end of period......... 22,196 21,449 22,535 21,684 20,983 19,784 18,242
======= ======= ======= ======= ======= ======= =======
Per share of Common Stock:
Income before cumulative effect of
accounting change................... $ 0.28(2) $ 0.29 $ 1.27(3) $ 1.49 $ 1.44 $ 1.14(5) $ 1.17
Net income............................ 0.20(2) 0.29 1.27(3) 1.49 1.44 1.14(5) 1.17
Income before cumulative effect of
accounting change--diluted.......... 0.27(2) 0.29 1.25(3) 1.46 1.39 1.10(5) 1.15
Net income--diluted................... 0.20(2) 0.29(4) 1.25(3),(4) 1.46(4) 1.39(4) 1.10(5) 1.15
Dividends declared.................... -- -- 0.23 0.22 0.20 0.18 0.16
======= ======= ======= ======= ======= ======= =======
Other data:
Ratio of earnings to fixed charges (6) 4.31 4.02 4.11 5.39 5.76 4.82 5.16
======= ======= ======= ======= ======= ======= =======
4
--------
(1) Systemwide sales represent sales by all Company-operated, franchised and
affiliated restaurants.
(2) Includes $43 million of non-cash asset impairment charges, primarily
related to the impairment of assets in existing restaurants in Chile and
other Latin American markets and the closing of 32 underperforming
restaurants in Turkey, as a result of continued economic weakness.
(3) Includes special items primarily related to the U.S. business
reorganization and other global change initiatives, and the closing of 163
underperforming restaurants in international markets, partly offset by a
gain on the initial public offering of McDonald's Japan, for a net pretax
expense of $253 million ($143 million after tax or $0.11 per share).
(4) Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 indicates that goodwill (and intangible assets deemed to have
indefinite lives) will no longer be amortized but will be subject to annual
impairment tests. As a result of the first of required goodwill impairment
tests, the Company recorded a non-cash charge of $99 million after tax
($0.07 per share) in the first quarter for the cumulative effect of this
change. First quarter 2001 pro-forma net income, adjusted for the
non-amortization provisions of SFAS No. 142, was $385 million ($0.29 per
share). Pro-forma net income for the full year 2001, 2000 and 1999 was
approximately $1,667 million ($1.27 per share--diluted), $2,003 million
($1.48 per share--diluted) and $1,968 million ($1.40 per share--diluted),
respectively.
(5) Includes $162 million of costs related to the introduction of the "Made For
You" food preparation system and a $160 million special charge related to a
home office productivity initiative for a pretax total of $322 million
($219 million after tax or $0.16 per share).
(6) The ratios of earnings to fixed charges shown above have been computed on a
total enterprise basis. Earnings represent income before provision for
income taxes and fixed charges. Fixed charges consist of interest on all
indebtedness, amortization of debt issuance costs and discount or premium
relating to any indebtedness, fixed charges related to redeemable preferred
stock, and a portion of rental charges (after reduction for related
sublease income) considered to be representative of the interest component
in the particular case.
5
DESCRIPTION OF DEBT SECURITIES
The following is a description of the general terms of the debt securities.
We will provide specific terms of a series of debt securities and the extent to
which these general provisions apply to that series in a supplement to this
prospectus.
The senior debt securities are issued under an Indenture (the "Senior
Indenture"), dated October 19, 1996, between us and Wachovia Bank, National
Association (formerly, First Union National Bank), as Trustee (the "Trustee").
The subordinated debt securities are issued under a separate Indenture (the
"Subordinated Indenture") dated as of October 18, 1996, between us and the
Trustee. The Senior Indenture and the Subordinated Indenture are sometimes
collectively referred to in this prospectus as the "Indentures." Copies of the
Indentures are filed as exhibits to our registration statement No. 333-14141
and are incorporated into this prospectus by reference. The following summaries
highlight some of the provisions of the Indentures but they may not contain all
of the information that is important to you. Numerical references in
parentheses below are to Articles and Sections of the Indentures. Except as
otherwise indicated, the terms of the Indentures are identical. As used under
this caption, the term "debt securities" includes the debt securities being
offered by this prospectus and all other debt securities issued by us under the
Indentures.
