<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration Statement No. 333-3226
Prospectus Supplement
(To Prospectus Dated May 17, 1996)
$235,000,000
LOGO
CITGO PETROLEUM CORPORATION
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
CITGO Petroleum Corporation (the "Company") may from time to time offer pursuant
to this Prospectus Supplement its Medium-Term Notes, Series A (the "Notes"),
with an aggregate initial public offering price or purchase price of up to
$235,000,000 (or the equivalent thereof in one or more foreign or composite
currencies), subject to reduction as a result of the sale of other securities
under the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part or under a Registration Statement to which
this Prospectus Supplement and the accompanying Prospectus relate.
Unless otherwise specified in the applicable Pricing Supplement, each Note will
mature on a Business Day nine months or more from its date of issue (the "Stated
Maturity"), which maturity date may be subject to extension at the option of the
Company. Each Note may also be subject to redemption at the option of the
Company, or to repayment at the option of the Holder, prior to maturity. The
Notes may bear interest at a fixed rate (a "Fixed Rate Note"), which may be zero
in the case of certain Discount Notes, or at a floating rate (a "Floating Rate
Note") determined by reference to LIBOR, the CD Rate, the Commercial Paper Rate,
the Federal Funds Rate, the Treasury Rate, the Prime Rate, the CMT Rate or any
other Base Rate, as selected by the purchaser and agreed to by the Company,
adjusted by the Spread or Spread Multiplier, if any, applicable to such Note.
Unless otherwise indicated, interest on each Fixed Rate Note will be payable
semiannually in arrears on each May 15 and November 15 (each an "Interest
Payment Date") and at Stated Maturity. A Note may be issued as an amortizing
note (an "Amortizing Note") on which a portion or all the principal amount is
payable prior to Stated Maturity in accordance with a schedule, by application
of a formula, or by reference to an index. A Note may be issued as an indexed
note (an "Indexed Note") on which the amount of any interest payment will be
determined by reference to the level of a specific index as defined in the
applicable Pricing Supplement. The Specified Currency, interest rate or interest
rate formula, reset provisions, Issue Price, Stated Maturity, Interest Payment
Dates, redemption, repayment and extension provisions and certain other terms
with respect to each Note will be established at the time of issuance and set
forth in a pricing supplement to this Prospectus Supplement (a "Pricing
Supplement").
Each Note will be represented by a Global Security registered in the name of a
nominee of The Depository Trust Company, as Depositary (a "Book-Entry Note").
Beneficial interests in Global Securities representing Book-Entry Notes will be
shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Book-Entry Notes will not be
issuable as certificated notes ("Certificated Notes") except under the
circumstances described herein.
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 THE PROSPECTUS, THIS PROSPECTUS SUPPLEMENT OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRICE TO AGENT'S PROCEEDS TO THE
PUBLIC(1) COMMISSION(2) COMPANY(2)(3)
--------- ------------- ---------------
<S> <C> <C> <C>
Per Note...................... 100.000% .125%-.750% 99.875%-99.250%
Total(4)...................... $235,000,000 $293,750-$1,762,500 $234,706,250-$233,237,500
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unless otherwise specified in the applicable Pricing Supplement, the price
to public will be 100% of the principal amount.
(2) The Company will pay to Salomon Brothers Inc or Chase Securities Inc. (the
"Agent" or "Agents") a commission of from .125% to .750% of the principal
amount of any Note, depending upon its Stated Maturity through 30 years,
sold through the Agent. Commissions on Notes with a maturity of 30 years or
more will be negotiated at the time of sale.
(3) Before deduction of expenses payable by the Company estimated at $150,000,
including reimbursement of certain expenses of the Agent.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
The Notes are being offered on a continuous basis by the Company through the
Agents, which have agreed to use their reasonable efforts to solicit orders to
purchase the Notes. The Company may also sell Notes at a discount to an Agent
for its own account or for resale to one or more purchasers at varying prices
related to prevailing market prices at the time of resale or, if set forth in
the applicable Pricing Supplement, at a fixed public offering price, as
determined by the Agents. In addition, the Agents may offer Notes purchased by
it as principal to other dealers. Unless otherwise specified in the applicable
Pricing Supplement, any Note purchased by an Agent as principal will be
purchased at 100% of the principal amount thereof less a percentage equal to the
commission applicable to an agency sale of a Note of identical maturity. The
Notes will not be listed on any securities exchange, and there can be no
assurance that the maximum amount of Notes offered by this Prospectus Supplement
will be sold or that there will be a secondary market for the Notes. The Company
reserves the right to withdraw, cancel or modify the offer made hereby without
notice. The Company or the Agents may reject any order to purchase Notes,
whether or not solicited, in whole or in part. See "Plan of Distribution".
SALOMON BROTHERS INC CHASE SECURITIES INC.
The date of this Prospectus Supplement is October 28, 1997
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION".
COMPANY DESCRIPTION
The Company is a direct wholly-owned operating subsidiary of PDV America,
Inc., the holding company for the U.S. operations of Petroleos de Venezuela,
S.A., the national oil company of the Republic of Venezuela. The Company and its
subsidiaries are engaged in the refining, marketing and transportation of
petroleum products including gasoline, diesel fuel, jet fuel, petrochemicals,
lubricants, asphalt and refined waxes, mainly within the continental United
States east of the Rocky Mountains.
PRICING SUPPLEMENT
Provisions of each transaction will be more fully described in a Pricing
Supplement to this Prospectus Supplement and the accompanying Prospectus. In the
event of any inconsistency between a Pricing Supplement and this Prospectus
Supplement, the description contained in such Pricing Supplement supersedes and
replaces any inconsistent provision in this Prospectus Supplement.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of the Debt Securities set forth in the Prospectus,
to which description reference is hereby made.
GENERAL
The Notes are a series of Debt Securities issued under an Indenture dated
May 1, 1996 with The First National Bank of Chicago, as Trustee. At the date of
this Prospectus Supplement, the Notes offered pursuant to this Prospectus
Supplement are limited to an aggregate initial public offering price or purchase
price of up to $200,000,000 or the equivalent thereof in one or more foreign or
composite currencies, which amount is subject to reduction as a result of the
sale of other securities under the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus form a part or under a
Registration Statement to which this Prospectus Supplement and the accompanying
Prospectus relate. The aggregate amount of Notes may be increased from time to
time to such larger amount as may be authorized by the Company. The U.S. dollar
equivalent of the public offering price or purchase price of a Note having a
specified currency (a "Specified Currency") other than U.S. dollars will be
determined on the basis of the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York (the "Market Exchange Rate") for such Specified
Currency on the applicable issue date. Such determination will be made by the
Company or its agent, as exchange rate agent for both series of Notes (the
"Exchange Rate Agent").
The Notes will constitute part of the Senior Indebtedness of the Company
and will rank pari passu with all other senior unsecured debt of the Company.
The Notes will be offered on a continuous basis. Notes will be issued in
fully registered form only, without coupons. Each Note will be issued initially
as either a Book-Entry Note or, if specified in the applicable Pricing
Supplement, a Certificated Note. Except as set forth in the Prospectus under
"Description of Debt Securities -- Book-Entry System", Book-Entry Notes will not
be issuable as Certificated Notes. See "Book-Entry System" below.
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Unless otherwise specified in the applicable Pricing Supplement, the
authorized denominations of Notes denominated in U.S. dollars will be $1,000 and
any larger amount that is an integral multiple of $1,000, and the authorized
denominations of Notes having a Specified Currency other than U.S. dollars will
be the approximate equivalents thereof in the Specified Currency.
Unless otherwise specified in the applicable Pricing Supplement, each Note
will mature on a Business Day more than nine months from its date of issue, as
selected by the purchaser and agreed to by the Company (the "Stated Maturity"),
which maturity date may be subject to extension at the option of the Company.
Each Note may also be subject to redemption at the option of the Company, or
repayment at the option of the Holder, prior to its Stated Maturity.
