Filed Pursuant to Rule 424(b)(2)
Registration No. 333-60170
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 10, 2001)
$1,500,000,000
MCDONALD'S CORPORATION
MEDIUM-TERM NOTES, SERIES G
DUE FROM 1 YEAR TO 60 YEARS FROM DATE OF ISSUE
----------------
We may use this prospectus supplement to offer Medium-Term Notes, Series G,
with a total initial public offering price of up to $1,500,000,000 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. The floating interest rate formula may
be based on:
-Treasury Rate
-Prime Rate
-CD Rate -CMT Rate
-Commercial Paper Rate - Another Base Rate or formula
described in the pricing
supplement
-Federal Funds Rate
-LIBOR
. 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 $1,497,750,000 and $1,488,750,000 of the proceeds
from the sale of the notes after paying the agent's commissions of between
$2,250,000 and $11,250,000. 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
DEUTSCHE BANC ALEX. BROWN
FLEET SECURITIES, INC.
GOLDMAN, SACHS & CO.
JPMORGAN
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
----------------
The date of this prospectus supplement is May 24, 2001.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Risk Factors............................................................... S-2
Capitalization............................................................. S-4
Important Currency Information............................................. S-5
Description of Notes....................................................... S-5
United States Tax Considerations........................................... S-20
Plan of Distribution....................................................... S-25
Glossary................................................................... S-26
PROSPECTUS
McDonald's Corporation..................................................... 2
Use of Proceeds............................................................ 3
Ratio of Earnings to Fixed Charges......................................... 3
Description of Debt Securities............................................. 3
Plan of Distribution....................................................... 8
Legal Matters.............................................................. 9
Experts.................................................................... 9
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. We have not authorized anyone to provide you with
different or additional information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not
assume that the information provided by this prospectus supplement or the
accompanying prospectus is accurate as of any date other than the date on the
front of this prospectus supplement.
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 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
S-2
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. The credit ratings assigned to our
medium-term note program are a reflection of our credit status and do not
reflect the impact of the factors discussed above on the market value of
indexed notes. 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 notes related to 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.
CAPITALIZATION
The following table sets forth the capitalization of the Company and its
consolidated subsidiaries at March 31, 2001.
MARCH 31,
2001
-----------
OUTSTANDING
-----------
(IN
MILLIONS OF
U.S.
DOLLARS)
Short-term debt, including current portion of long-term debt........ $ 684.5
Long-term debt, less current portion................................ 7,875.9
Shareholders' equity................................................ 8,930.8
---------
Total capitalization(1)............................................. $17,491.2
=========
--------
(1) At March 31, 2001, we had 3.5 billion authorized shares of common stock,
with $.01 par value, of which 1,660.6 million were issued and 1,293.3
million were outstanding. There has been no material change in our
consolidated capitalization since March 31, 2001.
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 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 $1,500,000,000
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 series of notes must be made in the currency of a country
that adopts the Euro, then we may redenominate all of the notes of that series
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.
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;
S-5
(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 the principal amount payable
at the stated maturity date 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.
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 on each note in a currency that we specify. If the
specified currency is other than U.S. dollars, either we or the paying agent
will (unless the note provides otherwise) arrange to convert all payments in
respect of the note into U.S. dollars as described in the following paragraph.
If you hold a note denominated in a currency other than U.S. dollars and the
pricing supplement and note so allow, you may elect to receive all payments in
the foreign currency by sending a written notice to the paying agent not later
than 15 days before the applicable payment date, except under the
circumstances described in "Risk Factors--Foreign Currency Notes are Subject
to Exchange Rate and Exchange Control Risks." Your election will remain in
effect until you revoke it by written notice to the paying agent received not
later than 15 days before the applicable payment date.
The paying agent will determine the amount of any U.S. dollar payment on a
note denominated in a currency other than U.S. dollars based on the highest
firm bid quotation, expressed in U.S. dollars, that it receives at
approximately 11:00 a.m., New York City time two Business Days before the
applicable payment date (if no rate is quoted on that date, the paying agent
will use the last date on which the rate was quoted). To determine the highest
quote, the paying agent will request quotes from three (or, if three are not
available, then two) recognized foreign exchange dealers in The City of New
York (which may include the agents, their affiliates or the paying agent) for
the purchase, and settlement on the applicable payment date, of the total
amount of the specified currency then payable. You will be responsible for all
currency exchange costs, such amount to be deducted from your U.S. dollar
payments. If no bid quotations are available, we will make payments in the
foreign currency, unless the currency is unavailable due to the imposition of
exchange controls or other circumstances beyond our control.
