Prospectus Supplement Filed Pursuant to Rule 424(b)(5)
(To Prospectus dated May 16, 1997) File No. 333-24667
$525,000,000
[FIRST DATA LOGO]
First Data Corporation
2% Senior Convertible Contingent Debt Securities (CODESSM) due 2008
--------------------------------------------------------------------------------
We are offering $525,000,000 aggregate principal amount of our 2% CODES due
2008.
The CODES will be convertible, at your option, into shares of our common stock
at a conversion rate of 12.2096 shares of common stock per $1,000 principal
amount, or $81.903 per share, subject to adjustments described elsewhere, in
the following circumstances:
. if the trading price of our common stock is above specified levels;
. if the ratio of the trading price of the CODES to the conversion value of
the CODES is below specified levels;
. if the CODES have been called for redemption;
. during any period in which the credit ratings assigned to the CODES by
both Moody's and Standard & Poor's are below specified levels or neither
agency rates the CODES; and
. upon the occurrence of specified corporate transactions.
The CODES will bear interest at a rate of 2% per annum. We also will pay
contingent interest during any six-month period following a six-month period in
which the average trading price of the CODES is above specified levels.
Interest on the CODES is payable on March 1 and September 1 of each year,
beginning on September 1, 2001. The CODES will mature on March 1, 2008.
The CODES will be subject to special United States federal income tax rules.
For a summary of material United States federal income tax consequences of the
purchase, ownership and disposition of the CODES, see "United States Federal
Income Tax Consequences."
We may redeem some or all of the CODES on or after March 1, 2004. Holders of
the CODES may require us to purchase all or a portion of their CODES on March
1, 2004 and March 1, 2006 or, subject to specified exceptions, upon a change of
control event.
The CODES will be our unsecured senior obligations and will rank equally with
all of our other unsecured senior indebtedness.
Our common stock is quoted on the New York Stock Exchange under the symbol
"FDC." On February 22, 2001, the common stock closed at $59.35 per share.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Per CODES Total
--------- ------------
Public Offering Price.................................... 100.00% $525,000,000
Underwriting Discount.................................... 1.50% $ 7,875,000
Proceeds to First Data Corporation (before expenses)..... 98.50% $517,125,000
Interest on the CODES will accrue from February 28, 2001.
We have granted the underwriters the option to purchase up to an additional
$78,750,000 principal amount of CODES from us at the public offering price less
the underwriting discount.
The underwriters expect to deliver the CODES to purchasers in book-entry form
only through The Depository Trust Company on or about February 28, 2001.
--------------------------------------------------------------------------------
Lehman Brothers
Salomon Smith Barney
February 22, 2001
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus supplement and the accompanying prospectus. We are
offering to sell the CODES, and seeking offers to buy the CODES, only in
jurisdictions where offers and sales are permitted. The information contained
in this prospectus supplement and the accompanying prospectus is accurate only
as of the date of this prospectus supplement, regardless of the time of
delivery of this prospectus supplement or any sales of the CODES. In this
prospectus supplement and the accompanying prospectus, unless otherwise
indicated, the "company," "we," "us" and "our" refer to First Data Corporation
and its subsidiaries.
----------------
TABLE OF CONTENTS
Page
----
Prospectus Supplement
First Data Corporation.............. S-3
Use of Proceeds..................... S-3
Price Range of Common Stock and
Dividend Policy.................... S-3
Capitalization...................... S-4
Ratios of Earnings to Fixed Charges. S-4
Description of the CODES............ S-6
United States Federal Income Tax
Consequences....................... S-19
Underwriting........................ S-25
Legal Matters....................... S-26
Page
----
Prospectus
Available Information.............. 2
Incorporation of Certain Documents
by Reference...................... 2
The Company........................ 3
Use of Proceeds.................... 3
Ratios of Earnings to Fixed
Charges........................... 3
Description of Debt Securities..... 3
Description of Capital Stock....... 19
Plan of Distribution............... 21
Legal Matters...................... 22
Experts............................ 22
S-2
FIRST DATA CORPORATION
We operate in four business segments: payment instruments, merchant
services, card issuer services and emerging payments. Payment instruments
includes Western Union, Integrated Payment Systems and Orlandi Valuta Companies
and is the leading provider of nonbank domestic and international money
transfer and payment services to consumers and commercial entities, including
money transfer, official check and money order services. Merchant services is
primarily comprised of First Data Merchant Services, TeleCheck and First Data
Financial Services. This segment provides merchants with credit and debit card
transaction processing services, including authorization, transaction capture,
settlement, Internet-based transaction processing, check verification and
guarantee services. Card issuer services encompasses domestic and international
card processing services. This segment provides a comprehensive line of
processing and related services to financial institutions issuing credit and
debit cards and to issuers of oil and private label credit cards, including
information-based products for enhanced decision making and marketing. First
Data Solutions is also included in the card issuer services segment, providing
consumer and business solutions in the areas of risk and fraud management and
information verification associated with granting of credit, debit and customer
service collecting. The emerging payments segment, created in the third quarter
of 2000, consists of eOne Global, a leader in identifying, commercializing and
operating emerging payment technologies that support Internet and wireless
payment products. The remainder of our business units are grouped in the "All
Other and Corporate" category, which includes TeleServices, Call Interactive,
International Banking Technologies and Corporate operations.
Our principal executive offices are located at 5660 New Northside Drive,
Suite 1400, Atlanta, Georgia 30328-5800, telephone (770) 857-0001.
USE OF PROCEEDS
We estimate that our net proceeds, before deducting expenses, from the sale
of the CODES will be $517,125,000 ($594,693,750 if the underwriters' option is
exercised in full). We intend to use the net proceeds from the sale of the
CODES to repay outstanding commercial paper with interest rates ranging from
5.40% to 6.52% per annum.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the New York Stock Exchange under the symbol
"FDC." The following table sets forth the high and low sale prices for a share
of common stock and cash dividends paid per share of common stock during the
periods shown.
High Low Dividend
------- ------- --------
2001
First Quarter (through February 22)........ $64.10 $50.25 $0.02
2000
First Quarter.............................. $54 1/4 $40 1/8 $0.02
Second Quarter............................. 57 11/16 38 15/16 0.02
Third Quarter.............................. 51 1/4 36 15/16 0.02
Fourth Quarter............................. 55 11/16 37 3/16 0.02
1999
First Quarter.............................. $44 1/2 $31 5/16 $0.02
Second Quarter............................. 49 15/16 38 7/8 0.02
Third Quarter.............................. 51 1/2 42 11/16 0.02
Fourth Quarter............................. 50 7/8 40 0.02
S-3
CAPITALIZATION
The following table sets forth our capitalization at September 30, 2000 and
as adjusted to give effect to the sale of the CODES and repayment of
outstanding commercial paper with the estimated net proceeds of the offering
before deducting expenses (in millions).
September 30, 2000
--------------------
Actual As Adjusted
-------- -----------
Cash and cash equivalents.............................. $ 592.3 $ 592.3
======== ========
Short-term borrowings and current portion of long-term
debt.................................................. $ 947.9 $ 430.8
Long-term debt:
4 7/8% Convertible Notes due 2005.................... 50.0 50.0
2% CODES due 2008.................................... -- 517.1
Other long-term debt................................. 874.0 874.0
-------- --------
Total long-term debt............................... 924.0 1,441.1
-------- --------
Total debt............................................. 1,871.9 1,871.9
Total stockholders' equity............................. 3,491.0 3,491.0
-------- --------
Total capitalization................................. $5,362.9 $5,362.9
======== ========
As of February 22, 2001 there were 394,866,770 shares of common stock issued
and outstanding.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratios of earnings to fixed charges for
the periods indicated. We have not issued any preferred stock to date;
therefore, the ratios of earnings to combined fixed charges and preferred stock
dividends are the same as the ratios of earnings to fixed charges set forth
below.
Nine Months
Ended
Year Ended December 31, September 30,
------------------------------------- ---------------
1995(2) 1996 1997(3) 1998(4) 1999(5) 1999(6) 2000(7)
------- ---- ------- ------- ------- ------- -------
Ratio of earnings to
fixed charges--
historical............. 2.03x 7.19x 5.11x 5.70x 12.54x 7.29x 10.72x
Ratio of earnings to
fixed charges--pro
forma(1)............... 14.15x 12.94x
--------
(1) Pro forma ratios give pro forma effect to the sale of the CODES and
repayment of outstanding commercial paper with the estimated net proceeds
from the offering as of the beginning of each of the periods.
(2) Includes a merger, integration and impairment charge of $645.7 million
relating to our October 27, 1995 merger with First Financial Management
Corporation. The ratio of earnings to fixed charges without this charge
would have been 6.00x.
(3) Includes restructuring, net loss on business divestitures and impairment
charges of $369.3 million ($333.9 million after tax). The ratio of earnings
to fixed charges without these charges would have been 7.25x.
(4) Includes restructuring, net loss on business divestitures and impairment
charges and provision for loss on contract of $319.1 million ($231.5
million after tax). The ratio of earnings to fixed charges without these
charges would have been 7.80x.
(5) Includes net restructuring, business divestitures, litigation and
impairment benefit of $715.8 million ($417.6 million after tax). The ratio
of earnings to fixed charges without this benefit would have been 8.01x.
The pro forma ratio without this gain would have been 9.04x.
(6) Includes restructuring, business divestitures, litigation and impairment
charges of $41.0 million for the nine months ended September 30, 1999. The
ratio of earnings to fixed charges without this charge would have been
7.65x.
S-4
(7) Includes a net gain from restructuring and business divestiture activities
of $100.6 million. The ratio of earnings to fixed charges without this gain
would have been 9.71x. The pro forma ratio without this gain would have
been 11.73x.
The computation of the ratio of earnings to fixed charges is based on
applicable amounts for us and our consolidated subsidiaries. "Earnings" consist
of income before income taxes plus fixed charges. "Fixed charges" consist of
interest on debt, amortization of deferred financing costs and a portion of
rentals that we determine to be representative of interest.
S-5
DESCRIPTION OF THE CODES
The following description of the CODES offered by us (referred to in the
accompanying prospectus as "Debt Securities" or "Senior Securities")
supplements, and to the extent inconsistent replaces, the description of the
general terms and provisions of the Debt Securities set forth in the
accompanying prospectus.
We will issue the CODES under an indenture, dated as of March 26, 1993,
between us and Wells Fargo Bank Minnesota, National Association, as trustee
(referred to as the "Senior Trustee" in the accompanying prospectus), as
supplemented by the first supplemental indenture, to be dated as of February
28, 2001 between us and the trustee. Initially, Wells Fargo Bank Minnesota,
National Association will also act as paying agent and conversion agent for the
CODES. The terms of the CODES include those provided in the indenture and the
first supplemental indenture.
The following description is only a summary of the material provisions of
the CODES and the indenture, including the first supplemental indenture. When
we refer to the indenture, we mean the indenture as supplemented by the first
supplemental indenture. We urge you to read these documents in their entirety
because they, and not this description, define your rights as holders of these
CODES.
When we refer to First Data in this section, we refer only to First Data
Corporation, a Delaware corporation, and not its subsidiaries.
Brief Description of the CODES
The CODES offered hereby will:
. be $525,000,000 in aggregate principal amount ($603,750,000 if the
underwriters' option is exercised in full);
. bear interest at a per annum rate of 2%, subject to adjustment as
described under "--Interest Rate Adjustments;"
. be general unsecured obligations of First Data, ranking equally with all
of our other unsecured senior indebtedness and senior in right of payment
to any subordinated indebtedness; as indebtedness of First Data, the
CODES will be effectively subordinated to all indebtedness and
liabilities of our subsidiaries;
. be convertible into our common stock at a conversion price of $81.903 per
share, under the conditions and subject to adjustment as described under
"--Conversion Rights;"
. be redeemable at our option in whole or in part beginning on March 1,
2004 upon the terms set forth under "--Optional Redemption by First
Data;"
. be subject to repurchase by us at your option on March 1, 2004 and March
1, 2006 or upon a change of control, upon the terms and repurchase prices
set forth below under "--Repurchase of CODES at the Option of Holders;"
and
. be due on March 1, 2008, unless earlier converted, redeemed by us at our
option or repurchased by us at your option.
The indenture does not limit the amount of CODES of the same series that we
may issue in the future. The indenture limits our ability to incur additional
mortgages and liens or to enter into certain sale and leaseback transactions,
and limits the ability of our restricted subsidiaries to incur additional
indebtedness. The indenture does not, however, contain any other financial
covenants or restrict us from paying dividends or issuing or repurchasing our
other securities. The indenture also does not protect you in the event of a
highly leveraged transaction or a change in control of First Data, except to
the extent described under "--Repurchase of CODES at the Option of Holders--
Change of Control Put" below.
Under the first supplemental indenture governing the CODES, we will agree,
and by acceptance of a beneficial interest in the CODES each beneficial owner
of the CODES will be deemed to have agreed, among
S-6
other things, for United States federal income tax purposes, to treat the CODES
as indebtedness that is subject to the regulations governing contingent payment
debt instruments and, for purposes of those regulations, to treat the fair
market value of any stock received upon any conversion of the CODES as a
contingent payment, and the discussion herein assumes that such treatment is
correct. However, the characterization of instruments such as the CODES and the
application of such regulations is uncertain in several respects. See "United
States Federal Income Tax Consequences--Classification of the CODES."
In general, beneficial owners of the CODES will be required to accrue
interest income on the CODES in the manner described herein, regardless of
whether such owner uses the cash or accrual method of tax accounting.
Beneficial owners will be required, in general, to accrue interest based on the
rate at which we would issue a fixed rate nonconvertible debt instrument with
terms and conditions similar to the CODES (6.35%), rather than at a lower rate
based on the accruals on the CODES for non-tax purposes. Accordingly, owners of
CODES will be required to include interest in taxable income in each year in
excess of the accruals on the CODES for non-tax purposes. Furthermore, upon a
sale, exchange, conversion or redemption of a CODES, you will recognize gain or
loss equal to the difference between your amount realized and your adjusted tax
basis in the CODES. The amount realized by you will include, in the case of a
conversion, the fair market value of the stock you receive. Any gain on a sale,
exchange, conversion or redemption of a CODES will be treated as ordinary
interest income. You are expected to consult your own tax advisors as to the
United States federal, state, local or other tax consequences of acquiring,
owning and disposing of the CODES. See "United States Federal Income Tax
Consequences."
No sinking fund is provided for the CODES. The CODES will not be subject to
defeasance.
The CODES will be issued only in registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000 above that amount.
No service charge will be made for any registration of transfer or exchange of
CODES, but we may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The CODES will be represented by one or more permanent global securities
registered in the name of a nominee of The Depository Trust Company, New York,
New York. DTC and its direct and indirect participants maintain records of
beneficial interests in any global security. You may effect transfers only
through these records. The record ownership in a global security, in whole or
in part, may be transferred only to DTC, another nominee of DTC or to a
successor of DTC or its nominee. Except as set forth under "Description of Debt
Securities--Book-Entry Debt Securities" in the accompanying prospectus, CODES
will not be issuable in certificated form. We refer you to the section titled
"Description of Debt Securities--Book-Entry Debt Securities" in the
accompanying prospectus for a description of the book-entry system and DTC.
There is no existing trading market for the CODES. The underwriters have
advised us that they intend to make a market in the CODES; however, they are
under no obligation to do so and may discontinue their market-making activity
at any time. We intend to apply to list the CODES on the New York Stock
Exchange, but we cannot assure you that the CODES will be listed, or if listed,
that the listing will not be discontinued.
You may present definitive CODES for conversion, registration of transfer
and exchange, without service charge, at our office or agency in New York City,
which shall initially be the office or agency of the trustee in New York City.
Interest
The CODES will bear interest at a rate of 2% per annum, subject to
adjustment upon the occurrence of a reset transaction as described under "--
Interest Rate Adjustments," from February 28, 2001. We will pay interest
semiannually on March 1 and September 1 of each year, beginning September 1,
2001, to the holders of record at the close of business on the preceding
February 15 and August 15, respectively. There are two exceptions to the
preceding sentence:
. In general, we will not pay accrued and unpaid interest on any CODES that
are converted into our common stock. See "--Conversion Rights." If a
holder of CODES converts after a record date for an
S-7
interest payment but prior to the corresponding interest payment date, the
holder will receive on that interest payment date accrued and unpaid
interest on those CODES, notwithstanding the holder's conversion of those
CODES prior to that interest payment date, because that holder will have
been the holder of record on the corresponding record date. However, at
the time that holder surrenders CODES for conversion, the holder must pay
to us an amount equal to the interest that has accrued and that will be
paid on the interest payment date. The preceding sentence does not apply,
however, to a holder that converts CODES that are called by us for
redemption after a record date for an interest payment but prior to the
corresponding interest payment date. Accordingly, if we elect to redeem
CODES on a date that is after a record date but prior to the corresponding
interest payment date, and prior to the redemption date a holder of CODES
selected for redemption chooses to convert those CODES, the holder will
not be required to pay us, at the time that holder surrenders those CODES
for conversion, the amount of interest it will receive on the interest
payment date.