The Pricing Supplement relating to a Note will describe the following
terms: (i) the Specified Currency for such Note; (ii) whether such Note is a
Fixed Rate Note, a Floating Rate Note, an Amortizing Note and/or an Indexed
Note; (iii) the price (expressed as a percentage of the aggregate principal
amount or face amount thereof) at which such Note will be issued (the "Issue
Price"); (iv) the date on which such Note will be issued (the "Original Issue
Date"); (v) the date of the Stated Maturity; (vi) if such Note is a Fixed Rate
Note, the rate per annum at which such Note will bear interest, if any, and
whether and the manner in which such rate may be changed prior to its Stated
Maturity; (vii) if such Note is a Floating Rate Note, the Base Rate, the Initial
Interest Rate, the Interest Reset Period or the Interest Reset Dates, the
Interest Payment Dates, and, if applicable, the Index Maturity, the Maximum
Interest Rate, the Minimum Interest Rate, the Spread or Spread Multiplier (all
as defined below), and any other terms relating to the particular method of
calculating the interest rate for such Note and whether and the manner in which
such Spread or Spread Multiplier may be changed prior to Stated Maturity; (viii)
whether such Note is an Original Issue Discount Note (as defined below); (ix) if
such Note is an Amortizing Note, the terms for repayment prior to Stated
Maturity; (x) if such Note is an Indexed Note, in the case of an Indexed Rate
Note, the manner in which the amount of any interest payment will be determined
or, in the case of an Indexed Principal Note, its Face Amount and the manner in
which the principal amount payable at Stated Maturity will be determined; (xi)
whether such Note may be redeemed at the option of the Company, or repaid at the
option of the Holder, prior to Stated Maturity as described under "Optional
Redemption, Repayment and Repurchase" below and, if so, the provisions relating
to such redemption or repayment, including, in the case of an Original Issue
Discount Note or Indexed Note, the information necessary to determine the amount
due upon redemption or repayment; (xii) whether such Note is subject to an
optional extension beyond its Stated Maturity as described under "Extension of
Maturity" below; and (xiii) any other terms of such Note not inconsistent with
the provisions of the Indenture under which such Note will be issued.
"Business Day" with respect to any Note means any day, other than a
Saturday or Sunday, that is (i) not a legal holiday or a day on which banking
institutions are authorized or required by law, regulation or executive order to
be closed in (a) The City of New York or (b) if the Specified Currency for such
Note is other than U.S. dollars, the financial center of the country issuing
such Specified Currency (which, in the case of ECU, shall be Brussels, Belgium)
and (ii) if such Note is a LIBOR Note (as defined below), a London Banking Day.
"London Banking Day" with respect to any Note means any day on which dealings in
deposits in the Specified Currency of such Note are transacted in the London
interbank market.
"Original Issue Discount Note" means (i) a Note, including any such Note
whose interest rate is zero, that has a stated redemption price at Stated
Maturity that exceeds its Issue Price by at least 0.25% of its stated redemption
price at Stated Maturity, multiplied by the number of full years from the
Original Issue Date to the Stated Maturity for such Note and (ii) any other Note
designated by the Company as issued with original issue discount for United
States Federal income tax purposes.
A "basis point" or "bp" equals one one-hundredth of a percentage point.
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PAYMENT OF PRINCIPAL AND INTEREST
The principal of and any premium and interest on each Note are payable by
the Company in the Specified Currency for such Note. If the Specified Currency
for a Note is other than U.S. dollars, the Company will (unless otherwise
specified in the applicable Pricing Supplement) arrange to convert all payments
in respect of such Note into U.S. dollars in the manner described in the
following paragraph. The Holder of a Note having a Specified Currency other than
U.S. dollars may (if the applicable Pricing Supplement and such Note so
indicate) elect to receive all payments in respect of such Note in the Specified
Currency by delivery of a written notice to the Trustee for such Note not later
than fifteen calendar days prior to the applicable payment date, except under
the circumstances described under "Currency Risks -- Payment Currency" below.
Such election will remain in effect until revoked by written notice to such
Trustee received not later than fifteen calendar days prior to the applicable
payment date.
In the case of a Note having a Specified Currency other than U.S. dollars,
the amount of any U.S. dollar payment in respect of such Note will be determined
by the Exchange Rate Agent based on the highest firm bid quotation expressed in
U.S. dollars received by the Exchange Rate Agent at approximately 11:00 a.m.,
New York City time, on the second Business Day preceding the applicable payment
date (or, if no such rate is quoted on such date, the last date on which such
rate was quoted), from three (or, if three are not available, then two)
recognized foreign exchange dealers in The City of New York (one of which may be
an Agent and another of which may be the Exchange Rate Agent) selected by the
Exchange Rate Agent, for the purchase by the quoting dealer, for settlement on
such payment date, of the aggregate amount of such Specified Currency payable on
such payment date in respect of all Notes denominated in such Specified
Currency. All currency exchange costs will be borne by the Holders of such Notes
by deductions from such payments. If no such bid quotations are available, such
payments will be made in such Specified Currency, unless such Specified Currency
is unavailable due to the imposition of exchange controls or to other
circumstances beyond the Company's control, in which case such payments will be
made as described under "Currency Risks -- Payment Currency" below.
Unless otherwise specified in the applicable Pricing Supplement, U.S.
dollar payments of interest on Notes (other than interest payable at Stated
Maturity) will be made, except as provided below, by check mailed to the
Registered Holders of such Notes (which, in the case of Global Securities
representing Book-Entry Notes, will be a nominee of the Depositary); provided,
however, that, in the case of a Note issued between a Regular Record Date and
the related Interest Payment Date, unless otherwise specified in the related
Pricing Supplement, interest for the period beginning on the Original Issue Date
for such Note and ending on such Interest Payment Date shall be paid on the next
succeeding Interest Payment Date to the Registered Holder of such Note on the
related Regular Record Date. A Holder of $10,000,000 (or the equivalent thereof
in a Specified Currency other than U.S. dollars) or more in aggregate principal
amount of Notes of like tenor and term shall be entitled to receive such U.S.
dollar payments by wire transfer of immediately available funds, but only if
appropriate wire transfer instructions have been received in writing by the
Trustee for such Notes not later than fifteen calendar days prior to the
applicable Interest Payment Date. Simultaneously with the election by any Holder
to receive payments in a Specified Currency other than U.S. dollars (as provided
above), such Holder shall provide appropriate wire transfer instructions to the
Trustee for such Notes. Unless otherwise specified in the applicable Pricing
Supplement, principal and any premium and interest payable at the Stated
Maturity of a Note will be paid in immediately available funds upon surrender of
such Note at the corporate trust office or agency of the Trustee for such Note
in The City of New York.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Discount Note is declared to be due and payable immediately as
described under "Description of Debt Securities -- Events of Default" in the
Prospectus, the amount of principal due and payable with respect to such Note
shall be limited to the aggregate principal amount (or face amount, in the case
of an Indexed Principal Note) of such Note multiplied by the sum of its Issue
Price (expressed as a percentage of the aggregate principal amount) plus the
original issue discount amortized from the date of issue to the date of
declaration, which amortization shall be calculated using the "interest method"
(computed in accordance with generally accepted accounting principles in effect
on the date of declaration).
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The Regular Record Date with respect to any Interest Payment Date for a
Floating Rate Note or for an Indexed Rate Note shall be the date (whether or not
a Business Day) fifteen calendar days immediately preceding such Interest
Payment Date, and for a Fixed Rate Note (unless otherwise specified in the
applicable Pricing Supplement) shall be May 1 or November 1 (whether or not a
Business Day) immediately preceding such Interest Payment Date.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its Original Issue Date, or
from the last Interest Payment Date to which interest has been paid or duly
provided for, at the rate per annum stated in the applicable Pricing Supplement
until the principal amount thereof is paid or made available for payment, except
as described below under "Subsequent Interest Periods" and "Extension of
Maturity", and except that if so specified in the applicable Pricing Supplement,
the rate of interest payable on certain Fixed Rate Notes may be subject to
adjustment from time to time as described in such Pricing Supplement. Unless
otherwise set forth in the applicable Pricing Supplement, interest on each Fixed
Rate Note will be payable semiannually in arrears on each May 15 and November 15
(each such day being an "Interest Payment Date") and at Stated Maturity. If an
Interest Payment Date with respect to any Fixed Rate Note would otherwise be a
day that is not a Business Day, such Interest Payment Date shall not be
postponed; provided, however, that any payment required to be made in respect of
such Note on a date (including the day of Stated Maturity) that is not a
Business Day for such Note need not be made on such date, but may be made on the
next succeeding Business Day with the same force and effect as if made on such
date, and no additional interest shall accrue as a result of such delayed
payment. Each payment of interest in respect of an Interest Payment Date shall
include interest accrued through the day before such Interest Payment Date.
Interest on Fixed Rate Notes will be computed on the basis of a 360-day year of
twelve 30-day months.