General
The Indentures do not limit the amount of debt securities that we may issue,
and we may issue debt securities in one or more series. The debt securities
will be unsecured. Unless otherwise specified in the prospectus supplement, the
senior debt securities will be unsubordinated obligations of the Company and
will rank equally with all of our other unsecured and unsubordinated
indebtedness. Certain of our unsecured obligations may, however, under certain
circumstances, become secured by mortgages as a result of negative pledge
covenants applicable to such obligations while the senior debt securities
remain unsecured. Payments on the subordinated debt securities will be
subordinated to the prior payment in full of all of our senior indebtedness, as
described under "Subordination of Subordinated Debt Securities" and in the
applicable prospectus supplement. In addition, we may, from time to time,
without the consent of the registered holders of the notes, issue additional
notes or other debt securities having the same terms as previously issued notes
(other than the date of issuance, the date interest, if any, begins to accrue
and the offering price, which may vary) that will form a single issue with the
previously issued notes.
The prospectus supplement or the pricing supplement for each offering will
specify whether the debt securities being offered will be senior debt
securities or subordinated debt securities, and will provide the following
terms, where applicable:
(a)the title of the debt securities;
(b)any limit on the aggregate principal amount of the debt securities;
(c)the date or dates on which the principal and any premium of the debt
securities will be payable;
(d)the rate or rates, or the method of determining the rate or rates, at
which the debt securities will bear interest; the date or dates from
which interest will accrue; the interest payment dates on which interest
will be payable; and the record dates for such interest payment dates;
(e)whether the debt securities are to be issued as original issue discount
securities and the amount of discount with which the debt securities
will be issued;
(f)the place or places where payments will be made;
(g)the terms of any redemption of the debt securities that we may make at
our option;
(h)the terms of our obligation, if any, to redeem, purchase or repay the
debt securities pursuant to any sinking fund or similar provisions or at
the option of a holder;
(i)if other than denominations of $1,000 and any integral multiple thereof,
the denominations in which the debt securities will be issuable;
6
(j)if other than the principal amount, the portion of the principal amount
of the debt securities that will be payable if the maturity of the debt
securities is accelerated;
(k)any changes in any of the events of default or remedies with respect to
the debt securities;
(l)if the debt securities are non-interest bearing, the "stated intervals";
(m)the currency in which we will make payments on the debt securities; and
(n)any other terms of the debt securities that do not conflict with the
applicable Indenture. (Section 2.02)
We may issue debt securities at a discount below their stated principal
amount, bearing no interest or interest at a rate that at the time of issuance
is below market rates. We may also issue debt securities that have floating
rates of interest but are exchangeable for fixed rate debt securities. Federal
income tax consequences and other relevant considerations will be described in
the applicable prospectus supplement.
Unless otherwise provided in the prospectus supplement for an offering,
payments on the debt securities will be made at the offices of the Trustee in
New York, New York and Charlotte, North Carolina, although we may make payments
of interest by check mailed to the holders. (Sections 2.02, 4.01 and 4.02) Debt
securities may be transferred or exchanged at the office or agency that we
maintain for that purpose, subject to the limitations provided in the
applicable Indenture, without any service charge except for any tax or
governmental charges. (Section 2.06)
Any money that we pay for principal of (and premium, if any) or any interest
on any debt security that remains unclaimed at the end of two years will be
repaid to us on demand, and afterwards the holder of such debt security may
look only to us for payment. (Section 12.05)
The Indenture and the debt securities will be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois.
Global Securities
If any debt securities are issuable in temporary or permanent global form,
the applicable prospectus supplement will describe the circumstances, if any,
under which beneficial owners of interests in the global security may obtain
definitive debt securities. Payments on a permanent global debt security will
be made in the manner described in the prospectus supplement. (Section 2.01)
Limitation on Liens Covenant in the Senior Indenture
The covenant described below applies with respect to any and all series of
senior debt securities, unless we specify otherwise in the applicable
prospectus supplement. We will describe any additional covenants for a
particular series of senior debt securities in the applicable prospectus
supplement.
For your reference, we have provided a list of definitions of the
capitalized terms used in the covenant at the end of the description.