. We will pay interest to a person other than the holder of record on the
record date if we elect to redeem the CODES on a date that is after a
record date but prior to the corresponding interest payment date. In this
instance, we will pay accrued and unpaid interest on the CODES being
redeemed to, but not including, the redemption date to the same person to
whom we will pay the principal of those CODES.
Except as provided below, we will pay interest on:
. global CODES to DTC in immediately available funds;
. any definitive CODES having an aggregate principal amount of $5,000,000
or less by check mailed to the holders of those CODES; and
. any definitive CODES having an aggregate principal amount of more than
$5,000,000 by wire transfer in immediately available funds if requested
by the holders of those CODES.
At maturity, we will pay interest on the definitive CODES at our office or
agency in New York City, which initially will be the office or agency of the
trustee in New York City.
We will pay principal on:
. global CODES to DTC in immediately available funds; and
. any definitive CODES at our office or agency in New York City, which
initially will be the office or agency of the trustee in New York City.
Interest generally will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Interest Rate Adjustments
If a reset transaction occurs, the interest rate on the CODES will be
adjusted to equal the adjusted interest rate from the effective date of the
reset transaction to, but not including, the effective date of any succeeding
reset transaction.
A "reset transaction" means:
. a merger, consolidation or statutory share exchange to which the entity
that is the issuer of the common stock into which the CODES are then
convertible is a party;
. a recapitalization of that common stock;
. a sale of all or substantially all the assets of that entity; or
. a distribution described in the fourth bullet point of the first
paragraph under "--Conversion Rights-- Conversion Price Adjustments"
below,
in each case, after the effective date of which transaction or distribution
the CODES would be convertible into:
--shares of an entity whose dividend yield on its common stock for the
four fiscal quarters of that entity immediately preceding the public
announcement of the transaction or distribution is greater than 2.5%;
or
S-8
--shares of an entity that announces a dividend policy prior to the
effective date of the transaction or distribution which policy, if
implemented, would result in a dividend yield on that entity's common
stock for the next four fiscal quarters of greater than 2.5%.
The "adjusted interest rate" with respect to any reset transaction will be
the rate per year that is the sum of the dividend yield of such entity at, or
announced at, the time of reset plus 2%.
For purposes of the definition of reset transaction, the dividend yield on
any security for any period means the cash dividends paid, or proposed to be
paid, pursuant to an announced dividend policy on the security for that period,
divided by, if with respect to dividends paid on that security, the average
trading price of the security during that period and, if with respect to
dividends proposed to be paid on the security, the trading price of that
security on the effective date of the related reset transaction.
The "trading price" of a security on any date of determination means:
. the closing sale price (or, if no closing sale price is reported, the
last reported sale price) of a security (regular way) on the New York
Stock Exchange (NYSE) on that date;
. if that security is not listed on the NYSE on that date, the closing sale
price as reported in the composite transactions for the principal United
States securities exchange on which that security is listed;
. if that security is not so listed on a United States national or regional
securities exchange, the closing sale price as reported by the Nasdaq
National Market;
. if that security is not so reported, the last price quoted by Interactive
Data Corporation for that security or, if Interactive Data Corporation is
not quoting a price, a similar quotation service selected by us;
. if that security is not so quoted, the average of the mid-point of the
last bid and ask prices for that security from at least two dealers
recognized as market-makers for that security;
. if that security is not so quoted, the average of that last bid and ask
prices for that security from a dealer engaged in the trading of those
securities; or
. in the case of the CODES, if such bid and ask prices are not available,
the conversion value of the CODES, as described in "--Conversion Rights--
Conversion Upon Satisfaction of Market Price Conditions."
Contingent Interest
In addition to the interest we will pay as described under "--Interest," we
will pay contingent interest, subject to the accrual and record date provisions
described above, to the holders of CODES during the six-month periods from
March 1 to August 31 and from September 1 to February 28 or February 29, as
appropriate, commencing in the six-month period beginning September 1, 2001, if
the average trading price, as described above, of a CODES for the five trading
days ending on the second trading day immediately preceding the beginning of
the relevant six-month period equals 120% or more of the principal amount of
CODES.
The rate of contingent interest payable in respect of any six-month period
will equal the greater of (i) a per annum rate equal to 5.0% of our estimated
per annum borrowing rate for senior non-convertible fixed-rate indebtedness
with a maturity date comparable to the CODES and (ii) 0.33% per annum, in each
case based on the outstanding principal amount of the CODES. Contingent
interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Upon determination that holders of CODES will be entitled to receive
contingent interest during any relevant six-month period, on or prior to the
start of the relevant six-month period, we will issue a press release and
publish the information with respect to any contingent interest on our web
site.
We will pay contingent interest, if any, in the same manner as we will pay
interest described above under "--Interest," and your obligations in respect of
the payment of contingent interest in connection with the conversion of any
CODES will also be the same as described above under "--Interest."
S-9
Conversion Rights
General
You may convert any outstanding CODES (or portions of outstanding CODES) as
described below into our common stock, initially at the conversion price of
$81.903 per share (equal to a conversion rate of 12.2096 shares per $1,000
principal amount of CODES). The conversion price is subject to adjustment as
described below. We will not issue fractional shares of common stock upon
conversion of CODES. Instead, we will pay a cash adjustment based upon the
trading price of our common stock on the business day immediately preceding the
conversion date. You may convert CODES only in denominations of $1,000 and
integral multiples of $1,000.
Holders may surrender CODES for conversion into our common stock prior to
the stated maturity only under the following circumstances:
. during any conversion period, as described below, if the trading price of
our common stock for at least 20 trading days in the 30 trading day
period ending on the first day of the conversion period was more than
110% of the conversion price in effect per share of the common stock at
that thirtieth trading day;
. during the five business-day period following any 10 consecutive trading-
day period in which the average of the trading prices for the CODES for
that 10 trading-day period was less than 105% of the average conversion
value, as described below, for the CODES during that period;
. during any period in which the credit rating assigned to the CODES by
both Moody's and Standard & Poor's is below a specified level, or that
neither rating agency is rating the CODES;
. if we have called the CODES for redemption; or
. upon the occurrence of the specified corporate transactions discussed
below.
If you have exercised your right to require us to repurchase your CODES as
described under "--Repurchase of CODES at the Option of Holders," you may
convert your CODES into our common stock only if you withdraw your notice of
exercise and convert your CODES prior to the close of business on the business
day immediately preceding the applicable repurchase date.
Conversion Upon Satisfaction of Market Price Conditions
A holder may surrender any of its CODES for conversion into our common stock
during any conversion period if the trading price, as described above, of our
common stock for at least 20 trading days in the 30 trading-day period ending
on the first day of the conversion period exceeds 110% of the conversion price
per share of common stock on that thirtieth trading day. A conversion period
will be the period from and including the thirtieth trading day in a fiscal
quarter to but not including the thirtieth trading day in the immediately
following fiscal quarter.
A holder also may surrender any of its CODES for conversion into our common
stock during the five business-day period following any 10 consecutive trading-
day period in which the average of the trading prices for the CODES for that 10
trading-day period was less than 105% of the average conversion value for the
CODES during that period. "Conversion value" is equal to the product of the
trading price for our common stock on a given day multiplied by the then
current conversion rate, which is the number of shares of common stock into
which each CODES is then convertible.
Conversion Upon Credit Rating Event
A holder may surrender any of its CODES for conversion during any period in
which the credit ratings assigned to the CODES by both Moody's and Standard &
Poor's are below Baa3 or BBB-, respectively, or in which the credit ratings
assigned to the CODES are suspended or withdrawn by both rating agencies or in
which neither rating agency is rating the CODES.
S-10
Conversion Upon Notice of Redemption
A holder may surrender for conversion any CODES we call for redemption at
any time prior to the close of business on the day that is two business days
prior to the redemption date, even if the CODES are not otherwise convertible
at that time. If a holder already has delivered a purchase notice or a change
in control purchase notice with respect to a CODES, however, the holder may not
surrender that CODES for conversion until the holder has withdrawn the notice
in accordance with the indenture.
Conversion Upon Specified Corporate Transactions
Even if neither of the market price conditions described above have
occurred, if we elect to:
. distribute to all holders of our common stock certain rights entitling
them to purchase, for a period expiring within 60 days, common stock at
less than the trading price of the common stock at that time, or
. distribute to all holders of our common stock assets, debt securities or
certain rights to purchase our securities, which distribution has a per
share value exceeding 10% of the trading price of the common stock on the
day preceding the declaration date for the distribution,
we must notify the holders of CODES at least 20 days prior to the ex-dividend
date for the distribution. Once we have given that notice, holders may
surrender their CODES for conversion at any time until the earlier of close of
business on the business day prior to the ex-dividend date or our announcement
that the distribution will not take place. No adjustment to the ability of a
holder of CODES to convert will be made if the holder will otherwise
participate in the distribution without conversion.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash,
securities or other property, a holder may surrender CODES for conversion at
any time from and after the date which is 15 days prior to the anticipated
effective date of the transaction until 15 days after the actual date of the
transaction. If we are a party to a consolidation, merger or binding share
exchange pursuant to which our common stock is converted into cash, securities
or other property, then at the effective time of the transaction, the right to
convert a CODES into common stock will be changed into a right to convert the
CODES into the kind and amount of cash, securities or other property which the
holder would have received if the holder had converted such CODES immediately
prior to the transaction. If the transaction also constitutes a "change of
control," as defined below, the holder can require us to repurchase all or a
portion of its CODES as described under "--Repurchase of CODES at the Option of
Holders--Change of Control Put."
Conversion Procedures
Except as provided below, if you convert your CODES into our common stock on
any day other than an interest payment date, you will not receive any interest
that has accrued on those CODES since the prior interest payment date. By
delivering to the holder the number of shares issuable upon conversion,
determined by dividing the principal amount of the CODES being converted by the
conversion price, together with a cash payment in lieu of any fractional
shares, we will satisfy our obligation with respect to the CODES. That is,
accrued and unpaid interest will be deemed to be paid in full rather than
canceled, extinguished or forfeited.
If you convert after a record date for an interest payment but prior to the
corresponding interest payment date, you will receive on the interest payment
date interest accrued on those CODES, notwithstanding the conversion of CODES
prior to the interest payment date, because you will have been the holder of
record on the corresponding record date. However, at the time you surrender any
CODES for conversion, you must pay us an amount equal to the interest that has
accrued and that will be paid on the CODES being converted on the interest
payment date. The preceding sentence does not apply to CODES that are converted
after being called by us for redemption. Accordingly, if we call your CODES for
redemption on a date that is after a record date for an interest payment but
prior to the corresponding interest payment date, and prior to the redemption
date
S-11
you choose to convert your CODES, you will not be required to pay us at the
time you surrender your CODES for conversion the amount of interest on the
CODES you will receive on the date that has been fixed for redemption.
Furthermore, if we call your CODES for redemption on a date that is prior to a
record date for an interest payment date, and prior to the redemption date you
choose to convert your CODES, you will receive on the date that has been fixed
for redemption the amount of interest accrued on the CODES through the
redemption date.
You will not be required to pay any taxes or duties relating to the issuance
or delivery of our common stock if you exercise your conversion rights, but you
will be required to pay any tax or duty which may be payable relating to any
transfer involved in the issuance or delivery of the common stock in a name
other than your own. Certificates representing shares of common stock will be
issued or delivered only after all applicable taxes and duties, if any, payable
by you have been paid.
To convert interests in a global CODES, you must deliver to DTC the
appropriate instruction form for conversion pursuant to DTC's conversion
program. To convert a definitive CODES, you must:
. complete the conversion notice on the back of the CODES (or a facsimile
thereof),
. deliver the completed conversion notice and the CODES to be converted to
the specified office of the conversion agent;
. pay all funds required, if any, relating to interest on the CODES to be
converted to which you are not entitled, as described in the second
preceding paragraph; and
. pay all taxes or duties, if any, as described in the preceding paragraph.
The conversion date will be the date on which all of the foregoing requirements
have been satisfied. The CODES will be deemed to have been converted
immediately prior to the close of business on the conversion date. A
certificate for the number of shares of common stock into which the CODES are
converted (and cash in lieu of any fractional shares) will be delivered as soon
as practicable on or after the conversion date.
Conversion Price Adjustments
We will adjust the initial conversion price for certain events, including:
. issuances of our common stock as a dividend or distribution to all
holders of our common stock;
. certain subdivisions and combinations of our common stock;
. issuances to all holders of our common stock of certain rights or
warrants to purchase our common stock (or securities convertible into our
common stock) at less than (or having a conversion price per share less
than) the current market price of our common stock at the time of the
announcement of such issuance;
. distributions to all holders of our common stock of shares of our capital
stock (other than our common stock), evidences of our indebtedness or
assets, including securities, but excluding:
--the rights and warrants referred to in the immediately preceding
bullet point,
--any dividends and distributions in connection with a
reclassification, change, consolidation, merger, combination, sale or
conveyance resulting in a change in the conversion consideration
pursuant to the second succeeding paragraph, or
--any dividends or distributions paid exclusively in cash;
. distributions consisting exclusively of cash to all holders of our common
stock to the extent that those distributions, combined together with:
--all other all-cash distributions made within the preceding 12 months
for which no adjustment has been made, plus
--any cash and the fair market value of other consideration paid for in
any tender offers by us or any of our subsidiaries for our common
stock expiring within the preceding 12 months for which no adjustment
has been made,
S-12
exceeds 10% of our market capitalization on the record date for that
distribution; "market capitalization" is the product of the then current
market price of our common stock times the number of shares of our common
stock then outstanding; and
. purchases of our common stock pursuant to a tender offer made by us or
any of our subsidiaries to the extent that the same involves an aggregate
consideration that, together with:
--any cash and the fair market value of any other consideration paid in
any other tender offer by us or any of our subsidiaries for our
common stock expiring within the 12 months preceding the tender offer
for which no adjustment has been made, plus
--the aggregate amount of any all-cash distributions referred to in the
immediately preceding bullet point to all holders of our common stock
within 12 months preceding the expiration of the tender offer for
which no adjustments have been made,
exceeds 10% of our market capitalization on the expiration of the tender
offer.
We will not make any adjustment if holders of CODES may participate in the
transactions described above or in certain other cases. In cases:
. where the fair market value of assets, debt securities or certain rights,
warrants or options to purchase our securities that are applicable to one
share of common stock and are distributed to stockholders equals or
exceeds the average trading price of the common stock over a specified
period, or
. in which the average trading price of the common stock over a specified
period exceeds the fair market value of the assets, debt securities or
rights, warrants or options so distributed by less than $1.00,
rather than being entitled to an adjustment in the conversion price, the holder
of a CODES will be entitled to receive upon conversion, in addition to the
shares of common stock, the kind and amount of assets, debt securities or
rights, warrants or options comprising the distribution that the holder would
have received if the holder had converted its CODES immediately prior to the
record date for determining the shareholders entitled to receive the
distribution.
We will not make an adjustment in the conversion price unless the adjustment
would require a change of at least 1% in the conversion price in effect at that
time. We will carry forward and take into account in any subsequent adjustment
any adjustment that would otherwise be required to be made.
If we:
. reclassify or change our common stock (other than changes resulting from
a subdivision or combination); or
. consolidate or combine with or merge into or are a party to a binding
share exchange with any person or sell or convey to another person all or
substantially all of our property and assets,
and the holders of our common stock receive (or the common stock is converted
into) stock, other securities or other property or assets (including cash or
any combination thereof) with respect to or in exchange for their common stock,
then, at the effective time of the transaction the holders of the CODES may
convert the CODES into the consideration they would have received if they had
converted their CODES immediately prior to the reclassification, change,
consolidation, combination, merger, sale or conveyance. We may not become a
party to any such transaction unless its terms are consistent with the
foregoing.