FLOATING RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, each
Floating Rate Note will bear interest from its Original Issue Date to the first
Interest Reset Date (such period, the "Initial Interest Period") for such Note
at the Initial Interest Rate set forth on the face thereof and in the applicable
Pricing Supplement (the "Initial Interest Rate"). The interest rate on such Note
for each Interest Reset Period (as defined below) (and for the Initial Interest
Period if so specified in the applicable Pricing Supplement) will be determined
by reference to an interest rate basis (the "Base Rate"), plus or minus the
Spread, if any, or multiplied by the Spread Multiplier, if any. The "Spread" is
the number of basis points that may be specified in the applicable Pricing
Supplement as being applicable to such Note, and the "Spread Multiplier" is the
percentage that may be specified in the applicable Pricing Supplement as being
applicable to such Note, except in each case as described below under
"Subsequent Interest Periods" and "Extension of Maturity", and except that if so
specified in the applicable Pricing Supplement, the Spread or Spread Multiplier
on certain Floating Rate Notes may be subject to adjustment from time to time as
described in such Pricing Supplement. The applicable Pricing Supplement will
designate one of the following Base Rates as applicable to a Floating Rate Note:
(i) LIBOR (a "LIBOR Note"), (ii) the Commercial Paper Rate (a "Commercial Paper
Rate Note"), (iii) the Treasury Rate (a "Treasury Rate Note"), (iv) the Prime
Rate (a "Prime Rate Note"), (v) CMT Rate (a "CMT Note"), (vi) the Federal Funds
Rate (a "Federal Funds Rate Note"), (vii) the CD Rate (a "CD Rate Note"), or
(viii) such other Base Rate as is set forth in such Pricing Supplement and in
such Note. The "Index Maturity" for any Floating Rate Note is the period of
maturity of the instrument or obligation from which the Base Rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
'Selected Interest Rates' ", or any successor publication, published by the
Board of Governors of the Federal Reserve System. "Composite Quotations" means
the daily statistical release entitled "Composite 3:30 p.m. Quotations for U.S.
Government Securities" published by the Federal Reserve Bank of New York.
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As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following (in each case expressed as a rate per
annum on a simple interest basis): (i) a maximum limitation, or ceiling, on the
rate at which interest may accrue during any interest period ("Maximum Interest
Rate") and (ii) a minimum limitation, or floor, on the rate at which interest
may accrue during any interest period ("Minimum Interest Rate"). In addition to
any Maximum Interest Rate that may be applicable to any Floating Rate Note, the
interest rate on a Floating Rate Note will in no event be higher than the
maximum rate permitted by applicable law, as the same may be modified by United
States law of general application. The Notes will be governed by the law of the
State of New York and, under such law as of the date of this Prospectus
Supplement, the maximum rate of interest under provisions of the penal law, with
certain exceptions, is 25% per annum on a simple interest basis. Such maximum
rate of interest only applies to obligations that are less than $2,500,000.
Unless otherwise specified in the Pricing Supplement, the Trustee will be
the "Calculation Agent". Upon request of the holder of any Floating Rate Note,
the Calculation Agent will provide the interest rate then in effect and, if
determined, the interest rate will become effective as a result of a
determination for the next 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 Stated Maturity, as the case may be.
The interest rate on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period" for such Note, and the first day of each Interest Reset Period
being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing Supplement, the
Interest Reset Dates will be, in the case of Floating Rate Notes that reset
daily, each Business Day; in the case of Floating Rate Notes (other than
Treasury Rate Notes) that reset weekly, Wednesday of each week; in the case of
Treasury Rate Notes that reset weekly, Tuesday of each week (except as provided
below under "Treasury Rate Notes"); in the case of Floating Rate Notes that
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes that reset quarterly, the third Wednesday of March, June, September and
December of each year; in the case of Floating Rate Notes that reset
semiannually, the third Wednesday of each of two months of each year specified
in the applicable Pricing Supplement; and, in the case of Floating Rate Notes
that reset annually, the third Wednesday of one month of each year specified in
the applicable Pricing Supplement. If an Interest Reset Date for any Floating
Rate Note would otherwise be a day that is not a Business Day, such Interest
Reset Date shall be postponed to the next succeeding Business Day, except that,
in the case of a LIBOR Note, if such Business Day is in the next succeeding
calendar month, such Interest Reset Date shall be the immediately preceding
Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest that goes into effect on any Interest Reset Date shall be determined
on a date (the "Interest Determination Date") preceding such Interest Reset
Date, as further described below. Unless otherwise specified in the applicable
Pricing Supplement, the Interest Determination Date pertaining to an Interest
Reset Date for a CD Rate Note or any Floating Rate Note for which the interest
rate is determined with reference to the CD Rate (the "CD Rate Interest
Determination Date"), for a Commercial Paper Rate Note or any Floating Rate Note
for which the interest rate is determined with reference to the Commercial Paper
Rate (the "Commercial Paper Rate Interest Determination Date"), for a Federal
Funds Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Federal Funds Rate (the "Federal Funds Rate
Interest Determination Date"), or for a Prime Rate Note or any Floating Rate
Note for which the interest rate is determined with reference to the Prime Rate
(the "Prime Rate Interest Determination Date"), or for a CMT Rate Note or any
Floating Rate Note for which the interest rate is determined with reference to
the CMT Rate (the "CMT Rate Interest Determination Date"), will be the second
Business Day preceding the Interest Reset Date. The Interest Determination Date
pertaining to an Interest Reset Date for a LIBOR Note or any Floating Rate Note
for which the interest rate is determined with reference to LIBOR (the "LIBOR
Rate Interest Determination Date") will be the second London
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Banking Day immediately preceding the Interest Reset Date with respect to such
Note. The Interest Determination Date pertaining to an Interest Reset Date for a
Treasury Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Treasury Rate (the "Treasury Rate Interest
Determination Date") will be the day of the week on which Treasury bills (as
defined below) would normally be auctioned in the week in which such Interest
Reset Date falls. Treasury bills are usually sold at auction on Monday of each
week, unless that day is a legal holiday, in which case the auction is usually
held on the following Tuesday, except that such auction may be held on the
preceding Friday. If, as the result of a legal holiday, an auction is so held on
the preceding Friday, such Friday will be the Treasury Rate Interest
Determination Date pertaining to an Interest Reset Date occurring in the next
succeeding week, If an auction date shall fall on a day which would otherwise be
an Interest Reset Date for a Treasury Rate Note, then such Interest Reset Date
shall instead be the first Business Day immediately following such auction date.
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 most recent Business Day which is at least two Business Days prior to the
applicable Interest Reset Date for such Floating Rate Note on which each
Interest Rate Basis is determinable. Each Interest Rate Basis will be determined
on such date, and the applicable interest rate will take effect on the
applicable Interest Reset Date.
Unless otherwise specified in the applicable Pricing Supplement, interest
payable in respect of Floating Rate Notes shall be the accrued interest from and
including the Original Issue Date or the last date to which interest has been
paid, as the case may be, to but excluding the applicable Interest Payment Date.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Note (or, in the case of a Floating
Rate Note that is an Indexed Principal Note, its Face Amount) by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which accrued
interest is being calculated. Unless otherwise specified in the applicable
Pricing Supplement, the interest factor (expressed as a decimal calculated to
seven decimal places without rounding) for each such day is computed by dividing
the interest rate in effect on such day by 360, in the case of LIBOR Notes,
Prime Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, and CD
Rate Notes or by the actual number of days in the year, in the case of CMT Rate
Notes or Treasury Rate Notes. For purposes of making the foregoing calculation,
the interest rate in effect on any Interest Reset Date will be the applicable
rate as reset on such date.
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation of the rate of interest on a Floating
Rate Note will be rounded, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward, and
all currency amounts used in or resulting from such calculation on Floating Rate
Notes will be rounded to the nearest one-hundredth of a unit (with .005 of a
unit being rounded upward).
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate Notes
that reset daily, weekly or monthly, on the third Wednesday of each month or on
the third Wednesday of March, June, September and December of each year, as
specified in the applicable Pricing Supplement; in the case of Floating Rate
Notes that reset quarterly, on the third Wednesday of March, June, September,
and December of each year; in the case of Floating Rate Notes that reset
semiannually, on the third Wednesday of each of two months of each year
specified in the applicable Pricing Supplement; and, in the case of Floating
Rate Notes that reset annually, on the third Wednesday of one month of each year
specified in the applicable Pricing Supplement (each such day being an "Interest
Payment Date"). If an Interest Payment Date with respect to any Floating Rate
Note would otherwise be a day that is not a Business Day, such Interest Payment
Date shall be postponed to the next succeeding Business Day, except that, in the
case of a LIBOR Note, if such Business Day is in the next succeeding calendar
month, such Interest Payment Date shall be the immediately preceding Business
Day.
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CD RATE NOTES
Each CD Rate Note will bear interest for each Interest Reset Period at the
interest rate calculated with reference to the CD Rate and the Spread or Spread
Multiplier, if any, specified in such Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the "CD
Rate" for each Interest Reset Period shall be the rate on the CD Rate Interest
Determination Date for negotiable certificates of deposit having the Index
Maturity designated in the applicable Pricing Supplement as published in
H.15(519) under the heading "CDs (Secondary Market)". In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date pertaining to such Interest Determination Date, then the "CD Rate" for such
Interest Reset Period will be the rate on such Interest Rate Determination Date
for negotiable certificates of deposit of the Index Maturity designated in the
applicable Pricing Supplement as published in Composite Quotations under the
heading "Certificates of Deposit". If by 3:00 p.m., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or Composite
Quotations, then the "CD Rate" for such Interest Reset Period will be calculated
by the Calculation Agent for such CD Rate Note and will be the arithmetic mean
of the secondary market offered rates as of 10:00 a.m., New York City time, on
such Interest Determination Date of three leading nonbank dealers in negotiable
U.S. dollar certificates of deposit in The City of New York selected by the
Calculation Agent for such CD Rate Note for negotiable certificates of deposit
of major United States money center banks of the highest credit standing (in the
market for negotiable certificates of deposit) with a remaining maturity closest
to the Index Maturity designated in the Pricing Supplement in a denomination of
$5,000,000; provided, however, that if the dealers selected as aforesaid by such
Calculation Agent are not quoting offered rates as mentioned in this sentence,
the "CD Rate" for such Interest Reset Period will be the same as the CD Rate for
the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the Initial Interest Rate).
