Filed pursuant to Rule 424(B)(3)
SEC File No. 33-65772
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 19, 1996)
$300,000,000
HALLIBURTON COMPANY
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE, SERIES A
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Halliburton Company (the "Company") may offer from time to time, at an
aggregate initial offering price of up to $300,000,000, its Medium-Term Notes
Due Nine Months or More From Date of Issue, Series A (the "Notes"). Such
aggregate initial offering price is subject to reduction as a result of the
sale by the Company of other Debt Securities described in the accompanying
Prospectus. Each Note will mature on any day nine months or more from the date
of issue, as specified in the applicable pricing supplement hereto (each, a
"Pricing Supplement"), and may be subject to redemption at the option of the
Company or repayment at the option of the Holder thereof, in each case, in
whole or in part, prior to its Stated Maturity Date, if specified in the
applicable Pricing Supplement. Each Note will be denominated and payable in
United States dollars. The Notes will be issued in denominations of $1,000 and
integral multiples thereof, unless otherwise specified in the applicable
Pricing Supplement.
The Company may issue Notes that bear interest at fixed rates ("Fixed Rate
Notes") or at floating rates ("Floating Rate Notes"). The applicable Pricing
Supplement will specify whether a Floating Rate Note is a Regular Floating
Rate Note, a Floating Rate/Fixed Rate Note or an Inverse Floating Rate Note
and whether the rate of interest thereon is determined by reference to one or
more of the CD Rate, the CMT Rate, the Commercial Paper Rate, the Eleventh
District Cost of Funds Rate, the Federal Funds Rate, LIBOR, the Prime Rate and
the Treasury Rate (each, an "Interest Rate Basis"), or any other interest rate
basis or formula, as adjusted by any Spread and any Spread Multiplier.
Interest on each Floating Rate Note will accrue from its date of issue and,
unless otherwise specified in the applicable Pricing Supplement, will be
payable monthly, quarterly, semiannually or annually in arrears, as specified
in the applicable Pricing Supplement, and on the Maturity Date. Unless
otherwise specified in the applicable Pricing Supplement, the rate of interest
on each Floating Rate Note will be reset daily, weekly, monthly, quarterly,
semiannually or annually, as specified in the applicable Pricing Supplement.
Interest on each Fixed Rate Note will accrue from its date of issue and,
unless otherwise specified in the applicable Pricing Supplement, will be
payable semiannually in arrears on March 31 and September 30 of each year and
on the Maturity Date. The Company may also issue Discount Notes, Indexed Notes
and Amortizing Notes.
The interest rate, or formula for the determination of the interest rate, if
any, applicable to each Note and the other variable terms thereof will be
established by the Company on the date of issue of such Note and will be
specified in the applicable Pricing Supplement. Interest rates or formulas and
other terms of Notes are subject to change by the Company, but no such change
will affect any Note previously issued or as to which an offer to purchase has
been accepted by the Company.
Each Note will be issued in book-entry form (a "Book-Entry Note") or in
fully registered certificated form (a "Certificated Note"), as specified in
the applicable Pricing Supplement. Each Book-Entry Note will be represented by
one or more fully registered global securities (the "Global Securities")
deposited with or on behalf of The Depository Trust Company (or such other
depositary identified in the applicable Pricing Supplement) (the "Depositary")
and registered in the name of the Depositary or its nominee. Interests in the
Global Securities will be shown on, and transfers thereof will be effected
only through, records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners). Except in limited circumstances, Book-Entry Notes will not be
exchangeable for Certificated Notes.
SEE "RISK FACTORS" COMMENCING ON PAGE S-2 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT,
THE PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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AGENTS' DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(1)(2) COMPANY (1)(3)
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Per Note........... 100% .125%-.750% 99.875%-99.250%
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Total.............. $300,000,000 $375,000-$2,250,000 $299,625,000-$297,750,000
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(1) Unless otherwise indicated in the applicable Pricing Supplement, Notes
will be sold at 100% of their principal amount.
(2) The Company will pay a commission to an Agent (as defined below) not to
exceed .750% of the Price to Public of any Note when such Agent places the
Note. The commission on any Note with a maturity of more than 30 years
from the date of issue will be negotiated at the time of sale. The Company
may also sell Notes to any Agent, as principal, at negotiated discounts
not in excess of such commission, for resale to investors and other
purchasers. The Company has agreed to indemnify the Agents against, and to
provide contribution with respect to, certain liabilities, including
liabilities under the Securities Act. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $535,000.
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The Notes are being offered on a continuing basis by the Company to or
through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and
NationsBanc Capital Markets, Inc. (the "Agents"). Unless otherwise specified
in the applicable Pricing Supplement, the Notes will not be listed on any
securities exchange. There is no assurance that the Notes offered hereby will
be sold or, if sold, that there will be a secondary market for the Notes or
liquidity in the secondary market if one develops. The Company reserves the
right to cancel or modify the offer made hereby without notice. The Company or
an Agent, if it solicits the offer on an agency basis, may reject any offer to
purchase Notes in whole or in part. See "Plan of Distribution."
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MERRILL LYNCH & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
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The date of this Prospectus Supplement is January 13, 1997.
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY ONE OR MORE AGENTS AS
PRINCIPAL ON A FIXED OFFERING PRICE BASIS, SUCH AGENT(S) MAY OVER-ALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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Capitalized terms used but not defined in this Prospectus Supplement are
defined in the accompanying Prospectus or the Second Senior Debt Indenture (as
hereinafter defined) and are used herein with the same meanings as ascribed to
them therein.
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RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in Notes that may be subject to one or more interest rate or other
indices or formulas. The Company and the Agents disclaim any responsibility to
advise prospective investors of the risks peculiar to an investment in such
Notes. Prospective investors should consult their own financial and legal
advisors as to the risks entailed by an investment in such Notes and the
suitability of investing in such Notes in light of their particular
circumstances. Such Notes are not appropriate investments for investors who
are unsophisticated with respect to transactions involving the applicable
interest rate or other indices or formulas. Prospective investors should
carefully consider, among other factors, the matters described below.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, or
interest, if any, to one or more interest rate or other indices or formulas,
either directly or inversely, entails significant risks that are not
associated with similar investments in a conventional fixed rate or floating
rate debt security. Such risks include, without limitation, the possibility
that such indices or formulas may be subject to significant changes, that no
interest will be payable in respect of such Notes or will be payable at a rate
lower than one applicable to a conventional fixed rate or floating rate debt
security issued by the Company at the same time, that repayment of the
principal or premium, if any, in respect of such Notes may occur at times
other than as expected by the holders of the Notes registered in the
securities register maintained by or on behalf of the Company (the "Holders"),
and that the Holders could lose all or a substantial portion of principal or
premium, if any, payable with respect to such Notes on the Maturity Date (as
defined under "Description of Notes--General"). Such risks depend on a number
of interrelated factors, including economic, financial and political events,
over which the Company has no control. Additionally, if the formula used to
determine the amount of principal, premium, if any, or interest, if any,
payable with respect to such Notes contains a multiplier or leverage factor,
the effect of any change in the applicable index or indices or formula or
formulas will be magnified. In recent years, values of certain indices and
formulas have been highly volatile and such volatility may continue in the
future. Fluctuations in the value of any particular index or formula that have
occurred in the past are not necessarily indicative, however, of fluctuations
that may occur in the future.
Any optional redemption feature of Notes may affect the market value of such
Notes. Since the Company may be expected to redeem such Notes when prevailing
interest rates are relatively low, Holders generally will not be able to
reinvest the redemption proceeds in a comparable security at an effective
interest rate as high as the current interest rate on such Notes.
The Notes will not have an established trading market when issued, and there
can be no assurance of a secondary market for the Notes or the liquidity of
the secondary market if one develops. See "Plan of Distribution."
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The secondary market, if any, for Notes will be affected by a number of
factors independent of the creditworthiness of the Company and the value
attributed to the applicable index or indices or formula or formulas. Such
factors include the complexity and volatility of each such index or formula,
the method of calculating the principal, premium, if any, or interest, if any,
in respect of such Notes, the time remaining to the maturity of such Notes,
the outstanding amount of such Notes, any redemption features of such Notes,
the amount of other debt securities linked to such index or formula and the
level, direction and volatility of market interest rates generally. Such
factors will affect both the liquidity of any such secondary market and the
value attributed by the market to such Notes. In addition, certain Notes may
be designed for specific investment objectives or strategies and, therefore,
may have a more limited secondary market and experience more price volatility
than conventional debt securities. Holders may not be able to sell such Notes
readily or at prices that will enable them to realize their anticipated yield.
No investor should purchase Notes unless such investor understands and is able
to bear the risk that such Notes may not be readily saleable, that the value
of such Notes will fluctuate over time and that such fluctuations may be
significant.
STRUCTURAL SUBORDINATION
Holding Company Reorganization. As more fully described under "The Company
- -- Holding Company Reorganization" in the accompanying Prospectus, the Company
reorganized its corporate structure on December 12, 1996 to establish a
holding company as the parent corporation for its operating subsidiaries. In
connection with the Reorganization (as such term is defined in the
Prospectus), the new holding company changed its name to "Halliburton
Company", and the predecessor company (the "Predecessor") became a wholly
owned, indirect subsidiary of the holding company. As part of the
Reorganization, the holding company assumed certain obligations of the
Predecessor, including the $200 million in aggregate principal amount of its
outstanding 8.75% Debentures Due February 15, 2021.
Structural Subordination. As a result of the Reorganization, Halliburton
Company is now a holding company, all of the operations of which are conducted
through subsidiaries. Any Notes issued and sold hereunder will be obligations
of the holding company exclusively. The Company's cash flow and its ability to
service debt, including the Notes, will be substantially dependent on the free
cash flow and earnings of its subsidiaries and the payment of funds by those
subsidiaries to the Company in the form of loans, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Notes or to
make any funds available for such purpose. Moreover, the payment of dividends
and the making of loans and advances to the Company by its subsidiaries are,
in the case of certain foreign subsidiaries, subject to statutory and
regulatory restrictions, and, in the case of all subsidiaries, are generally
contingent upon the earnings of those subsidiaries and subject to various
business considerations.
At September 30, 1996, after giving effect to the acquisition of Landmark
Graphics Corporation on October 4, 1996, the Company's subsidiaries had
approximately $2.3 billion of outstanding liabilities (including among others
liabilities such as trade and other accounts payable, advance billings on
uncompleted contracts and long-term debt, but excluding intercompany
indebtedness). Any right of the Company to receive assets of any of its
subsidiaries upon their liquidation or reorganization (and the consequent
right of the holders of Notes to participate in those assets) will be
effectively subordinated to the claims of that subsidiary's creditors, except
to the extent that the Company is recognized as a creditor of such subsidiary.
In such case, the claims of the Company will be subordinate to the claims of
the creditors secured by the assets of such subsidiary and any claims of
creditors of such subsidiary senior to those held by the Company.
There are no restrictions in either Indenture on the creation of additional
indebtedness, including indebtedness of the Company's subsidiaries, and the
incurrence of additional indebtedness could have an adverse impact on the
Company's ability to service its indebtedness, including the Notes.
S-3
CHANGE OF CONTROL AND HIGHLY LEVERAGED TRANSACTIONS
The Notes will not contain any provisions that may afford Holders thereof
protection in the event of a change of control of the Company or in the event
of a highly leveraged transaction (whether or not such transaction results in
a change of control of the Company).
CREDIT RATINGS
The credit ratings assigned to the Company's medium-term note program may
not reflect the potential impact of all risks related to structure and other
factors on the value of the Notes. Accordingly, prospective investors should
consult their own financial and legal advisors as to the risks entailed by an
investment in the Notes and the suitability of investing in such Notes in
light of their particular circumstances.
DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities under a Second
Senior Indenture, dated as of December 1, 1996, between the Predecessor and
Texas Commerce Bank National Association, as Trustee (the "Trustee"), as
supplemented, amended and modified by the First Supplemental Indenture dated
as of December 5, 1996 between the Predecessor and the Trustee and the Second
Supplemental Indenture dated as of December 12, 1996 among the Predecessor,
the Company and the Trustee and as further supplemented, amended and modified
from time to time (the "Indenture"). The Indenture is subject to, and governed
by, the Trust Indenture Act of 1939, as amended. The following summary of
certain provisions of the Notes and the Indenture does not purport to be
complete and is qualified in its entirety by reference to the actual
provisions of the Notes and the Indenture. Capitalized terms used but not
defined herein shall have the meanings given to them in the accompanying
Prospectus, the Notes or the Indenture, as the case may be. The term "Debt
Securities," as used in this Prospectus Supplement, refers to all debt
securities, including the Notes, issued and issuable from time to time under
the Indenture. The following description of Notes will apply to each Note
offered hereby unless otherwise specified in the applicable Pricing
Supplement.
GENERAL
All Debt Securities, including the Notes, issued and to be issued under the
Indenture will be unsecured general obligations of the Company and will rank
pari passu with all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. For information regarding the
structural subordination of the Debt Securities, including the Notes, to
indebtedness of the subsidiaries of the Company, see "Risk Factors--Structural
Subordination" and, in the Prospectus, "Description of Debt Securities--
Provisions Applicable to Senior Debt Securities--Structural Subordination."
The Indenture does not limit the aggregate initial offering price of Debt
Securities that may be issued thereunder and Debt Securities may be issued
thereunder from time to time in one or more series up to the aggregate initial
offering price from time to time authorized by the Company for each series.
The Company may, from time to time, without the consent of the Holders of the
Notes, provide for the issuance of other Debt Securities under the Indenture
in addition to the Notes offered hereby.
The aggregate initial offering price of the Notes is limited to
$300,000,000. Each Note will mature on any day nine months or more from its
date of issue (the "Stated Maturity Date"), as specified in the applicable
Pricing Supplement, unless the principal thereof (or any installment of
principal thereof) becomes due and payable prior to the Stated Maturity Date,
whether by the declaration of acceleration of maturity, notice of redemption
at the option of the Company, notice of the Holder's option to elect repayment
or otherwise (the Stated Maturity Date or such prior date, as the case may be,
is herein referred to as the "Maturity Date" with respect to the principal of
such Note repayable on such date). Unless otherwise specified in the
applicable Pricing Supplement, interest-bearing Notes will either be Fixed
Rate Notes or Floating Rate Notes, as specified in the
S-4
applicable Pricing Supplement. The Company may also issue Discount Notes,
Indexed Notes and Amortizing Notes (as such terms are hereinafter defined).
The Notes will be denominated in, and payments of principal, premium, if
any, or interest, if any, in respect thereof will be made in, United States
dollars. References herein to "United States dollars," "U.S. dollars" or "$"
are to the lawful currency of the United States of America (the "United
States"). Purchasers are required to pay for the Notes in United States
dollars.
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other factors, the aggregate principal amount of Notes
purchased in any single transaction. Notes with different variable terms other
than interest rates may also be offered concurrently to different investors.
Interest rates or formulas and other terms of Notes are subject to change by
the Company from time to time, but no such change will affect any Note
previously issued or as to which an offer to purchase has been accepted by the
Company.
Each Note will be issued as a Book-Entry Note represented by one or more
fully registered Global Securities or as a fully registered Certificated Note.
The denomination of each Note will be $1,000 or an integral multiple thereof,
unless otherwise specified in the applicable Pricing Supplement.
In the case of Book-Entry Notes, payments of principal of, and premium, if
any, and interest, if any, will be made by the Company through an affiliate of
the Trustee (the "Paying Agent") to the Depositary. See "--Book-Entry Notes."