In the event that we distribute shares of capital stock of a subsidiary of
ours, the conversion rate will be adjusted, if at all, based on the market
value of the subsidiary stock so distributed relative to the market value of
our common stock, in each case over a measurement period following the
distribution.
In the event we elect to make a distribution described in the third or
fourth bullet of the first paragraph of this subsection "--Conversion Price
Adjustments," which, in the case of the fourth bullet, has a per share value
equal to more than 10% of the sale price of our shares of common stock on the
day preceding the
S-13
declaration date for the distribution, we will be required to give notice to
the holders of CODES at least 20 days prior to the ex-dividend date for the
distribution and, upon the giving of notice, the CODES may be surrendered for
conversion at any time until the close of business on the business day prior to
the ex-dividend date or until we announce that the distribution will not take
place. No adjustment to the conversion price or the ability of a holder of a
CODES to convert will be made if the holder will otherwise participate in the
distribution without conversion or in certain other cases.
If a taxable distribution to holders of our common stock or other
transaction occurs which results in any adjustment of the conversion price, you
may, in certain circumstances, be deemed to have received a distribution
subject to United States federal income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a taxable dividend to
the holders of our common stock. See "United States Federal Income Tax
Consequences."
To the extent permitted by law, from time to time we may reduce the
conversion price of the CODES by any amount for any period of at least 20 days.
In that case, we will give at least 15 days' notice of the reduction. We may
also reduce the conversion price, as our board of directors deems advisable to
avoid or diminish any income tax to holders of our common stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
Optional Redemption by First Data
Prior to March 1, 2004, the CODES will not be redeemable at our option.
Beginning on March 1, 2004, we may redeem the CODES for cash at any time as a
whole, or from time to time in part, at a redemption price equal to the
principal amount of those CODES plus any accrued and unpaid interest, including
contingent interest, on those CODES to the redemption date. We will give at
least 30 days but not more than 60 days notice of redemption by mail to holders
of CODES. CODES or portions of CODES called for redemption will be convertible
by the holder until the close of business on the second business day prior to
the redemption date. If the redemption date is an interest payment date, we
will pay the interest to the holder of record on the corresponding record date,
which may or may not be the same person to whom we will pay the redemption
price.
If we do not redeem all of the CODES, the trustee will select the CODES to
be redeemed in principal amounts of $1,000 or integral multiples of $1,000 by
lot or on a pro rata basis. If any CODES are to be redeemed in part only, we
will issue a new CODES or CODES in principal amount equal to the unredeemed
principal portion thereof. If a portion of your CODES is selected for partial
redemption and you convert a portion of your CODES, the converted portion will
be deemed to be taken from the portion selected for redemption.
Repurchase of CODES at the Option of Holders
Optional Put
On March 1, 2004 and March 1, 2006, holders may require us to repurchase any
outstanding CODES for which the holder has properly delivered and not withdrawn
a written repurchase notice, subject to certain additional conditions, at a
purchase price equal to the principal amount of those CODES plus any accrued
and unpaid interest, including contingent interest, on those CODES to the
repurchase date. Holders may submit their CODES for repurchase to the paying
agent at any time from the opening of business on the date that is 20 business
days prior to the repurchase date until the close of business on the third
business day prior to the repurchase date.
We will be required to give notice at least 20 business days prior to each
repurchase date to all holders at their addresses shown in the register of the
registrar, and to beneficial owners as required by applicable law, stating,
among other things, the procedures that holders must follow to require us to
repurchase their CODES as described below.
S-14
The repurchase notice given by each holder electing to require us to
repurchase CODES shall be given so as to be received by the paying agent no
later than the close of business on the third business day prior to the
repurchase date and must state:
. the certificate numbers of the holder's CODES to be delivered for
repurchase;
. the portion of the principal amount of CODES to be repurchased, which
must be $1,000 or an integral multiple of $1,000; and
. that the CODES are to be repurchased by us pursuant to the applicable
provisions of the CODES.
A holder may withdraw any repurchase notice by delivering a written notice
of withdrawal to the paying agent prior to the close of business on the
repurchase date. The notice of withdrawal shall state:
. the principal amount of CODES being withdrawn;
. the certificate numbers of the CODES being withdrawn; and
. the principal amount, if any, of the CODES that remain subject to the
repurchase notice.
In connection with any repurchase, we will:
. comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
. file Schedule TO or any other required schedule under the Exchange Act.
Our obligation to pay the purchase price for a CODES for which a repurchase
notice has been delivered and not validly withdrawn is conditioned upon the
holder delivering the CODES, together with necessary endorsements, to the
paying agent at any time after delivery of the repurchase notice. We will
cause the purchase price for the CODES to be paid promptly following the later
of the repurchase date or the time of delivery of the CODES, together with
such endorsements.
If the paying agent holds money sufficient to pay the purchase price of the
CODES for which a repurchase notice has been given on the business day
following the repurchase date in accordance with the terms of the indenture,
then, immediately after the repurchase date, the CODES will cease to be
outstanding and interest on the CODES will cease to accrue, whether or not the
CODES are delivered to the paying agent. Thereafter, all other rights of the
holder shall terminate, other than the right to receive the purchase price
upon delivery of the CODES.
Our ability to repurchase CODES may be limited by the terms of our then
existing borrowing agreements.
Change of Control Put
If a change of control, as described below, occurs, you will have the right
to require us to repurchase all of your CODES not previously called for
redemption, or any portion of those CODES that is equal to $1,000 principal
amount or a whole multiple of $1,000 at a purchase price equal to the
principal amount of all CODES you require us to repurchase plus any accrued
and unpaid interest on those CODES to the repurchase date. Notwithstanding the
foregoing, we may be required to offer to repurchase our other senior debt on
a pro rata basis with the CODES, upon a change of control, if similar change
of control offers are or will be required by our other senior debt.
Within 30 days after the occurrence of a change of control, we are required
to give you notice of the occurrence of the change of control and of your
resulting repurchase right. The repurchase date will be 30 days after the date
we give notice of a change of control. To exercise the repurchase right, you
must deliver prior to the close of business on the business day immediately
preceding the repurchase date, written notice to the trustee of your exercise
of your repurchase right, together with the CODES with respect to which your
right is being exercised. You may withdraw this notice by delivering to the
paying agent a notice of withdrawal prior to the close of business on the
business day immediately preceding the repurchase date.
S-15
A "change of control" will be deemed to have occurred at such time after the
original issuance of the CODES when any of the following has occurred:
. the acquisition by any person, including any syndicate or group deemed to
be a "person" under Section 13(d)(3) of the Exchange Act of beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of purchase, merger or other
acquisition transactions, of shares of our capital stock entitling that
person to exercise 50% or more of the total voting power of all shares of
our capital stock entitled to vote generally in elections of directors,
other than any acquisition by us, any of our subsidiaries or any of our
employee benefit plans (except that any of those persons shall be deemed
to have beneficial ownership of all securities it has the right to
acquire, whether the right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition); or
. the first day on which a majority of the members of the board of
directors of First Data are not continuing directors; or
. our consolidation or merger with or into any other person, any merger of
another person into us, or any conveyance, transfer, sale, lease or other
disposition of all or substantially all of our properties and assets to
another person, other than:
--any transaction:
(1) that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of our capital
stock; and
(2) pursuant to which holders of our capital stock immediately prior
to the transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares
of capital stock entitled to vote generally in elections of
directors of the continuing or surviving person immediately
after giving effect to such issuance; and
--any merger solely for the purpose of changing our jurisdiction of
incorporation and resulting in a reclassification, conversion or
exchange of outstanding shares of common stock solely into shares of
common stock of the surviving entity.
However, a change of control will be deemed not to have occurred if:
. the closing sale price per share of our common stock for any five trading
days within:
--the period of 10 consecutive trading days ending immediately after
the later of the change of control or the public announcement of the
change of control, in the case of a change of control under the first
bullet point above, or
--the period of 10 consecutive trading days ending immediately before
the change of control, in the case of a change of control under the
second bullet point above, equals or exceeds 110% of the conversion
price of the CODES in effect on each of those five trading days; or
. at least 90% of the consideration in the transaction or transactions
constituting a change of control consists of shares of common stock
traded or to be traded immediately following a change of control on a
national securities exchange or the Nasdaq National Market, and, as a
result of the transaction or transactions, the CODES become convertible
into that common stock (and any rights attached thereto).
The beneficial owner shall be determined in accordance with Rule 13d-3
promulgated by the SEC under the Exchange Act. The term "person" includes any
syndicate or group that would be deemed to be a "person" under Section 13(d)(3)
of the Exchange Act.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders if an issuer tender offer occurs and may apply
if the repurchase option becomes available to holders of the CODES. We will
comply with this rule and file Schedule TO (or any similar schedule) to the
extent applicable at that time.
S-16
If the paying agent holds money sufficient to pay the purchase price of the
CODES which holders have elected to require us to repurchase on the business
day following the repurchase date in accordance with the terms of the
indenture, then, immediately after the repurchase date, those CODES will cease
to be outstanding and interest on the CODES will cease to accrue, whether or
not the CODES are delivered to the paying agent. Thereafter, all other rights
of the holder shall terminate, other than the right to receive the purchase
price upon delivery of the CODES.
The foregoing provisions would not necessarily protect holders of the CODES
if highly leveraged or other transactions involving us occur that may affect
holders adversely.
Our ability to repurchase CODES upon the occurrence of a change of control
is subject to important limitations. The occurrence of a change of control
could cause an event of default under, or be prohibited or limited by, the
terms of our other senior debt that we may incur in the future. We cannot
assure you that we would have the financial resources, or would be able to
arrange financing, to pay the purchase price for all the CODES that might be
delivered by holders of CODES seeking to exercise the repurchase right. Any
failure by us to repurchase the CODES when required following a change of
control would result in an event of default under the indenture. A default may,
in turn, cause a default under other senior debt that we may incur in the
future.
We could, in the future, enter into certain transactions, including certain
recapitalizations, that would not constitute a change of control with respect
to the change of control purchase feature of the CODES but that would increase
the amount of our (or our subsidiaries') outstanding indebtedness.
The change of control purchase feature of the CODES may in certain
circumstances make more difficult or discourage a takeover of our company. The
change of control purchase feature, however, is not the result of our knowledge
of any specific effort:
. to accumulate shares of our common stock;
. to obtain control of us by means of a merger, tender offer, solicitation
or otherwise; or
. by management to adopt a series of anti-takeover provisions.
Instead, the change of control purchase feature is a standard term contained
in securities similar to the CODES.
We may not be able to repurchase CODES at the option of holders upon a
change of control if there has occurred and is continuing an event of default
with respect to the CODES.
Events of Default
The events of default in respect of the CODES will be as set forth in the
accompanying prospectus under, "Events of Default," and will also include the
following:
. default in our obligation to convert CODES into shares of our common
stock upon exercise of a holders' conversion right;
. default in our obligation to repurchase CODES at the option of holders;
and
. default in our obligation to redeem CODES after we have exercised our
redemption option.
Modification and Waiver
We refer you to "Description of Debt Securities--Modification or Waiver" in
the accompanying prospectus for a description of the circumstances under which
the indenture may be modified or waived. The first supplemental indenture
relating to the CODES also prohibits the modification or waiver of the
indenture without the consent of each holder of CODES affected, if such
modification or waiver would, except as otherwise permitted or contemplated by
provisions concerning corporate reorganizations:
. impair or adversely affect the conversion rights of any holder of a
CODES; or
S-17
. adversely affect the right of a holder of a CODES to receive the
redemption or purchase price for such CODES.
Calculations in Respect of CODES
We will be responsible for making many of the calculations called for under
the CODES. These calculations include, but are not limited to, determination of
the market prices of the CODES and of our common stock and amounts of
contingent interest payments, if any, payable on the CODES. We will make all
these calculations in good faith and, absent manifest error, our calculations
will be final and binding on holders of CODES. We will provide a schedule of
our calculations to the trustee, and the trustee is entitled to rely upon the
accuracy of our calculations without independent verification.
S-18
UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership, and disposition of CODES (and, to the
limited extent set forth below, our common stock) as of the date of this
prospectus supplement and is based on the advice of Sidley & Austin. Except
where noted, this summary deals only with a CODES held as a capital asset by a
beneficial owner of CODES (a "Holder") who purchases the CODES on original
issue at its public offering price, and it does not deal with special
situations. For example, this summary does not address:
. tax consequences to Holders who may be subject to special tax treatment,
such as dealers in securities or currencies, traders in securities that
elect to use the mark-to-market method of accounting for their
securities, financial institutions, regulated investment companies, real
estate investment trusts, tax-exempt entities or insurance companies;
. tax consequences to Holders who own CODES as part of a hedging,
constructive sale, conversion, straddle or other risk-reducing
transaction;
. tax consequences to Holders of CODES whose "functional currency" is not
the U.S. dollar;
. tax consequences, if any, under the alternative minimum tax rules; or
. tax consequences under any state, local or foreign tax law.
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended (which we refer to as the Code), and regulations,
rulings and judicial decisions as of the date of this prospectus supplement.
Those authorities may be changed, perhaps retroactively, so as to result in
United States federal income tax consequences different from those discussed
below.
If a partnership holds the CODES, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding the CODES, you are
expected to consult your own tax advisors.
If you are considering the purchase of CODES, you should consult your own
tax advisors concerning the United States federal income tax consequences in
light of your particular situation and any consequences arising under the laws
of any other taxing jurisdiction.
Classification of the CODES
Under the first supplemental indenture governing the CODES, we will agree,
and by acceptance of a beneficial interest in the CODES each Holder of the
CODES will be deemed to have agreed, for United States federal income tax
purposes, to treat the CODES as indebtedness that is subject to the regulations
governing contingent payment debt instruments (the "Contingent Debt
Regulations") and, for purposes of the Contingent Payment Regulations, to treat
the fair market value of any stock received upon any conversion of the CODES as
a contingent payment. The remainder of this discussion assumes that such
treatment is correct and does not address any possible differing treatment of
the CODES or the receipt of stock. However, the characterization of the CODES
and the application of the Contingent Debt Regulations to the CODES is
uncertain in several respects, and no rulings have been sought from the
Internal Revenue Service with respect to any of the tax consequences discussed
below. There is no authority under United States federal income tax law
directly addressing the United States federal income tax treatment of
instruments such as the CODES. Accordingly, no assurance can be given that the
Internal Revenue Service or a court will agree with the treatment described
herein. Any treatment different than that described herein could affect the
amount, timing, character and treatment of income, gain or loss in respect of
an investment in the CODES. In particular, a Holder might be required to accrue
interest income at a lower rate, might not recognize income, gain or loss upon
conversion of the CODES to common stock, and might recognize capital gain or
loss upon a taxable disposition of its CODES. Holders should consult their tax
advisors concerning the tax classification of, and the treatment to Holders of,
holding the CODES.
S-19
United States Holders
The following discussion is a summary of certain United States federal tax
consequences that will apply to you if you are a United States Holder of CODES.
For purposes of this discussion, a United States Holder is a beneficial
owner of a CODES who or which is, for United States federal income tax
purposes:
. a citizen or resident of the United States;
. a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
. a trust described in Section 7701(a)(30) of the Code (taking into account
any applicable transition rules and elections).
Accrual of Interest
As stated above under "--Classification of the CODES," we will agree, and by
acceptance of a beneficial interest in the CODES each Holder of the CODES will
be deemed to have agreed, for United States federal income tax purposes, to
treat the CODES as indebtedness that is subject to the Contingent Debt
Regulations and, for purposes of the Contingent Payment Regulations, to treat
the fair market value of any stock received upon any conversion of the CODES as
a contingent payment. In accordance with such treatment, the Contingent Payment
Regulations will in general require a United States Holder to accrue interest
income on the CODES in the amounts described below, regardless of whether such
Holder uses the cash or accrual method of tax accounting. Furthermore, United
States Holders will be required to accrue interest based on the rate, as of the
initial issue date of the CODES, at which we would issue a fixed rate non-
convertible debt instrument with terms and conditions similar to the CODES (the
so-called "comparable yield," as discussed more fully below), rather than at a
lower rate based on the accruals on the CODES for non-tax purposes.
Accordingly, United States Holders will be required to include interest in
taxable income in each year in excess of the accruals on the CODES for non-tax
purposes and generally in excess of any contingent interest payments received
in that year.
