As filed with the Securities and Exchange Commission on April 18, 2002.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KRAFT FOODS INC.
(Exact name of registrant as specified in its charter)
Virginia 52-2284372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Lakes Drive
Northfield, Illinois 60093
(847) 646-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Calvin J. Collier, Esq.
Kraft Foods Inc.
Three Lakes Drive
Northfield, Illinois 60093
(847) 646-2805
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Jerry E. Whitson, Esq. Raymond W. Wagner, Esq.
Hunton & Williams Simpson Thacher & Bartlett
200 Park Avenue, 43rd Floor 425 Lexington Avenue
New York, New York 10166 New York, New York 10017
(212) 309-1000 (212) 455-2000
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement, as determined
by the Registrant.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Per Aggregate Offering Amount of
Securities to be Registered be Registered(1) Unit(2) Price(2) Registration Fee(3)
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Debt Securities and Warrants to Purchase Debt
Securities.................................. $5,000,000,000 100% $5,000,000,000 $210,000
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(1) Or, if any class of securities registered hereby is issued (i) with an
initial offering price denominated in one or more foreign currencies or
currency units, such amount as shall result in aggregate gross proceeds not
in excess of the equivalent of U.S.$5,000,000,000, based on exchange rates
on the applicable offering date, to the Registrant at the time of initial
offering, or (ii) at an original issue discount, such greater amount as
shall result in aggregate gross proceeds not in excess of
U.S.$5,000,000,000 to the Registrant.
(2) Estimated pursuant to Rule 457(a) of the Securities Act solely for the
purpose of calculating the registration fee.
(3) Calculated at the statutory rate of $92 per $1,000,000 of securities
registered and, pursuant to Rule 457(p) of the Securities Act, minus the
unused filing fee of $250,000 previously paid on August 16, 2001, in
respect of the Registrant's registration statement on Form S-3
(Registration No. 333-67770).
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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED APRIL 18, 2002
PROSPECTUS
[KRAFT LOGO]
Kraft Foods Inc.
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Debt Securities and Warrants to Purchase Debt Securities
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We may offer to sell up to U.S.$5,000,000,000 of our debt securities or
warrants to purchase the debt securities in one or more offerings. In this
prospectus, we describe generally the terms of these securities. We will
describe the specific terms of the debt securities and debt warrants that we
offer in a supplement to this prospectus at the time of each offering. If any
offering involves underwriters, dealers or agents, we will describe our
arrangements with them in the prospectus supplement that relates to that
offering. You should read this prospectus and the applicable supplement
carefully before you invest.
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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
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This prospectus may not be used to consummate sales of securities unless
accompanied by a prospectus supplement.
The date of this prospectus is , 2002
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS.................................... 1
RISK FACTORS............................................. 1
WHERE YOU CAN FIND MORE INFORMATION...................... 1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 2
THE COMPANY.............................................. 3
RATIO OF EARNINGS TO FIXED CHARGES....................... 3
USE OF PROCEEDS.......................................... 4
DESCRIPTION OF DEBT SECURITIES........................... 4
DESCRIPTION OF DEBT WARRANTS............................. 16
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.. 18
PLAN OF DISTRIBUTION..................................... 26
EXPERTS.................................................. 28
LEGAL OPINIONS........................................... 28
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You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of those documents.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf registration process, we may sell any combination of the debt
securities and/or warrants to purchase any debt securities described in this
prospectus in one or more offerings up to a total amount of U.S.$5,000,000,000,
or the equivalent in foreign or composite currencies. This prospectus provides
you with a general description of the debt securities and debt warrants we may
offer. Each time we offer securities, we will provide you with a prospectus
supplement that will describe the specific amounts, prices and terms of the
securities being offered. The prospectus supplement may also add, update or
change information contained in this prospectus.
To understand the terms of our securities, you should carefully read this
document with the attached prospectus supplement. Together they give the
specific terms of the securities we are offering. You should also read the
documents we have referred you to in "Where You Can Find More Information"
below for information on our company and our financial statements.
Kraft Foods Inc. is a holding company incorporated in Virginia on December
7, 2000. Its two principal subsidiaries are Kraft Foods North America, Inc.,
which conducts our food business in the United States, Canada and Mexico, and
Kraft Foods International, Inc., which conducts our food business in the rest
of the world. In this prospectus, we use the terms "Kraft," "we," "our" and
"us" when we do not need to distinguish among these entities or when any
distinction is clear from the context. Otherwise, we use the terms "Kraft Foods
Inc.," "Kraft Foods North America" and "Kraft Foods International." The term
"Philip Morris" refers to our parent, Philip Morris Companies Inc. The term
"Nabisco" refers to Nabisco Holdings Corp. and its subsidiaries, which we
acquired in December 2000.
Kraft Foods Inc. is a legal entity separate and distinct from Kraft Foods
North America, Kraft Foods International and its other direct and indirect
subsidiaries. Accordingly, the right of Kraft Foods Inc. and the right of its
creditors, to participate in any distribution of the assets or earnings of any
subsidiary is subject to the prior claims of creditors of that subsidiary,
except to the extent Kraft Foods Inc. is itself a creditor of that subsidiary.
Because we are a holding company, our principal source of funds is dividends
from our subsidiaries. Our principal wholly-owned subsidiaries currently are
not limited by long-term debt or other agreements in their ability to pay cash
dividends or make other distributions with respect to their common stock.
RISK FACTORS
For each series of debt securities, we will include risk factors, if
appropriate, in the prospectus supplement relating to that series.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-3 (Registration No. 333- )
under the Securities Act of 1933, as amended, with respect to the securities
that we are offering by this prospectus. This prospectus, which forms a part of
the registration statement, does not contain all of the information set forth
in the registration statement and the exhibits to the registration statement.
Some items are omitted in accordance with the rules and regulations of the SEC.
For further information about us and the securities we offer in this
prospectus, we refer you to the registration statement and the exhibits to the
registration statement.
We are required to file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file, including the registration statement of which this prospectus
is a part, at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may
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obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC, from
which you can electronically access our SEC filings.
The SEC allows us to "incorporate by reference" the information in documents
that we file with them. This means that we can disclose important information
to you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus, and information in documents
that we file after the date of this prospectus and before the termination of
the offering contemplated by this prospectus will automatically update and
supersede information in this prospectus.
We incorporate by reference our Current Report on Form 8-K filed with the
SEC on January 30, 2002 and our annual report on Form 10-K for the year ended
December 31, 2001 filed with the SEC on March 14, 2002. We also incorporate by
reference any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, until all of the
securities are sold.
We will provide without charge, upon written or oral request, to each
person, including any beneficial owner, to whom this prospectus is delivered, a
copy of any or all of the documents described above which have been or may be
incorporated by reference in this prospectus but not delivered with this
prospectus. Such request should be directed to:
Kraft Foods Inc.
Three Lakes Drive
Northfield, IL 60093
Attention: Office of the Corporate Secretary
Telephone: (847) 646-2805
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus, the applicable
prospectus supplement and the documents we have incorporated by reference
contain forward-looking statements. You can identify these forward-looking
statements by the use of words like "strategy," "expects," "plans,"
"anticipates," "believes," "will," "estimates," "intends," "projects," "goals,"
"targets" and other words of similar meaning. You can also identify them by the
fact that they do not relate strictly to historical or current facts. These
statements are based on our assumptions and estimates and are subject to risks
and uncertainties. We are identifying below important factors that could cause
actual results and outcomes to differ materially from those contained in any
forward-looking statement. Any such statement is qualified by reference to the
following cautionary statement.
Demand for our products is subject to intense competition, changes in
consumer preferences, the effects of changing prices for our raw materials and
local economic conditions. Our results are dependent upon our continued ability
to:
. promote our brands successfully;
. anticipate and respond to new consumer trends;
. develop new products and markets;
. broaden our brand portfolio in order to compete effectively with lower
priced products in a consolidating environment at the retail and
manufacturing levels;
. improve productivity; and
. respond to changing prices for our raw materials.
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Our results are also dependent upon our ability to continue to successfully
integrate and derive cost savings from the integration of Nabisco's operations
with ours. In addition, we are subject to the effects of foreign economies,
currency movements and fluctuations in levels of customer inventories. The food
industry continues to be subject to the possibility that consumers could lose
confidence in the safety and quality of certain food products. Developments in
any of these areas could cause our results to differ materially from results
that have been or may be projected.
We caution you that the above list of important factors is not exclusive,
and other factors may be discussed in more detail under "Risk Factors" in the
applicable prospectus supplement or in our SEC filings incorporated by
reference. Any forward-looking statements are made as of the date of the
document in which they appear.
THE COMPANY
We are the largest branded food and beverage company headquartered in the
United States and the second largest in the world based on 2001 revenue. Before
the initial public offering of our common stock in June 2001, we were a
wholly-owned subsidiary of Philip Morris. Immediately after the initial public
offering and through the date of this prospectus, Philip Morris owned
approximately 83.9% of the outstanding shares of our capital stock through its
ownership of 49.5% of our outstanding Class A common stock and 100% of our
Class B common stock. Class A common stock carries one vote per share, while
Class B common stock carries ten votes per share. Accordingly, Philip Morris
owns common stock representing 97.7% of the combined voting power of our common
stock.
We have a superior brand portfolio created and supported through dynamic
product innovation, worldclass marketing, experienced management, global scale
and strategic acquisitions. Our brands are sold in more than 145 countries and,
according to A.C. Nielsen, are enjoyed in over 99% of the households in the
United States.
In December 2000, to expand our global presence and to strengthen our
position in the fast growing snacks consumer sector, we acquired Nabisco, the
largest manufacturer and marketer of cookies and crackers in the world based on
retail sales.
Our collection of brands represents one of the strongest portfolios in the
food and beverage industry. Our brands enjoy consumer loyalty and trust and
offer our retailer customers a strong combination of growth and profitability.
Our portfolio of brands includes Kraft, Nabisco, Oscar Mayer, Post, Maxwell
House and Philadelphia.