COMMERCIAL PAPER RATE NOTES
Each Commercial Paper Rate Note will bear interest for each Interest Reset
Period at the interest rate calculated with reference to the Commercial Paper
Rate and the Spread or Spread Multiplier, if any, specified in such Note and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Commercial Paper Rate" for each Interest Reset Period will be determined by the
Calculation Agent for such Commercial Paper Rate Note as of the Commercial Paper
Rate Interest Determination Date and shall be the Money Market Yield (as defined
below) on such Interest Determination Date of the rate for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement, as
such rate shall be published in H.15(519) under the heading "Commercial
Paper -- Nonfinancial". In the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Interest Determination Date, then the "Commercial Paper Rate"
for such Interest Reset Period shall be the Money Market Yield on such Interest
Determination Date of the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper". If by 3:00 p.m., New York City time, on such Calculation Date such rate
is not yet published in either H.15(519) or Composite Quotations, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m., New York
City time, on such Interest Determination Date of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent for
such Commercial Paper Rate Note for commercial paper of the specified Index
Maturity placed for an industrial issuer whose bonds are rated "AA" or the
equivalent by a nationally recognized rating agency; provided, however, that if
the dealers selected as aforesaid by such Calculation Agent are not quoting
offered rates as mentioned in this sentence, the "Commercial Paper Rate" for
such Interest Reset Period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the Initial Interest Rate).
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"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C> <C>
D X 360
Money Market Yield = ----------- X 100
360 - (DXM)
</TABLE>
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 interest period for which interest is being calculated.
FEDERAL FUNDS RATE NOTES
Each Federal Funds Rate Note will bear interest for each Interest Reset
Period at the interest rate calculated with reference to the Federal Funds Rate
and the Spread or Spread Multiplier, if any, specified in such Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective rate
on the Federal Funds Rate Interest Determination Date for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)". In the
event that such rate is not published prior to 3:00 p.m., New York City time, on
the Calculation Date pertaining to such Interest Determination Date, the
"Federal Funds Rate" for such Interest Reset Period shall be the rate on such
Interest Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate". If by 3:00 p.m., New York City time, on
such Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the "Federal Funds Rate" for such Interest Reset
Period shall be the rate on such Interest Determination Date made publicly
available by the Federal Reserve Bank of New York which is equivalent to the
rate which appears in H.15(519) under the heading "Federal Funds (Effective)";
provided, however, that if such rate is not made publicly available by the
Federal Reserve Bank of New York by 3:00 p.m., New York City time, on such
Calculation Date, the "Federal Funds Rate" for such Interest Reset Period will
be the same as the Federal Funds Rate in effect for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the
Initial Interest Rate). In the case of a Federal Funds Rate Note that resets
daily, the interest rate on such Note for the period from and including a Monday
to but excluding the succeeding Monday will be reset by the Calculation Agent
for such Note on such second Monday (or, if not a Business Day, on the next
succeeding Business Day) to a rate equal to the average of the Federal Funds
Rates in effect with respect to each such day in such week.
LIBOR NOTES
Each LIBOR Note will bear interest for each Interest Reset Period at the
interest rate calculated with reference to LIBOR and the Spread or Spread
Multiplier, if any, specified in such Note and in the applicable Pricing
Supplement.
"LIBOR" for each Interest Reset Period will be determined by the Calculation
Agent for such LIBOR Notes as follows:
(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 the Index Currency having the Index Maturity specified in such
Pricing Supplement, commencing on the applicable Interest Reset Date, that
appear (or, if only a single rate is required as aforesaid, appears) 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 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
the Index Currency having the Index Maturity specified in such Pricing
Supplement, commencing on such Interest
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Reset Date, that appears on the Designated LIBOR Page as of 11:00 A.M. London
time, on such LIBOR Interest Determination Date. If fewer than two such offered
rates so appear, or if no such rate so appears, as applicable, 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, or no rate appears, as the case may be, on the
Designated LIBOR Page as specified in clause (i) above, the Calculation Agent
will request the principal London offices of each of four major reference banks
in the London interbank market, as selected by the Calculation Agent, to provide
the Calculation Agent with its offered quotation for deposits in the Index
Currency for the period of the Index Maturity specified in the applicable
Pricing Supplement, commencing on the applicable Interest Reset Date, to prime
banks in the London interbank market 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 such Index Currency in such market at
such time. If at least two such quotations are so provided, LIBOR on such LIBOR
Interest Determination Date will be the arithmetic mean of such quotations. 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 the applicable Principal Financial Center, on such
LIBOR Interest Determination Date by three major banks in such Principal
Financial Center selected by the Calculation Agent for loans in the Index
Currency to leading European banks, having the Index Maturity specified in the
applicable Pricing Supplement and in a principal amount that is representative
for a single transaction in such Index Currency 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 on such LIBOR Interest
Determination Date.
"Index Currency" means the currency or composite currency specified in the
applicable Pricing Supplement as to which LIBOR shall be calculated. If no such
currency or composite currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
"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 as may replace such page on such service) for the
purpose of displaying the London interbank rates of major banks for the
applicable Index Currency, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified 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 as may
replace such page on such service) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency.
TREASURY RATE NOTES
Each Treasury Rate Note will bear interest for each Interest Reset Period
at the interest rate calculated with reference to the Treasury Rate and the
Spread or Spread Multiplier, if any, specified in such Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" for each Interest Reset Period will be the rate for the auction
held on the Treasury Rate Interest Determination Date for such Interest Reset
Period of direct obligations of the United States ("Treasury securities") having
the Index Maturity specified in the applicable Pricing Supplement, as such rate
shall be published in H.15(519) under the heading "U.S. Government
Securities -- Treasury bills -- auction average (investment)" or, in the event
that such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the auction
average rate (expressed as a bond equivalent on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) on such Interest
Determination Date as otherwise announced by the United States Department of the
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<PAGE> 11
Treasury. In the event that the results of the auction of Treasury securities
having the specified Index Maturity are not published or reported as provided
above by 3:00 p.m., New York City time, on such Calculation Date, or if no such
auction is held on such Interest Determination Date, then the "Treasury Rate"
for such Interest Reset Period shall be calculated by the Calculation Agent for
such Treasury Rate Note and shall be 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 Interest Determination
Date, of three leading primary United States government securities dealers
selected by such Calculation Agent for the issue of Treasury securities with a
remaining maturity closest to the specified Index Maturity; provided, however,
that if the dealers selected as aforesaid by such Calculation Agent are not
quoting bid rates as mentioned in this sentence, then the "Treasury Rate" for
such Interest Reset Period will be the same as the Treasury Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the Initial Interest Rate).
PRIME RATE NOTES
Each Prime Rate Note will bear interest at the interest rate calculated
with reference to the Prime Rate and the Spread or Spread multiplier, if any
specified in such Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the "Prime
Rate" means, with respect to any Prime Rate Interest Determination Date, the
rate on such date as published in H.15(519) under the heading "Bank Prime Loan."
In the event that such rate is not published by 9:00 a.m., New York City time,
on the Calculation Date pertaining to such Interest Determination Date, then the
Prime Rate will be determined by the Calculation Agent and will be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as defined below) as such bank's
prime rate or base lending rate as in effect for that Interest Determination
Date. "Reuters Screen USPRIME1" means the display designated as page "USPRIME1"
on the Reuters Monitor Money Rates Service (or such other page as may replace
the USPRIME1 page on that service for the purpose of displaying prime rates or
base lending rates of major United States banks). If fewer than four such rates
but more than one such rate appear on the Reuters Screen USPRIME1 Page for such
Interest Determination Date, the Prime Rate shall be determined by the
Calculation Agent and will be the arithmetic mean of the prime rates quoted on
the basis of actual number of days in the year divided by 360 as of the close of
business on such Interest Determination Date by at least two major money center
banks in New York City selected by the Calculation Agent (after consulting with
the Company). If fewer than two such rates appear on the Reuters Screen USPRIME1
Page, the Prime Rate will be determined by the Calculation Agent and will be the
arithmetic mean of the prime rates furnished in New York City by three
substitute banks or trust companies organized and doing business under the laws
of the United States, or any State thereof, in each case having total equity
capital of at least U.S. $500,000,000 and being subject to supervision or
examination by Federal or State authority, selected by the Calculation Agent
(after consulting with the Company) to provide such rate or rates; provided,
however, that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, the Prime Rate will remain the Prime Rate in effect on such
Interest Determination Date.