Any pricing supplement relating to notes having a specified currency other
than U.S. dollars will contain information concerning historical exchange
rates for that currency against the U.S. dollar and a brief description of any
relevant exchange controls.
S-6
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.
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.
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;
S-7
(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
(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).
S-8
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.
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 United States 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.
S-9
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
(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 Bridge Telerate, Inc. (or any successor
service) on page 120 (or any other page as may replace the specified page
on that service) ("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 United States 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.
S-10
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 Telerate" is specified in the applicable pricing supplement
or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified as the
method for calculating LIBOR, the rate for deposits in the Index Currency
having the Index Maturity 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 LIBOR
Page by its terms provides only for a single rate, calculated by the
calculation agent, for deposits in the Index Currency having the Index
Maturity designated on 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 LIBOR
Page as specified in clause (1) or (2), as applicable, 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 affiliates), in the London interbank market to provide the calculation
agent with its offered quotation for deposits in the Index 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 Index 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 Index 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 Bridge
Telerate, Inc. (or any successor service) on page 56 (or any other page as
may replace that page on that service) ("Telerate Page 56") or page 57 (or
any other page as may replace that page on that service) ("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
S-11
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 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.
S-12
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 Telerate Page 7051 is specified in the applicable pricing
supplement:
(a) the percentage equal to the yield for United States Treasury
securities at "constant maturity" having the Index Maturity specified
in the applicable pricing supplement as published in H.15(519) under
the caption "Treasury Constant Maturities", as the yield is displayed
on Bridge Telerate, Inc. (or any successor service) on page 7051 (or
any other page as may replace the specified page on that service)
("Telerate Page 7051"), for the particular Interest Determination Date,
or
(b) if the rate referred to in clause (a) does not so appear on
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
(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
S-13
(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 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 Bridge Telerate, Inc. (or any successor service) (on page 7052 or
any other page as may replace the specified page on that service)
("Telerate Page 7052"), for the week or month, as applicable, ended
immediately preceding the week or month, as applicable, in which the
particular Interest Determination Date falls, or
(b) if the rate referred to in clause (a) does not so appear on
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
(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 Treasury Notes 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
S-14
(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 or consolidate 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.
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 of a series 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 the notes
of that series into Euros (whether or not any other similar series of notes
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 series of notes, it
will be redenominated either:
(a) in a manner and subject to such procedures as we determine to be in
compliance with all requirements of relevant monetary, stock exchange
or other authorities and existing or expected market practices
consistent with the requirements for debt obligations issued in the
Euromarkets that are held in international clearing systems; or
(b) if we do not implement the redenomination as described above, we will
convert the nominal specified currency amount of each note of the
series into Euros by using the fixed conversion rate adopted by the
Council of the European Union for the affected currency, and the series
will be replaced either (1) by notes of the same series equal in value
to the amount redenominated, but denominated in Euros and each with a
denomination of one cent; or (2) if the international clearing systems
for the notes do not then accept for clearance and settlement
redenominated Euromarket debt obligations, each of that denomination,
by notes of the same series equal in value to the amount redenominated,
but denominated in Euros and each with a denomination of one Euro.
S-15
We will pay any balance remaining from a redenomination in cash. The cash
adjustment will be payable in Euros to or on the order of holders of the
affected series in the same way interest is paid.
Despite the above procedures, solely at our option and without the consent
of holders or the need to amend the Senior Indenture or the notes, we may
elect that, beginning on the date of redenomination of a series of notes or
any later interest payment date as we may specify, the denominations of the
notes of that series will be one cent (if applicable), Euro 1, Euro 10, Euro
100, Euro 1,000, Euro 10,000, Euro 100,000 and Euro 1,000,000. The minimum
denominations of the notes after redenomination will not be lower than the
equivalent of any minimum denominations of the notes required by law,
regulation or market practice. We may elect to permit holders to exchange
then-existing Euro-denominated notes of a series for notes of the new
denominations having the same aggregate nominal amount as the notes being
exchanged. We will give holders at least 30 days' irrevocable notice if we
make this election.