Our superior brand portfolio spans five core consumer sectors:
. Snacks -- primarily cookies, crackers, salty snacks and confectionery;
. Beverages -- primarily coffee, aseptic juice drinks and powdered soft
drinks;
. Cheese -- primarily natural, process and cream cheeses;
. Grocery -- primarily ready-to-eat cereals, enhancers and desserts; and
. Convenient Meals -- primarily frozen pizza, packaged dinners, lunch
combinations and processed meats.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
Years ended December 31,
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2001 2000 1999 1998 1997
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Ratios of earnings to fixed charges.......... 3.2 5.8 5.6 5.7 6.2
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Earnings available for fixed charges represent earnings before income taxes
and cumulative effect of accounting change(s) and fixed charges excluding
capitalized interest, net of amortization, reduced by undistributed earnings of
our less than 50% owned affiliates. Fixed charges represent interest expense,
amortization of debt discount and expenses, capitalized interest, plus that
portion of rental expense deemed to be the equivalent of interest.
USE OF PROCEEDS
Unless we otherwise state in the applicable prospectus supplement, we will
use the net proceeds from the sale of the offered securities to refinance
maturing long-term indebtedness and our note payable to Philip Morris, which
had an outstanding principal balance of $4.0 billion at April 18, 2002, bears
interest at an annual rate of 7.00% and matures in 2009, and the balance for
general corporate purposes.
DESCRIPTION OF DEBT SECURITIES
The debt securities covered by this prospectus will be our direct unsecured
obligations. The debt securities will be issued in one or more series under an
indenture dated as of October 17, 2001 between us and The Chase Manhattan Bank
(now known as JPMorgan Chase Bank), as trustee.
The indenture has been filed as an exhibit to the registration statement of
which this prospectus forms a part. This prospectus briefly describes the
material indenture provisions. Those descriptions are qualified in all respects
by reference to the actual text of the indenture. For your reference, in the
summary that follows, we have included references to section numbers of the
indenture so that you can more easily locate these provisions.
The material financial, legal and other terms particular to debt securities
of each series will be described in the prospectus supplement relating to the
debt securities of that series. The prospectus supplement relating to the debt
securities of the series will be attached to the front of this prospectus. The
following briefly summarizes the material provisions of the indenture and the
debt securities, other than pricing and related terms disclosed in the
accompanying prospectus supplement. The prospectus supplement will also state
whether any of the terms summarized below do not apply to the series of debt
securities being offered. You should read the more detailed provisions of the
indenture, including the defined terms, for provisions that may be important to
you. You should also read the particular terms of a series of debt securities,
which will be described in more detail in the applicable prospectus supplement.
Prospective purchasers of debt securities should be aware that special
United States federal income tax, accounting and other considerations not
addressed in this prospectus may be applicable to instruments such as the debt
securities. The prospectus supplement relating to an issue of debt securities
will describe these considerations, if they apply.
Capitalized terms used below are defined under "Defined Terms."
General
The debt securities will rank equally with all of our other unsecured and
unsubordinated debt. The indenture does not limit the amount of debt we may
issue under the indenture and provides that additional debt securities may be
issued up to the aggregate principal amount authorized by a board resolution.
We may issue the debt securities from time to time in one or more series with
the same or various maturities, at par, at a discount or at a premium. The
prospectus supplement relating to any debt securities being offered will
include specific terms relating to the offering, including the particular
amount, price and other terms of those debt securities. These terms will
include some or all of the following:
. the title of the debt securities;
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. any limit upon the aggregate principal amount of the debt securities;
. the date or dates on which the principal of the debt securities will be
payable or their manner of determination;
. if the securities will bear interest:
. the interest rate or rates;
. the date or dates from which any interest will accrue;
. the interest payment dates for the debt securities; and
. the regular record date for any interest payable on any interest
payment date;
or, in each case, their method of determination;
. the place or places where the principal of, and any premium and interest
on, the debt securities will be payable;
. currency or units of two or more currencies in which the debt securities
will be denominated and payable, if other than U.S. dollars, and the
holders' rights, if any, to elect payment in a foreign currency or a
foreign currency unit, including the Euro, other than that in which the
debt securities are payable;
. whether the amounts of payments of principal of, and any premium and
interest on, the debt securities are to be determined with reference to an
index, formula or other method, and if so, the manner in which such
amounts will be determined;
. whether the debt securities will be issued in whole or in part in the form
of global securities and, if so, the depositary and the global exchange
agent for the global securities, whether permanent or temporary;
. whether the debt securities will be issued as registered securities,
bearer securities or both, and any restrictions on the exchange of one
form of debt securities for another and on the offer, sale and delivery of
the debt securities in either form;
. if the debt securities are issuable in definitive form upon the
satisfaction of certain conditions, the form and terms of such conditions;
. if denominations other than $1,000 or any integral multiple of $1,000, the
denominations in which the debt securities will be issued;
. the period or periods within which, the price or prices at which and the
terms on which any of the debt securities may be redeemed, in whole or in
part at our option, and any remarketing arrangements;
. the terms on which we would be required to redeem, repay or purchase debt
securities required by any sinking fund, mandatory redemption or similar
provision; and the period or periods within which, the price or prices at
which and the terms and conditions on which the debt securities will be so
redeemed, repaid and purchased in whole or in part;
. the portion of the principal amount of the debt securities that is payable
on the declaration of acceleration of the maturity, if other than their
principal amount; these debt securities could include original issue
discount, or OID, debt securities or indexed debt securities, which are
each described below;
. any special tax implications of the debt securities, including whether and
under what circumstances we will pay additional amounts under any debt
securities held by a person who is not a United States person for tax
payments, assessments or other governmental charges and whether we have
the option to redeem the debt securities which are affected by the
additional amounts instead of paying the additional amounts;
. any addition to or modification or deletion of any provisions for the
satisfaction and discharge of our obligations under the indenture and
specific series of debt securities;
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. whether and to what extent the debt securities are subject to defeasance
on terms different from those described under the heading "Defeasance";
. any trustees, paying agents, transfer agents, registrars, depositaries or
similar agents with respect to the debt securities;
. if the debt securities bear no interest, any dates on which lists of
holders of these debt securities must be provided to the trustee;
. any addition to, or modification or deletion of, any event of default or
any covenant specified in the indenture; and
. any other specific terms of the debt securities.
(Section 301)
We may issue debt securities as original issue discount, or OID, debt
securities. OID debt securities bear no interest or bear interest at
below-market rates and are sold at a discount below their stated principal
amount. If we issue OID debt securities, the prospectus supplement will contain
the issue price of the securities and the rate at which and the date from which
discount will accrete.
We may also issue indexed debt securities. Payments of principal of, and any
premium and interest on, indexed debt securities are determined with reference
to the rate of exchange between the currency or currency unit in which the debt
security is denominated and any other currency or currency unit specified by
us, to the relationship between two or more currencies or currency units, to
the price of one or more specified securities or commodities, to one or more
securities or commodities exchange indices or other indices or by other similar
methods or formulas, all as specified in the prospectus supplement.
We may issue debt securities other than the debt securities described in
this prospectus. There is no requirement that any other debt securities that we
issue be issued under the indenture. Thus, any other debt securities that we
issue may be issued under other indentures or documentation containing
provisions different from those included in the indenture or applicable to one
or more issues of the debt securities described in this prospectus. (Section
301)
Consolidation, Merger or Sale
We have agreed not to consolidate with or merge into any other corporation
or convey or transfer or lease substantially all of our properties and assets
to any person, unless:
. we are a continuing corporation or any successor purchaser is an entity
organized under the laws of the United States or any state of the United
States;
. the successor corporation expressly assumes by a supplemental indenture
the due and punctual payment of the principal of, and any premium and
interest on, all the debt securities and the performance of every covenant
in the indenture that we would otherwise have to perform as if it were an
original party to the indenture;
. immediately after the effective date of the transaction, no event of
default has occurred and is continuing under the indenture; and
. we deliver to the trustee an officers' certificate and an opinion of
counsel, each stating that the consolidation, merger, conveyance or
transfer and the supplemental indenture comply with these provisions.
The successor corporation will assume all our obligations under the
indenture as if it were an original party to the indenture. After assuming such
obligations, the successor corporation will have all our rights and powers
under the indenture.
(Section 801)
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Waivers Under the Indenture
Under the indenture, the holders of a majority in aggregate principal amount
of the outstanding debt securities of any series, may on behalf of all holders
of that series:
. waive our compliance with certain covenants of the indenture; and
(Section 1009)
. waive any past default under the indenture, except:
. a default in the payment of the principal of, or any premium or
interest on, any debt securities of the series; and
. a default under any provision of the indenture which itself cannot be
modified without the consent of the holders of each affected debt
security of the series.
(Section 513)
Events of Default
When we use the term "Event of Default" in the indenture, we mean any of the
following:
. we fail to pay interest on any debt security for 30 days after payment was
due;
. we fail to make payment of the principal of, or any premium on, any debt
security when due;
. we fail to make any sinking fund payment when due;
. we fail to perform any other covenant or warranty in the indenture and
this failure continues for 90 days after we receive written notice of it
from the trustee or holders of 25% in principal amount of the outstanding
debt securities of that series;
. we or a court take certain actions relating to bankruptcy, insolvency or
reorganization of our company; or
. any other event of default that may be specified for the debt securities
of the series or in the board resolution with respect to the debt
securities of that series.
(Section 501)
The supplemental indenture or the form of security for a particular series
of debt securities may include additional Events of Default or changes to the
Events of Default described above. The Events of Default applicable to a
particular series of debt securities will be discussed in the prospectus
supplement relating to such series.
A default with respect to a single series of debt securities under the
indenture will not necessarily constitute a default with respect to any other
series of debt securities issued under the indenture. A default under our other
indebtedness will not be a default under the indenture. The trustee may
withhold notice to the holders of debt securities of any default, except for
defaults that involve our failure to pay principal or interest, if it
determines in good faith that the withholding of notice is in the interest of
the holders. (Section 602)
If an Event of Default for any series of debt securities occurs and
continues (other than an Event of Default involving our bankruptcy, insolvency
or reorganization), either the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding debt securities of the affected
series may require us upon notice in writing to us, to immediately repay the
entire principal (or, in the case of (a) OID debt securities, a lesser amount
as provided in those OID debt securities or (b) indexed debt securities, an
amount determined by the terms of those indexed debt securities), of all the
debt securities of such series together with accrued interest on the debt
securities.