In the case of Certificated Notes, payments of principal and premium, if any,
due on any Maturity Date will be made in immediately available funds upon
presentation and surrender thereof (and, in the case of any repayment on an
Optional Repayment Date, upon submission of a duly completed election form in
accordance with the provisions described below) at the office or agency
maintained by the Company for such purpose in the Borough of Manhattan, The
City of New York, currently the corporate trust office of the Paying Agent,
The Chase Manhattan Bank, located at 450 West 33rd Street, 15th Floor, New
York, New York 10001 (the "Corporate Trust Office"). Payment of interest, if
any, due on the Maturity Date of a Certificated Note will be made to the
person to whom payment of the principal thereof and premium, if any, thereon
shall be made. Payment of interest, if any, due on a Certificated Note on any
Interest Payment Date (as hereinafter defined) other than the Maturity Date
will be made by check mailed to the address of the Holder entitled thereto as
such address shall appear in the Security Register of the Company. A Holder of
$10,000,000 or more in aggregate principal amount of Certificated Notes
(whether having identical or different terms and provisions) will, however, be
entitled to receive interest payments, if any, on any Interest Payment Date
other than the Maturity Date by wire transfer of immediately available funds
if appropriate wire transfer instructions have been received in writing by the
Paying Agent not less than 15 days prior to such Interest Payment Date. Any
such wire transfer instructions received by the Paying Agent will remain in
effect until revoked by such Holder.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking
institutions are authorized or required by law, regulation or executive order
to close in The City of New York; provided, however, that, with respect to
Notes as to which LIBOR is an applicable Interest Rate Basis, such day is also
a London Business Day (as hereinafter defined). "London Business Day" means a
day on which dealings in United States dollars are transacted in the London
interbank market.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "--Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by the
Company for such purpose in the Borough of Manhattan, The City of New York,
currently the Corporate Trust Office of the Paying Agent. No service charge
will be made by the Company or the Paying Agent for any such registration of
transfer or exchange of Notes, but the Company or any paying agent may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith (other than exchanges pursuant to the
Indenture not involving any transfer).
S-5
The defeasance and covenant defeasance provisions contained in the Indenture
shall apply to the Notes. See "Description of Debt Securities" in the
Prospectus.
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified, each Note will be subject to redemption at the option of the
Company on any date on and after the applicable Initial Redemption Date in
whole or from time to time in part in increments of $1,000 (provided that any
remaining principal amount thereof shall be at least $1,000), at the
applicable Redemption Price (as hereinafter defined), together with unpaid
interest accrued thereon to the date of redemption, on written notice given to
the Holders thereof not more than 60 nor less than 30 calendar days prior to
the date of redemption and in accordance with the provisions of the Indenture.
For this purpose, "Redemption Price" means an amount equal to the Initial
Redemption Percentage specified in the applicable Pricing Supplement (as
adjusted by the Annual Redemption Percentage Reduction, if applicable)
multiplied by the unpaid principal amount to be redeemed. The Initial
Redemption Percentage, if any, applicable to a Note shall decline at each
anniversary of the Initial Redemption Date by an amount equal to the
applicable Annual Redemption Percentage Reduction, if any, until the
Redemption Price is equal to 100% of the unpaid principal amount to be
redeemed. For a discussion of the redemption of Discount Notes, see "--
Discount Notes."
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by the Company at the option of the Holders
thereof prior to the Stated Maturity Date only if one or more Optional
Repayment Dates are specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to repayment at the option of the Holders
thereof on any such Optional Repayment Date in whole or in part in increments
of $1,000 (provided that any remaining principal amount thereof shall be at
least $1,000), at a repayment price equal to 100% of the unpaid principal
amount to be repaid on such Optional Repayment Date, together with unpaid
interest accrued thereon to the date of repayment. For any Note to be repaid
on an Optional Repayment Date, such Note must be received, together with the
form thereon entitled "Option to Elect Repayment" duly completed, by the
Company at its office maintained for such purpose in the Borough of Manhattan,
The City of New York, currently the Corporate Trust Office of the Paying
Agent, not more than 60 nor less than 30 calendar days prior to the date of
repayment. Exercise of such repayment option by the Holder will be
irrevocable. For a discussion of the repayment of Discount Notes, see "--
Discount Notes."
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any
portion of the Book-Entry Notes represented by such Global Securities repaid
must instruct the Participant (as hereinafter defined) through which they own
their interest to direct the Depositary to exercise the repayment option on
their behalf by delivering the related Global Security and duly completed
election form to the Paying Agent as aforesaid. In order to ensure that such
Global Security and election form are received by the Paying Agent on a
particular day, the applicable Beneficial Owner must so instruct the
Participant through which it owns its interest before such Participant's
deadline for accepting instructions for that day. Participants may have
different deadlines for accepting instructions from their customers.
Accordingly, Beneficial Owners should consult the Participants through which
they own their interest for the respective deadlines for such Participants.
All instructions given to Participants from Beneficial Owners of Global
Securities relating to the option to elect repayment shall be irrevocable. In
addition, at the time such instructions are given, each such Beneficial Owner
shall cause the Participant through which it owns its interest to transfer
such Beneficial Owner's interest in the Global Security or Securities
representing the related Book-Entry Notes, on the Depositary's records, to the
Paying Agent. See "--Book-Entry Notes."
S-6
If applicable, the Company will comply with the requirements of Section
14(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules promulgated thereunder, and any other securities laws or
regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may, at the
discretion of the Company, be held, resold or surrendered to the Paying Agent
for cancellation.
INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate
per annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly
made available for payment. Unless otherwise specified in the applicable
Pricing Supplement, interest payments in respect of Fixed Rate Notes and
Floating Rate Notes will be made in an amount equal to the interest accrued
from and including the immediately preceding Interest Payment Date in respect
of which interest has been paid or duly made available for payment (or from
and including the date of issue, if no interest has been paid or duly made
available for payment) to but excluding the applicable Interest Payment Date
or the Maturity Date, as the case may be (each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless
otherwise specified in the applicable Pricing Supplement, however, the first
payment of interest on any such Note originally issued between a Record Date
(as hereinafter defined) and the related Interest Payment Date will be made on
the Interest Payment Date immediately following the next succeeding Record
Date to the Holder on such next succeeding Record Date. Unless otherwise
specified in the applicable Pricing Supplement, a "Record Date" shall be the
fifteenth calendar day (whether or not a Business Day) immediately preceding
the related Interest Payment Date.
Fixed Rate Notes
Interest on Fixed Rate Notes will be payable on March 31 and September 30 of
each year or on such other date(s) specified in the applicable Pricing
Supplement (each, an "Interest Payment Date" with respect to Fixed Rate Notes)
and on the Maturity Date with respect to all or part of the principal thereof.
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be computed on the basis of a 360-day year of twelve 30-
day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note falls
on a day that is not a Business Day, the required payment of principal,
premium, if any, or interest will be made on the next succeeding Business Day
as if made on the date such payment was due, and no interest will accrue on
such payment for the period from and after such Interest Payment Date or the
Maturity Date, as the case may be, to the date of such payment on the next
succeeding Business Day.
Floating Rate Notes
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds
Rate, (vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such
other Interest Rate Basis or interest rate formula as may be specified in the
applicable Pricing Supplement. The applicable Pricing Supplement will specify
whether
S-7
such Floating Rate Note is a "Regular Floating Rate Note," a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," and, to the extent
applicable, certain terms with respect to each Floating Rate Note, including
the Fixed Rate Commencement Date, Fixed Interest Rate, Interest Rate Basis or
Bases, Initial Interest Rate, Initial Interest Reset Date, Interest Reset
Dates, Interest Payment Dates, Index Maturity, Maximum Interest Rate, Minimum
Interest Rate, and Spread and Spread Multiplier, as such terms are defined
below. If one or more of the applicable Interest Rate Bases is LIBOR or the
CMT Rate, the applicable Pricing Supplement will also specify the Designated
LIBOR Page or the Designated CMT Maturity Index and Designated CMT Telerate
Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," or as having an
Addendum attached or having "Other/Additional Provisions" apply, in each
case relating to a different interest rate formula, such Floating Rate Note
will be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Pricing Supplement, will bear interest
at the rate determined by reference to the applicable Interest Rate Basis
or Bases (a) plus or minus the applicable Spread, if any, and (b)
multiplied by the applicable Spread Multiplier, if any. Commencing on the
initial Interest Reset Date for such Note (the "Initial Interest Reset
Date"), the rate at which interest on such Regular Floating Rate Note shall
be payable shall be reset as of each Interest Reset Date; provided,
however, that the interest rate in effect for the period, if any, from the
date of issue to the Initial Interest Reset Date will be the initial
interest rate on such Note (the "Initial Interest Rate").
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (y) the interest rate in effect for the period, if
any, from the date of issue to the Initial Interest Reset Date will be the
Initial Interest Rate and (z) the interest rate in effect for the period
commencing on the date specified in the applicable Pricing Supplement as
the Fixed Rate Commencement Date (the "Fixed Rate Commencement Date") to
the Maturity Date shall be the Fixed Interest Rate, if such rate is
specified in the applicable Pricing Supplement or, if no such Fixed
Interest Rate is specified, the interest rate in effect thereon on the day
immediately preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed
Interest Rate minus the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the applicable Spread, if
any, and (b) multiplied by the applicable Spread Multiplier, if any;
provided, however, that, unless otherwise specified in the applicable
Pricing Supplement, the interest rate thereon will not be less than zero.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Inverse Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted from
the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest
Rate Basis or Bases will be multiplied to determine the applicable interest
rate on such Floating Rate Note. The "Index Maturity" is the period to
maturity of the instrument or obligation with respect to which the related
Interest Rate Basis or Bases will be calculated.
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Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Floating Rate Note will be determined in
accordance with the applicable provisions below. Except as set forth above or
in the applicable Pricing Supplement, the interest rate in effect on each day
shall be the interest rate determined as of the most recent Interest
Determination Date (as hereinafter defined).
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on another specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case
of Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly,
the Wednesday of each week (with the exception of weekly reset Floating Rate
Notes as to which the Treasury Rate is an applicable Interest Rate Basis,
which will reset the Tuesday of each week, except as described below); (iii)
monthly, the third Wednesday of each month (with the exception of monthly
reset Floating Rate Notes as to which the Eleventh District Cost of Funds Rate
is an applicable Interest Rate Basis, which will reset on the first calendar
day of the month); (iv) quarterly, the third Wednesday of March, June,
September and December of each year; (v) semiannually, the third Wednesday of
the two months specified in the applicable Pricing Supplement; and (vi)
annually, the third Wednesday of the month specified in the applicable Pricing
Supplement; provided, however, that, with respect to Floating Rate/Fixed Rate
Notes, the rate of interest thereon will not reset after the applicable Fixed
Rate Commencement Date. If any Interest Reset Date for any Floating Rate Note
would otherwise be a day that is not a Business Day, such Interest Reset Date
will be postponed to the next succeeding Business Day, except that in the case
of a Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis
and such Business Day falls in the next succeeding calendar month, such
Interest Reset Date will be the immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
related Interest Reset Date will be the rate determined by the Calculation
Agent as of the applicable Interest Determination Date and calculated on or
prior to the Calculation Date (as hereinafter defined), except with respect to
LIBOR and the Eleventh District Cost of Funds Rate, which will be calculated
on such Interest Determination Date. The "Interest Determination Date" with
respect to the CD Rate, the CMT Rate, the Commercial Paper Rate, the Federal
Funds Rate and the Prime Rate will be the second Business Day immediately
preceding the applicable Interest Reset Date; the "Interest Determination
Date" with respect to the Eleventh District Cost of Funds Rate will be the
last working day of the month immediately preceding the applicable Interest
Reset Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of
San Francisco") publishes the Index (as hereinafter defined); and the
"Interest Determination Date" with respect to LIBOR will be the second London
Business Day immediately preceding the applicable Interest Reset Date. With
respect to the Treasury Rate, the "Interest Determination Date" will be, with
respect to the week in which the Interest Reset Date occurs, the day in the
week on which Treasury Bills (as hereinafter defined) are normally auctioned.
(Treasury Bills are normally sold at an auction held on Monday of each week,
unless that day is a legal holiday, in which case the auction is normally held
on the following Tuesday, except that such auction may be held on the
preceding Friday.) If an auction is held on the Friday of the week preceding
the applicable Interest Reset Date, however, the "Interest Determination Date"
will be such preceding Friday, but, if the Interest Determination Date would
otherwise fall on an Interest Reset Date, then such Interest Reset Date will
be postponed to the next succeeding Business Day. The "Interest Determination
Date" pertaining to a Floating Rate Note the interest rate of which is
determined by reference to two or more Interest Rate Bases will be the second
Business Day next preceding the Interest Reset Date for such Floating Rate
Note on which each Interest Rate Basis is determinable. Each Interest Rate
Basis will be determined as of such date, and the applicable interest rate
will take effect on the applicable Interest Reset Date.
Notwithstanding the foregoing, a Floating Rate Note may also have either or
both of the following: (i) a maximum interest rate, or ceiling, that may
accrue during any Interest Period (a "Maximum Interest Rate") and (ii) a
minimum interest rate, or floor, that may accrue during any Interest Period (a
"Minimum Interest Rate"). In addition to any Maximum Interest Rate that may
apply to any Floating Rate Note, the interest rate on Floating
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Rate Notes will in no event be higher than the maximum rate permitted by New
York law, as the same may be modified by United States law.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date" with respect to Floating Rate Notes) and, in each case, on the
Maturity Date. If any Interest Payment Date other than the Maturity Date for
any Floating Rate Note would otherwise be a day that is not a Business Day,
such Interest Payment Date will be postponed to the next succeeding Business
Day, except that, in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity Date of a Floating Rate Note falls on
a day that is not a Business Day, the required payment of principal, premium,
if any, and interest will be made on the next succeeding Business Day as if
made on the date such payment was due, and no interest will accrue on such
payment for the period from and after the Maturity Date to the date of such
payment on the next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used
in or resulting from such calculation on Floating Rate Notes will be rounded
to the nearest cent (with one-half cent being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which an applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of
days in the year in the case of Floating Rate Notes for which an applicable
Interest Rate Basis is the CMT Rate or the Treasury Rate. Unless otherwise
specified in the applicable Pricing Supplement, the interest factor for
Floating Rate Notes for which the interest rate is calculated with reference
to two or more Interest Rate Bases will be calculated in each period in the
same manner as if only the applicable Interest Rate Basis specified in the
applicable Pricing Supplement applied.
Unless otherwise specified in the applicable Pricing Supplement, an
affiliate of the Trustee will be the "Calculation Agent." Upon request of the
Holder of any Floating Rate Note, the Calculation Agent will disclose the
interest rate then in effect and, if determined, the interest rate that will
become effective as a result of a determination made for the next succeeding
Interest Reset Date with respect to such Floating Rate Note. Unless otherwise
specified in the applicable Pricing Supplement, the "Calculation Date," if
applicable, pertaining to any Interest Determination Date will be the earlier
of (i) the tenth calendar day after such Interest Determination Date or, if
such day is not a Business Day, the next succeeding Business Day or (ii) the
Business Day immediately preceding the applicable Interest Payment Date or the
Maturity Date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
CD RATE. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date
for negotiable United
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States dollar certificates of deposit having the Index Maturity specified in
the applicable Pricing Supplement as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected
Interest Rates" or any successor publication ("H.15(519)") under the heading
"CDs (Secondary Market)," or, if not published by 3:00 P.M., New York City
time, on the related Calculation Date, the rate on such CD Rate Interest
Determination Date for negotiable United States dollar certificates of deposit
of the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release "Composite 3:30 P.M. Quotations for U.S. Government Securities" or any
successor publication ("Composite Quotations") under the heading "Certificates
of Deposit." If such rate is not yet published in either H.15(519) or
Composite Quotations by 3:00 P.M., New York City time, on the related
Calculation Date, then the CD Rate on such CD Rate Interest Determination Date
will be calculated by the Calculation Agent as the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
CD Rate Interest Determination Date of three leading nonbank dealers in
negotiable United States dollar certificates of deposit in The City of New
York (which may include the Agents or their affiliates) selected by the
Calculation Agent for negotiable United States dollar certificates of deposit
of major United States money center banks with a remaining maturity closest to
the Index Maturity specified in the applicable Pricing Supplement in an amount
that is representative for a single transaction in that market at that time;
provided, however, that, if the dealers so selected by the Calculation Agent
are not quoting as mentioned in this sentence, the CD Rate determined as of
such CD Rate Interest Determination Date will be the CD Rate in effect
immediately prior to such CD Rate Interest Determination Date.