Solely at our option and without the consent of holders, references in the
notes to any other convention (whether for the calculation of interest,
determination of payment dates or otherwise) may be amended, with effect from
(1) the date of redenomination; (2) the interest payment date following the
substitution of the Euro for the specified currency; or (3) any later interest
payment date that we may specify to comply with conventions applicable to
Euro-denominated Euromarket debt obligations under requirements of relevant
monetary, stock exchange or other authorities, and any market practices
consistent with those requirements as we, in our discretion, determine to
apply to other Euromarket debt obligations that have also been redenominated.
The terms of the notes will be deemed to be amended accordingly.
If we elect to consolidate the notes of a series with other similar series
of notes by reference to the same interest payment date as a redenomination of
the notes of that series into Euros or to a later interest payment date, we
will apply the provisions of "Description of Notes--Consolidation" below with
effect from the date of consolidation.
If a redenominated note is a floating rate note, the rate of interest that
will apply to the note beginning on the interest payment date falling on or
immediately prior to the redenomination date will be (1) the interest rate
that applied prior to redenomination, with Euros substituted for the specified
currency, unless that interest rate is inconsistent with then-existing or
expected market practices for Euro-denominated Euromarket debt obligations
with floating rate interest payments of frequencies identical or substantially
similar to the frequency of interest payments under the note, as we determine;
or (2) if that interest rate is so inconsistent, the interest rate that would
be consistent with then-existing or expected market practices for Euro-
denominated Euromarket debt obligations, in each case with such interest rate
equal to the interest rate applicable to the note (adjusted as described
above), plus or minus any Spread or Spread Multiplier indicated in the pricing
supplement, as we determine.
Unless and until the notes of a redenominated series are consolidated with
similar series of other securities as described under "Description of Notes--
Consolidation" below, the interest accrual basis and the provisions of the
notes of that series relating to the source and determination of the interest
accrual basis that will begin on the interest payment date falling on or
immediately prior to the date of redenomination will be:
(a) the interest accrual basis and those provisions that applied prior to
redenomination, unless that interest accrual basis is and/or those
provisions are inconsistent with then-existing or expected market
practices for Euro-denominated Euromarket debt obligations with fixed
rate or floating rate interest payments of frequencies identical or
substantially similar to the frequency of interest payments under those
notes, based, in the case of floating interest rate payments, on the
reference rate for the notes prior to the date of redenomination and
held in international clearing systems, as we determine; or
(b) if the interest accrual basis that applied previously is and/or those
provisions are so inconsistent, the interest accrual basis and/or the
provisions of the notes of that series relating to the source and
determination of that interest accrual basis, as the case may be, which
is consistent with the then-existing or expected market practices for
Euro-denominated Euromarket debt obligations with fixed rate or
floating rate interest payments of frequencies identical or
substantially similar to the frequency
S-16
of interest payments under those notes, based, in the case of floating
interest rate payments, on the reference rate applicable to the notes
(adjusted as described above) and held in international clearing
systems, as we determine.
We may, with the consent of the Trustee but without consent of the holder of
any note, make any change or addition to the terms of the notes of a series if
we and the Trustee believe it is necessary or appropriate to facilitate the
implementation of the practical aspects of the introduction of the Euro or to
correct any clear error or any ambiguity or any defective provisions of the
notes, so long as we and the Trustee believe the change or addition is not
materially prejudicial to the interests of the holders of the affected series.
Any change or addition will be binding on the holders of the notes of that
series, the Trustee, the paying agents, us and any of our other agents. Any
change or addition will be considered to be made by operation of the terms of
the relevant notes. We will promptly notify holders of any change or addition.
CONSOLIDATION
If (1) the payments on the notes of a series are to be made in any specified
currency other than U.S. dollars; and (2) the issuing country of that currency
becomes a Participating Member State, then, subject to the provisions below,
we may, without the consent of the holders of those notes or the need to amend
the Senior Indenture, consolidate the notes of that series with one or more
other similar series of notes on any interest payment date (or if that day is
not a Business Day in any location that we determine to be necessary or
appropriate for the consolidation, the next day that is a Business Day in that
location). We will give holders at least 30 days' notice of the consolidation,
including a description of the way we will implement it. A consolidation may
only be carried out if all of the affected notes have been redenominated in
Euros on or before the interest payment date falling on or immediately prior
to the date of the proposed consolidation (if not already so denominated), and
no default or event of default under any of the notes is continuing.