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If an Event of Default occurs which involves our bankruptcy, insolvency or
reorganization, then all unpaid principal amounts (or, if the debt securities
are (a) OID debt securities, then the portion of the principal amount that is
specified in those OID debt securities or (b) indexed debt securities, then the
portion of the principal amount that is determined by the terms of those
indexed debt securities) and accrued interest on all debt securities of each
series will immediately become due and payable, without any action by the
trustee or any holder of debt securities. (Section 502)
Subject to certain conditions, the holders of a majority in principal amount
of the outstanding debt securities of a series may rescind a declaration of
acceleration if all events of default, besides the failure to pay principal or
interest due solely because of the declaration of acceleration, have been cured
or waived. (Section 502)
Other than its duties in case of a default, the trustee is not obligated to
exercise any of its rights or powers under the indenture at the request, order
or direction of any holders, unless the holders offer the trustee reasonable
indemnity. The holders of a majority in principal amount outstanding of any
series of debt securities may, subject to certain limitations, direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee, or exercising any power conferred upon the trustee, for any series of
debt securities.
The indenture requires us to file each year with the trustee, an officer's
certificate that states that:
. the signing officer has supervised a review of the activities and
performance under the indenture; and
. to the best of his or her knowledge, based on the review, we comply with
all conditions and covenants of the indenture.
(Section 1005)
A judgment for money damages by courts in the United States, including a
money judgment based on an obligation expressed in a foreign currency, will
ordinarily be rendered only in U.S. dollars. New York statutory law provides
that a court shall render a judgment or decree in the foreign currency of the
underlying obligation and that the judgment or decree shall be converted into
U.S. dollars at the exchange rate prevailing on the date of entry of the
judgment or decree. If a court requires a conversion to be made on a date other
than a judgment date, the indenture requires us to pay additional amounts
necessary to ensure that the amount paid in U.S. dollars to a holder is equal
to the amount due in such foreign currency. (Section 516)
Payment and Transfer
We will pay the principal of, and any premium and interest on, fully
registered securities at the place or places that we will designate for such
purposes. We will make payment to the persons in whose names the debt
securities are registered on the close of business on the day or days that we
will specify in accordance with the indenture. We will pay the principal of,
and any premium on, registered debt securities only against surrender of those
debt securities. Any other payments, including payment on any securities issued
in bearer form, will be made as set forth in the applicable prospectus
supplement. Holders may transfer or exchange fully registered securities at the
corporate trust office of the trustee or at any other office or agency,
maintained for such purposes, without the payment of any service charge except
for any tax or governmental charge. (Section 305)
Restrictive Covenants
The indenture includes the following restrictive covenants:
Limitations on Liens
The indenture limits the amount of liens that we or our Subsidiaries may
incur or otherwise create in order to secure indebtedness for borrowed money,
upon any Principal Facility or any shares of capital stock that any of
8
our Subsidiaries owning any Principal Facility has issued to us or any of our
Subsidiaries. If we or any of our Subsidiaries incur such liens, then we will
secure the debt securities to the same extent and in the same proportion as the
debt that is secured by such liens. This covenant does not apply, however, to
any of the following:
. in the case of a Principal Facility, liens incurred in connection with the
issuance by a state or its political subdivision of any securities the
interest on which is exempt from United States federal income taxes by
virtue of Section 103 of the Internal Revenue Code or any other laws and
regulations in effect at the time of such issuance;
. liens existing on the date of the indenture;
. liens on property or shares of stock existing at the time we or any of our
Subsidiaries acquire such property or shares of stock, including through a
merger, share exchange or consolidation, or securing the payment of all or
part of the purchase price, construction or improvement of such property
incurred prior to, during, or within 180 days after the later of the
acquisition, completion of construction or improvement or commencement of
full operation of such property or within 180 days after the acquisition
of such shares for the purpose of financing all or a portion of such
purchase of the property or construction or improvement on it; or
. liens for the sole purpose of extending, renewing or replacing all or a
part of the indebtedness secured by any lien referred to in the previous
bullet points or in this bullet point if the extension, removal and
replacement is limited to all or a part of the property secured by the
original lien.
Notwithstanding the foregoing, we and/or any of our Subsidiaries may incur
liens that would otherwise be subject to the restriction described above,
without securing debt securities issued under the indenture equally and
ratably, if the aggregate value of all outstanding indebtedness secured by the
liens and the value of Sale and Leaseback Transactions does not at the time
exceed the greater of:
. 10% of our Consolidated Net Tangible Assets; or
. 10% of our Consolidated Capitalization.
As of December 31, 2001, our Consolidated Net Tangible Assets were $10.9
billion and our Consolidated Capitalization was $41.9 billion.
(Section 1007)
Sale and Leaseback Transactions
A Sale and Leaseback Transaction of any Principal Facility is prohibited,
unless within 180 days of the effective date of the arrangement, an amount
equal to the greater of the proceeds of the sale or the fair value of the
property ("value") is applied to the retirement of long-term non-subordinated
indebtedness for money borrowed with more than one year stated maturity,
including our debt securities, except that such sales and leasebacks are
permitted to the extent that the "value" thereof plus the other secured debt
referred to in the previous paragraph does not exceed the amount stated in the
previous paragraph. (Section 1008)
There are no other restrictive covenants in the indenture. The indenture
does not require us to maintain any financial ratios, minimum levels of net
worth or liquidity or restrict the payment of dividends, the making of other
distributions on our capital stock or the redemption or purchase of our capital
stock. Moreover, the indenture does not contain any provision requiring us to
repurchase or redeem any debt securities or debt warrants or modify the terms
thereof or afford the holders thereof any other protection in the event of our
change of control, any highly leveraged transaction or any other event
involving us that may materially adversely affect our creditworthiness or the
value of the debt securities or debt warrants.
9
Defined Terms
We define Subsidiaries as any corporation of which at least a majority of
all outstanding stock having ordinary voting power in the election of directors
of such corporation is at the time, directly or indirectly, owned by us or by
one or more Subsidiaries or by us and one or more Subsidiaries. (Section 101)
We define Principal Facility as all real property owned and operated by us
or any Subsidiary located within the United States and constituting part of any
manufacturing plant or distribution facility, including all attached plumbing,
electrical, ventilating, heating, cooling, lighting and other utility systems,
ducts and pipes but excluding trade fixtures (unless their removal would cause
substantial damage to the manufacturing plant or distribution facility),
business machinery, equipment, motorized vehicles, tools, supplies and
materials, security systems, cameras, inventory and other personal property and
materials. However, no manufacturing plant or distribution facility will be a
Principal Facility unless its net book value exceeds 0.25% of Consolidated
Capitalization. (Section 1007)
We define a Sale and Leaseback Transaction as the sale or transfer of a
Principal Facility with the intention of taking back a lease of the property,
except a lease for a temporary period of less than 3 years, including renewals,
with the intent that the use by us or any Subsidiary will be discontinued on or
before the expiration of such period. (Section 1008)
We define Consolidated Net Tangible Assets as the excess of all assets over
current liabilities appearing on our most recent quarterly or annual
consolidated balance sheet, less goodwill and other intangible assets and the
minority interests of others in Subsidiaries. (Section 101)
We define Consolidated Capitalization as the total of all of the assets
appearing on our most recent quarterly or annual consolidated balance sheet,
less:
. current liabilities, including liabilities for indebtedness maturing more
than 12 months from the date of the original creation thereof, but
maturing within 12 months from the date of our most recent quarterly or
annual consolidated balance sheet; and
. deferred income tax liabilities reflected in such consolidated balance
sheet.
(Section 101)
Global Securities
We may issue the securities in whole or in part in the form of one or more
global securities that will be deposited with, or on behalf of, a depositary
identified in the applicable prospectus supplement.
We may issue the global securities in either registered or bearer form and
in either temporary or permanent form. We will describe the specific terms of
the depositary arrangement with respect to a series of securities in the
applicable prospectus supplement. We anticipate that the following provisions
will apply to all depositary arrangements.
Once a global security is issued, the depositary will credit on its
book-entry system the respective principal amounts of the individual securities
represented by that global security to the accounts of institutions that have
accounts with the depositary. These institutions are known as participants.
The underwriters for the securities will designate the accounts to be
credited. However, if we have offered or sold the securities either directly or
through agents, we or the agents will designate the appropriate accounts to be
credited.
Ownership of beneficial interests in a global security will be limited to
participants or persons that may hold beneficial interests through
participants. Ownership of beneficial interests in a global security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the depositary's
10
participants or persons that may hold through participants. The laws of some
states require that certain purchasers of securities take physical delivery of
securities. Those laws may limit the market for beneficial interests in a
global security.
So long as the depositary for a global security, or its nominee, is the
registered owner of a global security, the depositary or nominee will be
considered the sole owner or holder of the securities represented by the global
security for all purposes under the indenture. Except as provided in the
applicable prospectus supplement, owners of beneficial interests in a global
security:
. will not be entitled to have securities represented by global securities
registered in their names;
. will not receive or be entitled to receive physical delivery of securities
in definitive form; and
. will not be considered owners or holders of these securities under the
indenture.
Payments of principal of, and any premium and interest on, the individual
securities registered in the name of the depositary or its nominee will be made
to the depositary or its nominee as the registered owner of that global
security.
Neither we nor the trustee will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests of a global security, or for maintaining, supervising or
reviewing any records relating to beneficial ownership interests and each of us
and the trustee may act or refrain from acting without liability on any
information provided by the depositary.
We expect that the depositary, after receiving any payment of principal of,
and any premium and interest on, a global security, will immediately credit the
accounts of the participants with payments in amounts proportionate to their
respective holdings in principal amount of beneficial interest in a global
security as shown on the records of the depositary. We also expect that
payments by participants to owners of beneficial interests in a global security
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
participants.