CMT RATE NOTES
Each CMT Rate Note will bear interest at the rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in such CMT Rate Note and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any 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 Maturity Index
(as defined below) for (i) if the Designated Telerate Page is 7055, the rate on
such Interest Determination Date and (ii) if
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<PAGE> 12
the Designated CMT Telerate Page is 7052, the week, or the month, as applicable,
ended immediately preceding the week in which the related Interest Determination
Date occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such treasury
constant maturity rate for the Designated CMT Maturity Index as published in
H15.(519). If such rate is no longer published, or if not published by 3:00
P.M., New York City time, on the related Calculation Date, then the CMT Rate for
such Interest Determination Date will be such treasury constant maturity rate
for the designated CMT Maturity Index (or other United States Treasury rate for
the Designated CMT Maturity Index) for the Interest Determination Date with
respect to such Interest Reset 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 that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant 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 for such Interest
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity, based on the arithmetic mean of the secondary market closing
side offer prices as of approximately 3:30 P.M., New York City time, on the
Interest Determination Date reported, according to their written records, by
three leading primary United States government securities dealers (each, a
"Reference Dealer") in the City of New York 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 Maturity Index and a remaining term to maturity
of not less than such Designated CMT Maturity Index minus one year. If the
Calculation Agent can cannot obtain three such Treasury Note quotations, the CMT
Rate for such Interest Determination Date will be calculated by the Calculation
Agent and will be a yield to maturity based on the arithmetic mean of the
secondary market offer side prices as of approximately 3:30 P.M., New York City
time, on the 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 such Treasury Notes with an original maturity of the number of
years that is the next highest to the Designated CMT Maturity Index and a
remaining term to maturity closest to the Designated CMT Maturity Index in an
amount of at least U.S. $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 offer prices obtained and neither the
highest nor the lowest of such quotes will be eliminated; provided, however,
that if fewer than three Reference Dealers selected by the Calculation Agent are
quoting as described herein, the CMT Rate will be the CMT Rate in effect on such
Interest Determination Date. If two Treasury Notes with an original maturity as
described in the third preceding sentence have remaining terms to maturity
equally close to the Designated CMT Maturity Index, the quotes for the CMT Rate
Note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service designated in the applicable Pricing Supplement for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519) (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)). If no such page is
specified in the applicable Pricing Supplement, the Designated CMT Telerate Page
shall be 7052 for the most recent week.
"Designated CMT Maturity Index" 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. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be 2 years.
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SUBSEQUENT INTEREST PERIODS
The Pricing Supplement relating to each Note will indicate whether the
Company has the option to reset the interest rate (in the case of a Fixed Rate
Note) with respect to such Note or the Spread or Spread Multiplier (in the case
of a Floating Rate Note) with respect to such Note and, if so, the date or dates
on which such interest rate or such Spread or Spread Multiplier, as the case may
be, may be reset (each an "Optional Reset Date").
The Company shall notify the Trustee for a Note whether or not it intends
to exercise such option with respect to such Note at least 45 but not more than
60 calendar days prior to an Optional Reset Date for such Note. Not later than
40 calendar days prior to such Optional Reset Date, the Trustee for such Note
will mail to the Holder of such Note a notice (the "Reset Notice"), first class,
postage prepaid, indicating whether the Company has elected to reset the
interest rate (in the case of a Fixed Rate Note) or the Spread or Spread
Multiplier (in the case of a Floating Rate Note) and if so, (i) such new
interest rate or such new Spread or Spread Multiplier, as the case may be; and
(ii) the provisions, if any, for redemption during the period from such Optional
Reset Date to the next Optional Reset Date or, if there is no such next Optional
Reset Date, to the Stated Maturity of such Note (each such period a "Subsequent
Interest Period"), including the date or dates on which or the period or periods
during which and the price or prices at which such redemption may occur during
such Subsequent Interest Period.
Notwithstanding the foregoing, not later than 20 calendar days prior to an
Optional Reset Date for a Note, the Company may, at its option, revoke the
interest rate (in the case of a Fixed Rate Note) or the Spread or Spread
Multiplier (in the case of a Floating Rate Note) provided for in the Reset
Notice with respect to such Optional Reset Date and establish a higher interest
rate (in the case of a Fixed Rate Note) or a higher Spread or Spread Multiplier
(in the case of a Floating Rate Note) for the Subsequent Interest Period
commencing on such Optional Reset Date by causing the Trustee for such Note to
mail notice of such higher interest rate or higher Spread or Spread Multiplier,
as the case may be, first class, postage prepaid, to the Holder of such Note.
Such notice shall be irrevocable. All Notes with respect to which the interest
rate or Spread or Spread Multiplier is reset on an Optional Reset Date will bear
such higher interest rate (in the case of Fixed Rate Notes) or higher Spread or
Spread Multiplier (in the case of Floating Rate Notes), whether or not tendered
for repayment.
The Holder of a Note will have the option to elect repayment of such Note
by the Company on each Optional Reset Date at a price equal to the principal
amount thereof, plus interest accrued to such Optional Reset Date. In order for
a Note to be repaid on an Optional Reset Date, the Holder thereof must follow
the procedures set forth below under "Optional Redemption, Repayment and
Repurchase" for optional repayment, except that the period for delivery of such
Note or notification to the Trustee for such Note shall be at least 25 but not
more than 35 calendar days prior to such Optional Reset Date, and except that a
Holder who has tendered a Note for repayment pursuant to a Reset Notice may, by
written notice to the Trustee for such Note, revoke any such tender for
repayment until the close of business on the tenth day prior to such Optional
Reset Date.
AMORTIZING NOTES
The Company may from time to time offer Notes ("Amortizing Notes") on which
a portion or all the principal amount is payable prior to Stated Maturity in
accordance with a schedule, by application of a formula, or by reference to an
Index (as defined below). Further information concerning additional terms and
conditions of any Amortizing Notes, including terms for repayment thereof, will
be set forth in the applicable Pricing Supplement.
INDEXED NOTES
The Company may from time to time offer Notes ("Indexed Notes") on which
certain or all interest payments (in the case of an "Indexed Rate Note"), and/or
the principal amount payable at Stated Maturity or earlier redemption or
retirement (in the case of an "Indexed Principal Note"), is determined by
reference to the principal amount of such Notes (or, in the case of an Indexed
Principal Note, to the
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<PAGE> 14
amount designated in the applicable Pricing Supplement as the "Face Amount" of
such Indexed Note) and by reference to prices, changes in prices, or differences
between prices, of securities, currencies, intangibles, goods, articles or
commodities or by such other objective price, economic or other measures as are
described in the applicable Pricing Supplement (the "Index"). A description of
the Index used in any determination of an interest or principal payment, and the
method or formula by which interest or principal payments will be determined by
reference to such Index, will be set forth in the applicable Pricing Supplement.
In the case of a Fixed Rate Note, Floating Rate Note or Indexed Rate Note
that is also an Indexed Principal Note, the amount of any interest payment will
be determined by reference to the Face Amount of such Indexed Note unless
specified otherwise in the applicable Pricing Supplement. In the case of an
Indexed Principal Note, the principal amount payable at Stated Maturity or any
earlier redemption or repayment of the Indexed Note may be different from the
Face Amount.
If the determination of the Index on which any interest payment or the
principal amount of an Indexed Note is calculated or announced by a third party,
which may be Salomon Brothers Inc or an affiliate of the Company, and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Note was issued and permitted
changes described in the applicable Pricing Supplement), then such Index shall
be calculated for purposes of such Indexed Note by another third party selected
by the Company, which may be Salomon Brothers Inc or an affiliate of the
Company, subject to the same conditions and controls as applied to the original
third party. If for any reason such Index cannot be calculated on the same basis
and subject to the same conditions and controls as applied to the original third
party, then the indexed interest payments, if any, or any indexed principal
amount of such Indexed Note shall be calculated in the manner set forth in the
applicable Pricing Supplement. Any determination of such third party shall in
the absence of manifest error be binding on all parties.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note will indicate whether the
Company has the option to extend the Stated Maturity of such Note for one or
more periods of whole years from one to five (each an "Extension Period") up to
but not beyond the date (the "Final Maturity") set forth in such Pricing
Supplement.