CMT RATE. Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date relating to
a Floating Rate Note for which the interest rate is determined with reference
to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate displayed
on the Designated CMT Telerate Page under the caption ". . . Treasury Constant
Maturities. . . Federal Reserve Board Release H.15. . . Mondays Approximately
3:45 P.M.," under the column for the Designated CMT Index Maturity for (i), if
the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii), if the Designated CMT Telerate Page is 7052, the
weekly or monthly average, as specified in the applicable Pricing Supplement,
for the week or the month, as applicable, ended immediately preceding the week
or the month, as applicable, in which the related CMT Rate Interest
Determination Date falls. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT Index
Maturity for such CMT Rate Interest Determination Date as published in
H.15(519). If such rate is no longer published or is not published by 3:00
P.M., New York City time, on the related Calculation Date, then the CMT Rate
for such CMT Rate Interest Determination Date will be such treasury constant
maturity rate for the Designated CMT Index Maturity (or such other United
States Treasury rate for the Designated CMT Index Maturity) for such CMT Rate
Interest Determination Date as may then be published by either the Board of
Governors of the Federal Reserve System or the United States Department of the
Treasury and as the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in
H.15(519). If such information is not provided by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate on the CMT Rate
Interest Determination Date will be calculated by the Calculation Agent as a
yield to maturity, based on the arithmetic mean of the secondary market
closing offer prices as of approximately 3:30 P.M., New York City time, on
such CMT Rate Interest Determination Date reported, according to their written
records, by three leading United States government securities dealers in The
City of New York (which may include the Agents or their affiliates) (each, a
"Reference Dealer") selected by the Calculation Agent (from five such
Reference Dealers selected by the Calculation Agent and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for the
most recently issued direct noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity of approximately the
Designated CMT Index Maturity and a remaining term to maturity of not less
than such Designated CMT Index Maturity minus one year. If the Calculation
Agent is unable to obtain three such Treasury Note quotations, the CMT Rate on
such CMT Rate Interest Determination Date will be calculated by the
Calculation Agent as a yield to maturity based on the arithmetic mean of the
secondary market offered rates as
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of approximately 3:30 P.M., New York City time, on such CMT Rate Interest
Determination Date of three Reference Dealers in The City of New York (from
five such Reference Dealers selected by the Calculation Agent and eliminating
the highest quotation (or, in the event of equality, one of the highest) and
the lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury Notes with an original maturity of the number of years that is the
next highest to the Designated CMT Index Maturity and a remaining term to
maturity closest to the Designated CMT Index Maturity and in an amount of at
least $100 million. If three or four (and not five) of such Reference Dealers
are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offered rates obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided, however, that, if fewer
than three Reference Dealers so selected by the Calculation Agent are quoting
as mentioned herein, the CMT Rate determined as of such CMT Rate Interest
Determination Date will be the CMT Rate in effect on such CMT Rate Interest
Determination Date. If two Treasury Notes with an original maturity as
described in the second preceding sentence have remaining terms to maturity
equally close to the Designated CMT Index Maturity, the Calculation Agent will
obtain quotations for the Treasury Note with the shorter remaining term to
maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on such
service) for the purpose of displaying Treasury Constant Maturities as
reported in H.15(519). If no such page is specified in the applicable Pricing
Supplement, the Designated CMT Telerate Page shall be 7052 for the most recent
week.
"Designated CMT Index Maturity" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified
in the applicable Pricing Supplement with respect to which the CMT Rate will
be calculated or, if no such maturity is specified in the applicable Pricing
Supplement, 2 years.
COMMERCIAL PAPER RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest
rate is determined with reference to the Commercial Paper Rate (a "Commercial
Paper Rate Interest Determination Date"), the Money Market Yield (as
hereinafter defined) on such date of the rate for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement as published in
H.15(519) under the heading "Commercial Paper." If such rate is not published
by 3:00 P.M., New York City time, on the related Calculation Date, then the
Commercial Paper Rate on such Commercial Paper Rate Interest Determination
Date will be the Money Market Yield of the rate for commercial paper having
the Index Maturity specified in the applicable Pricing Supplement as published
in Composite Quotations under the heading "Commercial Paper" (with an Index
Maturity of one month or three months being deemed to be equivalent to an
Index Maturity of 30 days or 90 days, respectively). If such rate is not yet
published in either H.15(519) or Composite Quotations by 3:00 P.M., New York
City time, on the related Calculation Date, then the Commercial Paper Rate on
such Commercial Paper Rate Interest Determination Date will be calculated by
the Calculation Agent as the Money Market Yield of the arithmetic mean of the
offered rates at approximately 11:00 A.M., New York City time, on such
Commercial Paper Rate Interest Determination Date of three leading dealers of
commercial paper in The City of New York (which may include the Agents or
their affiliates) selected by the Calculation Agent for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement
placed for an industrial issuer whose bond rating is "Aa", or the equivalent,
from a nationally recognized statistical rating organization; provided,
however, that, if the dealers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the Commercial Paper Rate determined as
of such Commercial Paper Rate Interest Determination Date will be the
Commercial Paper Rate in effect immediately prior to such Commercial Paper
Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
D X 360
Money Market Yield = ---------------- X 100
360 - (D x M)
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where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the applicable Interest Reset Period.
ELEVENTH DISTRICT COST OF FUNDS RATE. Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to a Floating Rate
Note for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), the rate equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00
A.M., San Francisco time, on such Eleventh District Cost of Funds Rate
Interest Determination Date. If such rate does not appear on Telerate Page
7058 on such Eleventh District Cost of Funds Rate Interest Determination Date,
then the Eleventh District Cost of Funds Rate on such Eleventh District Cost
of Funds Rate Interest Determination Date shall be the monthly weighted
average cost of funds paid by member institutions of the Eleventh Federal Home
Loan Bank District that was most recently announced (the "Index") by the
Federal Home Loan Bank ("FHLB") of San Francisco as such cost of funds for the
calendar month immediately preceding such Eleventh District Cost of Funds Rate
Interest Determination Date. If the FHLB of San Francisco fails to announce
the Index on or prior to such Eleventh District Cost of Funds Rate Interest
Determination Date for the calendar month immediately preceding such Eleventh
District Cost of Funds Rate Interest Determination Date, the Eleventh District
Cost of Funds Rate determined as of such Eleventh District Cost of Funds Rate
Interest Determination Date will be the Eleventh District Cost of Funds Rate
in effect immediately prior to such Eleventh District Cost of Funds Rate
Interest Determination Date.
FEDERAL FUNDS RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest
rate is determined with reference to the Federal Funds Rate (a "Federal Funds
Rate Interest Determination Date"), the rate on such date for United States
dollar federal funds as published in H.15(519) under the heading "Federal
Funds (Effective)" or, if not published by 3:00 P.M., New York City time, on
the related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds
Rate Interest Determination Date will be calculated by the Calculation Agent
as the arithmetic mean of the rates for the last transaction in overnight
United States dollar federal funds arranged by three leading brokers of
federal funds transactions in The City of New York (which may include the
Agents or their affiliates) selected by the Calculation Agent prior to 9:00
A.M., New York City time, on such Federal Funds Rate Interest Determination
Date; provided, however, that, if the brokers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
determined as of such Federal Funds Rate Interest Determination Date will be
the Federal Funds Rate in effect immediately prior to such Federal Funds Rate
Interest Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page by
its terms provides only for a single rate, in which case such single rate
shall be used) for deposits in United States dollars having the Index
Maturity specified in such Pricing Supplement, commencing on the applicable
Interest Reset Date, that appear on the Designated LIBOR Page as of 11:00
A.M., London time, on such LIBOR Interest Determination Date, or (b) if
"LIBOR Telerate" is specified in the applicable Pricing Supplement or if
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable
Pricing Supplement as the method for calculating LIBOR, the rate for
deposits in United States dollars having the Index Maturity specified in
such Pricing Supplement, commencing on such Interest Reset Date, that
appears on the Designated LIBOR Page as of
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11:00 A.M., London time, on such LIBOR Interest Determination Date. If
fewer than two such offered rates so appear, LIBOR on such LIBOR Interest
Determination Date will be determined in accordance with the provisions
described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Designated LIBOR Page as specified in
clause (i) above, LIBOR will be the arithmetic mean of the quotations for
deposits in United States dollars for the period of the Index Maturity
specified in the applicable Pricing Supplement, commencing on the
applicable Interest Reset Date, offered to prime banks in the London
interbank market by the principal London offices of four major reference
banks (which may include affiliates of the Agents) in the London interbank
market, as selected by the Calculation Agent, at approximately 11:00 A.M.,
London time, on such LIBOR Interest Determination Date and in a principal
amount that is representative for a single transaction in United States
dollars in such market at such time. If fewer than two such quotations are
so provided, then LIBOR on such LIBOR Interest Determination Date will be
the arithmetic mean of the rates quoted at approximately 11:00 A.M., in
London, England, on such LIBOR Interest Determination Date by three major
banks (which may include affiliates of the Agents) in London, England,
selected by the Calculation Agent for loans in United States dollars to
leading European banks, having the Index Maturity specified in the
applicable Pricing Supplement and in a principal amount that is
representative for a single transaction in United States dollars in such
market at such time; provided, however, that, if the banks so selected by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
determined as of such LIBOR Interest Determination Date will be LIBOR in
effect immediately prior to such LIBOR Interest Determination Date.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in such Pricing
Supplement (or any other page that may replace such page in such service) for
the purpose of displaying the London interbank rates of major banks for United
States dollars, or (b) if "LIBOR Telerate" is specified in the applicable
Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable Pricing Supplement as the method for calculating
LIBOR, the display on the Dow Jones Telerate Service (or any successor
service) on the page specified in such Pricing Supplement (or any other page
that may replace such page in such service) for the purpose of displaying the
London interbank rates of major banks for United States dollars.
PRIME RATE. Unless otherwise specified in the applicable Pricing Supplement,
"Prime Rate" means, with respect to any Interest Determination Date relating
to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading
"Bank Prime Loan." If such rate is not published prior to 3:00 P.M., New York
City time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as hereinafter defined) as such
bank's prime rate or base lending rate as in effect for such Prime Rate
Interest Determination Date. If fewer than four such rates appear on the
Reuters Screen USPRIME1 Page for such Prime Rate Interest Determination Date,
then the Prime Rate on such Prime Rate Interest Determination Date shall be
the arithmetic mean of the prime rates or base lending rates quoted on the
basis of the actual number of days in the year divided by a 360-day year as of
the close of business on such Prime Rate Interest Determination Date by four
major money center banks (which may include affiliates of the Agents) in The
City of New York selected by the Calculation Agent. If fewer than four such
quotations are so provided, then the Prime Rate on such Prime Rate Interest
Determination Date shall be the arithmetic mean of four prime rates quoted on
the basis of the actual number of days in the year divided by a 360-day year
as of the close of business on such Prime Rate Interest Determination Date as
furnished in The City of New York by the major money center banks, if any,
that have provided such quotations and by a reasonable number of substitute
banks or trust companies (which may include affiliates of the Agents) to
obtain four such prime rate quotations, provided such substitute banks or
trust companies are organized and doing business under the laws of the United
States, or any State thereof, each having total equity capital of at least
$500 million and being subject to supervision or examination by Federal or
State authority, selected by the Calculation Agent to provide such rate
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or rates; provided, however, that, if the banks or trust companies so selected
by the Calculation Agent are not quoting as mentioned in this sentence, the
Prime Rate determined as of such Prime Rate Interest Determination Date will
be the Prime Rate in effect immediately prior to such Prime Rate Interest
Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuter Monitor Money
Rates Service (or any successor service) on the "USPRIME1" page (or such other
page that may replace the USPRIME1 page in such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
TREASURY RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is
determined by reference to the Treasury Rate (a "Treasury Rate Interest
Determination Date"), the rate from the auction held on such Treasury Rate
Interest Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity specified in the
applicable Pricing Supplement, as such rate is published in H.15(519) under
the heading "Treasury Bills-auction average (investment)" or, if not published
by 3:00 P.M., New York City time, on the related Calculation Date, the auction
average rate of such Treasury Bills (expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) as otherwise announced by the United States Department of the Treasury.
If the results of the Auction of Treasury Bills having the Index Maturity
specified in the applicable Pricing Supplement are not reported as provided by
3:00 P.M., New York City time, on the related Calculation Date or if no such
Auction is held, then the Treasury Rate will be calculated by the Calculation
Agent as a yield to maturity (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
P.M., New York City time, on such Treasury Rate Interest Determination Date,
of three leading United States government securities dealers (which may
include the Agents or their affiliates) selected by the Calculation Agent, for
the issue of Treasury Bills with a remaining maturity closest to the Index
Maturity specified in the applicable Pricing Supplement; provided, however,
that, if the dealers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Treasury Rate determined as of such Treasury
Rate Interest Determination Date will be the Treasury Rate in effect
immediately prior to such Treasury Rate Interest Determination Date.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Stated Maturity Date, any redemption or repayment provisions or any other
term relating thereto, may be modified and/or supplemented as specified under
"Other/Additional Provisions" on the face thereof or in an Addendum relating
thereto, if so specified on the face thereof and described in the applicable
Pricing Supplement.
DISCOUNT NOTES
The Company may offer Notes ("Discount Notes") from time to time that have
an Issue Price (as specified in the applicable Pricing Supplement) that is
less than 100% of the principal amount thereof (i.e., par) by more than a
percentage equal to the product of 0.25% and the number of full years to the
Stated Maturity Date. Discount Notes may not bear any interest currently or
may bear interest at a rate that is below market rates at the time of
issuance. The difference between the Issue Price of a Discount Note and par is
referred to herein as the "Discount." In the event of redemption, repayment or
acceleration of maturity of a Discount Note, the amount payable to the Holder
of such Discount Note will be equal to the sum of (i) the Issue Price
increased by any accruals of Discount and, in the event of any redemption of
such Discount Note (if applicable), multiplied by the Initial Redemption
Percentage (as adjusted by the Annual Redemption Percentage Reduction, if
applicable) and (ii) any unpaid interest accrued thereon to the date of such
redemption, repayment or acceleration of maturity, as the case may be.
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Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of Discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for a
Discount Note, such Discount will be accrued using a constant yield method.
The constant yield will be calculated using a 30-day month, 360-day year
convention, a compounding period that, except for the Initial Period (as
hereinafter defined), corresponds to the shortest period between Interest
Payment Dates for the applicable Discount Note (with ratable accruals within a
compounding period), a coupon rate equal to the initial coupon rate applicable
to such Discount Note and an assumption that the maturity of such Discount
Note will not be accelerated. If, in the case of an interest bearing Discount
Note, the period from the date of issue to the initial Interest Payment Date
for a Discount Note (the "Initial Period") is shorter than the compounding
period for such Discount Note, a proportionate amount of the yield for an
entire compounding period will be accrued. If, in such case, the Initial
Period is longer than the compounding period, then such period will be divided
into a regular compounding period and a short period with the short period
being treated as provided in the preceding sentence. The accrual of the
applicable Discount may differ from the accrual of original issue discount for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"),
certain Discount Notes may not be treated as having original issue discount
within the meaning of the Code, and Notes other than Discount Notes may be
treated as issued with original issue discount for federal income tax
purposes. See "United States Federal Income Tax Considerations."
INDEXED NOTES
The Company may from time to time offer Notes ("Indexed Notes") with the
amount of principal, premium or interest payable in respect thereof to be
determined by reference to the price or prices of specified commodities or
stocks or to other items, in each case as specified in the applicable Pricing
Supplement. In certain cases, Holders of Indexed Notes may receive a principal
payment on the Maturity Date that is greater than or less than the principal
amount of such Indexed Notes depending upon the relative value on the Maturity
Date of the specified indexed item. Information as to the method for
determining the amount of principal, premium, if any, or interest, if any,
payable in respect of Indexed Notes, certain historical information with
respect to the specified indexed item and any material tax considerations
associated with an investment in Indexed Notes will be specified in the
applicable Pricing Supplement. See also "Risk Factors."