Debt securities represented by a global security will be exchangeable for
debt securities in definitive form of like tenor in authorized denominations
only if:
. the depositary notifies us that it is unwilling or unable to continue as
the depositary and a successor depositary is not appointed by us within 90
days;
. we deliver to the trustee for securities of such series in registered form
a company order stating that the securities of such series shall be
exchangeable; or
. an Event of Default has occurred and is continuing with respect to
securities of such series.
Unless and until a global security is exchanged in whole or in part for debt
securities in definitive certificated form, it may not be transferred or
exchanged except as a whole by the depositary.
You may transfer or exchange certificated securities at any office that we
maintain for this purpose in accordance with the terms of the indenture. We
will not charge a service fee for any transfer or exchange of certificated
securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge that we are required to pay in connection with a
transfer or exchange.
(Section 305)
Registration of Transfer
You may effect the transfer of certificated securities and the right to
receive the principal of, and any premium and interest on, certificated
securities only by surrendering the certificate representing those certificated
11
securities and either reissuance by us or the trustee of the certificate to the
new holder or the issuance by us or the trustee of a new certificate to the new
holder.
We are not required to:
. issue, register, transfer or exchange securities of any series during a
period beginning at the opening of business 15 days before the day we
transmit a notice of redemption of the securities of the series selected
for redemption and ending at the close of business on the day of the
transmission;
. register, transfer or exchange any security so selected for redemption in
whole or in part, except the unredeemed portion of any security being
redeemed in part; or
. exchange any bearer securities selected for redemption except if a bearer
security is exchanged for a registered security of the same tenor that is
simultaneously surrendered for redemption.
(Section 305)
Exchange
At your option, you may exchange your registered debt securities of any
series, except a global security, for an equal principal amount of other
registered debt securities of the same series having authorized denominations
upon surrender to our designated agent.
We may at any time exchange debt securities issued as one or more global
securities for an equal principal amount of debt securities of the same series
in definitive registered form. In this case, we will deliver to the holders new
debt securities in definitive registered form in the same aggregate principal
amount as the global securities being exchanged.
The depositary of the global securities may also decide at any time to
surrender one or more global securities in exchange for debt securities of the
same series in definitive registered form, in which case we will deliver the
new debt securities in definitive form to the persons specified by the
depositary, in an aggregate principal amount equal to, and in exchange for,
each person's beneficial interest in the global securities.
Notwithstanding the above, we will not be required to exchange any debt
securities if, as a result of the exchange, we would suffer adverse
consequences under any United States law or regulation.
(Section 305)
Defeasance
Unless otherwise specified in the prospectus supplement, we can terminate
all of our obligations under the indenture with respect to the debt securities,
other than the obligation to pay the principal of, and any premium and interest
on, the debt securities and certain other obligations, at any time by:
. depositing money or United States government obligations with the trustee
in an amount sufficient to pay the principal of, and any premium and
interest on, the debt securities to their maturity; and
. complying with certain other conditions, including delivery to the trustee
of an opinion of counsel to the effect that holders of debt securities
will not recognize income, gain or loss for United States federal income
tax purposes as a result of our defeasance.
In addition, unless otherwise specified in the prospectus supplement, we can
terminate all of our obligations under the indenture with respect to the debt
securities, including the obligation to pay the principal of, and any premium
and interest on, the debt securities, at any time by:
. depositing money or United States government obligations with the trustee
in an amount sufficient to pay the principal of, and the interest and any
premium on, the debt securities to their maturity; and
12
. complying with certain other conditions, including delivery to the trustee
of an opinion of counsel stating that there has been a ruling by the
Internal Revenue Service, or a change in the United States federal tax law
since the date of the indenture, to the effect that holders of debt
securities will not recognize income, gain or loss for United States
federal income tax purposes as a result of our defeasance.
(Sections 402-404)
Payments of Unclaimed Moneys
Moneys deposited with the trustee or any paying agent for the payment of
principal of, or any premium and interest on, any debt securities that remain
unclaimed for two years will be repaid to us at our request, unless the law
requires otherwise. If this happens and you want to claim these moneys, you
must look to us and not to the trustee or paying agent. (Section 409)
Supplemental Indentures Not Requiring Consent of Holders
Without the consent of any holders of debt securities, we and the trustee
may supplement the indenture, among other things, to:
. pledge property to the trustee as security for the debt securities;
. reflect that another entity has succeeded us and assumed the covenants and
obligations of us under the debt securities and the indenture;
. cure any ambiguity or inconsistency in the indenture or in the debt
securities or make any other provisions necessary or desirable, as long as
the interests of the holders of the debt securities are not adversely
affected in any material respect;
. issue and establish the form and terms of any series of debt securities as
provided in the indenture;
. add to our covenants further covenants for the benefit of the holders of
debt securities, and if the covenants are for the benefit of less than all
series of debt securities, stating which series are entitled to benefit;
. add any additional event of default and if the new event of default
applies to fewer than all series of debt securities, stating to which
series it applies;
. change the trustee or provide for an additional trustee;
. provide additional provisions for bearer debt securities so long as the
action does not adversely affect the interests of holders of any debt
securities in any material respect; or
. modify the indenture in order to continue its qualification under the
Trustee Indenture Act of 1939 or as may be necessary or desirable in
accordance with amendments to that Act.
(Section 901)
Supplemental Indentures Requiring Consent of Holders
With the consent of the holders of a majority in principal amount of the
series of the debt securities that would be affected by a modification of the
indenture, the indenture permits us and the trustee to supplement the indenture
or modify in any way the terms of the indenture or the rights of the holders of
the debt securities. However, without the consent of each holder of all of the
debt securities affected by that modification, we and the trustee may not:
. modify the maturity date of, or reduce the principal of, or premium on, or
change the stated final maturity of, any debt security;
13
. reduce the rate of or change the time for payment of interest on any debt
security or, in the case of OID debt securities, reduce the rate of
accretion of the OID;
. change any of our obligations to pay additional amounts under the
indenture;
. reduce or alter the method of computation of any amount payable upon
redemption, repayment or purchase of any debt security by us, or the time
when the redemption, repayment or purchase may be made;
. make the principal or interest on any debt security payable in a currency
other than that stated in the debt security or change the place of payment;
. reduce the amount of principal due on an OID debt security upon
acceleration of maturity or provable in bankruptcy or reduce the amount
payable under the terms of an indexed debt security upon acceleration of
maturity or provable in bankruptcy;
. impair any right of repayment or purchase at the option of any holder of
debt securities;
. reduce the right of any holder of debt securities to receive or sue for
payment of the principal or interest on a debt security that would be due
and payable at the maturity thereof or upon redemption; or
. reduce the percentage in principal amount of the outstanding debt
securities of any series required to supplement the indenture or to waive
any of its provisions.
(Section 902)
A supplemental indenture that modifies or eliminates a provision intended to
benefit the holders of one series of debt securities will not affect the rights
under the indenture of holders of other series of debt securities.
Redemption
The specific terms of any redemption of series of debt securities will be
contained in the prospectus supplement for that series. Generally, we must send
notice of redemption to the holders at least 30 days but not more than 60 days
prior to the redemption date. The notice will specify:
. the principal amount being redeemed;
. the redemption date;
. the redemption price;
. the place or places of payment;
. the CUSIP number of the debt securities being redeemed;
. whether the redemption is pursuant to a sinking fund;
. that on the redemption date, interest, or, in the case of OID debt
securities, original issue discount, will cease to accrue; and
. if bearer debt securities are being redeemed, that those bearer debt
securities must be accompanied by all coupons maturing after the
redemption date or the amount of the missing coupons will be deducted from
the redemption price, or indemnity must be furnished, and whether those
bearer debt securities may be exchanged for registered debt securities not
being redeemed.
(Section 1104)
On or before any redemption date, we will deposit an amount of money with
the trustee or with a paying agent sufficient to pay the redemption price.
(Section 1105)
14
If less than all the debt securities are being redeemed, the trustee shall
select the debt securities to be redeemed using a method it considers fair.
(Section 1103) After the redemption date, holders of debt securities which were
redeemed will have no rights with respect to the debt securities except the
right to receive the redemption price and any unpaid interest to the redemption
date. (Section 1106)
Concerning the Trustee
JPMorgan Chase Bank is the trustee under the indenture. JPMorgan Chase Bank
makes loans to, acts as trustee and performs certain other services for us and
certain of our subsidiaries and affiliates, including our parent, Philip
Morris, in the normal course of its business. Among other services, JPMorgan
Chase Bank or its affiliates provide us and our affiliates with investment
banking and cash management services, foreign exchange and investment custody
account services, and participate in our credit facilities and those of our
affiliates.
Governing Law
The laws of the State of New York govern the indenture and will govern the
debt securities.
(Section 112)
15
DESCRIPTION OF DEBT WARRANTS
We may issue debt warrants in registered certificated form for the purchase
of debt securities. We may issue debt warrants separately or together with any
debt securities offered by any prospectus supplement. If issued together with
any debt securities, debt warrants may be attached to or separate from such
debt securities. Debt warrants will be issued under debt warrant agreements to
be entered into between us and a bank or trust company, as debt warrant agent,
all as set forth in the prospectus supplement relating to the particular issue
of debt warrants. The debt warrant agent will act solely as our agent in
connection with the warrants and will not assume any obligation or relationship
of agency or trust for or with any holders or beneficial owners of warrants.
The forms of debt warrant agreement and debt warrant certificate are filed as
exhibits to the registration statement of which this prospectus forms a part.
The following summaries of certain provisions from the forms of debt warrant
agreement and debt warrant certificate are qualified in all respects by
reference to the applicable forms of debt warrant agreement and debt warrant
certificate, and you should read the applicable forms of debt warrant agreement
and debt warrant certificate for additional information before you buy any debt
warrants.
General
The prospectus supplement will describe the terms of the debt warrants
offered thereby, the debt warrant agreements relating to such debt warrants and
the debt warrant certificates representing such debt warrants, including the
following:
. the offering price;
. the designation, aggregate principal amount and terms of the debt
securities purchasable upon exercise of the debt warrants;
. if applicable, the designation and terms of the debt securities with which
the debt warrants are issued and the number of debt warrants issued with
each such debt security;
. if applicable, the date on and after which the debt warrants and the
related debt securities will be separately transferable;
. the principal amount of debt securities purchasable upon exercise of one
debt warrant and the price at which such principal amount of debt
securities may be purchased upon such exercise, and any provisions for
changes to or adjustments in the exercise price;
. the date on which the right to exercise the debt warrants will commence
and the date on which such right will expire;
. the maximum or minimum number of warrants which may be exercised at any
time;
. United States federal income tax consequences;
. the identity of the debt warrant agent; and
. any other terms of the debt warrants.