More specifically, you will generally accrue an amount of interest for
United States federal income tax purposes, for each accrual period prior to and
including the maturity date of the CODES, that equals:
. the product of the "adjusted issue price" (as defined below) of the CODES
as of the beginning of the accrual period; and the "comparable yield" (as
referred to above and defined below) of the CODES, adjusted for the
length of the accrual period;
. divided by the number of days in the accrual period; and
. multiplied by the number of days during the accrual period that you held
the CODES.
The "adjusted issue price" of a CODES will be its original issue price
increased by any interest previously accrued under the foregoing rules
(determined without regard to any adjustments to interest accruals described
below) and decreased by the projected amounts of any payments (in accordance
with the projected payment schedule described below) previously made with
respect to the CODES. The original issue price of a CODES will be the first
price at which a substantial amount of the CODES is sold to the public,
excluding bond houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers. As referred to
above, the "comparable yield" is generally the rate, as of the original issue
date of the CODES, at which we would issue a fixed rate non-convertible debt
instrument with terms and conditions similar to the CODES. We have determined
that the comparable yield of the CODES, based on the annual rate, as of the
initial issue date, at which we would issue a fixed rate non-convertible debt
instrument with terms and conditions similar to the CODES, is an annual rate of
6.35%, compounded semi-annually. The
S-20
specific yield, however, is not entirely clear. If our determination of the
comparable yield were successfully challenged by the Internal Revenue Service,
the redetermined yield could be materially greater or less than the comparable
yield determined by us.
We are required to furnish to the Internal Revenue Service and to you the
comparable yield. We are also required to furnish to the Internal Revenue
Service and to you, solely for tax purposes, a "projected payment schedule"
that includes the non-contingent interest payments on the CODES and estimates
the amount and timing of contingent interest payments and payment upon maturity
on the CODES, taking into account as a payment the fair market value of any
stock that might be paid upon a conversion of a CODES. The projected payment
schedule must produce the comparable yield. The comparable yield and projected
payment schedule will be included in the first supplemental indenture relating
to the CODES, or you may obtain the comparable yield and projected payment
schedule by submitting a written request for it to us at the following address:
First Data Corporation, 5660 New Northside Drive, Suite 1400, Atlanta, GA
30238, Attention: Investor Relations. Under the first supplemental indenture
governing the CODES, we will agree, and by acceptance of a beneficial interest
in the CODES each Holder of the CODES will be deemed to have agreed, for United
States federal income tax purposes, to be bound by our determination of the
comparable yield and projected payment schedule.
The comparable yield and the projected payment schedule are not provided for
any purpose other than the determination, for United States federal income tax
purposes, of your interest income and adjustments thereof in respect of the
CODES and do not constitute a representation regarding the actual amount of the
payment on a CODES.
Adjustments to Interest Accruals on the CODES
If the actual contingent payments made on the CODES (i.e., the contingent
interest payments and amounts payable at maturity, taking into account as a
payment the fair market value of any stock that might be paid upon a conversion
of a CODES) differ from the projected contingent payments, adjustments will be
made for the difference. A positive adjustment for a taxable year, which is the
net amount by which actual payments in that year exceed the projected payments
in that year, will be treated as additional interest income in the current
year. For this purpose, the payments in a taxable year include the fair market
value of stock or property received in that year. A negative adjustment for a
taxable year, which is the net amount by which the projected payments in that
year exceed the actual payments in that year, will be treated in the following
manner:
. first, it will reduce the amount of interest required to be accrued in
the current year (determined before any adjustment);
. second, any remaining negative adjustment will be treated as ordinary
loss to the extent that, with respect to prior years, your total interest
with respect to the CODES exceeds net negative adjustments treated as
ordinary loss; and
. third, any negative adjustments generally will be treated as a regular
negative adjustment in the following taxable year.
Sale, Exchange, Conversion or Redemption
Upon the sale, exchange, conversion or redemption of a CODES, you will
recognize gain or loss equal to the difference between your amount realized and
your adjusted tax basis in the CODES. As noted above, by acceptance of a
beneficial interest in the CODES you will be deemed to have agreed, for United
States federal income tax purposes, to treat the fair market value of any stock
received upon any conversion of the CODES as a contingent payment. Under such
treatment, the amount realized by you for purposes of the rule stated above
will include, in the case of a conversion, the fair market value of the stock
you receive upon conversion. Such gain on a CODES generally will be treated as
ordinary interest income. Loss from the disposition of a CODES will be treated
as ordinary loss to the extent of your prior interest income on the CODES in
excess of negative adjustments treated as ordinary loss. Any loss in excess of
that amount will be treated as capital loss.
S-21
Special rules apply in determining the tax basis of a CODES. Your basis in a
CODES is generally increased by interest you previously accrued on the CODES
(before taking into account any adjustments), and reduced by the projected
amount of any payments previously scheduled to be made.
Under the treatment described above, your tax basis in the common stock
received upon conversion of a CODES will equal the then current fair market
value of such common stock. Your holding period for our common stock received
will commence on the day after conversion.
Given the uncertain tax treatment of instruments such as CODES, you should
contact your tax advisors concerning the tax treatment on a sale, exchange,
conversion or redemption of a CODES and the ownership of the common stock.
Constructive Distributions
The conversion price of the CODES will be adjusted in certain circumstances.
Under section 305(c) of the Code, adjustments (or failures to make adjustments)
that have the effect of increasing your proportionate interest in our assets or
earnings may in some circumstances result in a deemed distribution to you. Any
deemed distributions will be taxable as a dividend, return of capital, or
capital gain in accordance with the earnings and profits rules under the Code.
Non-U.S. Holders
The following is a summary of the United States federal tax consequences
that will apply to you if you are a non-U.S. Holder of CODES or shares of
common stock. The term "non-U.S. Holder" means a Holder of a CODES that is not
a United States Holder.
Special rules may apply to certain non-U.S. Holders such as "controlled
foreign corporations," "passive foreign investment companies" and "foreign
personal holding companies." Such entities should consult their own tax
advisors to determine the United States federal, state, local and other tax
consequences that may be relevant to them.
Payments Made With Respect to the CODES
The 30% United States federal withholding tax will not apply to any payment
to you of principal or interest (including amounts taken into income under the
accrual rules described above under "--United States Holders") on a CODES,
provided that:
. you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock that are entitled to
vote within the meaning of section 871(h)(3) of the Code;
. you are not a controlled foreign corporation that is related to us
through stock ownership;
. you are not a bank whose receipt of interest (including OID) on a CODES
is described in section 881(c)(3)(A) of the Code;
. our common stock continues to be actively traded within the meaning of
section 871(h)(4)(C)(v)(I) of the Code; and
. either you provide your name and address, and certify, under penalties of
perjury, that you are a non-U.S. Holder (which certification may be made
on an IRS W-8BEN (or successor form)) or you hold your CODES through
certain foreign intermediaries or certain foreign partnerships, and you
satisfy the certification requirements of applicable United States
Treasury regulations.
If you cannot satisfy the requirements described above, payments of interest
(including amounts taken into income under the accrual rules described above
under "--United States Holders") will be subject to the 30% United States
federal withholding tax, unless you provide us with a properly executed (1) IRS
Form W-8BEN
S-22
(or successor form) claiming an exemption from or reduction in withholding
under the benefit of an applicable tax treaty or (2) IRS Form W-8ECI (or
successor form) stating that interest paid on the CODES is not subject to
withholding tax because it is effectively connected with your conduct of a
trade or business in the United States.
If you are engaged in a trade or business in the United States and interest
(including amounts referred to above) on a CODES is effectively connected with
the conduct of that trade or business, you will be subject to United States
federal income tax on that interest on a net income basis (although exempt from
the 30% withholding tax) in the same manner as if you were a United States
Holder. In addition, if you are a foreign corporation, you may be subject to a
branch profits tax equal to 30% (or lower applicable treaty rate) of your
earnings and profits for the taxable year, subject to adjustments, that are
effectively connected with your conduct of a trade or business in the United
States. For this purpose, interest (including amounts referred to above) will
be included in the earnings and profits of such foreign corporation.
For income that you realize on the sale, exchange, conversion or other
disposition of a CODES, you will be subject to withholding in certain
circumstances unless the conditions described in the bullet points above are
satisfied.
The 30% United States federal withholding tax may not be avoided by
satisfying the conditions in the five bullet points set out above to the extent
interest on the CODES is adjusted to equal the adjusted interest rate, as
described above under "Description of the CODES--Interest Rate Adjustments." In
such a case, the interest would likely be described in section 871(h)(4)(A) of
the Code and therefore not eligible for the exemption from withholding
generally provided under section 871(h) of the Code, to which the five bullet
points relate. However, withholding could be reduced or eliminated in the
manner described in the paragraph immediately following the five bullet points
above.
Dividends
Any dividends paid to you with respect to the shares of common stock (and
any deemed dividends resulting from certain adjustments, or failure to make
adjustments, to the number of shares of common stock to be issued upon
conversion (see "--United States Holders--Constructive Distributions" above))
will be subject to withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business within the United
States and, where a tax treaty applies, are attributable to a United States
permanent establishment, are not subject to the withholding tax, but instead
are subject to United States federal income tax on a net income basis at
applicable graduated individual or corporate rates. Certain certification and
disclosure requirements must be complied with in order for effectively
connected income to be exempt from withholding. Any such effectively connected
dividends received by a foreign corporation may, under certain circumstances,
be subject to an additional "branch profits tax" at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
A non-U.S. Holder of shares of common stock who wishes to claim the benefit
of an applicable treaty rate is required to satisfy applicable certification
and other requirements. If you are eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty, you may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service.
Sale, Exchange or Redemption of Shares of Common Stock
Any gain realized by a non-U.S. Holder upon the sale, exchange, redemption
or other disposition of a share of common stock generally will not be subject
to United States federal income tax unless:
. that gain is effectively connected with the conduct of a trade or
business in the United States by you;
. you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and certain other
conditions are met; or
S-23
. we are or have been a "United States real property holding corporation"
for United States federal income tax purposes.
An individual non-United States Holder described in the first bullet point
above will be subject to United States federal income tax on the net gain
derived from the sale. An individual non-U.S. Holder described in the second
bullet point above will be subject to a flat 30% United States federal income
tax on the gain derived from the sale, which may be offset by United States
source capital losses, even though the holder is not considered a resident of
the United States. A non-U.S. Holder that is a foreign corporation and is
described in the first bullet point above will be subject to tax on gain under
regular graduated United States federal income tax rates and, in addition, may
be subject to a branch profits tax at a 30% rate or a lower rate if so
specified by an applicable income tax treaty.
We believe that we are not and do not anticipate becoming a "United States
real property holding corporation" for United States federal income tax
purposes.
United States Federal Estate Tax
As a general rule, the United States federal estate tax will not apply to
CODES owned by you at the time of your death, provided that (1) you do not own
10% or more of the total combined voting power of all classes of our voting
stock (within the meaning of the Code and the United States Treasury
regulations) and (2) interest on the CODES would not have been, if received at
the time of your death, effectively connected with your conduct of a trade or
business in the United States. However, shares of common stock held by you at
the time of your death will be included in your gross estate for United States
federal estate tax purposes unless an applicable estate tax treaty provides
otherwise.
Information Reporting and Backup Withholding
If you are a United States Holder of CODES, information reporting
requirements will generally apply to all payments we make to you and the
proceeds from a sale of a CODES or share of common stock made to you, unless
you are an exempt recipient such as a corporation. A 31% backup withholding tax
will apply to those payments if you fail to provide a taxpayer identification
number, or a certification of exempt status, or if you fail to report in full
interest income.
If you are a non-U.S. Holder, in general, you will not be subject to backup
withholding and information reporting with respect to payments that we make to
you provided that we do not have actual knowledge that you are a United States
Holder and you have given us the statement described above under "--Payments,
Made with Respect to the CODES."
In addition, if you are a non-U.S. Holder, you will not be subject to backup
withholding or information reporting with respect to the proceeds of the sale
of a CODES or share of common stock within the United States or conducted
through certain United States-related financial intermediaries, if the payor
receives the statement described above and does not have actual knowledge that
you are a U.S. person, as defined under the Code, or you otherwise establish an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
S-24
UNDERWRITING
Subject to the terms and conditions of a terms agreement which incorporates
by reference the underwriting basic provisions dated February 22, 2001,
referred to collectively as the underwriting agreement, Lehman Brothers Inc.
and Salomon Smith Barney Inc. have agreed to purchase from us the respective
principal amount of CODES shown opposite their names below:
Principal
Underwriters Amount
------------ ------------
Lehman Brothers Inc.......................................... $498,750,000
Salomon Smith Barney Inc..................................... 26,250,000
------------
Total.................................................... $525,000,000
============
The underwriting agreement provides that the underwriters' obligations to
purchase the CODES depend on the satisfaction of the conditions contained in
the underwriting agreement, and that if any of the CODES are purchased by the
underwriters under the underwriting agreement, all of the CODES which the
underwriters have agreed to purchase under the underwriting agreement, must be
purchased.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional CODES. This underwriting fee is the difference between the
public offering price and the amount the underwriters pay to us to purchase the
CODES from us. The underwriting fee is 1.50% of the public offering price.
No Full
Exercise Exercise
---------- ----------
Per CODES........................................... $ 15.00 $ 15.00
Total............................................... $7,875,000 $9,056,250
We have been advised by the underwriters that the underwriters propose to
offer the CODES directly to the public at the public offering price set forth
on the cover page of this prospectus supplement and to dealers (who may include
the underwriters) at this public offering price less a concession not in excess
of 0.90% of the principal amount of the CODES. The underwriters may allow, and
the dealers may reallow, a concession not in excess of 0.01% of the principal
amount of the CODES to certain brokers and dealers. After the offering, the
underwriters may change the offering price and other selling terms.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that may be required to be made in respect thereof.
We have granted to the underwriters an option to purchase up to an
additional $78,750,000 aggregate principal amount of CODES at the public
offering price less the underwriting discounts and commissions set forth on the
cover of this prospectus supplement exercisable solely to cover over-
allotments. This option may be exercised at any time until 30 days after the
date of the underwriting agreement.
We have agreed, for a period of 90 days from the date of this prospectus
supplement, not to, directly or indirectly, offer, sell or otherwise dispose of
any shares of common stock or any securities convertible into or exchangeable
or exercisable for any such shares of common stock or enter into any derivative
transaction with similar effect as a sale of common stock, without the prior
written consent of Lehman Brothers. The restrictions described in this
paragraph do not apply to, among other things, the issuance of common stock as
consideration for the acquisition of other entities.
The CODES will be a new issue of securities with no established trading
market. We intend to apply to list the CODES on the NYSE and the underwriters
intend to make a market in the CODES, subject to applicable laws and
regulations. However, the underwriters are not obligated to do so and may
discontinue any
S-25
market-making at any time in their sole discretion without notice. Accordingly,
the underwriters cannot assure the liquidity of the market for CODES.
In connection with this offering, the underwriters may purchase and sell the
CODES and our common stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
amount of CODES than they are required to purchase from us, and in that case
the underwriters may purchase CODES in the open market following completion of
the offering to cover all or a portion of their short position.
The underwriters may also cover all or a portion of any short position in
the CODES by exercising the underwriters' over-allotment option referred to
above. Stabilizing transactions consist of certain bids or purchases made for
the purpose of preventing or retarding a decline in the market price of the
CODES or our common stock while this offering is in progress. In addition, the
underwriters may impose penalty bids. This occurs when a particular underwriter
repays to the underwriters a portion of the underwriting discount received by
it because the underwriters have repurchased CODES sold by or for the account
of that underwriter in stabilizing or short-covering transactions. Any of the
activities by the underwriters described in this paragraph may stabilize,
maintain or otherwise affect the market price of the CODES or our common stock.
As a result, the price of the CODES or our common stock may be higher than the
price that otherwise might exist in the open market. The underwriters may
effect these transactions on the NYSE, in the over-the-counter market or
otherwise. If these activities are commenced, they may be discontinued by the
underwriters at any time without notice.
The underwriters or their affiliates have from time to time provided
investment banking and financial advisory services to us and our affiliates in
the ordinary course of business, for which they have received customary fees,
and they may continue to do so in the future.
This prospectus supplement and the accompanying prospectus are not, and
under no circumstances are to be construed as, an advertisement or a public
offering of the CODES in Canada or any province or territory thereof. Any offer
or sale of CODES in Canada will be made only under an exemption from the
requirements to file a prospectus and an exemption from the dealer registration
requirement in the relevant province or territory of Canada in which such offer
or sale is made.