AMORTIZING NOTES
The Company may from time to time offer Notes ("Amortizing Notes") with the
amount of principal thereof and interest thereon payable in installments over
the term of such Notes. Unless otherwise specified in the applicable Pricing
Supplement, interest on each Amortizing Note will be computed on the basis of
a 360-day year of twelve 30-day months. Payments with respect to Amortizing
Notes will be applied first to interest due and payable thereon and then to
the reduction of the unpaid principal amount thereof. Further information
concerning additional terms and provisions of Amortizing Notes will be
specified in the applicable Pricing Supplement, including a table setting
forth repayment information for such Amortizing Notes.
BOOK-ENTRY NOTES
The Company has established a depositary arrangement with The Depository
Trust Company with respect to the Book-Entry Notes, the terms of which are
summarized below. Any additional or differing terms of the depositary
arrangement with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes of an issue thereof of like tenor and
terms and up to $200,000,000 in aggregate principal amount will be represented
by a single Global Security. Each Global Security will be deposited with, or
on behalf of, the Depositary and will be registered in the name of the
Depositary or a nominee of the Depositary. No Global Security may be
transferred except as a whole by a nominee of the Depositary to the Depositary
or to another nominee of the Depositary, or by the Depositary or such nominee
to a successor of the Depositary or a nominee of such successor.
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So long as the Depositary or its nominee is the registered owner of a Global
Security, the Depositary or its nominee, as the case may be, will be the sole
Holder of the Book-Entry Notes represented thereby for all purposes under the
Indenture. Except as otherwise provided below, the Beneficial Owners of the
Global Security or Securities representing Book-Entry Notes will not be
entitled to receive physical delivery of Certificated Notes and will not be
considered the Holders thereof for any purpose under the Indenture.
Accordingly, each Beneficial Owner must rely on the procedures of the
Depositary and, if such Beneficial Owner is not a Participant, on the
procedures of the Participant through which such Beneficial Owner owns its
interest in order to exercise any rights of a Holder under such Global
Security or the Indenture. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
certificated form. Such laws may impair the ability of the Company to issue
Book-Entry Notes with respect to a particular issue of such Notes if persons
subject to such laws purchase any of such Notes.
Unless otherwise specified in the applicable Pricing Supplement, each Global
Security representing Book-Entry Notes will be exchangeable for Certificated
Notes of like tenor and terms and of differing authorized denominations in a
like aggregate principal amount, only if (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for the
Global Securities or the Company becomes aware that the Depositary has ceased
to be a clearing agency registered under the Exchange Act and, in any such
case, the Company shall not have appointed a successor to the Depositary
within 60 days thereafter, (ii) the Company, in its sole discretion,
determines that the Global Securities shall be exchangeable for Certificated
Notes or (iii) an Event of Default shall have occurred and be continuing with
respect to the Notes under the Indenture. Upon any such exchange, the
Certificated Notes shall be registered in the names of the Beneficial Owners
of the Global Security or Securities representing Book-Entry Notes, which
names shall be provided by the Depositary's relevant Participants (as
identified by the Depositary) to the Paying Agent.
The following is based on information furnished by the Depositary:
The Depositary will act as a securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's nominee). One fully
registered Global Security will be issued for each issue of Book-Entry
Notes, each in the aggregate principal amount of such issue, and will be
deposited with the Depositary. If, however, the aggregate principal amount
of any issue exceeds $200 million, one Global Security will be issued with
respect to each $200 million of principal amount and an additional Global
Security will be issued with respect to any remaining principal amount of
such issue.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The Depositary
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants of the Depositary ("Direct Participants")
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations and certain other organizations. The
Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the Depositary's
system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to the Depositary and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be made
by or through Direct Participants, which will receive a credit for such
Book-Entry Notes on the Depositary's records. The ownership interest of
each actual purchaser of each Book-Entry Note represented by a Global
Security
S-17
("Beneficial Owner") is in turn to be recorded on the records of Direct
Participants and Indirect Participants. Beneficial Owners will not receive
written confirmation from the Depositary of their purchase, but Beneficial
Owners are expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the
Direct Participants or Indirect Participants through which such Beneficial
Owners entered into the transaction. Transfers of ownership interests in a
Global Security representing Book-Entry Notes are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners of a Global Security representing Book-Entry
Notes will not receive Certificated Notes representing their ownership
interests therein, except in the event that use of the book-entry system
for such Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited by Participants with the Depositary
are registered in the name of the Depositary's nominee, Cede & Co. The
deposit of Global Securities with the Depositary and their registration in
the name of Cede & Co. effect no change in beneficial ownership. The
Depositary has no knowledge of the actual Beneficial Owners of the Global
Securities representing the Book-Entry Notes; the Depositary's records
reflect only the identity of the Direct Participants to whose accounts such
Book-Entry Notes are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of
their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners will
be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes of like tenor and terms are being
redeemed, the Depositary's practice is to determine by lot the amount of
the interest of each Direct Participant in such issue to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect
to the Global Securities representing the Book-Entry Notes. Under its usual
procedures, the Depositary mails an Omnibus Proxy to the Company as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Book-Entry Notes are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, or interest, if any, payments on the Global
Securities representing the Book-Entry Notes will be made in immediately
available funds to the Depositary. The Depositary's practice is to credit
Direct Participants' accounts on the applicable payment date in accordance
with their respective holdings shown on the Depositary's records unless the
Depositary has reason to believe that it will not receive payment on such
date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of such Participant and
not of the Depositary, the Trustee, the Paying Agent or the Company,
subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, or interest, if
any, to the Depositary is the responsibility of the Company and the Paying
Agent, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct Participants and
Indirect Participants.
If applicable, a Beneficial Owner shall give notice of any election to
have its Book-Entry Notes repaid by the Company, through its Participant,
to the Paying Agent, and shall effect delivery of such Book-Entry Notes by
causing the Direct Participant to transfer the Participant's interest in
the Global Security or Securities representing such Book-Entry Notes, on
the Depositary's records, to the Paying Agent. The requirement for physical
delivery of Book-Entry Notes in connection with a demand for repayment will
be deemed satisfied when the ownership rights in the Global Security or
Securities representing such Book-Entry Notes are transferred by Direct
Participants on the Depositary's records.
S-18
The Depositary may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Company or the Paying Agent. Under such
circumstances, if a successor securities depository is not obtained,
Certificated Notes are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes or persons whose
functional currency is not the United States dollar. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed,
revoked or modified so as to result in United States Federal income tax
consequences different from those discussed below. Any special United States
Federal income tax considerations relevant to a particular issue of the Notes
will be provided in the applicable Pricing Supplement. It also does not deal
with Holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States Federal income taxation regardless of its source or (iv) a trust which
is subject to the supervision of a court within the Unites States and the
control of a United States fiduciary. As used herein, the term "non-U.S.
Holder" means a beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest
Payments of interest on a Note generally will be taxable to a U.S. Holder as
ordinary interest income at the time such payments are accrued or are received
(in accordance with the U.S. Holder's regular method of tax accounting).
Original Issue Discount
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Original Issue
Discount Notes"). The following summary is based upon final Treasury
regulations (the "OID Regulations") released by the Internal Revenue Service
("IRS") on January 27, 1994, as amended on June 11, 1996, under the original
issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of
1% of the Note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date or, in the case of a
Note providing for the payment of any amount other than qualified stated
interest (as hereinafter defined) prior to maturity, multiplied by the
weighted average maturity of such
S-19
Note). The issue price of each Note in an issue of Notes equals the first
price at which a substantial amount of such Notes has been sold (ignoring
sales to bond houses, brokers, or similar persons or organizations acting in
the capacity of underwriters, placement agents, or wholesalers). The stated
redemption price at maturity of a Note is the sum of all payments provided by
the Note other than "qualified stated interest" payments. The term "qualified
stated interest" generally means stated interest that is unconditionally
payable in cash or property (other than debt instruments of the issuer) at
least annually at a single fixed rate. In addition, under the OID Regulations,
if a Note bears interest for one or more accrual periods at a rate below the
rate applicable for the remaining term of such Note (e.g., Notes with teaser
rates or interest holidays) and if the greater of either the resulting
foregone interest on such Note or any "true" discount on such Note (i.e., the
excess of the Note's stated principal amount over its issue price) equals or
exceeds a specified de minimis amount, then the stated interest on the Note
would be treated as original issue discount rather than qualified stated
interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an Original Issue Discount Note must include
original issue discount in income as ordinary interest for United States
Federal income tax purposes as it accrues under a constant yield method in
advance of receipt of the cash payments attributable to such income,
regardless of such U.S. Holder's regular method of tax accounting. In general,
the amount of original issue discount included in income by the initial U.S.
Holder of an Original Issue Discount Note is the sum of the daily portions of
original issue discount with respect to such Original Issue Discount Note for
each day during the taxable year (or portion of the taxable year) on which
such U.S. Holder held such Original Issue Discount Note. The "daily portion"
of original issue discount on any Original Issue Discount Note is determined
by allocating to each day in any accrual period a ratable portion of the
original issue discount allocable to that accrual period. An "accrual period"
may be of any length and the accrual periods may vary in length over the term
of the Original Issue Discount Note, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest
occurs on either the first or last day of an accrual period. The amount of
original issue discount allocable to each accrual period is generally equal to
the difference between (i) the product of the Original Issue Discount Note's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and appropriately adjusted to take into account the length of the
particular accrual period) and (ii) the amount of any qualified stated
interest payments allocable to such accrual period. The "adjusted issue price"
of an Original Issue Discount Note at the beginning of any accrual period is
the sum of the issue price of the Original Issue Discount Note plus the amount
of original issue discount allocable to all prior accrual periods minus the
amount of any prior payments on the Original Issue Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases an Original Issue Discount Note for an amount
that is greater than its adjusted issue price as of the purchase date and less
than or equal to the sum of all amounts payable on the Original Issue Discount
Note after the purchase date other than payments of qualified stated interest,
will be considered to have purchased the Original Issue Discount Note at an
"acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross
income with respect to such Original Issue Discount Note for any taxable year
(or portion thereof in which the U.S. Holder holds the Original Issue Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) the issue price does not exceed the
total noncontingent principal payments due under the Variable Note by more
than a specified de minimis amount and (b) it provides for stated interest,
paid or compounded at least annually, at current values of (i) one or more
qualified floating rates, (ii) a single fixed rate and one or more qualified
floating rates, (iii) a single objective rate, or (iv) a single fixed rate and
a single objective rate that is a qualified inverse floating rate.
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A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable
rate equal to the product of a qualified floating rate and a fixed multiplier
that is greater than .65 but not more than 1.35 will constitute a qualified
floating rate. A variable rate equal to the product of a qualified floating
rate and a fixed multiplier that is greater than .65 but not more than 1.35,
increased or decreased by a fixed rate, will also constitute a qualified
floating rate. In addition, under the OID Regulations, two or more qualified
floating rates that can reasonably be expected to have approximately the same
values throughout the term of the Variable Note (e.g., two or more qualified
floating rates with values within 25 basis points of each other as determined
on the Variable Note's issue date) will be treated as a single qualified
floating rate. Notwithstanding the foregoing, a variable rate that would
otherwise constitute a qualified floating rate but which is subject to one or
more restrictions such as a maximum numerical limitation (i.e., a cap) or a
minimum numerical limitation (i.e., a floor) may, under certain circumstances,
fail to be treated as a qualified floating rate under the OID Regulations
unless such cap or floor is fixed throughout the term of the Note. An
"objective rate" is a rate that is not itself a qualified floating rate but
which is determined using a single fixed formula and which is based upon
objective financial or economic information. A rate will not qualify as an
objective rate if it is based on information that is within the control of the
issuer (or a related party) or that is unique to the circumstances of the
issuer (or a related party), such as dividends, profits or the value of the
issuer's stock (although a rate does not fail to be an objective rate merely
because it is based on the credit quality of the issuer). A "qualified inverse
floating rate" is any objective rate where such rate is equal to a fixed rate
minus a qualified floating rate, as long as variations in the rate can
reasonably be expected to reflect inversely contemporaneous variations in the
qualified floating rate. The OID Regulations also provide that, if a Variable
Note provides for stated interest at a fixed rate for an initial period of one
year or less followed by a variable rate that is either a qualified floating
rate or an objective rate and if the variable rate on the Variable Note's
issue date is intended to approximate the fixed rate (e.g., the value of the
variable rate on the issue date does not differ from the value of the fixed
rate by more than 25 basis points), then the fixed rate and the variable rate
together will constitute either a single qualified floating rate or objective
rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations and
if interest on such Note is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually, then all stated
interest on such Note will constitute qualified stated interest and will be
taxed accordingly. Thus, a Variable Note that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof and that qualifies as a "variable rate debt instrument" under
the OID Regulations will generally not be treated as having been issued with
original issue discount unless the Variable Note is issued at a "true"
discount (i.e., at a price below the Note's stated principal amount) in excess
of a specified de minimis amount. The amount of qualified stated interest and
the amount of original issue discount, if any, that accrues during an accrual
period on such Variable Note is determined under the rules applicable to fixed
rate debt instruments by assuming that the variable rate is a fixed rate equal
to (i) in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or (ii) in the case of an objective rate
(other than a qualified inverse floating rate), a fixed rate that reflects the
yield that is reasonably expected for the Variable Note. The qualified stated
interest allocable to an accrual period is increased (or decreased) if the
interest actually paid during an accrual period exceeds (or is less than) the
interest assumed to be paid during the accrual period pursuant to the
foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the
S-21
Variable Note's issue date. Any objective rate (other than a qualified inverse
floating rate) provided for under the terms of the Variable Note is converted
into a fixed rate that reflects the yield that is reasonably expected for the
Variable Note. In the case of a Variable Note that qualifies as a "variable
rate debt instrument" and provides for stated interest at a fixed rate in
addition to either one or more qualified floating rates or a qualified inverse
floating rate, the fixed rate is initially converted into a qualified floating
rate (or a qualified inverse floating rate, if the Variable Note provides for
a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Variable Note as of the
Variable Note's issue date is approximately the same as the fair market value
of an otherwise identical debt instrument that provides for either the
qualified floating rate or qualified inverse floating rate rather than the
fixed rate. Subsequent to converting the fixed rate into either a qualified
floating rate or a qualified inverse floating rate, the Variable Note is then
converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S.
Holder of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. For each accrual period appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed
rate debt instrument if such amounts differ from the actual amount of interest
accrued or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. It is not entirely clear under current law
how a Variable Note would be taxed if such Note were treated as a contingent
payment debt obligation. U.S. Holders should be aware that on June 11, 1996
the Treasury Department issued final regulations (the "CPDI Regulations")
concerning the proper United States Federal income tax treatment of contingent
payment debt instruments. In general, the CPDI Regulations would cause the
timing and character of income, gain or loss reported on a contingent payment
debt instrument to differ substantially from the timing and character of
income, gain or loss reported on a contingent payment debt instrument under
general principles of current United States Federal income tax law.
Specifically, the CPDI Regulations generally require a U.S. Holder of such an
instrument to include future contingent and noncontingent interest payments in
income as such interest accrues based upon a projected payment schedule.