We will not, nor will we permit any Restricted Subsidiary to, issue or
assume any debt for money borrowed if such debt is secured by a mortgage,
security interest, pledge, lien or other encumbrance (mortgages, security
interests, pledges, liens and other encumbrances are called "mortgage" or
"mortgages") upon any Principal Property or upon any shares of stock or
indebtedness of any Restricted Subsidiary (whether such Principal Property,
shares of stock or indebtedness are now owned or hereafter acquired) without in
any such case effectively providing that the senior debt securities, and at our
option any other indebtedness of the Company or any Restricted Subsidiary
ranking equally with the senior debt securities, are secured equally and
ratably. These restrictions do not apply to debt secured by:
7
(a)mortgages on property, shares of stock or indebtedness of any
corporation existing at the time the corporation becomes a Restricted
Subsidiary;
(b)mortgages on property existing at the time of its acquisition and
certain purchase money mortgages;
(c)mortgages securing debt of a Restricted Subsidiary owing to us or
another Subsidiary;
(d)mortgages on property of a corporation existing at the time it is merged
into or consolidated with us or a Restricted Subsidiary or at the time
of a sale, lease or other disposition of the properties of a corporation
as an entirety or substantially as an entirety to us or a Restricted
Subsidiary;
(e)mortgages in favor of any country or any political subdivision of any
country, or any instrumentality thereof, to secure certain payments
pursuant to any contract or statute or to secure any indebtedness
incurred for the purpose of financing all or any part of the purchase
price or the cost of construction of the property subject to such
mortgages; or
(f)any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any mortgage referred
to in the foregoing clauses.
Notwithstanding the above, we and one or more Restricted Subsidiaries may,
without securing the senior debt securities, issue or assume secured debt if,
after giving effect to the transaction, the aggregate of the secured debt then
outstanding (not including secured debt permitted under the above exceptions)
does not exceed 20% of the shareholders' equity of us and our consolidated
subsidiaries as of the end of the preceding fiscal year. The transfer of a
Principal Property to a subsidiary or any third party will not be restricted.
(Section 4.06)
The term "Principal Property" means all real property owned by us or any
Restricted Subsidiary which is located within the continental United States of
America and, in the opinion of our Board of Directors, is of material
importance to the total business we and our consolidated affiliates, as an
entity, conduct. (Section 1.01)
The term "Restricted Subsidiary" means any subsidiary (i) substantially all
the property of which is located within the continental United States of
America, (ii) which owns Principal Property and (iii) in which our investment,
direct or indirect and whether in the form of equity, debt, advances or
otherwise, is in excess of U.S. $1,000,000,000 as shown on our books as of the
end of the fiscal year immediately preceding the date of determination. A
"Restricted Subsidiary" does not include any subsidiary primarily engaged in
financing activities, primarily engaged in the leasing of real property to
persons other than us and our subsidiaries, or that we characterize as a
temporary investment. (Section 1.01)
Subordination of Subordinated Debt Securities
Unless otherwise indicated in the prospectus supplement, the following
provisions apply to the subordinated debt securities.
The subordinated debt securities will, to the extent described in the
Subordinated Indenture, be subordinate in right of payment to all of our
indebtedness for borrowed money, whether now or in the future, which is not by
its terms subordinate to our other indebtedness. However, senior indebtedness
will not include amounts owed to our trade creditors in the ordinary course of
business. At March 31, 2002, our aggregate amount of senior indebtedness was
approximately $8.8 billion.
Except as provided under the Subordinated Indenture, if any one of the
following events occurs, we will pay all principal, premium, if any, and
interest on the senior indebtedness in full before we make any payment on the
subordinated debt securities:
(a)any insolvency or bankruptcy proceedings of our company, including any
receivership reorganization or similar proceedings;
(b)any proceedings for voluntary liquidation, dissolution or other winding
up of our company, whether or not involving insolvency or bankruptcy
proceedings; and
8
(c)any series of subordinated debt securities is declared due and payable
because of an occurrence of an event of default under the Subordinated
Indenture.
The Subordinated Indenture does not limit the incurrence of additional
senior indebtedness. The senior debt securities constitute senior indebtedness
under the Subordinated Indenture.
The prospectus supplement may have further information regarding the
subordination of the subordinated debt securities of a particular series.
Events of Default
The Indentures describe an event of default with respect to any series of
debt securities as being any one of the following events:
(a)default for 30 days in any payment of interest on such series;
(b)default in any payment of principal of or premium, if any, on debt
securities of such series when due (and continuance of such default for
a period of 10 days in the case of subordinated debt securities);
(c) default in the payment of any sinking fund payment on debt securities of
such series when due (and continuance of such default for a period of 10
days in the case of subordinated debt securities);
(d)default for 60 days, after appropriate notice, in performance of any
other covenants in the Indentures (other than the limitation on liens
covenant in the Senior Indenture and any other covenant included in the
Indentures solely for the benefit of another series of debt securities),
unless it cannot with due diligence be cured within the 60-day period
due to causes beyond our control;
(e)certain events of bankruptcy, insolvency or reorganization of our
company; or
(f)default in the performance of a particular covenant applicable to that
series after appropriate notice and opportunity to cure the default.