LEGAL MATTERS
Certain legal matters with respect to the CODES will be passed upon for the
company by Thomas A. Rossi, Esq., our Associate General Counsel, and Sidley &
Austin, Chicago, Illinois, and for the underwriters by Simpson Thacher &
Bartlett, New York, New York. Mr. Rossi is a beneficial owner of our common
stock.
S-26
PROSPECTUS
First Data Corporation
Securities
First Data Corporation, a Delaware corporation (the "Company" or "FDC"), may
offer from time to time (i) unsecured debt securities ("Debt Securities")
consisting of debentures, notes and/or other unsecured evidences of
indebtedness in one or more series, (ii) shares of preferred stock, par value
$1.00 per share ("Preferred Stock"), in one or more series, or (iii) shares of
common stock, par value $.01 per share ("Common Stock") (the Debt Securities,
Preferred Stock and Common Stock are collectively referred to as
"Securities"), or any combination of the foregoing, at an aggregate initial
public offering price not to exceed $1,000,000,000 (or the equivalent thereof
if Debt Securities are denominated in one or more foreign currencies or
foreign currency units), at prices and on terms to be determined at or prior
to the time of sale.
Specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying Prospectus Supplement (as
supplemented by any applicable pricing supplement relating thereto, a
"Prospectus Supplement"), together with the terms of the offering of the
Securities, the initial public offering price and the net proceeds to the
Company from the sale thereof. The Prospectus Supplement will set forth, among
other matters, the following with respect to the particular Securities: (i) in
the case of Debt Securities, the specific designation, aggregate principal
amount, ranking as senior debt ("Senior Securities") or subordinated debt
("Subordinated Securities"), authorized denominations, maturity, rate or
method of calculation of interest and dates for payment thereof, any
conversion, redemption, prepayment or sinking fund provisions, and the
currency, currencies or currency units in which principal, premium, if any, or
interest, if any, is payable, (ii) in the case of Preferred Stock, the
designation, number of shares, liquidation preference, initial public offering
price, dividend rate (or method of calculation thereof), dates on which
dividends shall be payable and dates from which dividends shall accrue, any
redemption or sinking fund provisions, any conversion or exchange rights and
(iii) in the case of Common Stock, the number of shares of Common Stock and
the terms of the offering and sale thereof.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The Company may sell Securities directly to purchasers or through agents
designated from time to time by the Company or to or through underwriters or a
group of underwriters which may be managed by one or more underwriters. If any
agents of the Company or any underwriters are involved in the sale of
Securities in respect of which this Prospectus is being delivered, the names
of such agents or underwriters and any applicable commission or discount will
be set forth in the applicable Prospectus Supplement. The net proceeds to the
Company from the sale of Securities will be the initial public offering price
of such Securities less such discount, in the case of an offering through an
underwriter, or the purchase price of such Securities less such commission, in
the case of an offering through an agent, and less, in each case, other
expenses of the Company associated with the issuance and distribution of such
Securities.
----------------
The date of this Prospectus is May 16, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company has filed
with the Commission a registration statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all
information set forth in the Registration Statement and reference is hereby
made to the Registration Statement and the exhibits thereto for further
information with respect to the Company and the Securities offered hereby.
Such reports, proxy statements, Registration Statement and exhibits and other
information omitted from this Prospectus can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at its Northeast Regional Office
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Midwest Regional Office located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. On May 6, 1996,
the Company became subject to the electronic filing requirements of the
Commission. Accordingly, pursuant to the rules and regulations of the
Commission, certain documents, including annual and quarterly reports and
proxy statements, filed by the Company with the Commission on and after May 6,
1996 have been or will be electronically filed. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at (http://www.sec.gov). Certain of the Company's securities are listed on the
New York Stock Exchange and such reports, proxy statements and other
information may also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report of the Company on Form 10-K for the year ended December
31, 1996, the Quarterly Report of the Company on Form 10-Q for the period
ended March 31, 1997, the Current Report of the Company on Form 8-K dated
January 30, 1997 and the registration statement of the Company on Form 8-A,
dated March 24, 1992, are incorporated by reference into this Prospectus. All
documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities contemplated hereby shall be
deemed to be incorporated by reference into this Prospectus and to be made a
part hereof from the respective dates of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
the Registration Statement and this Prospectus to the extent that a statement
contained herein, in the accompanying Prospectus Supplement or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement or this
Prospectus.
Copies of the above documents (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents)
may be obtained upon written or oral request without charge from the Company,
5660 New Northside Drive, Atlanta, Georgia 30328 (telephone number (770) 857-
7118), Attention: Investor Relations.
----------------
The following trademarks are mentioned in this Prospectus: "First Data(R)"
and "First Data Corporation(R)" are service marks of First Data Corporation.
The Company is incorporated in Delaware. Its executive offices are located
at 401 Hackensack Avenue, 7th Floor, Hackensack, New Jersey 07601 (telephone
number (201) 525-4700).
2
THE COMPANY
The Company provides high-quality, high-volume information processing and
related services including: transaction card issuer services and merchant
processing services, payment instruments, investment processing services,
check acceptance and guaranty services, health care administration services,
receivables management services, in-store banking services, teleservices and
imaging, database and other information management services. The Company's
information processing facilities are comprised of integrated networks of
computer hardware, proprietary software and other telecommunications and
operations systems. The Company has data centers which are capable of
servicing a wide range of client groups, enabling it to process transactions
for thousands of clients in a rapid and cost effective manner and to take
advantage of economies-of-scale when adding new clients. The Company regularly
considers acquisition opportunities as well as other forms of business
combinations and divestitures. Historically, the Company has been involved in
numerous transactions of varying magnitudes, for consideration which has
included cash or securities (including common stock) or combinations thereof.
The Company continues to evaluate and pursue transaction opportunities as they
arise. No assurance can be given with respect to the timing, likelihood or the
financial or business effect of any possible transaction.
USE OF PROCEEDS
Except as set forth in the Prospectus Supplement for a specific offering of
Securities, the net proceeds from the sale of the Securities will be applied
by the Company for general corporate purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
the Company and its consolidated subsidiaries for the periods indicated. The
Company to date has not issued Preferred Stock; therefore, the ratios of
earnings to combined fixed charges and preferred stock dividends are the same
as the ratios of earnings to fixed charges set forth below.
Three Months
Ended March 31, Year Ended December 31,
---------------- ------------------------------
1997 1996 1996 1995(a) 1994 1993 1992
------- ------- ---- ------- ---- ---- ----
Ratio of earnings to fixed
charges..................... 6.35x 5.45x 7.19x 2.03x 6.96x 6.59x 4.25x
The computation of the ratio of earnings to fixed charges is based on
applicable amounts of the Company and its consolidated subsidiaries.
"Earnings" consist of income before income taxes and fixed charges. "Fixed
charges" consist of interest on indebtedness, amortization of debt discount
and expense and an estimated amount of rental expense that is deemed to be
representative of the interest factor.
--------
(a) Includes a merger, integration and impairment charge of $645.7 million
relating to the Company's October 27, 1995 merger with First Financial
Management Corporation. The pro forma ratio of earnings to fixed charges
without this charge would have been 6.00x.
DESCRIPTION OF DEBT SECURITIES
The Senior Securities are to be issued under an indenture dated as of March
26, 1993, as supplemented from time to time (the "Senior Indenture"), between
the Company and Norwest Bank Minnesota, National Association, as Trustee, and
the Subordinated Securities are to be issued under an indenture dated as of
April 1, 1996, as supplemented from time to time (the "Subordinated
Indenture"), between the Company and The Bank of New York, as Trustee. The
term "Trustee" as used herein shall refer to either Norwest Bank Minnesota,
National Association or The Bank of New York, as appropriate, for Senior
Securities or Subordinated Securities. The Senior Indenture and the
Subordinated Indenture (being referred to herein collectively as the
"Indentures" and individually as an "Indenture") are filed as exhibits to the
Registration Statement. The Indentures are subject
3
to and governed by the Trust Indenture Act of 1939, as amended. The statements
made under this heading relating to the Debt Securities and the Indentures are
summaries of the provisions thereof, and are subject to, and are qualified in
their entirety by reference to the Indentures, including the definitions of
certain terms therein. Certain capitalized terms used below but not defined
herein have the meanings ascribed to them in the Indentures. Unless otherwise
noted, section references below are to both Indentures.
General
The Debt Securities will be unsecured obligations of the Company. The
indebtedness represented by the Senior Securities will rank on a parity with
the Company's other unsecured and unsubordinated indebtedness. The
indebtedness represented by the Subordinated Securities will be subordinated
in right of payment to the prior payment in full of the Senior Indebtedness of
the Company as described under "Subordination" below. The Debt Securities may
be issued in one or more series. The particular terms of the Debt Securities
being offered (the "Offered Debt Securities"), any modifications of or
additions to the general terms of the Debt Securities and any applicable
Federal income tax considerations that may be applicable in the case of the
Offered Debt Securities will be described in the Prospectus Supplement
relating to the Offered Debt Securities. Accordingly, for a description of the
terms of the Offered Debt Securities, reference must be made both to the
Prospectus Supplement relating thereto and the description of Debt Securities
set forth in this Prospectus.
The Company primarily conducts its operations through its subsidiaries. The
rights of the Company and its creditors, including the Holders (as defined
below under "Certain Definitions") of the Debt Securities, to participate in
the distribution of assets of any subsidiary upon the latter's liquidation or
reorganization or otherwise will be subject to the prior claims of the
subsidiary's creditors except to the extent that the Company may itself be a
creditor with recognized claims against the subsidiary. Accordingly, the Debt
Securities will be effectively subordinated to existing and future liabilities
of the Company's subsidiaries.
Reference is made to the Prospectus Supplement for the terms of any series
of Debt Securities being offered, including: (1) the title of such Debt
Securities and whether they are Senior Securities or Subordinated Securities;
(2) the aggregate principal amount of such Debt Securities; (3) the percentage
of the principal amount at which such Debt Securities will be issued and, if
other than the principal amount thereof, the portion of the principal amount
thereof payable upon declaration of acceleration of the Maturity (as defined
below under "Certain Definitions") thereof; (4) the date or dates on which or
periods during which such Debt Securities may be issued, and the date or dates
on which the principal of (and premium, if any, on) such Debt Securities will
be payable; (5) the rate or rates at which such Debt Securities will bear
interest, if any, or the method by which such rate or rates shall be
determined, the date or dates from which such interest, if any, shall accrue,
the interest payment dates on which such interest will be payable and, in the
case of Registered Securities (as defined below under "Certain Definitions"),
the regular record dates, if any, for the interest payable on such interest
payment dates; (6) the additional offices, if any, where the principal of (and
premium, if any) and interest on such Debt Securities shall be payable; (7)
the obligation, if any, of the Company to redeem, repay or purchase such Debt
Securities pursuant to any sinking fund or analogous provisions or at the
option of the Holder and the period or periods within which, or the date or
dates on which, the prices at which and the terms and conditions upon which
such Debt Securities shall be redeemed, repaid or purchased, in whole or in
part, pursuant to such obligation; (8) the period or periods within which, or
the date or dates on which, the price or prices at which, and the terms and
conditions upon which such Debt Securities may be redeemed, if any, in whole
or in part, at the option of the Company or otherwise; (9) if the coin or
currency in which such Debt Securities shall be issuable is U.S. dollars, the
denominations of such Debt Securities if other than denominations of $1,000
and any integral multiple thereof; (10) whether such Debt Securities are to be
issued as original issue discount securities ("Discount Securities") and the
amount of discount at which such Debt Securities may be issued and, if other
than the principal amount thereof, the portion of the principal amount of such
Debt Securities which shall be payable upon declaration of acceleration of the
Maturity thereof upon an Event of Default (as defined below under "Events of
Default"); (11) provisions, if any, for the defeasance of such Debt
Securities; (12) whether such
4
Debt Securities are to be issued as Registered Securities or Bearer Securities
or both, and, if Bearer Securities are issued, whether any interest coupons
appertaining thereto ("Coupons") will be attached thereto; (13) whether
provisions for payment of additional amounts or tax redemptions shall apply
and, if such provisions shall apply, such provisions; and, if Bearer
Securities of such series are to be issued, the applicable procedures and
certificates relating to the exchange of temporary Global Securities for
definitive Bearer Securities; (14) if other than U.S. dollars, the currency,
currencies or currency units (the term "currency" as used herein will include
currency units) in which such Debt Securities shall be denominated or in which
payment of the principal of (and premium, if any) and interest on such Debt
Securities may be made; (15) if the principal of (and premium, if any) or
interest on such Debt Securities are to be payable, at the election of the
Company or a Holder thereof, in a currency other than that in which such Debt
Securities are denominated or payable without such election, the period or
periods within which and the terms and conditions upon which, such election
may be made; (16) the date as of which such Debt Securities shall be dated;
(17) if the amount of payments of principal of (and premium, if any) or
interest on such Debt Securities may be determined with reference to an index,
the manner in which such amounts shall be determined; (18) if such Debt
Securities are denominated or payable in a foreign currency, any other terms
concerning the payment of principal of (and premium, if any) or any interest
on such Debt Securities; (19) any addition to, or modification or deletion of,
any Events of Default or covenants provided for with respect to such Debt
Securities; (20) whether such Debt Securities shall be issued in whole or in
part in the form of one or more Global Securities and, in such case, the
depositary or any common depositary for such Global Securities; and if such
Debt Securities are issuable only as Registered Securities, the manner in
which and the circumstances under which Global Securities representing such
Debt Securities may be exchanged for Registered Securities in definitive form;
(21) if such Debt Securities are Subordinated Securities, whether they will be
convertible into shares of Common Stock and, if so, the terms and conditions,
which may be in addition to or in lieu of the provisions contained in the
Subordinated Indenture, upon which such Debt Securities will be so
convertible; and (22) any other terms not inconsistent with the applicable
Indenture. (Section 3.01)
Each Indenture provides that the aggregate principal amount of Debt
Securities that may be issued thereunder is unlimited. The Debt Securities may
be issued in one or more series thereunder, in each case as authorized from
time to time by the Board of Directors of the Company, or any committee
thereof or any duly authorized officers. (Section 3.01)
In the event that Discount Securities are issued, the Federal income tax
consequences and other special considerations applicable to such Discount
Securities will be described in the Prospectus Supplement relating thereto.
The general provisions of the Indentures do not contain any provisions that
would limit the ability of the Company to incur indebtedness or that would
afford holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company. However, the general
provisions of the Senior Indenture do provide that neither the Company nor any
Subsidiary (as defined below under "Certain Definitions") may subject certain
of its property or assets to any mortgage or other encumbrance unless the Debt
Securities issued under the Senior Indenture are secured equally and ratably
with or prior to such other indebtedness thereby secured. See "Certain
Covenants of Senior Securities" below. Reference is made to the Prospectus
Supplement related to the Offered Debt Securities for information with respect
to any deletions from, modifications of or additions to the Events of Default
or covenants of the Company that are described below, including any addition
of covenants or other provisions providing event risk or similar protection.
All of the Debt Securities of a series need not be issued at the same time,
and may vary as to interest rate, maturity and other provisions and unless
otherwise provided, a series may be reopened for issuance of additional Debt
Securities of such series. (Section 3.01)
Denominations, Exchange, Registration and Transfer
Unless otherwise specified in the Prospectus Supplement, the Debt Securities
of any series shall be issuable only as Registered Securities in denominations
of $1,000 and any integral multiple thereof and shall be payable
5
only in U.S. dollars. (Section 3.02) The Indentures also provide that Debt
Securities of a series may be issuable in global form. See "Book-Entry Debt
Securities." Unless otherwise indicated in the Prospectus Supplement, Bearer
Securities will have Coupons attached. (Section 2.01)
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of like aggregate principal amount
and of like Stated Maturity (as defined below under "Certain Definitions") and
with like terms and conditions. If so provided in the Prospectus Supplement,
at the option of the Holder thereof, to the extent permitted by law, any
Bearer Security of any series which by its terms is registrable as to
principal and interest may be exchanged for a Registered Security of such
series of like aggregate principal amount and of a like Stated Maturity and
with like terms and conditions, upon surrender of such Bearer Security at the
corporate trust office of the applicable Trustee or at any other office or
agency of the Company designated for the purpose of making any such exchanges.