Moreover, in general, under the CPDI Regulations, any gain recognized by a
U.S. Holder on the sale, exchange, or retirement of a contingent payment debt
instrument will be treated as ordinary income and all or a portion of any loss
realized could be treated as ordinary loss as opposed to capital loss
(depending upon the circumstances). The CPDI Regulations apply to debt
instruments issued on or after August 13, 1996. The proper United States
Federal income tax treatment of Variable Notes that are treated as contingent
payment debt obligations will be more fully described in the applicable
Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase Notes with such
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and
features of the purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
S-22
Short-Term Notes
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount. In
general, an individual or other cash method U.S. Holder is not required to
include accrued original issue discount in income unless the U.S. Holder
elects to do so. If such an election is not made, any gain recognized by the
U.S. Holder on the sale, exchange or maturity of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method (based
on daily compounding), through the date of sale or maturity, and a portion of
the deductions otherwise allowable to the U.S. Holder for interest on
borrowings allocable to the Short-Term Note will be deferred until a
corresponding amount of income is realized. U.S. Holders who report income for
United States Federal income tax purposes under the accrual method, and
certain other holders including banks and dealers in securities, are required
to accrue original issue discount on a Short-Term Note on a straight-line
basis unless an election is made to accrue the original issue discount under a
constant yield method (based on daily compounding).
Market Discount
If a U.S. Holder purchases a Note, other than an Original Issue Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of an Original Issue Discount Note, for an amount that is less than its
adjusted issue price as of the purchase date, such U.S. Holder will be treated
as having purchased such Note at a "market discount," unless such market
discount is less than a specified de minimis amount. (The market discount
rules do not apply to Short-Term Notes.)
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of an Original Issue Discount Note,
any payment that does not constitute qualified stated interest) on, or any
gain realized on the sale, exchange, retirement or other disposition of, a
Note as ordinary income to the extent of the lesser of (i) the amount of such
payment or realized gain or (ii) the market discount which has not previously
been included in income and is treated as having accrued on such Note at the
time of such payment or disposition. Market discount will be considered to
accrue ratably during the period from the date of acquisition to the maturity
date of the Note, unless the U.S. Holder elects to accrue market discount on
the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note
or certain earlier dispositions, because a current deduction is only allowed
to the extent the interest expense exceeds an allocable portion of market
discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Note and upon the receipt of
certain cash payments and regarding the deferral of interest deductions will
not apply. Generally, such currently included market discount is treated as
ordinary interest for United States Federal income tax purposes. Such an
election will apply to all debt instruments acquired by the U.S. Holder on or
after the first day of the first taxable year to which such election applies
and may be revoked only with the consent of the IRS.
Premium
If a U.S. Holder purchases a Note for an amount that is greater than the sum
of all amounts payable on the Note after the purchase date other than payments
of qualified stated interest, such U.S. Holder will be considered to have
purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the Note and may offset interest
otherwise required to be included in respect of the Note during any taxable
year by the amortized amount of such excess for the taxable year. If the Note
may, however, be optionally redeemed after the U.S. Holder acquires it at a
price in excess of its stated redemption price at maturity, special rules
would apply which could result in a deferral of the amortization of some bond
premium until later in the term of the Note. Any
S-23
election to amortize bond premium applies to all taxable debt instruments then
owned and thereafter acquired by the U.S. Holder on or after the first day of
the first taxable year to which such election applies and may be revoked only
with the consent of the IRS.
Disposition of a Note
Except as discussed above, upon the sale, exchange or retirement of a Note,
a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in
a Note generally will equal such U.S. Holder's initial investment in the Note
increased by any original issue discount included in income (and accrued
market discount, if any, if the U.S. Holder has included such market discount
in income) and decreased by the amount of any payments, other than qualified
stated interest payments, received and amortizable bond premium taken with
respect to such Note. Such gain or loss will be capital gain or loss, and will
be long-term capital gain or loss if the Note were held for more than one
year. Under current law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to withholding of United States
Federal income taxes on payments of principal, premium (if any) or interest
(including original issue discount, if any) on a Note provided that (i) the
beneficial owner does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (ii) the beneficial owner is not a controlled foreign corporation that
is related to the Company through stock ownership, (iii) the beneficial owner
is not a bank which receives interest on a Note or an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of its trade
or business, (iv) the beneficial owner provides the ownership statement
described below, and (v) such interest is not contingent interest. To qualify
for the exemption from taxation, the last United States payor in the chain of
payment prior to payment to a non-U.S. Holder (the "Withholding Agent") must
have received in the year in which a payment of interest or principal occurs,
or in either of the two preceding calendar years, a statement that (i) is
signed by the beneficial owner of the Note under penalties of perjury, (ii)
certifies that such owner is not a U.S. Holder and (iii) provides the name and
address of the beneficial owner. The statement may be made on an IRS Form W-8
or a substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement under penalties of perjury to the
Withholding Agent. In such case, however, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by
the beneficial owner to the organization or institution. The Treasury
Department is considering implementation of further certification requirements
aimed at determining whether the issuer of a debt obligation is related to
holders thereof.
A non-U.S. Holder will not be subject to withholding of United States
Federal income taxes on any amount which constitutes capital gain upon
retirement or disposition of a Note.
If a non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described above, payments of premium interest (including
original issue discount) made to such non-U.S. Holder will be subject to a 30%
withholding tax unless the beneficial owner of the Note provides the Company
or its paying agent, as the case may be, with a properly executed (1) IRS Form
1001 (or successor form) claiming an exemption from withholding under the
benefit of a tax treaty or (2) IRS Form 224 (or successor form) stating that
interest paid on the Note is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or
business in the United States.
If a non-U.S. Holder is engaged in a trade or business in the United States
and premium, if any, or interest (including original issue discount) on the
Note is effectively connected with the conduct of such trade or
S-24
business, the non-U.S. Holder, although exempt from the withholding tax
discussed above, will be subject to United States federal income tax on such
interest and original issue discount on a net income basis in the same manner
as if it were a U.S. Holder. In addition, if such non-U.S. Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or lower
treaty rate) of its effectively connected earnings and profits for the taxable
year, including such premium, if any, and interest (including original issue
discount) on a Note.
Any gain realized upon the sale, exchange, retirement or other disposition
of a Note generally will not be subject to United States federal income tax
unless (i) such gain is effectively connected with a trade or business in the
United States of the non-U.S. Holder, or (ii) in the case of a non-U.S. Holder
who is an individual, such individual is present in the United States for 183
days or more in the taxable year of such sale, exchange, retirement or other
disposition, and certain other conditions are met.
The Notes will not be includible in the estate of a non-U.S. Holder,
provided that such individual does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the company
entitled to vote and provided that at the time of such individual's death,
payments in respect of the Notes would not have been effectively connected
with the conduct by such individual of a trade or business in the United
States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the Notes to a U.S. Holder must be reported to the
IRS, unless the U.S. Holder is an exempt recipient or establishes an
exemption. Compliance with the identification procedures described in the
preceding section would establish an exemption from backup withholding and
information reporting for those non-U.S. Holders who are not exempt recipients
and the payor does not have actual knowledge that the beneficial owner is a
United States person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, original issue discount or premium on a
Note are paid or collected by a foreign office of a custodian, nominee or
other foreign agent on behalf of the beneficial owner of such Note, or if a
foreign office of a broker pays the proceeds of the sale of a Note to the
owner thereof. If, however, such nominee, custodian, agent or broker is a
United States person, a controlled foreign corporation or a foreign person
that derives 50% or more of its gross income from the conduct of a trade or
business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records
that the beneficial owner is not a United States person and certain other
conditions are met or (2) the beneficial owner otherwise establishes an
exemption. Temporary Treasury regulations provide that the Treasury is
considering whether backup withholding will apply with respect to such
payments of principal, interest or the proceeds of a sale that are not subject
to backup withholding under the current regulations.
Payments of principal, interest, original issue discount and premium on a
Note paid to the beneficial owner of a Note by a United States office of a
custodian, nominee or agent, or the payment by the United States office of a
broker of the proceeds of sale of a Note, will be subject to both backup
withholding and information reporting unless the beneficial owner provides the
statement referred to above and the payor does not have actual knowledge that
the beneficial owner is a United States person, or the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
S-25
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the Company to
or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and
NationsBanc Capital Markets, Inc. (the "Agents"). The Agents, individually or
in a syndicate, may purchase Notes, as principal, from the Company from time
to time for resale to investors and other purchasers at varying prices
relating to prevailing market prices at the time of resale as determined by
the applicable Agent or, if so specified in the applicable Pricing Supplement,
for resale at a fixed offering price. If agreed to by the Company and an
Agent, such Agent may also utilize its reasonable efforts on an agency basis
to solicit offers to purchase the Notes at 100% of the principal amount
thereof, unless otherwise specified in the applicable Pricing Supplement. The
Company will pay a commission to an Agent, ranging from .125% to .750% of the
principal amount of each Note, depending upon its stated maturity, sold
through such Agent as an agent of the Company. Commissions with respect to
Notes with stated maturities in excess of 30 years that are sold through an
Agent as an agent of the Company will be negotiated between the Company and
such Agent at the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from the Company
as principal to certain dealers less a concession equal to all or any portion
of the discount received in connection with such purchase. Such Agent may
allow, and such dealers may reallow, a discount to certain other dealers.
After the initial offering of Notes, the offering price (in the case of Notes
to be resold on a fixed offering price basis), the concession and the
reallowance may be changed.
Notwithstanding the foregoing, the Company may issue and sell Notes, on
terms that are substantially similar (including discounts and commissions) to
the terms described above, to or through one or more agents, dealers or
underwriters other than the Agents or, on its own behalf, directly to the
investors or other purchasers thereof without the intervention or any agents,
dealers or underwriters.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject offers in whole or in part (whether
placed directly with the Company or through an Agent). Each Agent will have
the right, in its discretion reasonably exercised, to reject in whole or in
part any offer to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in United States dollars in The City of New York on the date
of settlement. See "Description of Notes--General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time
to time purchase and sell Notes in the secondary market, but the Agents are
not obligated to do so, and there can be no assurance that there will be a
secondary market for the Notes or that there will be liquidity in the
secondary market if one develops. From time to time, the Agents may make a
market in the Notes, but the Agents are not obligated to do so and may
discontinue any market-making activity at any time.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act. The Company has agreed to indemnify the Agents against, and to
provide contribution with respect to, certain liabilities (including
liabilities under the Securities Act). The Company has agreed to reimburse the
Agents for certain other expenses.
In the ordinary course of its business, the Agents and their affiliates have
engaged and may in the future engage in investment and commercial banking
transactions with the Company and certain of its affiliates.
From time to time, the Company may issue and sell other Debt Securities
described in the accompanying Prospectus, and the amount of Notes offered
hereby is subject to reduction as a result of such sales.
S-26
PROSPECTUS
$500,000,000
LOGO
DEBT SECURITIES
----------------
Halliburton Company (the "Company") may offer and sell from time to time, in
one or more series, its debt securities issued and issuable from time to time
under either of the Indentures, as hereinafter defined (the "Debt
Securities"), with an aggregate initial offering price not to exceed
$500,000,000, on terms to be determined at the time of offering. The specific
designation, aggregate principal amount, ranking as senior or subordinated
Debt Securities, maturity, rate (or method of determining the same) and time
of payment of interest, if any, purchase price, any terms for redemption or
repurchase or conversion into Common Stock, par value $2.50 per share, of the
Company ("Common Stock"), the principal amounts to be purchased by or through
agents, dealers or underwriters, if any, and other special terms in connection
with the offering and sale of the series of Debt Securities in respect of
which this Prospectus is being delivered and any listing of the Debt
Securities on a securities exchange are set forth in the accompanying
Prospectus Supplement (the "Prospectus Supplement") or in the applicable
pricing supplement hereto (each, a "Pricing Supplement").
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Debt Securities may be sold (i) through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate;
(ii) through agents or dealers designated from time to time; or (iii) directly
to purchasers. The names of any underwriters or agents of the Company involved
in the sale of the Debt Securities in respect of which this Prospectus is
being delivered and any applicable commissions or discounts are set forth in
the Prospectus Supplement or in the applicable Pricing Supplement. The net
proceeds to the Company from such sale are also set forth in the accompanying
Prospectus Supplement or in the applicable Pricing Supplement. See
"Distribution" for possible indemnification arrangements for any such
underwriters and agents.
December 19, 1996
AVAILABLE INFORMATION
As described herein under "The Company -- Holding Company Reorganization",
the original registrant under the Registration Statement (as defined below)
participated in a Reorganization (as hereinafter defined) pursuant to which it
became a wholly owned, indirect subsidiary of a new holding company that is
now named "Halliburton Company" and is herein called the "Company." The
Company is deemed to be the successor issuer under the Registration Statement
to the original registrant (the "Predecessor") thereunder pursuant to Rule 414
under the Securities Act of 1933, as amended (the "Securities Act"). The
Company now is, and until the Reorganization the Predecessor was, subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith the Company files,
and the Predecessor filed, reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC") under the name
"Halliburton Company." Such reports, proxy statements and other information
may be obtained from the web site that the SEC maintains at
http://www.sec.gov. In addition, reports, proxy statements and other
information filed by the Company and the Predecessor with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as at
the regional offices of the SEC at the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, New
York, New York 10048. Copies of such material may also be obtained from the
Public Reference Section of the SEC in its Washington, D.C. office at
prescribed rates. The Common Stock is listed on the New York Stock Exchange.
The reports, proxy and information statements and other information concerning
the Company and the Predecessor described above may also be inspected at the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Reports, proxy statements and other information concerning the Company and
the Predecessor may also be obtained electronically through a variety of
databases, including, among others, the SEC's Electronic Data Gathering and
Retrieval ("EDGAR") program, Knight-Ridder Information Inc., Federal
Filing/Dow Jones and Lexis/Nexis.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed with the SEC by the Predecessor, and amended, assumed and
continued by the Company as successor issuer, under the Securities Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement for
further information with respect to the Company and the Debt Securities
offered hereby. Any statements contained herein concerning the provisions of
any document filed as an exhibit to the Registration Statement or otherwise
filed with the SEC are not necessarily complete, and in each instance
reference is made to the copy of such document so filed. Each such statement
is qualified in its entirety by such reference.
The Company has filed an amendment to the Registration Statement expressly
adopting the Registration Statement, as well as the statements contained
therein, as its own for all purposes of the Securities Act and the Exchange
Act and setting forth any additional information necessary to reflect any
material changes made in connection with or resulting from the succession or
necessary to keep the Registration Statement from being misleading in any
material respect.
2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed with the SEC by the Company
pursuant to the Exchange Act, are incorporated herein by reference:
(a) The description of the Common Stock contained in the Registration
Statement on Form 8-B dated December 12, 1996; and
(b) The description of the Company's Preferred Stock Purchase Rights
contained in the Registration Statement on Form 8-B dated December 12,
1996.
In addition, the following documents, heretofore filed with the SEC by the
Predecessor pursuant to the Exchange Act, are incorporated herein by
reference:
(a) The Predecessor's Annual Report on Form 10-K for the year ended
December 31, 1995;
(b) The Predecessor's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996; June 30, 1996; and September 30, 1996;
(c) The Predecessor's Current Reports on Form 8-K dated January 23, 1996,
February 15, 1996, March 25, 1996, April 8, 1996, April 22, 1996, May 6,
1996, May 21, 1996, June 4, 1996, June 20, 1996, July 23, 1996, July 31,
1996, August 20, 1996, September 24, 1996, October 4, 1996; October 22,
1996; November 15, 1996; December 9, 1996; and December 12, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Debt Securities pursuant hereto
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all documents that have been
incorporated by reference in this Prospectus (not including exhibits to the
documents that are incorporated by reference unless such exhibits are
specifically incorporated by reference into the documents that this Prospectus
incorporates). Requests for such copies should be directed to the office of
the Vice President and Secretary, 3600 Lincoln Plaza, 500 N. Akard, Dallas,
Texas 75201-3391, telephone number (214) 978-2600.
3
THE COMPANY
Halliburton Company, together with its subsidiaries, is a diversified world-
wide services and sales organization. Subsidiaries of the Company render oil
field services, both onshore and offshore, to the petroleum industry. They
also provide engineering, construction, project management, facilities
operation and maintenance services to the petroleum industry and other
industrial and governmental customers. In addition, they manufacture various
products for sale to the petroleum industry, manufacture specialty products
for and render specialty services to general industry.
The Company, together with its subsidiaries, is one of the world's largest
companies providing services to the energy industry. For the year ended
December 31, 1995, approximately 80% of its consolidated revenues was derived
from sales and services to, including construction for, the energy industry.