The Senior Indenture defines a default for 120 days after appropriate notice
in the performance of the limitation on liens covenant as an additional event
of default with respect to the senior debt securities.
An event of default with respect to a particular series of debt securities
issued under either of the Indentures does not necessarily constitute an event
of default with respect to any other series of debt securities issued under the
Indentures. If an event of default under clause (a), (b), (c) or (f) above with
respect to the Indentures is continuing with respect to any series of debt
securities, the Trustee or the holders of not less than 25% in aggregate
principal amount of the affected series of debt securities may declare the
principal amount (or, if the debt securities are original issue discount
securities, the specified portion of the principal amount) of such series to be
due and payable. In case an event of default under clause (d) or (e) above with
respect to the Indentures or with respect to the limitation on liens covenant
of the Senior Indenture is continuing, the Trustee or holders of not less than
25% in aggregate principal amount of all the debt securities may declare the
principal amount (or, if any debt securities are original issue discount
securities, the specified portion of the principal amount) of the debt
securities of all series to be due and payable. Any event of default with
respect to a particular series of debt securities may be waived by the holders
of a majority in aggregate principal amount of those debt securities, except,
in each case, a failure to pay principal of, or premium, if any, or interest on
those debt securities. (Section 6.01; Section 6.07)
We are required to file an annual officers' certificate with the Trustee
concerning our compliance with the Indentures. (Section 4.05) Subject to the
provisions of the Indentures relating to the duties of the Trustee, each
Indenture provides that the Trustee will be under no obligation to exercise any
of its rights or powers at the request, order or direction of the holders of
the debt securities unless the holders have offered the Trustee reasonable
indemnity. (Sections 6.04 and 7.01) Subject to indemnification and other rights
of the Trustee, the holders of a majority (voting as one class) in principal
amount of each affected series of debt securities may direct the time, method,
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any of the Trustee's trusts or powers. (Section 6.07)
9
Modification of the Indentures
We may enter into supplemental indentures with the Trustee without the
consent of the holders of the debt securities to:
(a)evidence the assumption by a successor corporation of our obligations;
(b)add covenants for the protection of the holders of the debt securities;
(c)add or change any of the provisions of the Indentures to permit or
facilitate the issuance of debt securities of any series in bearer or
coupon form;
(d)cure any ambiguity or correct any inconsistency in the Indentures;
(e)establish the form or terms of debt securities of any series as
permitted by the terms of the Indentures; and
(f)evidence the acceptance of appointment by a successor trustee. (Section
10.01)
With the consent of the holders of not less than 66 2/3% in aggregate
principal amount of each affected series of debt securities, we may execute
supplemental indentures with the Trustee to add provisions or change or
eliminate any provision of the Indentures or modify the rights of the holders
of those debt securities. However, no such supplemental indenture will, among
other things (a) extend the fixed maturity of any debt security, or reduce the
principal amount (including in the case of a discounted debt security the
amount payable upon acceleration of the maturity thereof), reduce the rate or
extend the time of payment of interest, or make the principal of, premium, if
any, or interest, if any, payable in any coin or currency other than that
provided in the debt security, without the consent of the holder of each
affected debt security or (b) reduce the percentage of holders required to
consent to the supplemental indenture, without the consent of the holder of
each affected debt security. (Section 10.02)
Discharge of Indentures
We, at our option, (a) will be discharged from all obligations under the
Indentures in respect of the debt securities of a series (except in each case
for certain obligations to register the transfer or exchange of those debt
securities, replace stolen, lost or mutilated debt securities, maintain paying
agencies and hold monies for payment in trust) or (b) need not comply with
certain restrictive covenants of the Indentures (including the limitation on
liens covenant in the Senior Indenture) and will not be limited by any
restrictions with respect to merger, consolidation or sales of assets with
respect to those debt securities, in each case if we deposit with the Trustee,
in trust, (x) money or (y) U.S. government obligations or a combination of (x)
and (y) which will provide enough money to pay all the principal (including any
mandatory sinking fund payments) of, and interest, if any, and premium, if any,
on, those debt securities when due. (Section 12.02) In order to select either
option, we must provide the Trustee with an opinion of counsel or a ruling
from, or published by, the Internal Revenue Service, to the effect that holders
will not recognize income, gain or loss for Federal income tax purposes as a
result of our exercising the option and will be subject to Federal income tax
as if we had not exercised the option. (Section 12.02) In addition, we may also
discharge our obligations with respect to a series of debt securities by
depositing with the Trustee, in trust, enough money to pay at maturity or upon
redemption all of the debt securities of such series, provided that all of the
debt securities of such series are by their terms to become due and payable or
called for redemption within one year. No opinion of counsel or ruling from the
Internal Revenue Service is required with respect to a discharge in these
circumstances. Upon any discharge of debt securities described above, the
holders of those debt securities may look solely to such trust fund, and not to
us, for payments. (Sections 12.01 and 12.02)
Concerning the Trustee
We and our subsidiaries and affiliates maintain banking relationships
(including the extension of credit) in the ordinary course of business with the
Trustee. The Trustee is also trustee under other indentures under which we have
issued other senior and subordinated debt securities.