Debt warrant certificates may be exercised, and those that have been issued
separately or, if issued together with debt securities, once detachable, may be
exchanged for new debt warrant certificates of different denominations and may
be presented for registration of transfer at the corporate trust office of the
debt warrant agent or any other office indicated in the applicable prospectus
supplement. A debt warrant certificate that is not immediately detachable from
a debt security may be exchanged or transferred only with the debt securities
to which it was initially attached, and only in connection with the exchange or
transfer of such debt securities. (Sections 4.01 and 5.05) Debt warrants for
the purchase of debt securities will be in registered form only. (Section 1.02)
Exercise of Debt Warrants
Each debt warrant will entitle its holder to purchase for cash such
principal amount of debt securities at such exercise price as will in each case
be set forth in, or calculable from, the applicable prospectus supplement
16
relating to the debt warrants. (Section 2.01) Each holder of a debt warrant may
exercise it at any time up to 5:00 p.m., New York City time, on the debt
warrant expiration date set forth in the prospectus supplement. After such
time, or such later date to which such debt warrant expiration date may be
extended by us, unexercised debt warrants will be void. (Section 2.02)
A holder of a debt warrant may exercise it by following the general
procedures outlined below:
. delivering to the debt warrant agent the payment required by the
applicable prospectus supplement to purchase the underlying debt security;
. properly completing and signing the reverse side of the debt warrant
certificate; and
. delivering the debt warrant certificate to the debt warrant agent.
If you comply with the procedures described above, your debt warrant will be
considered to have been exercised when the debt warrant agent receives payment
of the exercise price. After you have completed those procedures, we will, as
soon as practicable, issue and deliver to you the debt security that you
purchased upon exercise. If you exercise fewer than all of the debt warrants
represented by a debt warrant certificate, the debt warrant agent will issue to
you a new debt warrant certificate for the unexercised amount of debt warrants.
Holders of debt warrants will be required to pay any tax or governmental charge
that may be imposed in connection with transferring the underlying securities
in connection with the exercise of the debt warrants. (Section 2.03)
Modifications
We, along with the debt warrant agent, may amend the debt warrant agreement
and the terms of the debt warrants, without the consent of the holders, for the
purpose of curing any ambiguity, or curing, correcting or supplementing any
defective provision contained in the debt warrant agreement, or in any other
manner which we and the debt warrant agent may deem necessary or desirable and
which will not adversely affect the interests of the holders. With the consent
of holders holding not fewer than a majority in number of the then outstanding
unexercised warrants that would be affected by a modification of the debt
warrant agreement or debt warrant certificates, we, along with the debt warrant
agent, may amend the debt warrant agreement and the terms of the debt warrants
in any way, other than to increase the exercise price, shorten the time period
during which warrants may be exercised, reduce the percentage of the number of
outstanding warrants required to consent to a modification, or materially and
adversely affect the exercise rights of the holders. (Section 6.01)
Enforceability of Rights by Holders; Governing Law
The debt warrant agent will act solely as our agent in connection with the
debt warrant certificates and will not assume any obligations or relationship
of agency or trust for or with any holders of debt warrant certificates.
(Section 5.02) Holders may, without the consent of the debt warrant agent or
the trustee for the applicable series of debt securities, enforce by
appropriate legal action, on their own behalf, their right to exercise their
debt warrants in the manner provided in their debt warrant certificates and the
debt warrant agreement. (Section 3.03) Prior to the exercise of their debt
warrants, holders of debt warrants will not have any of the rights of holders
of the debt securities purchasable upon such exercise, including the right to
receive payments of principal of, and any premium or interest on, the debt
securities purchasable upon such exercise or to enforce covenants in the
indenture. (Section 3.01)
Except as may otherwise be provided in the applicable prospectus supplement,
each issue of debt warrants and the applicable debt warrant agreement will be
governed by and construed in accordance with the laws of the State of New York.
(Section 3.01)
17
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS
In the opinion of Sutherland Asbill & Brennan LLP, the following summary
describes generally the material United States federal income and estate tax
considerations with respect to your acquisition, ownership and disposition of
debt securities if you are a beneficial owner of such debt securities. Unless
otherwise indicated, this summary addresses only securities purchased at
original issue and held by beneficial owners as capital assets and does not
address all of the United States federal income and estate tax considerations
that may be relevant to you in light of your particular circumstances or if you
are subject to special treatment under United States federal income tax laws
(for example, if you are an insurance company, tax-exempt organization,
financial institution, broker or dealer in securities, person that holds debt
securities as part of an integrated investment (including a "straddle"),
"controlled foreign corporation," "passive foreign investment company,"
"foreign personal holding company," or company that accumulates earnings to
avoid United States federal income tax). If a partnership holds debt
securities, the tax treatment of a partner will generally depend upon the
status of the partner and the activities of the partnership. This summary does
not address special tax considerations that may be relevant to you if you are a
partner of a partnership holding our debt securities. This summary does not
discuss any aspect of state, local or non-United States taxation.
This summary is based on current provisions of the Internal Revenue Code
(the "Code"), Treasury regulations, judicial opinions, published positions of
the United States Internal Revenue Service ("IRS") and all other applicable
authorities, all of which are subject to change, possibly with retroactive
effect. This summary is not intended as tax advice.
We will summarize any special United States federal income tax
considerations relevant to a particular issue of debt securities in the
applicable prospectus supplement. The United States federal income tax
considerations relevant to any warrants to purchase debt securities that we
issue will be summarized in the applicable prospectus supplement.
We urge prospective holders of debt securities to consult their tax advisors
regarding the United States federal, state, local and non-United States income
and other tax considerations of acquiring, holding and disposing of debt
securities.
United States Holders
This discussion applies to you if you are a "United States Holder." For this
purpose, a "United States Holder" is a beneficial owner of a debt security that
is:
. 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;
. a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust; or
. a trust that existed on August 20, 1996, and elected to continue its
treatment as a domestic trust.
"United States" means the United States of America (including the States and
the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (including the Commonwealth of Puerto Rico).
18
Payments of Interest
Except as set forth below, payments of stated interest on a debt security
generally will be taxable to you as ordinary interest income at the time the
interest accrues or is received, in accordance with your method of accounting
for tax purposes. Special rules governing the treatment of debt securities
issued with original issue discount, or "OID," are described below.
OID Debt Securities
Special tax accounting rules apply to debt securities issued with OID. A
debt security with an "issue price" which is less than its "stated redemption
price at maturity" will be issued with OID for United States federal income tax
purposes. Generally, however, under the "de minimis exception," if the
difference between a debt security's stated redemption price at maturity and
its issue price is less than 0.25% of the stated redemption price at maturity
multiplied by the number of complete years from the issue date to maturity, the
debt security will not be considered to have OID.
"Issue price" is the first price at which a substantial amount of the
particular issue of debt securities is sold to the public. "Stated redemption
price at maturity" is the sum of all payments on the debt security other than
payments of "qualified stated interest." "Qualified stated interest" generally
includes interest that is unconditionally payable at least annually over the
entire term of the debt security:
. at a fixed rate; or
. unless the applicable prospectus supplement states otherwise, at a
variable rate.
If a series of debt securities will be issued with interest that is not
qualified stated interest, we will so state in the applicable prospectus
supplement and we will address any relevant United States federal income tax
considerations not addressed in this summary.
If you own a debt security with OID, you generally will be required to
include OID in gross income for United States federal income tax purposes as it
accrues, in accordance with a constant yield method based on a compounding of
interest, in advance of your receipt of the cash payments attributable to such
income. However, you will not be required to include such cash payments
separately in income when received, even if denominated as interest, to the
extent they do not constitute qualified stated interest. If you are on the cash
method of accounting for tax purposes, this will result in the acceleration of
your recognition of ordinary income in respect of the debt securities. Under
the constant yield method, increasing amounts of OID are included in income in
successive periods.
If you purchase a debt security with OID for an amount that is greater than
the debt security's "adjusted issue price" (defined as the issue price of the
debt security increased by the aggregate amount of OID includible, if any, in
the gross income of all previous owners of the debt security and decreased by
the aggregate amount of payments made on the debt security, if any, other than
payments of qualified stated interest) but equal to or less than the sum of all
amounts payable on the debt security after the purchase date (other than
payments of qualified stated interest), you will be considered to have
purchased such debt security at an "acquisition premium." The portion of
acquisition premium with respect to a debt security that is properly allocable
to any taxable year will reduce the amount of OID you must include in your
gross income with respect to such debt security for the taxable year.
If you own a debt security that qualifies for the de minimis exception
described above, you will be required to include the de minimis OID in income
at the time payments, other than payments of qualified stated interest, on the
debt securities are made in proportion to the amount paid. Any amount of de
minimis OID that you include in income will be treated as capital gain.
19
You may elect to accrue all "interest" on a debt security as OID (i.e.,
using the constant yield method). If you elect this method, the debt security's
issue price will be deemed to be your tax basis in the debt security at the
time you acquire it, and all payments on the debt security will be included in
its stated redemption price at maturity. This election is available whether or
not the debt security has OID, and it applies to any stated interest, OID
(including discount that is de minimis) and market discount (as discussed
below) on a debt security. You may make this election on an
obligation-by-obligation basis but, if you make it on an obligation you
purchased at a premium (defined below), it will require you to amortize premium
with respect to all of your debt instruments with premium. You must make the
election for the taxable year in which you acquired the debt security, and you
may not revoke the election without the consent of the IRS.