We may exercise our right referred to above if we determine that the notes
that we propose to consolidate (1) may be cleared and settled on an
interchangeable basis with the same securities identification numbers through
the main clearing systems through which each series of notes was previously
cleared and settled unless on the date of the proposed consolidation it will
be impossible so to clear and settle the consolidated notes in one or more of
those systems, in which case the consolidated notes need not so clear and
settle through any unavailable clearing system unless it would be materially
prejudicial to the holders of the notes of the affected series; and (2) if any
of the series of notes to be consolidated was listed on any European stock
exchange on which debt obligations are customarily listed immediately prior to
the consolidation, will be listed on at least one of those exchanges.
Once we have consolidated two or more series of notes, "Business Day" for
those notes will be (1) as defined for fixed or floating rate Euro-denominated
Euromarket debt obligations and held in international clearing systems and in
a way consistent with existing or anticipated market practices as we determine
them to be; or (2) if we do not make the determination described in clause
(1), as defined prior to the consolidation; or (3) if we would be unable to
make payments on the notes on the required dates if the term were defined as
described in clause (2), as defined by us in any other way.
From the date of consolidation of any series of notes or any later interest
payment date, we may, solely at our option and without the consent of holders,
change the nominal amounts in which those notes are denominated as a result of
any previous redenomination in each case as described under "Description of
Notes--Redenomination".
The interest accrual basis and the provisions of a series of notes relating
to the source and determination of the interest accrual basis that will apply
to the consolidated notes beginning on the interest payment date falling on or
immediately prior to the date of consolidation will remain the same if the
other securities consolidated had the same interest accrual basis and the same
provisions prior to consolidation. If that is not the case, then despite the
provisions of "Description of Notes--Redenomination" above, the interest
accrual basis or the provisions of the notes of a consolidated series relating
to the source and determination of the interest accrual basis that will apply
beginning on the interest payment date falling on or immediately prior to the
date of consolidation will be:
S-17
(a) the interest accrual basis or those provisions that applied to those
notes prior to consolidation, unless that interest accrual basis is or
those provisions are inconsistent with then-existing or expected market
practices for Euro-denominated Euromarket debt obligations with fixed
rate or floating rate interest payments of frequencies identical or
substantially similar to the frequency of interest payments and held in
international clearing systems under those notes, as we determine; or
(b) if the interest accrual basis that applied prior to consolidation is
and/or those provisions are so inconsistent, the interest accrual basis
and/or the provisions of the notes of that series relating to the
source and determination of the interest accrual basis that would be
consistent with then-existing or expected market practices for Euro-
denominated Euromarket debt obligations with fixed rate or floating
rate interest payments of frequencies identical or substantially
similar to the frequency of interest payments and held in international
clearing systems under those notes, as we determine.
Upon any consolidation, without the consent of holders of the affected
notes, we may change the nominal amounts in which the affected notes are
denominated as a result of any previous redenomination. Upon any consolidation
of the notes of a series represented by a global note or master note with any
other series of other securities so represented, we may change the depositary
that holds the notes of either series either physically or on behalf of the
clearing system through which the notes of that series are held or we may
issue a replacement global note or global notes representing them. Notes of
any series represented by certificated notes must be exchanged for notes
represented by a global note or master note prior to any consolidation. If an
exchange is not possible under the terms of any notes, we will not consolidate
those notes with any other series of notes represented by a global note or
master note.
We may, with the consent of the Trustee but without the consent of the
holders of any note, make any change or addition to the terms of the notes of
a series if we and the Trustee believe it is necessary or appropriate to
implement the relevant consolidation of notes or to correct any clear error or
any ambiguity or any defective provisions of the notes, so long as we and the
Trustee believe the change or addition is not materially prejudicial to the
interests of the holders of the affected series. Any change or addition will
be binding on the holders of the notes of that series, the Trustee, the paying
agents, us and any of our agents. Any change or addition will be considered to
be made by operation of the terms of the relevant notes. We will promptly
notify holders of any change or addition.
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
the Index Currency;
(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
S-18
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
(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.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among its participants in
such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers
(including the Agents), banks, trust companies, clearing corporations, and
certain other organizations, some of whom (and/or their representatives) own
DTC. Access to DTC's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
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.
S-19
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.
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
S-20
market treatment, persons that will hold notes as a hedge against currency
risk 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.