The Company may exercise such option with respect to a Note by notifying
the Trustee for such Note at least 45 but not more than 60 calendar days prior
to the old Stated Maturity of such Note. Not later than 40 calendar days prior
to the old Stated Maturity of such Note, the Trustee for such Note will mail to
the Holder of such Note a notice (the "Extension Notice"), first class, postage
prepaid. The Extension Notice will set forth (i) the election of the Company to
extend the Stated Maturity of such Note; (ii) the new Stated Maturity; (iii) in
the case of a Fixed Rate Note, the interest rate applicable to the Extension
Period or, in the case of a Floating Rate Note, the Spread or Spread Multiplier
applicable to the Extension Period; and (iv) the provisions, if any, for
redemption during the Extension Period, including the date or dates on which or
the period or periods during which and the price or prices at which such
redemption may occur during the Extension Period. Upon the mailing by such
Trustee of an Extension Notice to the Holder of a Note, the Stated Maturity of
such Note shall be extended automatically, and, except as modified by the
Extension Notice and as described in the next paragraph, such Note will have the
same terms as prior to the mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 20 calendar days prior to the
old Stated Maturity of such Note, the Company may, at its option, revoke the
interest rate (in the case of a Fixed Rate Note) or the Spread or Spread
Multiplier (in the case of a Floating Rate Note) provided for in the Extension
Notice for such Note and establish a higher interest rate (in the case of a
Fixed Rate Note) or a higher Spread or Spread Multiplier (in the case of a
Floating Rate Note) for the Extension Period, by causing the Trustee for such
Note to mail notice of such higher interest rate or higher Spread or Spread
Multiplier, as the case may be, first class, postage prepaid, to the Holder of
such Note. Such notice shall be irrevocable. All
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<PAGE> 15
Notes with respect to which the Stated Maturity is extended will bear such
higher interest rate (in the case of Fixed Rate Notes) or higher Spread or
Spread Multiplier (in the case of Floating Rate Notes) for the Extension Period,
whether or not tendered for repayment.
If the Company extends the Stated Maturity of a Note, the Holder of such
Note will have the option to elect repayment of such Note by the Company on the
old Stated Maturity at a price equal to the principal amount thereof, plus
interest accrued to such date. In order for a Note to be repaid on the old
Stated Maturity once the Company has extended the Stated Maturity thereof, the
Holder thereof must follow the procedures set forth below under "Optional
Redemption, Repayment and Repurchase" for optional repayment, except that the
period for delivery of such Note or notification to the Trustee for such Note
shall be at least 25 but not more than 35 days prior to the old Stated Maturity
and except that a Holder who has tendered a Note for repayment pursuant to an
Extension Notice may, by written notice to the Trustee for such Note, revoke any
such tender for repayment until the close of business on the tenth day before
the old Stated Maturity.
OPTIONAL REDEMPTION, REPAYMENT AND REPURCHASE
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be redeemed prior to its Stated Maturity or that such Note will be
redeemable at the option of the Company, in whole or in part, and the date or
dates (each an "Optional Redemption Date") on which such Note may be redeemed
and the price (the "Redemption Price") at which (together with accrued interest
to such Optional Redemption Date) such Note may be redeemed on each such
Optional Redemption Date. The Company may exercise such option with respect to a
Note by notifying the Trustee for such Note at least 45 days prior to any
Optional Redemption Date. Unless otherwise specified in the applicable Pricing
Supplement, at least 30 but not more than 60 days prior to the date of
redemption, such Trustee shall mail notice of such redemption, first class,
postage prepaid, to the Holder of such Note. In the event of redemption of a
Note in part only, a new Note or Notes for the unredeemed portion thereof shall
be issued to the Holder thereof upon the cancellation thereof. The Notes will
not be subject to any sinking fund.
The Pricing Supplement relating to each Note will also indicate whether the
Holder of such Note will have the option to elect repayment of such Note by the
Company prior to its Stated Maturity, and, if so, such Pricing Supplement will
specify the date or dates on which such Note may be repaid (each an "Optional
Repayment Date") and the price (the "Optional Repayment Price") at which,
together with accrued interest to such Optional Repayment Date, such Note may be
repaid on each such Optional Repayment Date.
In order for a Note to be repaid, the Trustee for such Note must receive,
at least 30 but not more than 45 days prior to an Optional Repayment Date (i)
such Note with the form entitled "Option to Elect Repayment" on the reverse
thereof duly completed, or (ii) a telegram, telex, facsimile transmission or
letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or trust company in
the United States setting forth the name of the Holder of such Note, the
principal amount of such Note to be repaid, the certificate number or a
description of the tenor and terms of such Note, a statement that the option to
elect repayment is being exercised thereby and a guarantee that the Note to be
repaid with the form entitled "Option to Elect Repayment" on the reverse of the
Note duly completed will be received by such Trustee not later than five
Business Days after the date of such telegram, telex, facsimile transmission or
letter. If the procedure described in clause (ii) of the preceding sentence is
followed, then such Note and form duly completed must be received by such
Trustee by such fifth Business Day. Any tender of a Note by the Holder for
repayment (except pursuant to a Reset Notice or an Extension Notice) shall be
irrevocable. The repayment option may be exercised by the Holder of a Note for
less than the entire principal amount of such Note provided that the principal
amount of such Note remaining outstanding after repayment is an authorized
denomination. Upon such partial repayment, such Note shall be cancelled and a
new Note or Notes for the remaining principal amount thereof shall be issued in
the name of the Holder of such repaid Note.
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If a Note is represented by a Global Security, the Depositary's nominee
will be the Holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a Note in
order to ascertain the cut-off time by which such an instruction must be given
in order for timely notice to be delivered to the Depositary.
Notwithstanding anything in this Prospectus Supplement to the contrary, if
a Note is an Original Issue Discount Note (other than an Indexed Note), the
amount payable on such Note in the event of redemption or repayment prior to its
Stated Maturity shall be the Amortized Face Amount of such Note as of the date
of redemption or the date of repayment, as the case may be. The "Amortized Face
Amount" of a Discount Note shall be the amount equal to (i) the Issue Price set
forth in the applicable Pricing Supplement plus (ii) that portion of the
difference between the Issue Price and the principal amount of such Note that
has accrued at the Yield to Maturity set forth in the Pricing Supplement
(computed in accordance with generally accepted United States bond yield
computation principles) by such date of redemption or repayment, but in no event
shall the Amortized Face Amount of a Discount Note exceed its principal amount.
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the Trustee for cancellation.
BOOK-ENTRY SYSTEM
Upon issuance, and subject to the rules of the Depositary, all Fixed Rate
Book-Entry Notes having the same Original Issue Date and otherwise identical
terms will be represented by a single Global Security. Each Global Security
representing Book-Entry Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depositary"), and registered
in the name of a nominee of the Depositary. Book-Entry Notes will not be
exchangeable for Certificated Notes and, except under the circumstances
described in the Prospectus under "Description of Debt Securities -- Global
Securities", will not otherwise be issuable as Certificated Notes.
The Depositary has advised the Company and the Agents as follows: The
Depositary is a limited-purpose trust company organized under New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. The Depositary was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
A further description of the Depositary's procedures with respect to Global
Securities representing Book-Entry Notes is set forth in the Prospectus under
"Description of Debt Securities -- Book-Entry System". The Depositary has
confirmed to the Company, the Agents and the Trustees that it intends to follow
such procedures.
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CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in a Note having a Specified Currency other than U.S. dollars
entails significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the U.S.
dollar and such Specified Currency and the possibility of the imposition or
modification of foreign exchange controls with respect to such Specified
Currency. Such risks generally depend on factors over which the Company has no
control and which cannot be readily foreseen, such as economic and political
events and the supply of and demand for the relevant currencies. In recent
years, rates of exchange between the U.S. dollar and certain currencies have
been highly volatile, and such volatility may be expected in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations in the rate that may occur
during the term of any Note. Depreciation of the Specified Currency for a Note
against the U.S. dollar would result in a decrease in the effective yield of
such Note below its coupon rate and, in certain circumstances, could result in a
substantial loss to the investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a Specified Currency for making payments in respect of Notes denominated in
such currency. At present, the Company has identified the following currencies
in which payments of principal, premium and interest on Notes may be made:
Australian dollars, Canadian dollars, Danish kroner, English pounds sterling,
French francs, German deutsche marks, Italian lire, Japanese yen, New Zealand
dollars, U.S. dollars and ECU. However, the Company may determine at any time to
issue Notes with Specified Currencies other than those listed. There can be no
assurances that exchange controls will not restrict or prohibit payments of
principal, premium or interest in any Specified Currency. Even if there are no
actual exchange controls, it is possible that, on a payment date with respect to
any particular Note, the currency in which amounts then due in respect of such
Note are payable would not be available to the Company. In that event, the
Company will make such payments in the manner set forth under "Description of
Notes -- Payment of Principal and Interest" above.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT DESCRIBE
ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN A CURRENCY OTHER THAN
U.S. DOLLARS. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND
LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED IN
A CURRENCY OTHER THAN U.S. DOLLARS. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT
FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers of Notes who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase or holding of, or receipt of payments of principal, premium
or interest in respect of, Notes. Such persons should consult their own advisors
with regard to such matters.