Subject to certain exceptions, any Bearer Security issued with Coupons
surrendered for exchange must be surrendered with all unmatured Coupons and
any matured Coupons in default attached thereto. (Section 3.05)
Notwithstanding the foregoing, the exchange of Bearer Securities for
Registered Securities will be subject to the provisions of United States
income tax laws and regulations applicable to Debt Securities in effect at the
time of such exchange. (Section 3.05)
Except as otherwise specified in the Prospectus Supplement, in no event may
Registered Securities, including Registered Securities received in exchange
for Bearer Securities, be exchanged for Bearer Securities. (Section 3.05)
Upon surrender for registration of transfer of any Registered Security of
any series at the office or agency of the Company maintained for such purpose,
the Company shall execute, and the applicable Trustee shall authenticate and
deliver, in the name of the designated transferee, one or more new Registered
Securities of the same series of like aggregate principal amount of such
denominations as are authorized for Registered Securities of such series and
of a like Stated Maturity and with like terms and conditions. No service
charge will be made for any transfer or exchange of Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Section 3.05)
The Company shall not be required (i) to register, transfer or exchange Debt
Securities of any series during a period beginning at the opening of business
15 days before the day of the transmission of a notice of redemption of Debt
Securities of such series selected for redemption and ending at the close of
business on the day of such transmission, or (ii) to register, transfer or
exchange any Debt Security so selected for redemption in whole or in part,
except the unredeemed portion of any Debt Security being redeemed in part.
(Section 3.05)
Certain Covenants of Senior Securities
The Senior Indenture contains, among other things, the following covenants:
Limitation Upon Mortgages and Liens. Neither the Company nor a Subsidiary
may create or assume, except in favor of the Company or a Wholly-Owned
Subsidiary (as defined below under "Certain Definitions"), any mortgage,
pledge, lien or encumbrance upon any Principal Facility (as defined below
under "Certain Definitions") or any stock of any Subsidiary or indebtedness of
any Subsidiary to the Company or any other Subsidiary without equally and
ratably securing the Outstanding Senior Securities. This limitation will not
apply to certain permitted encumbrances as described in the Senior Indenture,
including (a) purchase money mortgages entered into within specified time
limits; (b) liens extending, renewing or refunding any liens permitted by
clause (a) of this covenant; (c) liens existing on acquired property; (d)
certain tax, materialmen's, mechanics' and judgment liens, certain liens
arising by operation of law and certain other similar liens; (e) liens in
connection with certain government contracts; (f) certain mortgages, pledges,
liens or encumbrances in favor of any state or local government or
governmental agency in connection with certain tax-exempt financings; (g)
liens to secure the cost of construction or improvement of any property
entered into within specified time limits; and (h) mortgages, pledges, liens
and encumbrances not otherwise permitted if the sum of the indebtedness
thereby
6
secured plus the aggregate sales price of property involved in sale and lease
back transactions referred to in clause (a) under "--Limitation Upon Sale and
Leaseback Transactions" below does not exceed the greater of $50,000,000 or
10% of Consolidated Stockholders' Equity (as defined below under "Certain
Definitions"). (Section 12.07 of the Senior Indenture)
Limitation Upon Sale and Leaseback Transactions. The Company and any
Subsidiary will be prohibited from selling any Principal Facility owned on the
date of the Senior Indenture with the intention of taking back a lease
thereof, other than a temporary lease (a lease of not more than 36 months)
with the intent that the use of the property by the Company or such Subsidiary
will be discontinued at or before the expiration of such period, unless (a)
the sum of the sale price of property involved in sale and leaseback
transactions not otherwise permitted plus all indebtedness secured by
mortgages, pledges, liens and encumbrances referred to in clause (g) under "--
Limitation Upon Mortgages and Liens" above does not exceed the greater of
$50,000,000 or 10% of Consolidated Stockholders' Equity; or (b) the greater of
the net proceeds of such sale or the fair market value of such Principal
Facility (which may be conclusively determined by the Board of Directors of
the Company) are applied within 120 days to the optional retirement of
Outstanding Senior Securities or to the optional retirement of other Funded
Debt (as defined below under "Certain Definitions") of the Company ranking on
a parity with the Senior Securities. (Section 12.08 of the Senior Indenture)
In addition, unless otherwise specified in the applicable Prospectus
Supplement, the Senior Securities of each series will contain the following
covenant:
Limitation on Indebtedness of Restricted Subsidiaries. No Restricted
Subsidiary (as defined below under "Certain Definitions") will create, incur,
assume or guarantee any Indebtedness (as defined below under "Certain
Definitions") unless immediately thereafter the aggregate amount of all
Indebtedness of Restricted Subsidiaries (excluding Indebtedness owed to the
Company or a Restricted Subsidiary, including any renewal or replacement
thereof) and the discounted present value of all net rentals payable under
leases covered by the covenant entitled "Limitation Upon Sale and Leaseback
Transactions" (and not expressly excluded therefrom) would not exceed 15% of
Consolidated Stockholders' Equity; provided, however, that, solely for
purposes of this covenant, Indebtedness shall not include indebtedness
incurred in connection with overdraft or similar facilities related to
settlement, clearing and related activities by a Restricted Subsidiary in the
ordinary course of business consistent with past practice to the extent that
such indebtedness remains outstanding for a period not to exceed 72 hours; and
provided, further, that any indebtedness of a Person (i) existing at the time
such Person becomes a Restricted Subsidiary or is merged with or into the
Company or a Restricted Subsidiary or other entity or (ii) assumed by the
Company or a Subsidiary in connection with the acquisition of all or a portion
of the business of such Person, shall not be deemed to be Indebtedness
created, incurred, assumed or guaranteed by a Restricted Subsidiary or
otherwise deemed to be Indebtedness of a Restricted Subsidiary for the
purposes of this covenant.
Events of Default
Under the Indentures, "Event of Default" with respect to the Debt Securities
of any series means any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law, pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body): (1) default in the payment of any interest upon any Debt Security or
any payment with respect to the Coupons, if any, of such series when it
becomes due and payable, and continuance of such default for a period of 30
days; (2) default in the payment of the principal of (and premium, if any, on)
any Debt Security of such series at its Maturity; (3) default in the deposit
of any sinking fund payment, when and as due by the terms of a Debt Security
of such series; (4) default in the performance, or breach of any covenant or
warranty in the applicable Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in the applicable
Indenture specifically dealt with or which expressly has been included in the
applicable Indenture solely for the benefit of Debt Securities of a series
other than such series), and continuance of such default or breach for a
period of 60 days after there has been given to the Company by the applicable
Trustee or to the Company and the applicable
7
Trustee by the Holders of at least 25% in principal amount of the Outstanding
Debt Securities of such series, a written notice specifying such default or
breach and requiring it to be remedied; (5) in the case of the Senior
Indenture, default (i) in the payment of any scheduled principal of or
interest on any Indebtedness of the Company or any Subsidiary of the Company
(other than Senior Securities of such series), aggregating more than
$10,000,000 in principal amount, when due after giving effect to any
applicable grace period or (ii) in the performance of any other term or
provision of any Indebtedness of the Company or any Subsidiary of the Company
(other than Senior Securities of such series) in excess of $10,000,000
principal amount that results in such Indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and
payable, and such acceleration shall not have been rescinded or annulled, or
such Indebtedness shall not have been discharged, within a period of 15 days
after there has been given to the Company by the applicable Trustee or to the
Company and the applicable Trustee by the Holders of at least 25% in principal
amount of the Outstanding Senior Securities of such series, a written notice
specifying such default or defaults; (6) in the case of the Subordinated
Indenture, default (i) in the payment of any scheduled principal of or
interest on any Indebtedness of the Company or any Subsidiary of the Company
(other than Subordinated Securities of such series), aggregating more than
$10,000,000 in principal amount at the final stated maturity thereof, or (ii)
in the performance of any term or provision of any Indebtedness of the Company
or any Subsidiary of the Company (other than Subordinated Securities of such
series) in excess of $10,000,000 principal amount, including, without
limitation, the payment of any principal of or interest on such Indebtedness
when due after giving effect to any applicable grace period, that results in
such Indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise become due and payable, and such acceleration
shall not have been rescinded or annulled, or such Indebtedness shall not have
been discharged, within a period of 15 days after there has been given to the
Company by the applicable Trustee or to the Company and the applicable Trustee
by the Holders of at least 25% in principal amount of the Outstanding
Subordinated Securities of such series, a written notice specifying such
default or defaults; (7) in the case of the Senior Indenture, the entry
against the Company or any Subsidiary of the Company of one or more judgments,
decrees or orders by a court from which no appeal may be or is taken for the
payment of money, either individually or in the aggregate, in excess of
$10,000,000, and the continuance of such judgment, decree or order unsatisfied
and in effect for any period of 45 consecutive days after the amount thereof
is due without a stay of execution; (8) certain events of bankruptcy,
insolvency or reorganization with respect to the Company; or (9) any other
Event of Default provided with respect to Debt Securities of that series
pursuant to the applicable Indenture. (Section 5.01)
Each Indenture requires the Company to file with the applicable Trustee,
annually, an officer's certificate as to the Company's compliance with all
conditions and covenants under the applicable Indenture. (Section 12.02) Each
Indenture provides that the applicable Trustee may withhold notice to the
Holders of a series of Debt Securities of any default (except payment defaults
on such Debt Securities) if it considers such withholding to be in the
interest of the Holders of such series of Debt Securities to do so. (Section
6.02)
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding occurs and is continuing, then in every case the applicable
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of such series may declare the principal amount
(or, if any Debt Securities of such series are Discount Securities, such
portion of the principal amount of such Discount Securities as may be
specified in the terms of such Discount Securities) of all the Debt Securities
of such series to be due and payable immediately, by a notice in writing to
the Company (and to the applicable Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount) shall become
immediately due and payable. Upon payment of such amount in the currency in
which such Debt Securities are denominated (except as otherwise provided in
the applicable Indenture or the Prospectus Supplement), all obligations of the
Company in respect of the payment of principal of the Debt Securities of such
series shall terminate. (Section 5.02)
Subject to the provisions of each Indenture relating to the duties of the
applicable Trustee, in case an Event of Default with respect to Debt
Securities of a particular series shall occur and be continuing, the
applicable Trustee shall be under no obligation to exercise any of its rights
or powers under such Indenture at the request,
8
order or direction of any of the Holders of Debt Securities of that series,
unless such Holders shall have offered to the applicable Trustee reasonable
indemnity against the costs, expenses and liabilities which might be incurred
by it in compliance with such request. (Section 6.03) Subject to such
provisions for the indemnification of the applicable Trustee, the Holders of a
majority in principal amount of the Outstanding Debt Securities of such series
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee under such
Indenture, or exercising any trust or power conferred on the applicable
Trustee with respect to the Debt Securities of that series. (Section 5.12)
At any time after such a declaration of acceleration with respect to Debt
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the applicable Trustee as
provided in the Indentures, the Holders of a majority in principal amount of
the Outstanding Debt Securities of such series, by written notice to the
Company and the applicable Trustee, may rescind and annul such declaration and
its consequences if (1) the Company has paid or deposited with the applicable
Trustee a sum in the currency in which such Debt Securities are denominated
(except as otherwise provided in the applicable Indenture or the Prospectus
Supplement) sufficient to pay (A) all overdue installments of interest on all
Debt Securities or all overdue payments with respect to any Coupons of such
series; (B) the principal of (and premium, if any, on) any Debt Securities of
such series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed therefor in
such Debt Securities; (C) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest on each Debt Security
of such series or upon overdue payments on any Coupons of such series at a
rate established for such series; and (D) all sums paid or advanced by the
applicable Trustee and the reasonable compensation, expenses, disbursements
and advances of the applicable Trustee, its agents and counsel; and (2) all
Events of Default with respect to Debt Securities of such series, other than
the nonpayment of the principal of Debt Securities of such series which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in the Indentures. No such rescission and waiver will
affect any subsequent default or impair any right consequent thereon. (Section
5.02)
Merger or Consolidation
Each Indenture provides that the Company may not consolidate with or merge
into any other corporation or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, unless (1) the corporation
formed by such consolidation or into which the Company is merged or the Person
which acquires by conveyance or transfer, or which leases, the properties and
assets of the Company substantially as an entirety (the "successor
corporation") is a corporation organized and existing under the laws of the
United States or any State or the District of Columbia and expressly assumes
by a supplemental indenture the due and punctual payment of the principal of
(and premium, if any) and interest on all the Debt Securities and the
performance of every covenant of the Indentures on the part of the Company to
be performed or observed; (2) immediately after giving effect to such
transaction, no Event of Default, and no event which, after notice or lapse of
time, or both, would become an Event of Default, shall have happened and be
continuing; (3) in the case of the Senior Indenture, if, as a result of any
such consolidation or merger or such conveyance, transfer or lease, properties
or assets of the Company would become subject to a mortgage, pledge, lien,
security interest or other encumbrance which would not otherwise be permitted
by the Senior Indenture without making effective provision whereby the
Outstanding Senior Securities and any other indebtedness of the Company then
entitled thereto will be equally and ratably secured with any and all
indebtedness and obligations secured thereby, the Company or such successor
corporation or Person, as the case may be, will take such steps as will be
necessary effectively to secure all Senior Securities equally and ratably with
(or prior to) all indebtedness secured thereby; and (4) the Company has
delivered to the applicable Trustee an officers' certificate and an opinion of
counsel each stating that such consolidation, merger, conveyance, transfer or
lease and such supplemental indenture comply with the applicable Indenture
provisions and that all conditions precedent therein provided for relating to
such transaction have been complied with. (Section 10.01)
9
Modification or Waiver
Without the consent of any Holders, the Company and the applicable Trustee,
at any time and from time to time, may modify the applicable Indenture for any
of the following purposes: (1) to evidence the succession of another
corporation to the Company and the assumption by such successor of the
covenants of the Company in the Indentures and in the Debt Securities; (2) to
add to the covenants of the Company, for the benefit of the Holders of all or
any series of Debt Securities and the Coupons, if any, appertaining thereto
(and if such covenants are to be for the benefit of less than all series,
stating that such covenants are expressly being included solely for the
benefit of such series), or to surrender any right or power conferred in the
Indentures upon the Company; (3) to add any additional Events of Default (and
if such Events of Default are to be applicable to less than all series,
stating that such Events of Default are expressly being included solely to be
applicable to such series); (4) to add or change any of the provisions of the
applicable Indenture to such extent as shall be necessary to permit or
facilitate the issuance of Debt Securities of any series in bearer form,
registrable or not registrable, and with or without Coupons, to permit Bearer
Securities to be issued in exchange for Registered Securities, to permit
Bearer Securities to be issued in exchange for Bearer Securities of other
authorized denominations or to permit the issuance of Debt Securities of any
series in uncertificated form, provided that any such action shall not
adversely affect the interests of the Holders of Debt Securities of any series
or any related Coupons in any material respect; (5) to change or eliminate any
of the provisions of the applicable Indenture, provided that any such change
or elimination will become effective only when there is no Outstanding Debt
Security or Coupon of any series created prior to such modification which is
entitled to the benefit of such provision and as to which such modification
would apply; (6) to secure the Debt Securities; (7) to supplement any of the
provisions of the applicable Indenture to such extent as is necessary to
permit or facilitate the defeasance and discharge of any series of Debt
Securities, provided that any such action shall not adversely affect the
interests of the Holders of Debt Securities of such series or any other series
of Debt Securities or any related Coupons in any material respect; (8) to
establish the form or terms of Debt Securities and Coupons, if any, of any
series as permitted by the applicable Indenture; (9) to evidence and provide
for the acceptance of appointment thereunder by a successor Trustee with
respect to one or more series of Debt Securities and to add to or change any
of the provisions of the Indentures as is necessary to provide for or
facilitate the administration of the trusts thereunder by more than one
Trustee; or (10) to cure any ambiguity, to correct or supplement any provision
therein which may be defective or inconsistent with any other provision
therein, or to make any other provisions with respect to matters or questions
arising under the applicable Indenture which will not be inconsistent with any
provision of the applicable Indenture; provided such other provisions shall
not adversely affect the interests of the Holders of Outstanding Debt
Securities or Coupons, if any, of any series created prior to such
modification in any material respect. (Section 11.01)
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of each series affected by such
modification voting separately, the Company and the applicable Trustee may
modify the applicable Indenture for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the applicable
Indenture or of modifying in any manner the rights of the Holders under the
applicable Indenture of such Debt Securities; provided, however, that no such
modification may, without the consent of the Holder of each Outstanding Debt
Security of each such series affected thereby, (1) change the Stated Maturity
of the principal of, or any installment of interest on, any Debt Security, or
reduce the principal amount thereof or the interest thereon or any premium
payable upon redemption thereof, or change the Stated Maturity of or reduce
the amount of any payment to be made with respect to any Coupon, or change the
currency or currencies in which the principal of (and premium, if any) or
interest on such Debt Security is denominated or payable, or reduce the amount
of the principal of a Discount Security that would be due and payable upon a
declaration of acceleration of the Maturity thereof, or adversely affect the
right of repayment or repurchase, if any, at the option of the Holder, or
reduce the amount of, or postpone the date fixed for, any payment under any
sinking fund or analogous provisions for any Debt Security, or impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or limit the obligation of the Company to maintain a paying
agency outside the United States for payments on Bearer Securities, or
adversely affect the right to convert any Subordinated
10
Security into shares of Common Stock as may be set forth in the Prospectus
Supplement; (2) reduce the percentage in principal amount of the Outstanding
Debt Securities of any series, the consent of whose Holders is required for
any supplemental indenture, or the consent of whose Holders is required for
any waiver of compliance with certain provisions of the Indentures or certain
defaults thereunder and their consequences provided for in the Indentures; (3)
modify any of the provisions of the applicable Indenture relating to
modifications and waivers of defaults and covenants, except to increase any
such percentage or to provide that certain other provisions of the applicable
Indenture cannot be modified or waived without the consent of the Holder of
each Outstanding Debt Security of each series affected thereby; or (4) in the
case of the Subordinated Indenture, modify any of the provisions relating to
the subordination of the Subordinated Securities in a manner adverse to the
Holders thereof. (Section 11.02)
A modification which changes or eliminates any covenant or other provision
of the applicable Indenture with respect to one or more particular series of
Debt Securities and Coupons, if any, or which modifies the rights of the
Holders of Debt Securities and Coupons of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under
the applicable Indenture of the Holders of Debt Securities and Coupons, if
any, of any other series. (Section 11.02)
In the case of the Subordinated Indenture, no modification may adversely
affect the rights of any holder of Senior Indebtedness under the subordination
provisions of the Subordinated Indenture without the consent of such holder.