Market Discount
If you purchase a debt security other than an OID debt security (including a
purchase in connection with its original issuance) for an amount that is less
than its stated redemption price at maturity, or, in the case of an OID debt
security, its "revised issue price" (defined as the sum of the issue price of
the debt security and the aggregate amount, if any, of the OID included,
without regard to the rules for acquisition premium discussed below, in the
gross income of all previous owners of the debt security), the amount of the
difference will be treated as "market discount" for United States federal
income tax purposes, unless such difference is less than a specified de minimis
amount. Under the market discount rules, you will be required to treat any
payment other than qualified stated interest on, or any gain from the sale,
exchange, retirement or other disposition of, your debt security as ordinary
income to the extent of the market discount which you have not previously
included in income and are treated as having accrued on your debt security at
the time of such payment or disposition. In addition, you may be required to
defer, until the maturity of the debt security or its earlier disposition in a
taxable transaction, the deduction of all or a portion of any interest expense
on indebtedness incurred or continued to purchase or carry such debt security.
Market discount will be considered to accrue ratably during the period from
the date you acquire the debt security to the maturity date of the debt
security, unless you elect to accrue on a constant yield method. If you elect
to include market discount in income currently as it accrues (on either a
ratable or constant yield method), the rule described above regarding deferral
of interest deductions will not apply. This election to include market discount
in income currently, once made, will apply to all market discount obligations
acquired by you on or after the first day of the first taxable year to which
the election applies, and you may not revoke this election without the consent
of the IRS.
Premium
If you acquire a debt security for an amount that is greater than the sum of
all amounts payable on the debt security after the date of your acquisition
(other than payments of qualified stated interest), you will be considered to
have purchased such debt security at a premium. You may elect to amortize this
premium using a constant yield method, generally over the remaining term of the
debt security if the debt security is not subject to optional redemption prior
to maturity. Such premium shall be deemed to be an offset to interest otherwise
includible in income in respect of such debt security for each accrual period.
If the premium allocable to an accrual period exceeds the qualified stated
interest allocable to the accrual period, you must treat the excess as a bond
premium deduction for the accrual period. However, the amount treated as a bond
premium deduction for an accrual period is limited to the amount by which your
total interest income on the debt security in prior accrual periods exceeds the
total amount you treated as a bond premium deduction on the debt security in
prior accrual periods. If the premium allocable to an accrual period exceeds
the sum of:
. such amount treated as a bond premium deduction for the accrual period, and
. the qualified stated interest allocable to the accrual period,
the excess is carried forward to the next accrual period and is treated as a
bond premium deduction allocable to that period. In the case of instruments
that do provide for optional redemption prior to maturity, premium is
20
calculated by assuming that (a) you will exercise or not exercise options in a
manner that maximizes your yield, and (b) we will exercise or not exercise
options in a manner that minimizes your yield (except that we will be assumed
to exercise call options in a manner that maximizes your yield). You will be
required to amortize such premium to the assumed exercise date or the maturity
date of the debt security, as the case may be. If a debt security is in fact
redeemed prior to maturity, any unamortized premium may be deducted in the year
of redemption. If a debt security is not redeemed on the assumed exercise date,
it generally is deemed to be retired and reissued on that date, requiring
recomputation of the yield and amortization of any premium over the remaining
life of the debt security.
The election to amortize premium using a constant yield method, once made,
will apply to certain other debt instruments that you previously acquired at a
premium or that you acquire at a premium on or after the first day of the first
taxable year to which the election applies, and you may not revoke this
election without the consent of the IRS. If you do not make such an election,
bond premium will be taken into account in computing the gain or the loss
recognized on your disposition of a debt security because it is part of your
tax basis for such debt security.
Sale, Exchange or Retirement of Debt Securities
Upon the sale, exchange or retirement of a debt security, you will recognize
taxable gain or loss equal to the difference between the amount you realize on
the sale, exchange or retirement of the debt security (other than amounts, if
any, attributable to accrued but unpaid qualified stated interest not
previously included in your income, which will be taxable as interest income)
and your adjusted tax basis in the debt security. Your adjusted tax basis in a
debt security will equal the cost of the debt security to you, increased by the
amounts of any OID and market discount included in your taxable income with
respect to such debt security and reduced by any amortized bond premium and
amounts of other payments that do not constitute qualified stated interest.
Gain or loss realized upon the sale or exchange of a debt security generally
will be capital gain or loss (except to the extent the gain represents market
discount or, as described below, with respect to foreign currency debt
securities) and will be long-term capital gain or loss if, at the time of the
sale, exchange or retirement, you have held the debt security for more than one
year. The maximum tax rate on ordinary income for taxpayers that are
individuals, estates or trusts currently is higher than the maximum tax rate on
long-term capital gains of such persons. The distinction between capital gain
or loss and ordinary income or loss also is relevant for purposes of the
limitation on the deductibility of capital losses.
Foreign Currency Debt Securities
We may issue debt securities that are denominated in a currency or currency
unit other than the U.S. dollar (a "foreign currency debt security"). A United
States Holder of a foreign currency debt security is subject to special United
States federal income tax rules discussed generally below.
Interest and OID
If you use the cash method of accounting for United States federal income
tax purposes, the amount of income you recognize will be the U.S. dollar value
of the interest payment we make to you based on the spot rate for that foreign
currency at the time you receive the payment. With respect to accruals of OID,
a cash method taxpayer translates OID into U.S. dollars under the rules for
accrual holders described below.
If you use the accrual method of accounting for United States federal income
tax purposes, the amount of income you recognize will be determined using the
average exchange rate during the relevant accrual period. When an accrual
period includes but does not end on the last day of your taxable year, the
relevant exchange rate with respect to each partial accrual period will be the
average exchange rate for such partial accrual period. Alternatively, you may
elect to use the spot rate on the last day of the relevant accrual period, or
the payment date, if such date is within five business days of the last day of
the accrual period, instead of the average exchange rate during the accrual
period. If you make this election, it will apply to all debt instruments you
hold on or after the beginning of the year in which the election is made and it
cannot be revoked without the consent of the IRS.
21
An accrual method holder of a debt security will recognize exchange gain or
loss with respect to any differences in the exchange rate between the rate at
which interest on a debt security is included in income and the spot rate on
the payment date for interest or OID (or the disposition date in the case of
amounts attributable to accrued but unpaid interest or OID). Any exchange gain
or loss recognized will be ordinary income or loss.
Market Discount and Premium
The amount of market discount on a foreign currency debt security that you
will be required to include in income will generally be determined by
translating the market discount determined in the foreign currency into U.S.
dollars at the spot rate on the date the foreign currency debt security is
retired or otherwise disposed of. If you elect to accrue market discount
currently, then the amount accrued will be determined in the foreign currency
and then translated into U.S. dollars on the basis of the average exchange rate
in effect during the accrual period. You will be required to recognize exchange
gain or loss with respect to market discount which is accrued currently using
the approach applicable to the accrual of interest income as discussed above.
Bond premium on a foreign currency debt security will be computed in the
applicable foreign currency. You may elect to apply amortizable premium on a
foreign currency debt security to reduce the amount of foreign currency
interest income on such foreign currency debt security. If you make such an
election, you will be required to recognize exchange gain or loss attributable
to movements in exchange rates between the time the premium is paid to acquire
the foreign currency debt security and the time it is amortized. If you do not
make such an election, you must translate the bond premium computed in the
foreign currency into U.S. dollars at the spot rate on the maturity date and
such bond premium will constitute a capital loss which may be offset or
eliminated by exchange gain.
Sale, Exchange or Retirement of Foreign Currency Debt Securities
When you sell, exchange or otherwise dispose of a foreign currency debt
security, or we retire a foreign currency debt security, you will recognize
gain or loss attributable to the difference between the amount you realize on
such disposition or retirement and your tax basis in the debt security. In
addition, you will recognize foreign currency gain or loss attributable to the
movement in exchange rates between the time you purchased such debt security
and the time of its disposition. Such foreign currency gain or loss will be
treated as ordinary income or loss and is limited to the amount of overall gain
or loss realized on the disposition of your foreign currency debt security.
The amount realized by you upon the sale, exchange or retirement of a
foreign currency debt security will be the U.S. dollar value of the foreign
currency received (with the exception of amounts attributable to accrued but
unpaid qualified stated interest not previously included in your income, which
will be taxable as interest income), determined on the date of the sale,
exchange or retirement, or on the settlement date in the case of a foreign
currency debt security that is traded on an established securities market and
sold by a cash method taxpayer or an electing accrual method taxpayer. Your tax
basis in a foreign currency debt security generally will be:
. the U.S. dollar value of the foreign currency amount you paid to acquire
such foreign currency debt security determined on the date of acquisition
(or on the settlement date in the case of debt securities traded on an
established securities market if you are on the cash method of accounting
for United States federal income tax purposes or you are an electing
accrual method taxpayer), plus
. the amount of any OID and market discount includible in your gross income
with respect to the debt security, minus
. the amount of any payments you received that are not qualified stated
interest and any premium previously taken into account.
22
Gain or loss realized on the disposition of a foreign currency debt security
will be capital gain or loss except to the extent the gain represents market
discount not previously included in your gross income, or to the extent gain or
loss is attributable to movements in exchange rates. In both cases, such
portion of the gain or loss will be ordinary income or loss.
Foreign Currency Transactions
If you purchase a debt security with foreign currency, you will recognize
gain or loss attributable to the difference, if any, between the fair market
value of the debt security in U.S. dollars on the date of purchase and your tax
basis in the foreign currency. The U.S. dollar value, adjusted for any exchange
gain or loss with respect to the income accrued, generally will be your tax
basis in the foreign currency you receive as interest on (or OID with respect
to) a foreign currency debt security. In addition, you will have a tax basis in
any foreign currency you receive on the sale, exchange or retirement of a debt
security that is equal to the U.S. dollar value of such foreign currency,
determined at the time of such sale, exchange or retirement.
Any gain or loss you realize on a sale or other disposition of foreign
currency (including its exchange for U.S. dollars or its use to purchase a
foreign currency debt security) will be ordinary income or loss.