Subsidiaries of the Company conduct business in more than 100 countries and
approximately 51% of the Company's consolidated revenues for 1995 was derived
from international sales and services.
The Company and its Predecessor were incorporated under the laws of the
State of Delaware in 1996 and 1924, respectively. The Company's principal
executive offices are located at 3600 Lincoln Plaza, 500 N. Akard, Dallas,
Texas 75201-3391, telephone number (214) 978-2600.
HOLDING COMPANY REORGANIZATION
The Company's Predecessor reorganized its corporate structure on December
12, 1996 to establish the Company as the parent corporation for the operating
subsidiaries (the "Reorganization"). In order to effect the Reorganization,
the Predecessor incorporated a new holding company (being the Company) as a
wholly owned subsidiary of the Predecessor and merged with an indirect, wholly
owned subsidiary of the new holding company. The merger was effected without a
vote of stockholders of the Predecessor pursuant to the provisions of the
General Corporation Law of Delaware. In connection with the merger, the name
of the new holding company was changed to "Halliburton Company" and all the
issued common stock of the Predecessor was converted into a like number of
shares of Common Stock of the new holding company (being the Company). The
capital structure of the Company is the same as that of the Predecessor prior
to the merger. The Predecessor has received an opinion of its counsel, Vinson
& Elkins L.L.P., that the Reorganization will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code") and that no gain or loss will be recognized by the
stockholders of the Predecessor upon the receipt of the Common Stock of the
Company in exchange for their shares of the Predecessor pursuant to the
Reorganization.
The Predecessor also received a ruling from the Internal Revenue Service
that the Reorganization will not adversely affect the status of the merger of
Landmark Graphics Corporation with a wholly owned subsidiary of the
Predecessor on October 4, 1996 as a tax-free reorganization under Section
368(a) of the Code.
In connection with the Reorganization, the Company, as the new holding
company, assumed certain liabilities and obligations of the Predecessor,
including those with respect to the $200 million in aggregate principal amount
of the Predecessor's outstanding 8.75% Debentures Due February 15, 2021. As a
result, both the Company and the Predecessor will be primary obligors with
respect to such Debentures and other liabilities and obligations.
Debt Securities sold subsequent to the Reorganization will be solely
obligations of the Company. The only significant assets of the Company are the
stock of its subsidiaries, and, as a consequence, any indebtedness of the
Company, including any Debt Securities sold subsequent to the Reorganization,
will be structurally subordinated to all of the indebtedness of its
subsidiaries. For further information, see "Description of Debt Securities--
Provisions Applicable to Senior Debt Securities--Structural Subordination."
4
USE OF PROCEEDS
Unless otherwise provided in the Prospectus Supplement or the applicable
Pricing Supplement, the net proceeds from the sale of the Debt Securities
offered by this Prospectus, the Prospectus Supplement and any applicable
Pricing Supplement (the "Offered Debt Securities") will be added to the
Company's general funds and used for general corporate purposes, which may
include repayment of debt of the Company, acquisitions by the Company and
loans and advances to, and investments in, subsidiaries of the Company to
provide funds for working capital, repayment of debt and capital expenditures.
Until so utilized, it is expected that such net proceeds will be placed in
interest bearing time deposits or invested in short-term marketable
securities.
RATIO OF EARNINGS TO FIXED CHARGES (a)
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- -------------
1.6 (b) (b) 3.3 5.0 5.8
- --------
(a) Includes the effect of the acquisition of Landmark Graphics Corporation
("Landmark") on October 4, 1996, which was accounted for as a pooling of
interests. Historical restated financial statements have not been issued
because Landmark is not a significant subsidiary within the meaning of
such term as used in the rules and regulations under the Securities Act.
(b) Earnings were inadequate to cover fixed charges in 1992 and 1993 by $158.9
million and $199.4 million, respectively.
For purposes of computing the ratio of earnings to fixed charges: (i) fixed
charges consist of interest on debt (whether expensed or capitalized),
amortization of debt discount and expense and a portion of rental expense
determined to be representative of interest and (ii) earnings consist of
income (loss) from continuing operations before provision for income taxes,
minority interest, cumulative effects of accounting changes and extraordinary
items plus fixed charges as described above, adjusted to exclude capitalized
interest and by the excess or deficiency of dividends over income of 50
percent or less owned entities accounted for by the equity method.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement and, if applicable, any Pricing Supplement may relate.
The particular terms of the Offered Debt Securities offered by any Prospectus
Supplement and any applicable Pricing Supplement and the extent, if any, to
which such general provisions do not apply to such Offered Debt Securities
will be described in the Prospectus Supplement and any Pricing Supplement
relating to such Offered Debt Securities.
The Debt Securities will constitute either senior or subordinated debt of
the Company and will be issued, in the case of Debt Securities that will be
senior debt ("Senior Debt Securities"), under a Second Senior Indenture dated
as of December 1, 1996 between the Predecessor and Texas Commerce Bank
National Association, as trustee (the "Trustee"), as supplemented, amended and
modified by that certain First Supplemental Indenture dated as of December 5,
1996 between the Predecessor and the Trustee and the Second Supplemental
Indenture dated as of December 12, 1996 among the Predecessor, the Company and
the Trustee and as further supplemented, amended and modified (the "Second
Senior Debt Indenture"), and, in the case of Debt Securities that will be
subordinated debt ("Subordinated Debt Securities"), under a Subordinated
Indenture dated as of January 2, 1991 between the Predecessor and the Trustee,
as supplemented, amended and modified by the First Supplemental Indenture
dated as of December 12, 1996 among the Predecessor, the Company and the
Trustee and as further supplemented, amended and modified (the "Subordinated
Debt Indenture"). The Second Senior Debt Indenture and the Subordinated Debt
Indenture are sometimes hereinafter referred to individually as an "Indenture"
and collectively as the "Indentures." Texas Commerce Bank National Association
(and any successor thereto as trustee under the Indentures) is hereinafter
referred to as the "Trustee." The Indentures are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The following
summaries of
5
certain provisions of the Indentures and the Debt Securities do not purport to
be complete and such summaries are subject to the detailed provisions of the
applicable Indenture to which reference is hereby made for a full description
of such provisions, including the definition of certain terms used herein.
Section references in parentheses below are to sections in both Indentures
unless otherwise indicated. Wherever particular sections or defined terms of
the applicable Indenture are referenced, such sections or defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference. The Indentures are
substantially identical, except for certain covenants of the Company and
provisions relating to subordination and conversion.
In connection with the Reorganization, the Predecessor, the Company and the
Trustee entered into an indenture supplemental to that certain Senior
Indenture dated as of January 2, 1991 between the Predecessor and the Trustee
(as so supplemented, the "First Senior Debt Indenture"), pursuant to which the
Company assumed the obligations of the Predecessor and became a primary
obligor, together with the Predecessor, with respect to the $200 million in
aggregate principal amount of the Predecessor's outstanding 8.75% Debentures
Due February 15, 2021.
PROVISIONS APPLICABLE TO BOTH SENIOR AND SUBORDINATED DEBT SECURITIES
General. The Debt Securities will be unsecured senior or subordinated
obligations of the Company and may be issued from time to time in one or more
series. Neither of the Indentures limits the amount of Debt Securities that
may be issued thereunder nor does either limit the aggregate unsecured
indebtedness of the Company or any subsidiary thereof or limit the payment of
dividends or the acquisition of stock of the Company.
Unless otherwise set forth in the Prospectus Supplement or any applicable
Pricing Supplement relating to a particular series of Offered Debt Securities,
the Debt Securities will not contain any provisions that may afford holders of
the Debt Securities protection in the event of a change of control of the
Company or in the event of a highly leveraged transaction (whether or not such
transaction results in a change of control of the Company).
Reference is made to the Prospectus Supplement and any applicable Pricing
Supplement for the following terms of and information relating to the Offered
Debt Securities (to the extent such terms are applicable to such Offered Debt
Securities): (i) the title of the Offered Debt Securities; (ii) classification
as Senior Debt Securities or Subordinated Debt Securities, aggregate principal
amount, and denomination; (iii) whether the Offered Debt Securities are
convertible into Common Stock and, if so, the terms and conditions upon which
such conversion will be effected including the initial conversion price or
conversion rate, the conversion period and other conversion provisions in
addition to or in lieu of those described herein; (iv) the date or dates on
which the Offered Debt Securities will mature; (v) the method by which amounts
payable in respect of principal of, premium, if any, or interest, if any, on
or upon the redemption of such Offered Debt Securities may be calculated; (vi)
the interest rate or rates (or the method by which such will be determined),
and the dates from which such interest, if any, will accrue; (vii) the date or
dates on which any such interest will be payable; (viii) the purchase price,
expressed as a percentage of their principal amount, at which any Offered Debt
Securities will be offered; (ix) the place or places where and the manner in
which the principal of, premium, if any, and interest, if any, on the Offered
Debt Securities will be payable and the place or places where the Offered Debt
Securities may be presented for transfer and, if applicable, conversion; (x)
the obligation, if any, of the Company to redeem, repay or purchase the
Offered Debt Securities pursuant to any sinking fund or analogous provisions
or at the option of a holder thereof and the period or periods within which,
the price or prices at which and the terms and conditions upon which the
Offered Debt Securities will be redeemed, repaid or purchased pursuant to any
such obligation; (xi) any applicable United States Federal income tax
consequences; and (xii) any other specific terms of the Offered Debt
Securities, including any additional or different events of default, remedies
or covenants provided with respect to such Offered Debt Securities, and any
terms that may be required by or advisable under applicable laws or
regulations.
In addition, the issue price of Offered Debt Securities that are original
issue discount securities, the amount of the original issue discount with
respect thereto, the manner and rate or rates per annum (which may be fixed or
variable) at which such original issue discount shall accrue, the yield to
maturity represented thereby, the date
6
or dates from or to which or period or periods during which such original
issue discount shall accrue, the portion of the principal amount of such
Offered Debt Securities that will be payable upon acceleration of the maturity
thereof or upon the optional or mandatory redemption, purchase or exchange
thereof and any other specific terms thereof will be described in the
Prospectus Supplement and any applicable Pricing Supplement relating thereto.
Unless otherwise specified in any Prospectus Supplement, the Debt Securities
will be issued only in fully registered form and in denominations of $1,000
and any integral multiple thereof (Section 2.7). No service charge will be
made for any transfer or exchange of any Debt Securities but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 2.8).
Debt Securities may bear interest at a fixed rate or a floating rate. Debt
Securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate may be sold at a discount below
their stated principal amount. Special United States Federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par that are treated as having been issued at a
discount for United States Federal income tax purposes will be described in
the applicable Prospectus Supplement.
Global Securities. The Debt Securities of a series may be issued in whole or
in part in the form of one or more global securities ("Global Securities")
that will be deposited with, or on behalf of, a depositary (the "Depositary")
identified in the Prospectus Supplement relating to such series. Global
Securities may be issued only in fully registered form and in either temporary
or permanent form. Unless and until it is exchanged in whole or in part for
the individual Debt Securities represented thereby, a Global Security may not
be transferred except as a whole by the Depositary for such Global Security to
its nominee or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary or nominee of such successor Depositary (Section 2.8).
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to
such series.
Events of Default. Unless otherwise specified in the Prospectus Supplement,
an Event of Default is defined under each Indenture with respect to the Debt
Securities of any series issued under such Indenture as being: (a) default in
the payment of any interest with respect to Debt Securities of such series
when due, continued for 30 days; (b) default in the payment of principal or
premium, if any, with respect to Debt Securities of such series when due; (c)
default in the payment or satisfaction of any sinking fund obligation with
respect to Debt Securities of such series when due; (d) default in the
performance of any other covenant of the Company applicable to Debt Securities
of such series, continued for 60 days after written notice by the Trustee or
the holders of at least 25% in aggregate principal amount of the Debt
Securities of such series then outstanding; and (e) certain events of
bankruptcy, insolvency or reorganization (Section 5.1). If any Event of
Default shall occur and be continuing, the Trustee or the holders of not less
than 25% in aggregate principal amount of the Debt Securities of such series
then outstanding, by notice in writing to the Company (and to the Trustee, if
given by the holders), may declare the Debt Securities of such series due and
payable immediately, but the holders of a majority in aggregate principal
amount of the Debt Securities of such series then outstanding, by notice in
writing to the Company and the Trustee, may rescind such declaration if the
Company shall have paid or deposited with the Trustee all amounts that shall
have become due, otherwise than through acceleration, for principal, premium,
if any, and interest, if any, and all defaults under such Indenture are cured
or waived (Section 5.1).
Each Indenture provides that no holder of any series of Debt Securities then
outstanding may institute any suit, action or proceeding with respect to, or
otherwise attempt to enforce, such Indenture, unless (i) such holder shall
have given to the Trustee written notice of default and of the continuance
thereof, (ii) the holders of not less than 25% in aggregate principal amount
of such series of Debt Securities then outstanding shall have made written
request to the Trustee to institute such suit, action or proceeding and shall
have offered to the Trustee
7
such reasonable indemnity as it may require with respect thereto and (iii) the
Trustee for 60 days after its receipt of such notice, request and offer of
indemnity shall have neglected or refused to institute any such action, suit
or proceeding; provided, however, that, subject to the subordination
provisions applicable to the Subordinated Debt Securities, the right of any
holder of any Debt Security to receive payment of the principal of, premium,
if any, or interest, if any, on such Debt Security, on or after the respective
due dates, or, with respect to any convertible Subordinated Debt Security, the
right to convert such Subordinated Debt Security, or to institute suit for the
enforcement of any such payment or right to convert shall not be impaired or
affected without the consent of such holder (Section 5.4). The holders of a
majority in aggregate principal amount of the Debt Securities of such series
then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that such direction shall not be in
conflict with any rule of law or the Indenture (Section 5.7).
In determining whether the holders of the requisite aggregate principal
amount of outstanding Debt Securities of any or all series have given any
request, demand, authorization or consent under the Indenture, the principal
amount of an original issue discount Debt Security that shall be deemed to be
outstanding shall be the amount of the principal thereof that would be due and
payable as of the date of such determination upon a declaration of
acceleration of the maturity thereof.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under each Indenture
(Section 4.3).
Discharge and Defeasance. Unless otherwise specified in the applicable
Prospectus Supplement, the Company can discharge or defease its obligations
with respect to each series of Debt Securities as set forth below (Article
10).
The Company may discharge all of its obligations (except those set forth
below) to holders of any series of Debt Securities issued under either
Indenture that have not already been delivered to the Trustee for cancellation
and that have either become due and payable or are by their terms due and
payable within one year (or subject to optional redemption within one year) by
depositing with the Trustee cash or U.S. Government Obligations (as defined in
such Indenture), or a combination thereof, as trust funds in an amount
certified to be sufficient to pay when due the principal of, premium, if any,
and interest, if any, on all outstanding Debt Securities of such series and to
make any mandatory sinking fund payments thereon when due.
Unless otherwise provided in the applicable Prospectus Supplement, the
Company may also discharge at any time all of its obligations (except those
set forth below) to holders of any series of Debt Securities issued under
either Indenture (other than convertible Subordinated Debt Securities)
("defeasance") only if, among other things: (i) the Company irrevocably
deposits with the Trustee cash or U.S. Government Obligations, or a
combination thereof, as trust funds in an amount certified to be sufficient to
pay when due the principal of, premium, if any, and interest, if any, on all
outstanding Debt Securities of such series and to make any mandatory sinking
fund payments thereon when due and such funds have been so deposited for 91
days; (ii) such defeasance will not result in a breach or violation of, or
cause a default under, any agreement or instrument to which the Company is a
party or by which it is bound; and (iii) the Company delivers to the Trustee
an opinion of counsel to the effect that the holders of such series of Debt
Securities will not recognize income, gain or loss for United States Federal
income tax purposes as a result of such defeasance and that defeasance will
not otherwise alter the United States Federal income tax treatment of such
holders' principal and interest payments on such series of Debt Securities
(such opinion must be based on a ruling of the Internal Revenue Service or a
change in United States Federal income tax law occurring after the date of
this Prospectus because such an opinion could not be rendered under current
tax law).