(Section 11.08 of the Subordinated Indenture)
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
the Debt Securities of any such series waive any past default under the
applicable Indenture with respect to such series and its consequences, except
a default (1) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series, or in the payment of any sinking
fund installment or analogous obligation with respect to the Debt Securities
of such series; or (2) in respect of a covenant or provision hereof which
pursuant to the second paragraph under "Modification or Waiver" cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security of such series affected. Upon any such waiver, such default will
cease to exist, and any Event of Default arising therefrom will be deemed to
have been cured, for every purpose of the Debt Securities of such series under
the applicable Indenture, but no such waiver will extend to any subsequent or
other default or impair any right consequent thereon. (Section 5.13)
The Company may omit in any particular instance to comply with certain
covenants in the Indentures (including, if so specified in the Prospectus
Supplement, any covenant not set forth in the Indentures but specified in the
Prospectus Supplement to be applicable to the Debt Securities of any series,
except as otherwise provided in the Prospectus Supplement, and in the case of
the Senior Indenture, the covenants relating to the limitation upon mortgages
and liens, the limitation upon sale and leaseback transactions and the
limitation on indebtedness of Restricted Subsidiaries) with respect to the
Debt Securities of any series if before the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Debt
Securities of such series either waive such compliance in such instance or
generally waive compliance with such provisions, but no such waiver may extend
to or affect any term, provision or condition except to the extent expressly
so waived, and, until such waiver becomes effective, the obligations of the
Company and the duties of the applicable Trustee in respect of any such
provision will remain in full force and effect. (Section 12.09)
Subordination
Upon any distribution of assets of the Company upon the dissolution, winding
up, liquidation or reorganization of the Company, the payment of the principal
of (and premium, if any) and interest on the Subordinated Securities will be
subordinated to the extent provided in the Subordinated Indenture in right of
payment to the prior payment in full of all Senior Indebtedness (as defined
below under "Certain Definitions"), including Senior Securities (Sections
16.01 and 16.02 of the Subordinated Indenture), but the obligation of the
Company to make payment of principal (and premium, if any) or interest on the
Subordinated Securities will not
11
otherwise be affected. (Section 16.02 of the Subordinated Indenture) No
payment on account of principal (or premium, if any), sinking fund or interest
may be made on the Subordinated Securities at any time when there is a default
in the payment of principal, premium, if any, sinking fund or interest on
Senior Indebtedness. (Section 16.03 of the Subordinated Indenture) In the
event that, notwithstanding the foregoing, any payment by the Company
described in the foregoing sentence is received by the Trustee under the
Subordinated Indenture or the Holders of any of the Subordinated Securities
before all Senior Indebtedness is paid in full, such payment or distribution
shall be paid over to the holders of such Senior Indebtedness or on their
behalf for application to the payment of all such Senior Indebtedness
remaining unpaid until all such Senior Indebtedness shall have been paid in
full, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness. Subject to payment in full of Senior
Indebtedness, the Holders of the Subordinated Securities will be subrogated to
the rights of the holders of the Senior Indebtedness to the extent of payments
made to the holders of such Senior Indebtedness out of the distributive share
of the Subordinated Securities. (Section 16.02 of the Subordinated Indenture)
By reason of such subordination, in the event of a distribution of assets
upon insolvency, certain general creditors of the Company may recover more,
ratably, than Holders of the Subordinated Securities. The Subordinated
Indenture provides that the subordination provisions thereof shall not apply
to money and securities held in trusts pursuant to the satisfaction and
discharge and the legal defeasance provisions of the Subordinated Indenture.
(Sections 4.02 and 15.02 of the Subordinated Indenture)
If this Prospectus is being delivered in connection with the offering of a
series of Subordinated Securities, the accompanying Prospectus Supplement or
the information incorporated by reference will set forth the approximate
amount of Senior Indebtedness outstanding as of a recent date.
Discharge, Legal Defeasance and Covenant Defeasance
The applicable Indenture with respect to the Debt Securities of any series
may be discharged, subject to certain terms and conditions, when (1) either
(A) all Debt Securities and the Coupons, if any, of such series have been
delivered to the applicable Trustee for cancellation, or (B) all Debt
Securities and the Coupons, if any, of such series not theretofore delivered
to the applicable Trustee for cancellation (i) have become due and payable,
(ii) will become due and payable at their Stated Maturity within one year, or
(iii) are to be called for redemption within one year under arrangements
satisfactory to the applicable Trustee for the giving of notice by the
applicable Trustee, and the Company, in the case of (i), (ii) or (iii) of
subclause (B), has irrevocably deposited or caused to be deposited with the
applicable Trustee as trust funds in trust for such purpose an amount in the
currency in which such Debt Securities are denominated sufficient to pay and
discharge the entire indebtedness on such Debt Securities for principal (and
premium, if any) and interest to the date of such deposit (in the case of Debt
Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be; provided, however, in the event a
petition for relief under any applicable Federal or state bankruptcy,
insolvency or other similar law is filed with respect to the Company within 91
days after the deposit and the applicable Trustee is required to return the
deposited money to the Company, the obligations of the Company under the
applicable Indenture with respect to such Debt Securities will not be deemed
terminated or discharged; (2) the Company has paid or caused to be paid all
other sums payable under the applicable Indenture by the Company; (3) the
Company has delivered to the applicable Trustee an officers' certificate and
an opinion of counsel each stating that all conditions precedent therein
provided relating to the satisfaction and discharge of the applicable
Indenture with respect to such series have been complied with; and (4) the
Company has delivered to the applicable Trustee an opinion of counsel or a
ruling of the Internal Revenue Service to the effect that Holders of the Debt
Securities of the series will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and discharge. (Section 4.01)
If provision is made for the defeasance of Debt Securities of a series, and
if the Debt Securities of such series are Registered Securities and
denominated and payable only in U.S. dollars, then the provisions of each
Indenture relating to defeasance shall be applicable except as otherwise
specified in the Prospectus Supplement for Debt Securities of such series.
Defeasance provisions, if any, for Debt Securities denominated in a foreign
currency or currencies or for Bearer Securities may be specified in the
Prospectus Supplement. (Section 15.01)
12
At the Company's option, either (a) the Company shall be deemed to have been
Discharged (as defined below under "Certain Definitions") from its obligations
with respect to Debt Securities of any series ("legal defeasance option") or
(b) the Company shall cease to be under any obligation to comply with certain
provisions of the Indentures relating to mergers and consolidations of the
Company, and in the case of the Senior Indenture, the provisions relating to
limitations upon mortgages and liens, limitations upon sale and leaseback
transactions and the limitation on indebtedness of Restricted Subsidiaries,
with respect to Debt Securities of any series (and, if so specified, any other
obligation of the Company or restrictive covenant added for the benefit of
such series) ("covenant defeasance option") at any time after the applicable
conditions set forth below have been satisfied: (1) the Company shall have
deposited or caused to be deposited irrevocably with the applicable Trustee as
trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of the Debt Securities of such series
(i) money in an amount, or (ii) U.S. Government Obligations (as defined below
under "Certain Definitions") which through the payment of interest and
principal in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an amount, or
(iii) a combination of (i) and (ii), sufficient, in the opinion (with respect
to (i) and (ii)) of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
applicable Trustee, to pay and discharge each installment of principal
(including any mandatory sinking fund payments) of and premium, if any, and
interest on, the Outstanding Debt Securities of such series on the dates such
installments of interest or principal and premium are due; (2) such deposit
shall not cause the applicable Trustee with respect to the Debt Securities of
that series to have a conflicting interest with respect to the Debt Securities
of any series; (3) such deposit will not result in a breach or violation of,
or constitute a default under, the applicable Indenture or any other agreement
or instrument to which the Company is a party or by which it is bound; (4) if
the Debt Securities of such series are then listed on any national securities
exchange, the Company shall have delivered to the applicable Trustee an
opinion of counsel or a letter or other document from such exchange to the
effect that the Company's exercise of its legal defeasance option or the
covenant defeasance option, as the case may be, would not cause such Debt
Securities to be delisted; (5) no Event of Default or event (including such
deposit) which, with notice or lapse of time or both, would become an Event of
Default with respect to the Debt Securities of such series shall have occurred
and be continuing on the date of such deposit and, with respect to the legal
defeasance option only, no Event of Default under the provisions of the
Indentures relating to certain events of bankruptcy or insolvency or event
which with the giving of notice or lapse of time, or both, would become an
Event of Default under such bankruptcy or insolvency provisions shall have
occurred and be continuing on the 91st day after such date; and (6) the
Company shall have delivered to the applicable Trustee an opinion of counsel
or a ruling of the Internal Revenue Service to the effect that the Holders of
the Debt Securities of such series will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit, defeasance or
Discharge. Notwithstanding the foregoing, if the Company exercises its
covenant defeasance option and an Event of Default under the provisions of the
Indentures relating to certain events of bankruptcy or insolvency or event
which with the giving of notice or lapse of time, or both, would become an
Event of Default under such bankruptcy or insolvency provisions shall have
occurred and be continuing on the 91st day after the date of such deposit, the
obligations of the Company referred to under the definition of covenant
defeasance option with respect to such Debt Securities shall be reinstated.
(Section 15.02)
Payment and Paying Agents
If Debt Securities of a series are issuable only as Registered Securities,
the Company will maintain in each Place of Payment for such Debt Securities an
office or agency where such Debt Securities may be presented or surrendered
for payment, where such Debt Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be served. If
Debt Securities of a series are issuable as Bearer Securities, the Company
will maintain (A) in the Borough of Manhattan, The City and State of New York,
or, in the case of the Senior Indenture, in Minneapolis, Minnesota, an office
or agency where any Registered Securities of such series may be presented or
surrendered for payment, where any Registered Securities of such series may be
surrendered for registration of transfer, where Debt Securities of such series
may be surrendered for exchange, where notices and demands to or upon the
Company in respect of such Debt Securities and the applicable Indenture may be
13
served and where Bearer Securities of such series and related Coupons may be
presented or surrendered for payment in the circumstances described in the
following paragraph (and not otherwise), (B) subject to any laws or
regulations applicable thereto, in a Place of Payment for such series which is
located outside the United States, an office or agency where such Debt
Securities and related Coupons may be presented and surrendered for payment
(including payment of any additional amounts payable on such Debt Securities,
if so provided in such series); provided, however, that if such Debt
Securities are listed on The Stock Exchange of the United Kingdom and the
Republic of Ireland, the Luxembourg Stock Exchange or any other stock exchange
located outside the United States and such stock exchange shall so require,
the Company will maintain a Paying Agent for such Debt Securities in London,
Luxembourg or any other required city located outside the United States, as
the case may be, so long as such Debt Securities are listed on such exchange,
and (C) subject to any laws or regulations applicable thereto, in a Place of
Payment for such Debt Securities located outside the United States an office
or agency where any Registered Securities of such series may be surrendered
for registration of transfer, where such Debt Securities may be surrendered
for exchange and where notices and demands to or upon the Company in respect
of such Debt Securities and the applicable Indenture may be served. The
Company will give prompt written notice to the applicable Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the applicable Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
corporate trust office of the applicable Trustee (in the case of Registered
Securities) and at the principal London office of the applicable Trustee (in
the case of Bearer Securities), and the Company has appointed the applicable
Trustee as its agent to receive all presentations, surrenders, notices and
demands. (Section 12.03)
No payment of principal, premium or interest on Bearer Securities shall be
made at any office or agency of the Company in the United States or by check
mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that,
if the Debt Securities of a series are denominated and payable in U.S.
dollars, payment of principal of and any premium and interest on such Debt
Securities, if so provided in the Prospectus Supplement shall be made at the
office of the Company's Paying Agent in the Borough of Manhattan, the City and
State of New York, or, in the case of the Senior Indenture, in Minneapolis,
Minnesota, if (but only if) payment in U.S. dollars of the full amount of such
principal, premium, interest or additional amounts, as the case may be, at all
offices or agencies outside the United States maintained for the purpose by
the Company in accordance with the applicable Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions.
(Section 12.03)
Book-Entry Debt Securities
The Debt Securities of a series may be issued in whole or in part in global
form that will be deposited with, or on behalf of, a depositary identified in
the Prospectus Supplement. Global securities may be issued in either
registered or bearer form and in either temporary or permanent form (each a
"Global Security"). Payments of principal of (premium, if any) and interest on
Debt Securities represented by a Global Security will be made by the Company
to the applicable Trustee and then by such Trustee to the depositary.
The Company anticipates that any Global Securities will be deposited with,
or on behalf of, The Depository Trust Company, New York, New York ("DTC"),
that such Global Securities will be registered in the name of DTC's nominee,
and that the following provisions will apply to the depositary arrangements
with respect to any such Global Securities. Additional or differing terms of
the depositary arrangements will be described in the Prospectus Supplement
relating to a particular series of Debt Securities issued in the form of
Global Securities.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Debt Securities represented by such Global Security for all purposes under
the applicable Indenture. Except as provided below, owners of beneficial
interests in a Global Security will not be entitled to have Debt Securities
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of Debt Securities in
certificated form and will not be considered the owners or Holders thereof
under the applicable Indenture. The laws of some states require
14
that certain purchasers of securities take physical delivery of such
securities in certificated form; accordingly, such laws may limit the
transferability of beneficial interests in a Global Security.
If DTC is at any time unwilling or unable to continue as depositary, or
ceases to be a clearing agency registered under the Exchange Act, and a
successor depositary is not appointed by the Company within 90 days, the
Company will issue individual Debt Securities in certificated form in exchange
for the Global Securities. In addition, the Company may at any time, and in
its sole discretion, determine not to have any Debt Securities represented by
one or more Global Securities and, in such event, will issue individual Debt
Securities in certificated form in exchange for the relevant Global
Securities. If Registered Securities of any series shall have been issued in
the form of one or more Global Securities and if an Event of Default with
respect to the Debt Securities of such series shall have occurred and be
continuing, the Company will issue individual Debt Securities in certificated
form in exchange for the relevant Global Securities.