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.
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.
S-21
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.
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
S-22
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
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
S-23
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.
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
S-24
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.
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 31% backup
withholding tax 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 through the agents who have agreed to use their
reasonable efforts to solicit orders. We have the right to accept orders or
reject proposed purchases in whole or in part. The agents also have the right,
using their reasonable discretion, to reject any proposed purchase of the
notes in whole or in part. We will pay an agent a commission ranging from
.150% to .750% of the principal amount of notes with a stated maturity of 1
year to 30 years. The exact commission paid will be determined by the stated
maturity of the notes sold. Commissions with respect to notes with stated
maturities of over 30 years will be negotiated at the time of sale. The
following table describes the potential proceeds we will receive but does not
include expenses payable by us which we estimate to be $970,000:
S-25
PRICE TO AGENTS' COMMISSIONS AND
PUBLIC DISCOUNTS PROCEEDS TO THE COMPANY
-------------- ------------------------- --------------------------------
Per Note................ 100% .150% to .750% 99.850% to 99.250%
Total................... $1,500,000,000 $2,250,000 to $11,250,000 $1,497,750,000 to $1,488,750,000
We may arrange for notes to be sold through any agent or may sell notes
directly to investors. If we sell notes directly to investors, no commission
or discount will be paid. We also may sell notes to any agent as principal for
the agent's account at a price agreed upon at the time of sale. Such notes may
be resold by the agent to investors at a fixed public offering price or at
prevailing market prices, or at a related price, as determined by the agent.
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.
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 make a
market in the notes, but are not obligated to do so and may discontinue any
market-making at any time without notice. There can be no assurance of a
secondary market for any notes, or that any notes will be sold.
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.
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 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.
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:
DXN
Bond Equivalent Yield = ----------- x 100
360 - (DXM)
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.
S-26
"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.
"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 Telerate Page" means the display on the Dow Jones 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 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 for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
specified in the applicable pricing supplement or neither "LIBOR Reuters" nor
"LIBOR Telerate" is specified as the method for calculating LIBOR, the display
on the Dow Jones Telerate Service for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency.
"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), or any successor
site or publication.
"Index Currency" means the currency specified in the applicable pricing
supplement, or, if no currency is specified in the applicable pricing
supplement, U.S. dollars.
S-27
"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.
"London Business Day" means (i) if the Index Currency is other than Euro,
any day on which dealings in such Index Currency are transacted in the London
interbank market or (ii) if the Index Currency 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.
"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.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D X 360 X 100
Money Market Yield = -------------
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 Community
that adopts the Euro in accordance with the Treaty of Rome.
"Principal Financial Center" will generally be the capital city of the
country of the specified Index Currency or LIBOR Currency, as the case may be,
except that with respect to Australian dollars, Deutsche marks, Dutch
guilders, U.S. dollars, Italian lire and Swiss francs and Euro the Principal
Financial Center shall be Sydney, Frankfurt, Amsterdam, The City of New York,
Milan, Zurich and Brussels, 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.
S-28
"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.
"Trustee" means First Union National Bank or its successor.
S-29
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 $1,500,000,000, 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 May 10, 2001.
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 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: Aroma
Cafe, Boston Market, Chipotle Mexican Grill and Donatos Pizza. 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 Apple-Bran 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, 2001, there were
28,905 restaurants worldwide, of which 12,811 were located in the United
States and 16,094 in 119 other countries. An additional 345 restaurants were
under construction at March 31, 2001, including 262 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 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
2
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,
2000; and
(b) Our Current Reports on Form 8-K filed as of February 1, March 19, April
23, 2001 and May 10, 2001.
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 McDonald's 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.
RATIO OF EARNINGS TO FIXED CHARGES
THREE
MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------- ------------------------
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges........... 4.02 5.35 5.39 5.76 4.82 5.16 5.11
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.
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 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
3
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;
(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.
4
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:
(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.
5
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 December 31, 2000, our aggregate amount of senior indebtedness
was approximately $7.9 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
(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);
6
(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)
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)
7
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.
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.
8
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 Vice President, U.S. 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, 2000, 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.
9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$1,500,000,000
MCDONALD'S CORPORATION
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
DEUTSCHE BANC ALEX. BROWN
FLEET SECURITIES, INC.
GOLDMAN, SACHS & CO.
JPMORGAN
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
May 24, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------