Notwithstanding the foregoing, no discharge or defeasance described above
shall affect the following obligations to or rights of the holders of any
series of Debt Securities: (i) rights of registration of transfer and
8
exchange of Debt Securities of such series; (ii) rights of substitution of
mutilated, defaced, destroyed, lost or stolen Debt Securities of such series;
(iii) rights of holders of Debt Securities of such series to receive payments
of principal thereof and premium, if any, and interest, if any, thereon when
due and to receive mandatory sinking fund payments thereon when due, if any;
(iv) the rights, obligations, duties and immunities of the Trustee; (v) the
rights of holders of Debt Securities of such series as beneficiaries with
respect to property deposited with the Trustee payable to all or any of them;
(vi) the obligations of the Company to maintain an office or agency in respect
of Debt Securities of such series; and (vii) if applicable, the obligations of
the Company with respect to the conversion of Debt Securities of such series
into Common Stock.
Modification of the Indenture. Each Indenture provides that the Company and
the Trustee may enter into supplemental indentures without the consent of the
holders of the Debt Securities: (a) to evidence the assumption by a successor
entity of the obligations of the Company under such Indenture; (b) to add
covenants or new events of default for the protection of the holders of such
Debt Securities; (c) to cure any ambiguity or correct any inconsistency in the
Indenture; (d) to establish the form and terms of such Debt Securities; (e) to
evidence the acceptance of appointment by a successor trustee; (f) to amend
the Indenture in any other manner that the Company may deem necessary or
desirable and that will not adversely affect the interests of the holders of
Debt Securities issued thereunder; or (g), in the case of Senior Debt
Securities, to secure such Debt Securities (Section 8.1). In connection with
the Reorganization, the Company, the Predecessor and the Trustee entered into
indentures supplemental to the First Senior Debt Indenture, the Second Senior
Debt Indenture and the Subordinated Debt Indenture to evidence the assumption
by the Company of the obligations of the Predecessor under each such
Indenture. See "Description of Debt Securities" and "The Company-- Holding
Company Reorganization."
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of Debt Securities of each series then outstanding
and affected, to add any provisions to, or to change in any manner or
eliminate any of the provisions of, such Indenture or modify in any manner the
rights of the holders of the Debt Securities of such series; provided,
however, that the Company and the Trustee may not, without the consent of the
holder of each outstanding Debt Security affected thereby, (a) extend the
stated maturity of the principal of any Debt Security, reduce the amount of
the principal or premium, if any, thereof, reduce the rate, change the method
of determination or extend the time of payment of interest thereon, reduce or
alter the method of computation of any amount payable on or at redemption
thereof, reduce the principal amount of any original issue discount security
payable upon acceleration or provable in bankruptcy, change the coin or
currency in which principal, premium, if any, and interest, if any, are
payable, impair or affect the right to institute suit for the enforcement of
any payment or repayment thereof or, if applicable, adversely affect the right
to convert Debt Securities or any right of prepayment at the option of the
holder or (b) reduce the aforesaid percentage in aggregate principal amount of
Debt Securities of any series issued under such Indenture, the consent of the
holders of which is required for any such modification (Section 8.2).
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Subordinated Debt Securities without the
consent of each holder of Senior Indebtedness then outstanding that would be
adversely affected thereby (Section 8.6 of the Subordinated Debt Indenture).
Paying Agent and Registrar. The Trustee or an affiliate of the Trustee
initially will act as paying agent and registrar with respect to any series of
Debt Securities issued under an Indenture (Section 3.2).
PROVISIONS APPLICABLE TO SENIOR DEBT SECURITIES
General. Senior Debt Securities will be issued under the Second Senior Debt
Indenture and will rank pari passu with all other unsecured and unsubordinated
debt of the Company.
Structural Subordination. As a result of the Reorganization described under
"The Company -- Holding Company Reorganization," the Company is a holding
company, the only significant assets of which are the stock
9
of its subsidiaries. As a consequence, any indebtedness of the Company,
including Debt Securities issued under the Second Senior Debt Indenture, will
be structurally subordinated to all of the indebtedness of the Company's
subsidiaries.
Certain Definitions. For purposes of the following discussion, the following
definitions are applicable (Article One of the Second Senior Debt Indenture).
"Subsidiary" means any corporation of which the Company, or the Company and
one or more Subsidiaries, or any one or more Subsidiaries, directly or
indirectly own voting securities entitling any one or more of the Company and
its Subsidiaries to elect a majority of the directors of such corporation.
"Principal Property" means any real estate, manufacturing plant, warehouse,
office building or other physical facility, or any item of marine,
transportation or construction equipment or other like depreciable assets of
the Company or of any Restricted Subsidiary, whether owned at or acquired
after the date of the Second Senior Debt Indenture (other than any pollution
control facility), that in the opinion of the Board of Directors is of
material importance to the total business conducted by the Company and its
Restricted Subsidiaries as a whole.
"Restricted Subsidiary" means (a) any Subsidiary existing at the date of the
Second Senior Debt Indenture whose principal assets and business are located
in the United States or Canada, except certain sales financing, real estate
and other Subsidiaries so designated, and (b) any other Subsidiary that is
designated by the Company to be a Restricted Subsidiary. In connection with
the Reorganization, the Predecessor, the Subsidiary of the Company to which
the Predecessor transferred all of the outstanding capital stock of certain
Subsidiaries in connection with the Reorganization and certain of such
Subsidiaries have been designated as Restricted Subsidiaries.
"Secured Debt" means indebtedness (other than indebtedness among the Company
and Restricted Subsidiaries) for money borrowed by the Company or a Restricted
Subsidiary, or any other indebtedness of the Company or a Restricted
Subsidiary on which interest is paid or payable, which in any case is secured
by (a) a lien or other encumbrance on any Principal Property of the Company or
a Restricted Subsidiary, (b) a pledge, lien or other security interest on any
shares of stock or indebtedness of a Restricted Subsidiary or (c) in the case
of indebtedness of the Company, a guaranty by a Restricted Subsidiary;
provided, however, that any indebtedness of the Predecessor issued prior to
the Reorganization shall not, by virtue of the assumption of such indebtedness
by the Company at the time of the Reorganization, constitute indebtedness
secured by a guarantee of a Restricted Subsidiary within the meaning of clause
(c) above.
"Consolidated Net Tangible Assets" means the aggregate amount of assets
included on a consolidated balance sheet of the Company and its Restricted
Subsidiaries, less applicable reserves and other properly deductible items and
after deducting therefrom (a) all current liabilities and (b) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles, all in accordance with generally accepted accounting
principles consistently applied.
"Sale and Leaseback Transaction" means the sale or transfer by the Company
or a Restricted Subsidiary of any Principal Property owned by it which has
been in full operation for more than 120 days prior to such sale or transfer
with the intention of taking back a lease on such property (other than a lease
not exceeding 36 months) where the use by the Company or such Restricted
Subsidiary of such property will be discontinued on or before the expiration
of the term of such lease.
Restrictions on Secured Debt. At such time as any series of Senior Debt
Securities has been issued and is outstanding, the Company and its Restricted
Subsidiaries are prohibited from creating, incurring, assuming or guaranteeing
any Secured Debt without equally and ratably securing the Senior Debt
Securities of such series and any other indebtedness of or guaranteed by the
Company or any such Restricted Subsidiary then entitled thereto. The foregoing
restrictions are not applicable to (i) certain purchase money mortgages, (ii)
certain mortgages to finance construction on unimproved property, (iii)
mortgages existing on property at the time of
10
acquisition by the Company or a Restricted Subsidiary, (iv) mortgages existing
on the property or on the outstanding shares or indebtedness of a corporation
at the time it becomes a Restricted Subsidiary, (v) mortgages on property of a
corporation existing at the time such corporation is merged or consolidated
with the Company or a Restricted Subsidiary, (vi) mortgages in favor of
governmental bodies to secure certain payments of indebtedness or (vii)
extensions, renewals or replacement of the foregoing (Section 3.6 of the
Second Senior Debt Indenture).
Notwithstanding the foregoing restrictions, the Company and any one or more
Restricted Subsidiaries may create, incur, assume or guarantee Secured Debt
not otherwise permitted or excepted without equally and ratably securing the
Senior Debt Securities of each series issued and outstanding under the Second
Senior Debt Indenture if the sum of (a) the amount of such Secured Debt plus
(b) the aggregate value of Sale and Leaseback Transactions (subject to certain
exceptions) does not exceed 5% of Consolidated Net Tangible Assets (Section
3.6 of the Second Senior Debt Indenture).
Limitations on Sale and Leaseback Transactions. At such time as any series
of Senior Debt Securities has been issued and is outstanding, Sale and
Leaseback Transactions are prohibited unless (a) the Company or the Restricted
Subsidiary owning such Principal Property would be entitled to incur Secured
Debt equal to the amount realizable upon the sale or transfer of the property
to be so leased secured by a mortgage on such property without equally and
ratably securing the Senior Debt Securities of such series or (b) an amount
equal to the value of the property so leased is applied to the retirement
(other than mandatory retirement) of the Senior Debt Securities of such series
or certain other funded indebtedness of the Company and its Restricted
Subsidiaries (Section 3.7 of the Second Senior Debt Indenture).
Restrictions on Transfer of Principal Property to Unrestricted Subsidiary.
The Company and its Restricted Subsidiaries are prohibited from transferring
(whether by merger, consolidation or otherwise), except for fair value, any
Principal Property to any Subsidiary that is not a Restricted Subsidiary,
without retiring indebtedness as summarized in clause (b) of the preceding
paragraph (Section 3.8 of the Second Senior Debt Indenture).
Consolidation, Merger, Sale or Conveyance. Under the Second Senior Debt
Indenture, no consolidation or merger of the Company, and no sale of
substantially all of its property, shall be made with or to another
corporation if any Principal Property of the Company or a Restricted
Subsidiary would become subject to any mortgage or lien (other than those
permitted by Section 3.6 of the Second Senior Debt Indenture) unless prior
thereto all Senior Debt Securities then outstanding are secured (equally and
ratably with any other indebtedness of or guaranteed by the Company or any
Restricted Subsidiary then entitled thereto) by a lien on any such Principal
Property and certain other properties (Section 9.2 of the Second Senior Debt
Indenture).
The Board of Directors of the Company has not designated any property of the
Company or of any Restricted Subsidiaries as a Principal Property because, in
the opinion of management of the Company, no single property or asset is of
material importance to the total business of the Company and its Restricted
Subsidiaries taken as a whole. Nonetheless, at the time of the Reorganization,
the Predecessor was designated as a Restricted Subsidiary.
PROVISIONS APPLICABLE TO SUBORDINATED DEBT SECURITIES
Subordination. The Subordinated Debt Securities will be subordinate and
junior in right of payment, to the extent set forth in the Subordinated Debt
Indenture, to all Senior Indebtedness (as defined below) of the Company. If
the Company should default in the payment of any principal of or premium or
interest on any Senior Indebtedness when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise, then, upon written notice of such default to the Company by the
holders of such Senior Indebtedness or any trustee therefor and subject to
certain rights of the Company to dispute such default and subject to proper
notification of the Trustee, unless and until such default shall have been
cured or waived or shall have ceased to exist, no direct or indirect payment
(in cash, property, securities, by set-off or otherwise) will be made or
agreed to be made for principal of, premium, if any, or interest, if any, on
the Subordinated
11
Debt Securities, or in respect of any redemption, retirement, purchase or
other acquisition of the Subordinated Debt Securities other than those made in
capital stock of the Company (or cash in lieu of fractional shares thereof)
pursuant to any conversion right of the Subordinated Debt Securities or
otherwise made in capital stock of the Company (Sections 14.1, 14.4 and 14.5
of the Subordinated Debt Indenture).
"Senior Indebtedness" is defined in the Subordinated Debt Indenture as
Indebtedness of the Company outstanding at any time except (a) any
Indebtedness as to which, by the terms of the instrument creating or
evidencing the same, it is provided that such Indebtedness is not senior in
right of payment to the Subordinated Debt Securities, (b) the Subordinated
Debt Securities, (c) any Indebtedness of the Company to a wholly-owned
Subsidiary of the Company, (d) interest accruing after the filing of a
petition initiating certain events of bankruptcy or insolvency unless such
interest is an allowed claim enforceable against the Company in a proceeding
under Federal or state bankruptcy laws, and (e) trade accounts payable.
"Indebtedness" is defined in the Subordinated Debt Indenture as, with respect
to any Person, (a)(i) the principal of and premium and interest on
indebtedness for money borrowed of such Person evidenced by bonds, notes,
debentures or similar obligations, including any guaranty by such Person of
any indebtedness for money borrowed of any other Person, whether any such
indebtedness or guaranty is outstanding on the date of the Subordinated Debt
Indenture or is thereafter created, assumed or incurred, (ii) the principal of
and premium and interest on indebtedness for money borrowed, incurred, assumed
or guaranteed by such Person in connection with the acquisition by it or any
of its subsidiaries of any other businesses, properties or other assets and
(iii) lease obligations that such Person capitalizes in accordance with
Statement of Financial Accounting Standards No. 13 promulgated by the
Financial Accounting Standards Board or such other generally accepted
accounting principles as may be from time to time in effect, (b) any other
indebtedness of such Person, including any indebtedness representing the
balance deferred and unpaid of the purchase price of any property or interest
therein, including any such balance that constitutes a trade account payable,
and any guaranty, endorsement or other contingent obligation of such Person in
respect of any indebtedness of another, that is outstanding on the date of the
Subordinated Debt Indenture or is thereafter created, assumed or incurred by
such Person and (c) any amendments, modifications, refunding, renewals or
extensions of any indebtedness or obligation described as Indebtedness in
clauses (a) and (b) above.
If (i) without the consent of the Company a court shall enter an order for
relief with respect to the Company under the United States Federal bankruptcy
laws or a judgment, order or decree adjudging the Company a bankrupt or
insolvent, or enter an order for relief for reorganization, arrangement,
adjustment or composition of or in respect of the Company under the United
States Federal or state bankruptcy or insolvency laws or (ii) the Company
shall institute proceedings for the entry of an order for relief with respect
to the Company under the United States Federal bankruptcy laws or for an
adjudication of insolvency, or shall consent to the institution of bankruptcy
or insolvency proceedings against it, or shall file a petition seeking, or
seek or consent to reorganization, arrangement, composition or similar relief
under any applicable law, or shall consent to the filing of such petition or
to the appointment of a receiver, custodian, liquidator, assignee, trustee,
sequestrator or similar official in respect of the Company or of substantially
all of its property, or the Company shall make a general assignment for the
benefit of creditors, then all Senior Indebtedness (including any interest
thereon accruing after the commencement of any such proceedings) must first be
paid in full before any payment or distribution, whether in cash, securities
or other property, is made on account of the principal of, premium, if any, or
interest, if any, on the Subordinated Debt Securities. In such event, any
payment or distribution on account of the principal of, premium, if any, or
interest, if any, on the Subordinated Debt Securities, whether in cash,
securities or other property (other than securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided in the
subordination provisions with respect to the Subordinated Debt Securities, to
the payment of all Senior Indebtedness then outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment), that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Subordinated Debt Securities must be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement
of any such proceedings) has been paid in full. If any payment or distribution
on account of the principal of, premium, if any, or interest, if any, on
12
the Subordinated Debt Securities of any character, whether in cash, securities
or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided in the
subordination provisions with respect to the Subordinated Debt Securities, to
the payment of all Senior Indebtedness then outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment), shall be received by any holder of any Subordinated Debt
Securities in contravention of any of the terms of the Subordinated Debt
Indenture and before all the Senior Indebtedness shall have been paid in full,
such payment or distribution of securities will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness then outstanding in accordance with the priorities
then existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. In the event of any such proceeding, after payment in
full of all sums owing with respect to Senior Indebtedness, the holders of
Subordinated Debt Securities, together with the holders of any obligations of
the Company ranking on a parity with the Subordinated Debt Securities, will be
entitled to be repaid from the remaining assets of the Company the amounts at
that time due and owing on account of unpaid principal of or any premium or
any interest on the Subordinated Debt Securities and such other obligations
before any payment or other distribution, whether in cash, property or
otherwise, shall be made on account of any capital stock or obligations of the
Company ranking junior to the Subordinated Debt Securities and such other
obligations (Section 14.1 of the Subordinated Debt Indenture).