Any Pricing Supplement relating to Notes having a Specified Currency other
than U.S. dollars will contain a description of any material exchange controls
affecting such currency and any other required information concerning such
currency.
PAYMENT CURRENCY
Except as set forth below, if payment in respect of a Note is required to
be made in a Specified Currency other than U.S. dollars and such currency is
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or is no longer used by the government of the
country issuing such currency or for the settlement of transactions by public
institutions of or within the international banking community, then all payments
in respect of such Note shall be made in U.S.
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dollars until such currency is again available or so used. The amounts so
payable on any date in such currency shall be converted into U.S. dollars on the
basis of the most recently available Market Exchange Rate for such currency or
as otherwise indicated in the applicable Pricing Supplement. Any payment in
respect of such Note made under such circumstances in U.S. dollars will not
constitute an Event of Default under the Indenture under which such Note shall
have been issued.
If payment in respect of a Note is required to be made in ECU and ECU are
no longer used in the European Monetary System, then all payments in respect of
such Note shall be made in U.S. dollars until ECU are again so used. The amount
of each payment in U.S. dollars shall be computed on the basis of the equivalent
of ECU in U.S. dollars, determined as described below, as of the second Business
Day prior to the date on which such payment is due.
The equivalent of ECU in U.S. dollars as of any date (the "Day of
Valuation") shall be determined by the Trustee for such Note on the following
basis. The component currencies of ECU for this purpose (the "Components") shall
be the currency amounts that were components of ECU as of the last date on which
ECU were used in the European Monetary System. The equivalent of ECU in U.S.
dollars shall be calculated by aggregating the U.S. dollar equivalents of the
Components. The U.S. dollar equivalent of each of the Components shall be
determined by such Trustee or such Exchange Rate Agent, as the case may be, on
the basis of the most recently available Market Exchange Rates for such
Components or as otherwise indicated in the applicable Pricing Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as Components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any component currency is divided into two
or more currencies, the amount of that currency as a Component shall be replaced
by amounts of such two or more currencies, each of which shall be equal to the
amount of the former component currency divided by the number of currencies into
which that currency was divided.
All determinations referred to above made by the Trustee for the Notes or
the Exchange Rate Agent, as the case may be, shall be at its sole discretion and
shall, in the absence of manifest error, be conclusive for all purposes and
binding on holders of Notes.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the law of
the State of New York. Courts in the United States customarily have not rendered
judgments for money damages denominated in any currency other than the U.S.
dollar. A 1987 amendment to the Judiciary Law of the State of New York provides,
however, that an action based upon an obligation denominated in a currency other
than U.S. dollars will be rendered in the foreign currency of the underlying
obligation and converted into U.S. dollars at the rate of exchange prevailing on
the date of the entry of the judgment or decree.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary deals only with Notes held as capital assets and does
not 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. It also does not deal with holders other than
original purchasers (except where otherwise specifically noted). This summary is
based upon United States Federal tax laws and regulations as now in effect and
as currently interpreted and does not take into account possible changes in such
tax laws or interpretations, any of which may be applied retroactively. Persons
considering the purchase of the Notes should consult their own tax advisors
concerning the application of United States Federal income tax laws
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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 created or organized under the laws of
the United States or of any political subdivision thereof, (iii) a person
otherwise subject to United States Federal income taxation on its worldwide
income regardless of its source or (iv) any other person whose income or gain in
respect of a Note is effectively connected with the conduct of a United States
trade or business. 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, including qualified stated interest as
defined below under "Original Issue Discount", 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
For United States Federal income tax purposes, original issue discount
("OID") 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 maturity from its issue date or, in the case of an
Amortizing Note, by the weighted average maturity). 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. "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
(or at certain floating rates) that appropriately takes into account the length
of the interval between stated interest payments.
Original issue discount is includible 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 OID included in income by the initial U.S. Holder of an Original
Issue Discount Note (a "Discount Note") is the sum of the daily portions of OID
for each day during the taxable year (or portion of the taxable year) on which
such U.S. Holder held such Discount Note. The "daily portion" is determined by
allocating the OID for an accrual period equally to each day in that accrual
period. The "accrual period" for a Discount Note may be of any length and may
vary in length over the term of the Note, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs on the first day of an accrual period. The amount of OID for an accrual
period is generally equal to the excess of (i) the product of the Discount
Note's adjusted issue price at the beginning of such accrual period and its
yield to maturity over (ii) the amount of any qualified stated interest payments
allocable to such accrual period. The "adjusted issue price" of a Discount Note
at the beginning of any accrual period is the sum of the issue price of the
Discount Note plus the amount of OID allocable to all prior accrual periods
minus the amount of any prior payments on the 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 OID in successive
accrual periods.
Floating Rate Notes and Indexed Notes ("Variable Notes") are subject to
special rules. A Variable Note that provides for stated interest at one or more
qualified floating rates, a single fixed rate and one or more qualified floating
rates, a single objective rate, or a single fixed rate and a single objective
rate that is a qualified inverse floating rate throughout the term thereof
generally will qualify as a "variable rate debt instrument". In general, the
amount and accrual of OID and qualified stated interest on such a
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Variable Note is calculated by converting it into a debt instrument with an
appropriate fixed rate and then applying the general OID rules.
If a Variable Note does not qualify as a "variable rate debt instrument",
then the Variable Note would be treated as a contingent payment debt obligation.
A U.S. Holder of such an instrument generally must include future contingent and
noncontingent interest payments in income as such interest accrues based upon a
projected payment schedule. Moreover, in general, 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 a portion of any loss realized
could be treated as ordinary loss as opposed to capital loss (depending upon the
circumstances).
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. Investors considering the
purchase of Variable Notes should consult their own tax advisors.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/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 OID consequences will depend,
in part, on the particular terms and features of the purchased Notes more fully
described in the applicable Pricing Supplement.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, OID, de minimis OID, 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 OID obligations,
subject to certain limitations and exceptions. The election is to be made for
the taxable year in which the U.S. Holder acquired the Note, and may not be
revoked without the consent of the Internal Revenue Service (the "IRS").
The Issuer will report to holders the amount of interest paid and OID
accrued each year.
Short-Term Notes
Special rules apply with respect to OID on Notes that mature one year or
less from the date of issuance ("Short-Term Notes"). In general, a cash basis
U.S. Holder of a Short-Term Note is not required to include OID in income as it
accrues for United States Federal income tax purposes unless it elects to do so.
Accrual basis U.S. Holders and certain other U.S. Holders, including banks,
regulated investment companies, dealers in securities, and cash basis U.S.
Holders who so elect, are required to include OID in income as it accrues on
Short-Term Notes on either a straight-line basis or under the constant yield
method (based on daily compounding), at the election of the U.S. Holder. In the
case of U.S. Holders not required and not electing to include OID on Short-Term
Notes in income currently, any gain realized on the sale or retirement of
Short-Term Notes will be ordinary income to the extent of the OID accrued on a
straight-line basis (unless an election is made to accrue the OID under the
constant yield method) through the date of sale or retirement. U.S. Holders who
are not required and do not elect to include OID on Short-Term Notes in income
as it accrues will be required to defer deductions for interest on borrowings
allocable to Short-Term Notes in an amount not exceeding the deferred income
until the deferred income is realized. For purposes of determining the amount of
OID subject to these rules, no interest payments on a Short-Term Note are
qualified stated interest, but instead such interest payments are included in
the Short-Term Note's stated redemption price at maturity.
Any U.S. Holder of a Short-Term Note can elect to apply rules in the
preceding paragraph taking into account the amount of "acquisition discount", if
any, with respect to the Note (rather than the OID with respect to such Note).
Acquisition discount is the excess of the stated redemption price at maturity of
the Short-Term Note over the U.S. Holder's purchase price therefor.
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Market Discount
If a U.S. Holder purchases a Note, other than a 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 a
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.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of a 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 or 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. However, if the Note may
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 election to amortize bond premium applies to all taxable
debt obligations 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.
A U.S. Holder who purchases a 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 stated redemption price at maturity will be considered to have purchased the
Discount Note at an "acquisition premium". Under the acquisition premium rules,
the amount of OID which such U.S. Holder must include in its gross income with
respect to such Discount Note for any taxable year (or portion thereof in which
the U.S. Holder holds the Discount Note) will be reduced (but not below zero) by
the portion of the acquisition premium properly allocable to the period.
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,
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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 OID included in income (and accrued
market discount or acquisition discount, if any, if the U.S. Holder has included
such 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.
Extendible Notes, Reset Notes and Renewable Notes
Certain of the Notes may provide that (i) the holder may extend the
maturity of a Note (a "Renewable Note"), and/or (ii) the Company may extend the
maturity of a Note (an "Extension of Maturity"), and/or (iii) the Company has
the option to reset the interest rate, the Spread, or the Spread Multiplier (a
"Reset Note"). Notes containing such features may be subject to rules that
differ from the general rules discussed above. Investors considering the
purchase of Notes with such features should consult their own tax advisors and
the applicable Pricing Supplement regarding the tax consequences of the holding
and disposition of such Notes.