10
PLAN OF DISTRIBUTION
We may offer debt securities in any of the following ways:
(a)directly;
(b)through agents;
(c)through dealers; or
(d)through one or more underwriters or a syndicate of underwriters in an
underwritten offering.
We will describe how a particular offering of debt securities will be made,
including the names of any underwriters, the purchase price of the securities,
the proceeds of the offering and any underwriters' discounts or commissions, in
the prospectus supplement or pricing supplement for the offering.
If we use underwriters or dealers in the sale, the underwriters or dealers
will acquire the debt securities for their own account and may resell them in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. We may
offer debt securities to the public either through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate.
Unless otherwise described in the applicable prospectus supplement, the
obligations of the underwriters to purchase debt securities will be subject to
certain conditions precedent, and the underwriters must purchase all of such
debt securities if they buy any of them. The underwriters may change any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers from time to time.
We may also sell debt securities directly or through designated agents. Any
agent involved in the offer or sale of debt securities will be named, and any
commissions payable by us to such agent will be described, in the applicable
prospectus supplement or pricing supplement. Unless otherwise indicated, an
agent will act on a best efforts basis for the period of its appointment.
Any underwriters, dealers or agents participating in the distribution of
debt securities may be deemed to be underwriters and any discounts or
commissions received by them on the sale or resale of debt securities may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "Securities Act"). Agents and underwriters may be
entitled under agreements entered into with us to indemnification against
certain civil liabilities, including liabilities under the Securities Act, or
to contribution with respect to payments that the agents or underwriters may be
required to make in respect of such liabilities. Agents and underwriters may be
customers of, engage in transactions with, or perform services for, us or our
subsidiaries or affiliates in the ordinary course of business.
If so indicated in the prospectus supplement, we will authorize agents and
underwriters to solicit offers by certain institutions to purchase our debt
securities at the public offering price set forth in the prospectus supplement
pursuant to delayed delivery contracts providing for payment and delivery on
the date or dates stated in the prospectus supplement. These delayed delivery
contracts will be subject only to those conditions described in the relevant
prospectus supplement, and the prospectus supplement will describe the
commissions payable for the solicitation.
LEGAL MATTERS
Gloria Santona, our Senior Vice President, General Counsel and Secretary
will pass on the legality of the debt securities being offered by us. Ms.
Santona is a full-time employee of ours and owns shares of our common stock
directly and as a participant in various employee benefit plans. Ms. Santona
also holds options to purchase shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2001, as set forth in their report, which is incorporated by
reference in this prospectus. Our consolidated financial statements are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
11
================================================================================
$1,975,000,000
McDonald's Corporation
[LOGO] McDonald's
Medium-Term Notes
Due from 1 Year
to 60 Years from
Date of Issue
-----------------
PROSPECTUS SUPPLEMENT
-----------------
Merrill Lynch & Co.
ABN AMRO Incorporated
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Barclays Capital
BNP PARIBAS
Deutsche Bank Securities
Fleet Securities, Inc.
Goldman, Sachs & Co.
JPMorgan
Morgan Stanley
Salomon Smith Barney
Scotia Capital
SG Cowen
SunTrust Robinson Humphrey
Westdeutsche Landesbank Girozentrale, London Branch
August 6, 2002
================================================================================