By reason of such subordination, in the event of the insolvency of the
Company, holders of Senior Indebtedness may receive more, ratably, than
holders of the Subordinated Debt Securities. Such subordination will not
prevent the occurrence of an Event of Default or limit the right of
acceleration in respect of the Subordinated Debt Securities.
Conversion. Offered Debt Securities that constitute Subordinated Debt
Securities may provide for a right of conversion thereof into Common Stock (or
cash in lieu thereof). The following provisions will apply to Debt Securities
that are convertible Subordinated Debt Securities unless otherwise provided in
the Prospectus Supplement for such Offered Debt Securities.
The holder of any convertible Subordinated Debt Securities will have the
right exercisable at any time prior to maturity, unless such Subordinated Debt
Securities have been previously redeemed or otherwise purchased by the
Company, to convert such Subordinated Debt Securities into shares of Common
Stock at the conversion price or conversion rate set forth in the Prospectus
Supplement, subject to adjustment (Section 13.2 of the Subordinated Debt
Indenture). The holder of convertible Subordinated Debt Securities may convert
any portion thereof which is $1,000 in principal amount or any integral
multiple thereof (Section 13.2 of the Subordinated Debt Indenture).
In certain events, the conversion price or conversion rate will be subject
to adjustment as set forth in the Subordinated Debt Indenture. Such events
include the issuance of shares of Common Stock of the Company as a dividend or
distribution on the Common Stock; subdivisions, combinations and
reclassifications of the Common Stock; the issuance to all holders of Common
Stock of rights or warrants entitling the holders thereof (for a period not
exceeding 45 days) to subscribe for or purchase shares of Common Stock at a
price per share less than the then current market price per share of Common
Stock (as defined in the Subordinated Debt Indenture); and the distribution to
all holders of Common Stock of evidences of indebtedness, equity securities
(including equity interests in the Company's subsidiaries) other than Common
Stock or other assets (excluding cash dividends paid from surplus) or
subscription rights or warrants (other than those referred to above). No
adjustment of the conversion price or conversion rate will be required unless
an adjustment would require a cumulative increase or decrease of at least 1%
in such price or rate (Section 13.4 of the Subordinated Debt Indenture). The
Company has been advised by its counsel, Vinson & Elkins L.L.P., that certain
adjustments in the conversion price or conversion rate in accordance with the
foregoing provisions may result in constructive distributions to either
holders of the Subordinated Debt Securities or holders of Common Stock that
would be taxable pursuant to Treasury Regulations issued under Section 305 of
the Code. The amount of any such taxable
13
constructive distribution will be the fair market value of the Common Stock
which is treated as having been constructively received, such value being
determined as of the time the adjustment resulting in the constructive
distribution is made.
Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based on the then
current market price for the Common Stock (Section 13.3 of the Subordinated
Debt Indenture). Upon conversion, no adjustments will be made for accrued
interest or dividends and therefore convertible Subordinated Debt Securities
surrendered for conversion between the record date for an interest payment and
the interest payment date (except convertible Subordinated Debt Securities
called for redemption on a redemption date during such period) must be
accompanied by payment of an amount equal to the interest thereon which the
registered holder is to receive (Sections 13.2 and 13.4 of the Subordinated
Debt Indenture).
In the case of any consolidation or merger of the Company with or into any
other person (with certain exceptions) or any sale or transfer of all or
substantially all the assets of the Company, the holder of convertible
Subordinated Debt Securities, after the consolidation, merger, sale or
transfer, will have the right to convert such convertible Subordinated Debt
Securities only into the kind and amount of securities, cash and other
property which the holder would have been entitled to receive upon such
consolidation, merger, sale or transfer, if the holder had held the Common
Stock issuable upon conversion of such convertible Subordinated Debt
Securities immediately prior to such consolidation, merger, sale or transfer
(Section 13.5 of the Subordinated Debt Indenture).
Consolidation, Merger, Sale or Conveyance. The Subordinated Debt Indenture
permits the Company to consolidate with, or merge into, or transfer
substantially all of its property to, another person provided certain
specified conditions are met (Section 9.1 of the Subordinated Debt Indenture).
CONCERNING THE TRUSTEE
Pursuant to the Trust Indenture Act of 1939, as amended, should a default
occur with respect to either the 8.75% Debentures Due February 15, 2021
outstanding under the First Senior Debt Indenture or any Senior Debt
Securities issued under the Second Senior Debt Indenture, on one hand, or any
Subordinated Debt Securities issued under the Subordinated Debt Indenture, on
the other, Texas Commerce Bank National Association would be required to
resign as trustee under either the First and Second Senior Debt Indentures or
the Subordinated Debt Indenture within 90 days of such default unless such
default were cured, duly waived or otherwise eliminated.
Texas Commerce Bank National Association, the Trustee under the Indentures,
is a depositary for funds of, makes loans to and performs other services for
the Company in the normal course of business.
14
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following descriptions of certain of the provisions of the Certificate
of Incorporation of the Company and of the Restated Rights Agreement (as
defined below) are necessarily general and do not purport to be complete and
are qualified in their entirety by reference to such documents, which are
included as exhibits to the Registration Statement of which this Prospectus is
a part.
COMMON STOCK
The Company is authorized to issue 200,000,000 shares of Common Stock, par
value $2.50. As of November 30, 1996 (after giving effect to the
Reorganization), there were 125,258,208 shares of Common Stock issued and
outstanding and approximately 15,050 holders of record of Common Stock. The
holders of Common Stock are entitled to one vote for each share on all matters
submitted to a vote of stockholders. The holders of Common Stock do not have
cumulative voting rights in the election of directors. Subject to the rights
of the holders of Preferred Stock (as defined below), the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors of the Company out of legally available
funds. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets of the
Company remaining after the full amounts, if any, to which the holders of
outstanding Preferred Stock are entitled. The holders of Common Stock have no
preemptive, subscription, redemptive or conversion rights. The outstanding
shares are fully paid and nonassessable.
PREFERRED STOCK
General. The Company is authorized to issue 5,000,000 shares of Preferred
Stock, without par value (the "Preferred Stock"), of which 2,000,000 shares
have been designated as the Series A Junior Participating Preferred Stock. No
shares of Preferred Stock are outstanding. The Board of Directors of the
Company has authority, without stockholder approval (subject to a limited
exception), to issue shares of Preferred Stock in one or more series and to
determine the number of shares, designations, dividend rights, conversion
rights, voting power, redemption rights, liquidation preferences and other
terms of such series. The issuance of Preferred Stock, while providing desired
flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the voting power of holders of Common Stock
and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present
plans to issue any Preferred Stock.
Series A Preferred Stock. The Board of Directors of the Company has, in
conjunction with its adoption of the Rights Agreement described below,
designated 2,000,000 shares of Preferred Stock as the Series A Junior
Participating Preferred Stock (the "Series A Preferred Stock"). The terms of
the Series A Preferred Stock are designed so that the value of each one-
hundredth of a share purchasable upon exercise of a Right will approximate the
value of one share of Common Stock. The Series A Preferred Stock is
nonredeemable and will rank junior to all other series of Preferred Stock.
Each whole share of Series A Preferred Stock is entitled to receive a
cumulative quarterly preferential dividend in an amount per share equal to the
greater of (i) $1.00 in cash or (ii), in the aggregate, 100 times the dividend
declared on the Common Stock. In the event of liquidation, the holders of the
Series A Preferred Stock are entitled to receive a preferential liquidation
payment equal to the greater of (i) $100.00 per share or (ii), in the
aggregate, 100 times the payment made on the Common Stock, plus, in either
case, the accrued and unpaid dividends and distributions thereon. In the event
of any merger, consolidation or other transaction in which the Common Stock is
exchanged for or changed into other stock or securities, cash or property,
each whole share of Series A Preferred Stock is entitled to receive 100 times
the amount received per share of Common Stock. Each whole share of Series A
Preferred Stock is entitled to 100 votes on all matters submitted to a vote of
the stockholders of the Company, and holders of Series A Preferred Stock will
generally vote together as one class with the holders of Common Stock and any
other capital stock on all matters submitted to a vote of stockholders of the
Company.
15
RIGHTS TO PURCHASE PREFERRED STOCK
General. Effective as of December 11, 1996, the Board of Directors of the
Company paid a dividend of one preferred share purchase right (a "Right") for
each outstanding share of Common Stock held of record on that date and
approved the further issuance of Rights with respect to all shares of Common
Stock that are subsequently issued, including without limitation the shares of
Common Stock that were issued pursuant to the Reorganization. The Rights were
issued subject to a Rights Agreement dated as of December 1, 1996 between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (which
Rights Agreement has been restated without amendment to reflect the change of
the corporate name of the Company -- the "Restated Rights Agreement.") Each
Right now entitles the registered holder to purchase from the Company one-
hundredth of a share of Series A Preferred Stock at a price of $150.00 in cash
(the "Purchase Price"), subject to adjustment. Until the occurrence of certain
events described below, the Rights are not exercisable, will be evidenced by
the certificates for Common Stock and will not be transferable apart from the
Common Stock.
The rights and privileges, and the limitations and restrictions thereof, of
Rights issued pursuant to the Restated Rights Agreement are substantively the
same as those of the rights issued under the Second Amended and Restated
Rights Agreement of the Predecessor that was terminated in connection with the
Reorganization.
Detachment of Rights; Exercise. The Rights are currently attached to all
certificates representing outstanding shares of Common Stock and no separate
Right certificates have been distributed. The Rights will separate from the
Common Stock and a distribution date ("Distribution Date") will occur upon the
earlier of (i) ten business days following the public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person")
has acquired beneficial ownership of 15% or more of the outstanding Voting
Shares (as defined in the Restated Rights Agreement) of the Company or (ii)
ten business days following the commencement or announcement of an intention
to commence a tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person or group of 15% or more of such
outstanding Voting Shares.
The Rights are not exercisable until the Distribution Date. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights will be mailed to holders of record of Common Stock as of the close
of business on the Distribution Date and such separate certificates alone will
thereafter evidence the Rights.
If a person or group were to acquire 15% or more of the Voting Shares of the
Company, each Right then outstanding (other than Rights beneficially owned by
the Acquiring Person which would become null and void) would become a right to
buy that number of shares of Common Stock (or, under certain circumstances,
the equivalent number of one-hundredths of a share of Series A Preferred
Stock) that at the time of such acquisition would have a market value of two
times the Purchase Price of the Right.
If the Company were acquired in a merger or other business combination
transaction or more than 50% of its consolidated assets or earning power were
sold, proper provision would be made so that each holder of a Right would
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a
market value of two times the Purchase Price of the Right.
Antidilution and Other Adjustments. The number of shares (or fractions
thereof) of Series A Preferred Stock or other securities or property issuable
upon exercise of the Rights, and the Purchase Price payable, are subject to
customary adjustments from time to time to prevent dilution. The number of
outstanding Rights and the number of shares (or fractions thereof) of Series A
Preferred Stock issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or any subdivision,
consolidation or combination of the Common Stock occurring, in any such case,
prior to the Distribution Date.
Exchange Option. At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 15% or more of the
outstanding Voting Shares of the Company and before the
16
acquisition by a person or group of 50% or more of the outstanding Voting
Shares of the Company, the Board of Directors may, at its option, issue Common
Stock in mandatory redemption of, and in exchange for, all or part of the then
outstanding and exercisable Rights (other than Rights owned by such person or
group which would become null and void) at an exchange ratio of one share of
Common Stock (or one-hundreth of a share of Series A Preferred Stock) for each
two shares of Common Stock for which each Right is then exercisable, subject
to adjustment.
Redemption of Rights. At any time prior to the first public announcement
that a person or group has become the beneficial owner of 15% or more of the
outstanding Voting Shares, the Board of Directors of the Company may redeem
all but not less than all the then outstanding Rights at a price of $.01 per
Right (the "Redemption Price"). The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the Board of
Directors of the Company in its sole discretion may establish. Immediately
upon the action of the Board of Directors of the Company ordering redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
Expiration; Amendment of Rights. The Rights will expire on December 15,
2005, unless earlier extended, redeemed or exchanged. The terms of the Rights
may be amended by the Board of Directors of the Company without the consent of
the holders of the Rights, including an amendment to extend the expiration
date of the Rights, and, provided a Distribution Date has not occurred, to
extend the period during which the Rights may be redeemed, except that, after
the first public announcement that a person or group has become the beneficial
owner of 15% or more of the outstanding Voting Shares, no such amendment may
materially and adversely affect the interests of holders of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without the approval of the Board of Directors of the Company. The Rights
should not, however, interfere with any merger or other business combination
that is approved by the Board of Directors of the Company.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, a copy of
which is filed as an exhibit to the Registration Statement and is available
free of charge from the Company.
EFFECT OF REORGANIZATION
Following the Reorganization, the authorized capital stock, the issued and
outstanding capital stock and the treasury stock of the Company is identical
to that of the Predecessor immediately prior to the Reorganization.
17
DISTRIBUTION
The Company may sell Debt Securities to or through underwriters or dealers
and also may sell Debt Securities directly to one or more other purchasers or
through agents. The Prospectus Supplement sets forth the names of any
underwriters or agents involved in the sale of the Offered Debt Securities and
any applicable commissions or discounts.
Underwriters, dealers or agents may offer and sell the Debt Securities at a
fixed price or prices, which may be changed, or from time to time at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. In connection with the sale of the Debt
Securities, underwriters or agents may be deemed to have received compensation
from the Company in the form of underwriting discounts or commissions and may
also receive commissions from purchasers of the Debt Securities for whom they
may act as agent. Underwriters or agents may sell the Debt Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions
from the purchasers for whom they may act as agent.
The Debt Securities, when first issued, will have no established trading
market. Any underwriters or agents to or through whom Debt Securities are sold
by the Company for public offering and sale may make a market in such Debt
Securities, but such underwriters or agents will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given that a trading market will develop or be continued and no assurance
can be given as to the liquidity of any such market.
Any underwriters, dealers or agents participating in the distribution of the
Debt Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Debt Securities may be deemed to be underwriting discounts and commissions
under the Securities Act. Underwriters, dealers or agents may be entitled,
under agreements entered into with the Company, to indemnification against or
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the Debt Securities, as well as certain tax matters in
connection therewith, is being passed upon for the Company by Vinson & Elkins
L.L.P., First City Tower, Houston, Texas 77002-6760. Certain legal matters in
connection with the Debt Securities may be passed upon for any underwriters or
dealers by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), 425 Lexington Avenue, New York, New York 10017-
3909.
EXPERTS
The financial statements and schedules incorporated in this Prospectus and
elsewhere in the Registration Statement by reference to the Company's Annual
Report on Form 10-K have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are incorporated by reference herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
18
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE
PRICING SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE AGENTS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR
THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT, THE
APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO
DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Risk Factors............................................................... S-2
Description of Notes....................................................... S-4
Certain United States Federal Income Tax Considerations.................... S-19
Plan of Distribution....................................................... S-26
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents By Reference............................ 3
The Company................................................................ 4
Use of Proceeds............................................................ 5
Ratio of Earnings to Fixed Charges......................................... 5
Description of Debt Securities............................................. 5
Description of Capital Stock............................................... 15
Distribution............................................................... 18
Legal Matters.............................................................. 18
Experts.................................................................... 18
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$300,000,000
LOGO
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE
FROM DATE OF ISSUE, SERIES A
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
JANUARY 13, 1997
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