Backup Withholding and Information Reporting
Unless you are an exempt recipient such as a corporation or financial
institution, a backup withholding tax and certain information reporting
requirements may apply to payments we make to you of principal of and interest
(including OID, if any) or premium (if any) on, and proceeds of the sale or
exchange before maturity of, a debt security. Backup withholding and
information reporting will not apply to payments that we make on the debt
securities to exempt recipients, such as corporations or financial
institutions, that establish their status as such, regardless of whether such
entities are the beneficial owners of such debt securities or hold such debt
securities as a custodian, nominee or agent of the beneficial owner. However,
with respect to payments made to a custodian, nominee or agent of the
beneficial owner, backup withholding and information reporting may apply to
payments made by such custodian, nominee or other agent to you unless you are
an exempt recipient and establish your status as such.
If you are not an exempt recipient (for example, if you are an individual),
backup withholding will not be applicable to payments made to you if you (i)
have supplied an accurate Taxpayer Identification Number (usually on an IRS
Form W-9), (ii) have not been notified by the IRS that you have failed to
properly report payments of interest and dividends and (iii) in certain
circumstances, have certified under penalties of perjury that you have received
no such notification and have supplied an accurate Taxpayer Identification
Number. However, information reporting will be required in such a case.
Any amounts withheld from a payment to you by operation of the backup
withholding rules will be refunded or allowed as a credit against your United
States federal income tax liability, provided that any required information is
furnished to the IRS in a timely manner.
Non-United States Holders
This discussion applies to you if you are a "non-United States Holder." A
"non-United States Holder" is a beneficial owner of a debt security that is not
a United States Holder.
Interest and OID
If you are a non-United States Holder of debt securities, payments of
interest (including OID, if any) that we make to you will be subject to United
States withholding tax at a rate of 30% of the gross amount, unless you are
eligible for one of the exceptions described below.
23
Subject to the discussion of backup withholding below, no withholding of
United States federal income tax will be required with respect to payments we
make to you of interest (including OID, if any) provided that:
. you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote within
the meaning of Section 871(h)(3) of the Code;
. you are not a bank receiving interest pursuant to a loan agreement entered
into in the ordinary course of your trade or business or a controlled
foreign corporation that is related to us through stock ownership;
. such interest is not contingent on our profits, revenues, dividends or
changes in the value of our property nor is it otherwise described in
Section 871(h)(4) of the Code; and
. you have provided the required certifications as set forth in Section
871(h) and Section 881(c) of the Code.
To qualify for the exemption from withholding tax with respect to registered
debt securities, the last United States person in the chain of payment prior to
a payment to a non-United States Holder (the "Withholding Agent") must have
received in the year in which a payment of principal or interest occurs, or in
one of the three preceding years, a statement that:
. is signed by you under penalties of perjury;
. certifies that you are the beneficial owner and are not a United States
Holder; and
. provides your name and address.
This statement may be made on a Form W-8BEN or a substantially similar
substitute form and you must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. Under certain
circumstances, a Withholding Agent is allowed to rely on a Form W-8IMY or other
similar document furnished by a financial institution or other intermediary on
your behalf without having to obtain a Form W-8BEN from you. Subject to certain
exceptions, a payment to a foreign partnership or to certain foreign trusts is
treated as a payment directly to the foreign partners or the trust
beneficiaries, as the case may be.
If you are engaged in a United States trade or business and interest
received by you on a debt security is effectively connected with your conduct
of such trade or business, you will be exempt from the withholding of United
States federal income tax described above, provided you have furnished the
Withholding Agent with a Form W-8ECI or substantially similar substitute form
stating that interest on the debt security is effectively connected with your
conduct of a trade or business in the United States. In such a case, you will
be subject to tax on interest you receive on a net income basis in the same
manner as if you were a United States Holder. If you are a corporation,
effectively connected income may also be subject to a branch profits tax at a
rate of 30% (or such lower rate as may be specified by an applicable income tax
treaty).
If you are not eligible for relief under one of the exceptions described
above, you may nonetheless qualify for an exemption from, or a reduced rate of,
United States federal income and withholding tax under a United States income
tax treaty. In general, this exemption or reduced rate of tax applies only if
you provide a properly completed Form W-8BEN or substantially similar form to
the Withholding Agent claiming benefits under an applicable income tax treaty.
Sale, Exchange or Retirement of Debt Securities
You generally will not be subject to United States federal income tax on any
gain realized upon your sale or other disposition of debt securities unless:
. the gain is effectively connected with your conduct of a trade or business
within the United States (and, under certain income tax treaties, is
attributable to a United States permanent establishment you maintain); or
24
. you are an individual, you hold your debt securities as capital assets,
you are present in the United States for 183 days or more in the taxable
year of disposition and you meet other conditions, and you are not
eligible for relief under an applicable income tax treaty.
Gain that is effectively connected with your conduct of a trade or business
within the United States generally will be subject to United States federal
income tax, net of certain deductions, at the same rates applicable to United
States persons. If you are a corporation, the branch profits tax also may apply
to such effectively connected gain. If the gain from the sale or disposition of
your shares is effectively connected with your conduct of a trade or business
in the United States but under an applicable income tax treaty is not
attributable to a permanent establishment you maintain in the United States,
your gain may be exempt from United States tax under the treaty. If you are
described in the second bullet point above, you generally will be subject to
United States tax at a rate of 30% on the gain realized, although the gain may
be offset by some United States source capital losses realized during the same
taxable year.
Backup Withholding and Information Reporting
Backup withholding tax and certain information reporting requirements may
apply to certain payments we make to you of principal of and interest
(including OID, if any) or premium (if any) on, and proceeds of your sale or
exchange before maturity of, a debt security. Backup withholding will apply to
payments of interest we make to you unless you have provided under penalties of
perjury the required certification of your non-United States person status
discussed above (and we do not have actual knowledge or reason to know that you
are a United States Holder) or you are an exempt recipient, such as a
corporation or a financial institution. The amount of interest we pay to you on
debt securities will be reported to you and to the IRS annually on IRS Form
1042-S even if you are exempt from backup withholding and the 30% withholding
tax described above.
If you sell or redeem a debt security through a United States broker or the
United States office of a foreign broker, the proceeds from such sale or
redemption will be subject to information reporting, and backup withholding
will be required unless you provide a withholding certificate or other
appropriate documentary evidence to the broker and such broker does not have
actual knowledge or reason to know that you are a United States Holder, or you
are an exempt recipient eligible for an exemption from information reporting.
If you sell or redeem a debt security through the foreign office of a broker
who is a United States person or a "U.S. controlled person," the proceeds from
such sale or redemption will be subject to information reporting unless you
provide to such broker a withholding certificate or other documentary evidence
establishing that you are not a United States Holder and such broker does not
have actual knowledge or reason to know that such evidence is false, or you are
an exempt recipient eligible for an exemption from information reporting.
For this purpose, a "U.S. controlled person" is:
. a foreign person 50% or more of whose gross income for certain specified
periods is effectively connected with the conduct of a trade or business
in the United States;
. a foreign partnership that at any time during its taxable year is more
than 50% owned (by income or capital interest) by United States persons or
engaged in the conduct of a United States trade or business; or
. a controlled foreign corporation for United States federal income tax
purposes.
In circumstances where information reporting by the foreign office of such a
broker is required, backup withholding will be required only if the broker has
actual knowledge that you are a United States Holder.
Estate Tax
A debt security held by an individual who at the time of death is a
non-United States Holder will not be subject to United States federal estate
tax as a result of such individual's death, provided that such individual
25
does not actually or constructively own 10% or more of the total combined
voting power of all classes of our stock entitled to vote within the meaning of
Section 871(h)(3) of the Code and provided that the interest payments with
respect to such debt security are not effectively connected with such
individual's conduct of a United States trade or business. Recently enacted
legislation reduces the maximum federal estate tax rate over an 8-year period
beginning in 2002 and eliminates the tax for estates of decedents dying after
December 31, 2009. In the absence of renewal legislation, these amendments will
expire and the federal estate tax provisions in effect immediately prior to
2002 will be restored for estates of decedents dying after December 31, 2010.
PLAN OF DISTRIBUTION
We may sell debt securities and debt warrants from time to time:
. directly to purchasers;
. through agents;
. through underwriters or dealers; or
. through a combination of these methods.
General
Underwriters, dealers, agents and remarketing firms that participate in the
distribution of the offered debt securities and debt warrants may be
"underwriters" as defined in the Securities Act of 1933, as amended. Any
discounts or commissions they receive from us and any profits they receive on
the resale of the offered debt securities and debt warrants may be treated as
underwriting discounts and commissions under the Securities Act. We will
identify any underwriters, agents or dealers and describe their commissions,
fees or discounts in the applicable prospectus supplement. Only underwriters
named in the prospectus supplement are deemed to be underwriters in connection
with this offering.
Direct Sales
We may choose to sell the offered debt securities and debt warrants
directly. In this case, no agents or underwriters would be involved.
Agents
We may designate agents to sell the debt securities and debt warrants. The
agents will agree to use their best efforts to solicit purchasers for the
period of their appointment.
Underwriters
If underwriters are used in a sale, they will acquire the offered debt
securities and debt warrants for their own account. The underwriters may resell
the debt securities and debt warrants in one or more transactions, including
negotiated transactions. These sales will be made at a fixed public offering
price or at varying prices determined at the time of the sale. We may offer the
debt securities and debt warrants to the public through an underwriting
syndicate or through a single underwriter.
Unless the applicable prospectus supplement states otherwise, the
obligations of the underwriters to purchase the offered debt securities and
debt warrants will be subject to certain conditions contained in an
underwriting agreement that we and the underwriters will enter into. The
underwriters will be obligated to purchase all other debt securities and debt
warrants of the series offered if any of the debt securities and debt warrants
are purchased, unless the applicable prospectus supplement says otherwise. Any
discounts or concessions allowed, re-allowed or paid to dealers may be changed
from time to time.
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Dealers
We may sell the offered debt securities and debt warrants to dealers as
principals, who may then resell such debt securities and debt warrants to the
public either at varying prices determined by such dealers or at a fixed
offering price agreed to with us.
Institutional Purchases
We may authorize agents, underwriters or dealers to solicit certain
institutional investors to purchase offered debt securities and debt warrants
on a delayed delivery basis pursuant to delayed delivery contracts providing
for payment and delivery on a specified future date. There may be limitations
on the minimum amount which may be purchased by any such institutional investor
or on the portion of the aggregate amount of the particular debt securities or
debt warrants that may be sold pursuant to such arrangements. The applicable
prospectus supplement will provide the details of any such arrangement,
including the offering price and commissions payable on the solicitation.