The following is based on information furnished by DTC:
DTC will act as securities depositary for Debt Securities represented by one
or more Global Securities. The Debt Securities will be issued as fully-
registered securities registered in the name of Cede & Co. (DTC's partnership
nominee). One fully-registered Global Security will be issued for each issue
of the Debt Securities, each in an aggregate principal amount of such issue,
and will be deposited with DTC. If, however, the aggregate principal amount of
any issue exceeds the maximum principal amount (if any) permitted by DTC, one
Global Security will be issued with respect to such maximum principal amount
and an additional Global Security will be issued with respect to any remaining
principal amount of such issue.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
("Direct Participants") include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to DTC's system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Debt Securities represented by one or more Global Securities
under DTC's system must be made by or through Direct Participants, which will
receive a credit for the Global Securities on DTC's records. The ownership
interest of each beneficial owner of each Global Security ("Beneficial Owner")
is in turn recorded on the Direct and Indirect Participants' records. A
Beneficial Owner will not receive written confirmation from DTC of its
purchase, but such Beneficial Owner is expected to receive a written
confirmation providing details of such transaction, as well as periodic
statements of its holdings, from the Direct or Indirect Participant through
which such Beneficial Owner entered into such transaction. Transfers of
ownership interests in Global Securities are to be accomplished by entries
made on the books of Participants acting on behalf of the Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Global Securities, except in the event that use of the book-entry
system for one or more Global Securities is discontinued.
To facilitate subsequent transfers, all Global Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Global Securities with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Debt Securities; DTC records
reflect only the identity of the Direct Participants
15
to whose accounts Global Securities are credited, which may or may not be the
Beneficial Owners. The Participants remain responsible for keeping account of
their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners are governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Global
Securities. Under its usual procedures, DTC will mail (an "Omnibus Proxy") to
the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Debt Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Global Securities will be made to
DTC. DTC's practice is to credit Direct Participants' accounts on the payable
date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on the
payable date. Payments by Participants to Beneficial Owners will be governed
by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, the Paying Agent or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal and
interest to DTC is the responsibility of the Company or the Paying Agent,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Global Securities
purchased or tendered, through its Participant, to the Paying Agent, and shall
effect delivery of such Global Securities by causing the Direct Participant to
transfer the Participant's interest in the Global Securities, on DTC's
records, to the Paying Agent. The requirement for physical delivery of Global
Securities in connection with a demand for purchase or a mandatory purchase
will be deemed satisfied when the ownership rights in the Global Securities
are transferred by Direct Participants on DTC's records.
DTC may discontinue providing its services as securities depositary with
respect to the Debt Securities at any time by giving reasonable notice to the
Company or the Agents. Under such circumstances, in the event that a successor
securities depositary is not appointed within 90 days, certificates
representing Debt Securities will be printed and delivered in exchange for the
Debt Securities represented by the Global Securities held by DTC.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary). In that event,
certificates representing Debt Securities will be printed and delivered in
exchange for the Debt Securities represented by the Global Securities held by
DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
None of the Company, any underwriter or agent, the applicable Trustee, any
applicable Paying Agent or the registrar of any Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global
Security, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Conversion Rights
The terms and conditions, if any, on which Subordinated Securities being
offered are convertible into Common Stock will be set forth in the Prospectus
Supplement relating thereto. Such terms will include the
16
conversion price, the conversion period, provisions as to whether conversion
will be at the option of the Holder or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such Subordinated Securities.
The Trustees under the Indentures
Norwest Bank Minnesota, National Association and The Bank of New York are
two of a number of banks with which the Company maintains ordinary banking
relationships and from which the Company has obtained credit facilities and
lines of credit.
Certain Definitions
Set forth below is a summary of certain defined terms as used in the
applicable Indenture. Reference is made to the applicable Indenture for the
full definition of all such terms.
"Consolidated Stockholders' Equity," at any time, means the total
stockholders' equity of the Company and its consolidated subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, as of the end of the most recently completed fiscal
quarter of the Company for which financial information is then available.
(Section 1.01 of the Senior Indenture)
"Bearer Security" means any Debt Security (with or without Coupons), which
is payable to bearer and title to which passes by delivery only, but does not
include any coupons. (Section 1.01)
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Debt Securities of such series and to have satisfied all the obligations under
the applicable Indenture relating to the Debt Securities of such series,
except (i) the rights of Holders of Debt Securities of such series to receive,
from the trust fund described under "Discharge, Legal Defeasance and Covenant
Defeasance" above, payment of the principal of (and premium, if any) and
interest on such Debt Securities when such payments are due; (ii) the
Company's obligations with respect to the Debt Securities of such series under
the provisions relating to exchanges, transfers and replacement of Debt
Securities, the maintenance of an office or agency of the Company and the
defeasance trust fund; and (iii) the rights, powers, trusts, duties and
immunities of the applicable Trustee thereunder. (Section 15.02)
"Funded Debt" means any indebtedness for money borrowed, created, issued,
incurred, assumed or guaranteed which would, in accordance with generally
accepted accounting practice, be classified as long-term debt, but in any
event including all indebtedness for money borrowed, whether secured or
unsecured, maturing more than one year or extendible at the option of the
obligor to a date more than one year, after the date of determination thereof
(excluding any amount thereof included in current liabilities). (Section 1.01
of the Senior Indenture)
"Holder" means, with respect to a Registered Security, the Person in whose
name a Registered Security is registered in the Security Register, and with
respect to a Bearer Security or a Coupon, the bearer thereof. (Section 1.01)
"Indebtedness" means (i) any liability of any Person (a) for borrowed money,
or (b) evidenced by a bond, note, debenture or similar instrument (including
purchase money obligations but excluding trade payables), or (c) for the
payment of money relating to a lease that is required to be classified as a
capitalized lease obligation in accordance with generally accepted accounting
principles, or (d) preferred or preference stock of a Subsidiary of the
Company held by Persons other than the Company or a Subsidiary of the Company;
(ii) any liability of others described in the preceding clause (i) that the
Person has guaranteed, that is recourse to such Person or that is otherwise
its legal liability; and (iii) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (i) and (ii) above; provided, however, that
"Indebtedness" shall not include any liabilities of the kind included opposite
the caption "Liabilities relating to TRS financial instruments sold" on the
Company's audited consolidated balance sheet. (Section 1.01) These liabilities
are currently included opposite the caption "Settlement Obligations" on the
Company's consolidated balance sheet.
17
"Maturity" when used with respect to any Debt Security means the date on
which the principal of a Debt Security or an installment of principal becomes
due and payable as provided therein or in the Indenture, whether at the Stated
Maturity or by declaration of acceleration, call for redemption, repayment at
the option of the Holder or otherwise. (Section 1.01)
"Outstanding" when used with respect to Debt Securities, means, as of the
date of determination, all Debt Securities theretofore authenticated and
delivered under the applicable Indenture, except as provided in such
Indenture. (Section 1.01)
"Principal Facility" means the real property, fixtures, machinery and
equipment relating to any facility owned by the Company or any Subsidiary,
except any facility that, in the opinion of the Board of Directors, is not of
material importance to the business conducted by the Company and its
Subsidiaries, taken as a whole. (Section 1.01 of the Senior Indenture)
"Registered Securities" means any Debt Security in the form established
pursuant to Section 2.01 of the applicable Indenture which is registered as to
principal and Interest in the Security Register. (Section 1.01)
"Restricted Subsidiary," at any time, means any Subsidiary which has
revenues, determined on a consolidated basis (with its Subsidiaries) in
accordance with generally accepted accounting principles, equal to or
exceeding 10 percent of the Company's consolidated revenues for the most
recently completed fiscal year of the Company for which financial information
is then available.
"Senior Indebtedness" means the principal of (and premium, if any) and
unpaid interest on (i) Indebtedness of the Company, whether outstanding on the
date of the Subordinated Indenture or thereafter created, incurred, assumed or
guaranteed, for money borrowed (other than the Indebtedness evidenced by the
Subordinated Securities), unless in the instrument creating or evidencing the
same or pursuant to which the same is outstanding it is provided that such
Indebtedness is not senior or prior in right of payment to the Subordinated
Securities or is pari passu or subordinate by its terms in right of payment to
the Subordinated Securities, and (ii) renewals, extensions and modifications
of any such Indebtedness.
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation, irrespective of whether or not
at the time stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency, is
at the time, directly or indirectly, owned or controlled by the Company or by
one or more Subsidiaries thereof, or by the Company and one or more
Subsidiaries. (Section 1.01)
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States for the payment of which its full faith and
credit is pledged, or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States, which, in either case under clauses (i) or (ii), are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian
with respect to any such U.S. Government Obligation or a specific payment of
interest on or principal of any such U.S. Government Obligation held by such
custodian for the account of the holder of a depository receipt; provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt. (Section 15.02)
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the outstanding
voting stock (other than directors' qualifying shares) is at the time,
directly or indirectly, owned by the Company, or by one or more Wholly-Owned
Subsidiaries of the Company or by the Company and one or more Wholly-Owned
Subsidiaries. (Section 1.01)
18
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the Company's authorized capital stock
consists of 600,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock. As of May 1, 1997, approximately 448,504,727 shares of Common
Stock were issued and outstanding. No shares of Preferred Stock are currently
outstanding. The following summary description of the capital stock of the
Company does not purport to be complete and is qualified in its entirety by
reference to the Company's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation"), and to Delaware corporate law. See
"Available Information."
Common Stock
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock and certain dividend limitations contained in
the Company's outstanding senior promissory notes. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All outstanding shares of
Common Stock are duly authorized, validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
Preferred Stock
Under the Certificate of Incorporation, the Company may issue, in one or
more classes or series, up to 10,000,000 shares of its Preferred Stock, with
such powers, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions as shall be
designated in resolutions adopted by the Board of Directors or a duly
authorized committee thereof. The Preferred Stock will, when issued, be fully
paid and nonassessable and holders thereof will have no preemptive rights.
The specific terms of any Preferred Stock being offered (the "Offered
Preferred Stock") will be described in the Prospectus Supplement relating to
such Offered Preferred Stock. The following summaries of certain provisions of
the Preferred Stock are subject to, and are qualified in their entirety by
reference to, the Certificate of Incorporation and the Certificate of
Designation relating to the particular class or series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the Offered
Preferred Stock offered thereby for specific terms, including:
(1) The designation of such Preferred Stock.
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the initial offering price of such Preferred
Stock.
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock.
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable.
(5) The procedures for any auction and remarketing, if any, of such
Preferred Stock.
(6) The provision of a sinking fund, if any, for such Preferred Stock.
(7) The provision for redemption, if applicable, of such Preferred Stock.
(8) Any listing of such Preferred Stock on any securities exchange.
19
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into or exchangeable for Common Stock, and
whether at the option of the holder thereof or the Company.
(10) Whether such Preferred Stock will rank senior or junior to or on a
parity with any other class or series of Preferred Stock.
(11) The voting rights, if any, of such Preferred Stock.
(12) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
(13) discussion of Federal income tax considerations applicable to such
Preferred Stock.
Subject to the Certificate of Incorporation and to any limitations contained
in then outstanding Preferred Stock, the Company may issue additional classes
or series of Preferred Stock, at any time or from time to time, with such
powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, as the Board
of Directors or any duly authorized committee thereof shall determine, all
without further action of the stockholders, including holders of then
outstanding Preferred Stock, of the Company.
Certain Provisions of the Certificate of Incorporation and By-laws
Certain provisions of the Certificate of Incorporation and By-laws of the
Company summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might
result in a premium over the market price for the shares held by stockholders.
The Certificate of Incorporation or By-laws provide (i) that there shall be
three classes of directors serving staggered terms; (ii) that directors can be
removed from office only for cause and only by the affirmative vote of the
holders of a majority of the then outstanding shares of common stock entitled
to vote generally in an election of directors; (iii) that vacancies on the
Board of Directors may be filled only by the remaining directors and not by
the stockholders; (iv) that the Board of Directors may adopt, amend or repeal
the By-laws of the Company; and (v) for an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder
proposals to be considered at annual meetings of stockholders. In general,
notice of intent to nominate a director or raise business at such meetings
must be received by the Company not less than 60 nor more than 90 days prior
to the anniversary of the previous year's annual meeting, and must contain
certain information concerning the person to be nominated or the matters to be
brought before the meeting and concerning the stockholder submitting the
proposal. The Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company may be
effected only at an annual or special meeting of stockholders, and stockholder
action by written consent in lieu of a meeting is prohibited. The affirmative
vote of the holders of more than 80 percent of the voting power of the Voting
Stock is required to alter, amend or repeal, or adopt any provision
inconsistent with, this provision. In addition, special meetings of
stockholders may be called only by the Chairman of the Board, Chairman of the
Executive Committee, the President or the Secretary of the Company or any such
officer at the request in writing of the Board of Directors.
The foregoing summary is qualified in its entirety by reference to the
provisions of the Certificate of Incorporation and By-laws.
Statutory Provisions
The Company has elected, pursuant to a provision of its Certificate of
Incorporation, not to be governed by Section 203 of the Delaware General
Corporation Law ("DGCL"). Section 203 of the DGCL prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who,
20
together with any affiliates and/or associates of such person, beneficially
owns, directly or indirectly, 15 percent or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or
other dispositions of assets having an aggregate value in excess of 10 percent
of the consolidated assets of the corporation, and certain transactions that
would increase the interested stockholder's proportionate share ownership in
the corporation) between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock, unless (i) the business combination is approved by the corporation's
board of directors prior to the date the interested stockholder acquired
shares; (ii) the interested stockholder acquired at least 85 percent of the
voting stock of the corporation in the transaction in which it became an
interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of two-thirds
of the votes entitled to be cast by disinterested stockholders at an annual or
special meeting. A Delaware corporation, pursuant to a provision in its
certificate of incorporation or by-laws, may choose not to be governed by
Section 203 of the DGCL in which case such election becomes effective one year
after its adoption.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, National Association.
PLAN OF DISTRIBUTION
The Company may sell the Securities in and/or outside the United States: (i)
through underwriters or dealers; (ii) directly to a limited number of
purchasers or to a single purchaser; or (iii) through agents. The Prospectus
Supplement with respect to the Securities being offered (the "Offered
Securities") will set forth the terms of the offering of the Offered
Securities, including the name or names of any underwriters or agents, the
purchase price of the Offered Securities and net proceeds to the Company from
such sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of Securities, or, if an underwriting
syndicate is used, the managing underwriter or underwriters, will be set forth
on the cover of the applicable Prospectus Supplement. Unless otherwise set
forth in the Prospectus Supplement relating thereto, the obligations of the
underwriters to purchase the Offered Securities will be subject to conditions
precedent and the underwriters will be obligated to purchase all of the
Offered Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities in respect of
which this Prospectus is delivered, and if so specified in the applicable
Prospectus Supplement, the Company will sell such Offered Securities to the
dealers as principals. The dealers may then resell such Offered Securities to
the public at varying prices to be determined by such dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in the applicable Prospectus Supplement.
The Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer
or sale of the Offered Securities in respect to which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent will be set forth, in the Prospectus Supplement.
21
Underwriters, dealers and agents may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters, dealers or
agents may be required to make in respect thereof. Underwriters, dealers and
agents may be customers of, may engage in transactions with, or perform
services for, the Company in the ordinary course of business.
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by Thomas A. Rossi, Esq., Associate General Counsel of the Company.
Mr. Rossi is the beneficial owner of Common Stock of the Company.
EXPERTS
The consolidated financial statements and schedule of the Company appearing
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such report of Ernst & Young LLP, as to the year ended December 31,
1994, is based in part on the report of Deloitte & Touche LLP, independent
auditors. Such consolidated financial statements and schedule are, and audited
financial statements to be included in subsequently filed documents will be,
incorporated herein by reference in reliance upon the reports of such auditors
pertaining to such financial statements (to the extent covered by consents
filed with the Commission) given upon the authority of such firms as experts
in accounting and auditing. With respect to the unaudited consolidated interim
financial information for the three-month periods ended March 31, 1997 and
March 31, 1996, incorporated by reference herein, Ernst & Young LLP have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report, included in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, and incorporated herein by reference, states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted considering the limited nature of the
review procedures applied. The independent auditors are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 (the "Act")
for their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the auditors within the meaning of Sections 7 and 11 of the Act.
22
$525,000,000
[LOGO]
2% Senior Convertible Contingent Debt Securities (CODESSM)
due 2008
------------------------
PROSPECTUS SUPPLEMENT
February 22, 2001
------------------------
Lehman Brothers
Salomon Smith Barney