We will enter into such delayed delivery contracts only with institutional
purchasers that we approve. Such institutions may include commercial and
savings banks, insurance companies, pension funds, investment companies and
educational and charitable institutions, as well as other institutions that we
may approve.
The obligations of any purchasers pursuant to delayed delivery and payment
arrangements will not be subject to any conditions except that:
. such purchase shall not at the time of delivery be prohibited under the
laws of any jurisdiction in the United States to which such institution is
subject; and
. if the particular debt securities are being sold to underwriters, we will
have sold to such underwriters the total amount of such debt securities
and debt warrants less the amount thereof covered by such arrangements.
Underwriters will not have any responsibility in respect of the validity
of delayed delivery and payment arrangements, our performance or
performance of institutional investors under these arrangements.
Remarketing Transactions
We may also sell offered debt securities and debt warrants purchased,
redeemed or repaid through one or more remarketing firms acting as principals
for their own accounts or as our agents. The applicable prospectus supplement
will identify any remarketing firms and describe the terms of our agreement
with them and their compensation. Remarketing firms may be deemed to be
underwriters of the offered securities under the Securities Act.
Indemnification
We may have indemnification or contribution agreements with agents,
underwriters, dealers and remarketing firms to indemnify them against certain
civil liabilities, including liabilities under the Securities Act. Agents,
underwriters, dealers and remarketing firms, and their affiliates, may engage
in transactions with, or perform services for, us in the ordinary course of
business. This includes commercial banking and investment banking transactions.
Bearer Securities
Each agent, underwriter, and dealer participating in the distribution of any
debt securities that are issuable as bearer securities will agree that it will
not offer, sell or deliver, directly or indirectly, bearer securities in the
United States or to United States persons, other than qualifying financial
institutions, in connection with the original issuance of such debt securities.
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Market Making, Stabilization and Other Transactions
Each series of offered debt securities and debt warrants will be a new issue
and will have no established trading market. We may elect to list any series of
offered debt securities on an exchange. Any underwriters that we use in the
sale of offered debt securities and debt warrants may make a market in such
securities, but may discontinue such market making at any time without notice.
Therefore, we cannot assure that the debt securities and debt warrants will
have a liquid trading market.
Any underwriter may engage in stabilizing transactions, syndicate covering
transactions and penalty bids. Stabilizing transactions permit bids to purchase
the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the underwriters
to reclaim a selling concession from a syndicate member when the securities
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
securities to be higher than it would otherwise be in the absence of such
transactions. The underwriters may, if they commence these transactions,
discontinue them at any time.
EXPERTS
Our consolidated financial statements at December 31, 2001 and 2000, and for
each of the three years in the period ended December 31, 2001, and the related
financial statement schedule, incorporated by reference in this prospectus from
our Annual Report on Form 10-K for the year ended December 31, 2001, have been
so incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL OPINIONS
The validity of the debt securities and debt warrants will be passed upon
for us by Hunton & Williams, New York, New York, and for any underwriters,
agents or dealers by Simpson Thacher & Bartlett, New York, New York. Simpson
Thacher & Bartlett will rely upon Hunton & Williams as to matters of Virginia
law. Sutherland Asbill & Brennan LLP, Washington, D.C., is also representing us
with respect to United States federal income tax laws. Simpson Thacher &
Bartlett has in the past and may in the future represent our affiliates in
connection with other matters from time to time.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following are the expenses, other than underwriting discounts and
commissions, to be paid by the Registrant in connection with the issuance and
distribution of the securities. All amounts shown are estimates, except the
registration fee.
Item Amount
---- ----------
Securities and Exchange Commission registration fee $ 460,000
Fees and expenses of trustee and transfer agent.... 28,000
Blue Sky fees and expenses......................... 3,000
Printing and engraving expenses.................... 150,000
Legal fees and expenses............................ 300,000
Accounting fees and expenses....................... 20,000
Rating agency fees................................. 925,000
Miscellaneous...................................... 4,000
----------
Total....................................... $1,890,000
==========
Item 15. Indemnification of Directors and Officers.
The Virginia Stock Corporation Act (the "VSCA") permits, and the
Registrant's Articles of Incorporation require, indemnification of the
Registrant's directors, officers and controlling persons in a variety of
circumstances, which may include indemnification for liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation require the Registrant to indemnify its directors,
officers and controlling persons to the full extent permitted by the VSCA.
Sections 13.01-697 and 13.01-702 of the VSCA generally authorize a Virginia
corporation to indemnify its directors, officers, employees or agents in civil
or criminal actions if they acted in good faith and believed their conduct to
be in the best interests of the corporation and, in the case of criminal
actions, had no reasonable cause to believe that the conduct was unlawful.
Section 13.01-704 of the VSCA also provides that a Virginia corporation has the
power to make any further indemnity to any director, officer, employee or
agent, including under its articles of incorporation or any bylaw or
shareholder resolution, except an indemnity against their willful misconduct or
a knowing violation of the criminal law.
The Registrant's Articles of Incorporation also provide that, to the full
extent that the VSCA permits the limitation or elimination of the liability of
directors, officers and certain controlling persons, no director, officer or
such controlling person of the Registrant shall be liable to the Registrant or
its shareholders for monetary damages arising out of any transaction,
occurrence or course of conduct. Section 13.1-692.1 of the VSCA presently
permits the elimination of liability of directors and officers in any
proceeding brought by or in the right of a corporation or brought by or on
behalf of shareholders of a corporation, except for liability resulting from
such person's having engaged in willful misconduct or a knowing violation of
the criminal law or any federal or state securities law, including, without
limitation, any unlawful insider trading or manipulation of the market for any
security. Sections 13.1-692.1 and 13.1-696 to -704 of the VSCA are hereby
incorporated by reference herein.
In the underwriting agreement, a form of which is filed as Exhibit 1 hereto,
the underwriters will agree to indemnify, under certain conditions, the
Registrant, the directors and certain persons who control the Registrant within
the meaning of the Securities Act, against certain liabilities.
The Registrant will carry insurance on behalf of directors, officers,
employees or agents that may cover liabilities under the Securities Act.
II-1
Item 16. Exhibits.
Exhibit
No. Description
------- -----------
1 Form of Underwriting Agreement, including Form of Terms Agreement
4.1 Indenture dated as of October 17, 2001 between the Company and The Chase Manhattan Bank (now
known as JPMorgan Chase Bank)
4.2 Form of Debt Securities
4.3 Form of Debt Warrant Agreement, including Form of Debt Warrant Certificate
5 Opinion of Hunton & Williams with respect to legality
12 Statement regarding computation of ratio of earnings to fixed charges(1)
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of Sutherland Asbill & Brennan LLP
23.3 Consent of Hunton & Williams (set forth in Exhibit 5)
24 Powers of attorney (included on the signature page of the Registration Statement)
25 Statement of Eligibility of Trustee on Form T-1
----------
(1) Incorporated by reference to Exhibit 12 of the Registrant's Current Report
on Form 8-K filed on January 30, 2002.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change in such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of
II-2
the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Northfield, State of Illinois, on the 18th day of
April, 2002.
Pursuant to the requirements of the Securities Act of 1933, the Registrant
reasonably believes that the security rating requirement pursuant to
Transaction Requirement B.2 will be met at the time of sale of debt securities.
KRAFT FOODS INC.
By: /s/ JAMES P. DOLLIVE
----------------------------------
Name: James P. Dollive
Title: Senior Vice President and
Chief Financial Officer
II-4
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Betsy D. Holden, Roger K. Deromedi and James P. Dollive, or any of them, his or
her true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to cause the
same to be filed, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting to said
attorney-in-fact and agent, or any of them, full power and authority to do and
perform each and every act and thing whatsoever requisite or desirable to be
done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorney-in-fact and agent, or any of them, or his or
her or their substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ BETSY D. HOLDEN Co-Chief Executive Officer and April 18, 2002
----------------------------- Director (principal co-executive
Betsy D. Holden officer)
/s/ ROGER K. DEROMEDI Co-Chief Executive Officer and April 18, 2002
----------------------------- Director (principal co-executive
Roger K. Deromedi officer)
/s/ JAMES P. DOLLIVE Senior Vice President and Chief April 18, 2002
----------------------------- Financial Officer (principal
James P. Dollive financial officer)
/s/ JOHN F. MOWRER, III Vice President and Controller April 18, 2002
----------------------------- (principal accounting officer)
John F. Mowrer, III
/s/ GEOFFREY C. BIBLE Director April 18, 2002
-----------------------------
Geoffrey C. Bible
/s/ LOUIS C. CAMILLERI Director April 18, 2002
-----------------------------
Louis C. Camilleri
/s/ W. JAMES FARRELL Director April 18, 2002
-----------------------------
W. James Farrell
/s/ JOHN C. POPE Director April 18, 2002
-----------------------------
John C. Pope
/s/ MARY L. SCHAPIRO Director April 18, 2002
-----------------------------
Mary L. Schapiro
/s/ WILLIAM H. WEBB Director April 18, 2002
-----------------------------
William H. Webb
/s/ DEBORAH C. WRIGHT Director April 18, 2002
-----------------------------
Deborah C. Wright
II-5
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
1 Form of Underwriting Agreement, including Form of Terms Agreement
4.1 Indenture dated as of October 17, 2001 between the Company and The Chase Manhattan Bank (now
known as JPMorgan Chase Bank)
4.2 Form of Debt Securities
4.3 Form of Debt Warrant Agreement, including Form of Debt Warrant Certificate
5 Opinion of Hunton & Williams with respect to legality
12 Statement regarding computation of ratio of earnings to fixed charges(1)
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of Sutherland Asbill & Brennan LLP
23.3 Consent of Hunton & Williams (set forth in Exhibit 5)
24 Powers of attorney (included on the signature page of the Registration Statement)
25 Statement of Eligibility of Trustee on Form T-1
----------
(1) Incorporated by reference to Exhibit 12 of the Registrant's Current Report
on Form 8-K filed on January 30, 2002.