NOTES DENOMINATED, OR IN RESPECT OF WHICH INTEREST IS PAYABLE, IN A FOREIGN
CURRENCY("Foreign Currency Notes"). As used herein, "Foreign Currency" means a
currency or currency unit other than U.S. dollars.
Payments of Interest in a Foreign Currency
The U.S. dollar value, determined on date of receipt, of a Foreign Currency
payment of interest on a Foreign Currency Note (other than OID or market
discount) will be includible in the income of a cash method U.S. Holder
regardless of whether the payment is converted to U.S. dollars.
The U.S. dollar value of interest income (including OID or market discount
and reduced by amortizable bond premium to the extent applicable) that has
accrued and is otherwise required to be taken into account with respect to a
Note during an accrual period will be includible in income of an accrual basis
U.S. Holder. Such U.S. dollar value will be determined by translating such
income at the average rate of exchange for the accrual period or, with respect
to an accrual period that spans two taxable years, at the average rate for the
partial period within the taxable year. A U.S. Holder may elect, however, to
translate such accrued interest income using the rate of exchange on the last
day of the accrual period or, with respect to an accrual period that spans two
taxable years, using the rate of exchange on the last day of the taxable year.
If the last day of an accrual period is within five business days of the date of
receipt of the accrued interest, a U.S. Holder may translate such interest using
the rate of exchange on the date of receipt. The above election will apply to
other debt obligations held by the U.S. Holder and may not be changed without
the consent of the IRS. A U.S. Holder should consult a tax advisor before making
the above election. A U.S. Holder will recognize exchange gain or loss (which
will be treated as ordinary income or loss) with respect to accrued interest
income on the date such income is received. The amount of ordinary income or
loss recognized will equal the difference, if any, between the U.S. dollar value
of the Foreign Currency payment received (determined on the date such payment is
received) in respect of such accrual period and the U.S. dollar value of
interest income that has accrued during such accrual period (as determined
above).
Sale and Retirement of Notes
A U.S. Holder's tax basis in a Foreign Currency Note will be the U.S.
dollar value of the Foreign Currency amount paid for such Foreign Currency Note
determined at the time of such purchase. To the extent the amount realized on
sale, exchange or retirement of a Foreign Currency Note represents accrued but
unpaid interest, such amounts must be taken into account as interest income,
with exchange gain or loss computed as described in "Payments of Interest in a
Foreign Currency" above. If a U.S. Holder receives Foreign Currency on such a
sale, exchange or retirement, the amount realized will be based on the U.S.
dollar value of the Foreign Currency on the date the payment is received or the
Note is
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disposed of (or deemed disposed of as a result of a material change in the terms
of such Foreign Currency Note). In the case of a Note that is denominated in a
Foreign Currency and is traded on an established securities market, a cash basis
U.S. Holder (or, upon election, an accrual basis U.S. Holder) will determine the
U.S. dollar value of the amount realized by translating the Foreign Currency
payment at the spot rate of exchange on the settlement date of the sale.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss which will not be treated as interest income or
expense.
Original Issue Discount
In the case of a Foreign Currency Discount Note, (i) OID is determined in
units of the Foreign Currency, (ii) accrued OID is translated into U.S. dollars
in the same manner as interest income accrued by an accrual basis U.S. Holder,
described in "Payments of Interest in a Foreign Currency" above, and (iii) the
amount of Foreign Currency gain or loss on the accrued OID is determined by
comparing the amount of income received attributable to the discount (either
upon payment, maturity or an earlier disposition), as translated into U.S.
dollars at the rate of exchange on the date of such receipt, with the amount of
OID accrued, as translated above.
Premium and Market Discount
In the case of a Foreign Currency Note with market discount, (i) market
discount is determined in units of the Foreign Currency, (ii) accrued market
discount taken into account upon the receipt of any partial principal payment or
upon the sale, exchange, retirement or other disposition of the Note (other than
accrued market discount required to be taken into account currently) is
translated into U.S. dollars at the exchange rate on such disposition date (and
no part of such accrued market discount is treated as exchange gain or loss) and
(iii) accrued market discount currently includible in income by a U.S. Holder
for any accrual period is translated into U.S. dollars on the basis of the
average exchange rate in effect during such accrual period, and the exchange
gain or loss is determined upon the receipt of any partial principal payment or
upon the sale, exchange, retirement or other disposition of the Note in the
manner described in "Payments of Interest in a Foreign Currency" above with
respect to computation of exchange gain or loss on accrued interest by an
accrual basis U.S. Holder.
With respect to a Foreign Currency Note acquired with amortizable bond
premium, such premium is determined in the relevant Foreign Currency and reduces
interest income in units of the Foreign Currency. At the time amortized bond
premium offsets interest income, a U.S. Holder may realize ordinary income or
loss, measured by the difference between exchange rates at that time and at the
time of the acquisition of the Notes.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including OID, if any)
on a Note, unless such non-U.S. Holder is a direct or indirect 10% or greater
shareholder of the Company, a controlled foreign corporation for U.S. tax
purposes that is related to the Company (directly or indirectly) through stock
ownership or a bank receiving interest described in section 881(c)(3)(A) of the
Code. 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
S-23
<PAGE> 24
signed statement to the Withholding Agent. However, in such case, 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.
Recently proposed Treasury Regulations would provide alternative methods for
satisfying these certification requirements, and are proposed to be effective
for payments made after December 31, 1997.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the Company
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
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 for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire sales price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status normally would be made on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
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.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the Company through
the Agents, which have agreed to use their reasonable efforts to solicit offers
to purchase Notes. The Company will have the sole right to accept offers to
purchase Notes and may reject proposed purchases in whole or in part. The Agents
shall have the right, in their discretion reasonably exercised and without
notice to the Company, to reject any proposed purchase of Notes in whole or in
part. The Company will pay the Agents a commission of from .125% to .750% of the
principal amount of Notes sold through it, depending upon the Stated Maturity.
Commissions on Notes with a Stated Maturity of greater than 30 years will be
negotiated at the time of sale.
The Company may also sell Notes at a discount to an Agent for its own
account or for resale to one or more purchasers at varying prices related to
prevailing market prices at the time of resale or, if set forth in the
applicable Pricing Supplement, at a fixed public offering price, as determined
by such Agent. After any initial public offering of Notes to be resold to
purchasers at a fixed public offering price, the public
S-24
<PAGE> 25
offering price and any concession or discount may be changed. In addition, an
Agent may offer Notes purchased by it as principal to other dealers. Notes sold
by an Agent to a dealer may be sold at a discount and, unless otherwise
specified in the applicable Pricing Supplement, such discount allowed will not
be in excess of the discount received by such Agent from the Company. Unless
otherwise specified in the applicable Pricing Supplement, any Note purchased by
an Agent as principal will be purchased at 100% of the principal amount or face
amount thereof less a percentage equal to the commission applicable to an agency
sale of a Note of identical maturity.
No Note will have an established trading market when issued. The Notes will
not be listed on any securities exchange. An Agent may make a market in the
Notes, but such Agent is not obligated to do so and may discontinue any
market-making at any time without notice. There can be no assurance of a
secondary market for any Notes, or that the Notes will be sold.
An Agent, whether acting as agent or principal, may be deemed to be an
"underwriter" within the meaning of the Securities Act. The Company has agreed
to indemnify each Agent against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments that such Agent may be required
to make in respect thereof.
In connection with the offering, the Agents may purchase and sell the Notes
in the open market. These transactions may include overallotment and stabilizing
transactions and purchases to cover short positions created by the Agents in
connection with the offering. The Agents also may impose a penalty bid, whereby
selling concessions allowed to broker-dealers in respect of the securities sold
in the offering may be reclaimed by the Agents if such Notes are repurchased by
the Agents in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Notes, which may
be higher than the price that might otherwise prevail in the open market, and
these activities, if commenced, may be discontinued at any time. These
transactions may be effected in the over-the-counter market or otherwise.
In the ordinary course of their respective businesses, the Agents and their
affiliates have engaged, and may in the future engage, in investment banking and
general financing and banking transactions with the Company and its affiliates.
In particular, affiliates of Chase Securities Inc. participate in certain of the
Company's credit facilities and, accordingly, if any proceeds from the sale of
Notes are applied by the Company to repay amounts borrowed under such
facilities, such affiliates will receive a proportionate share of repaid
amounts. If the amounts to be repaid to affiliates of any member of the National
Association of Securities Dealers, Inc. (the "NASD") exceed 10% of the proceeds
of any offering of Notes, such offering will be made pursuant to Rule 2710(c)(8)
of the Conduct Rules of the NASD.
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<PAGE> 26
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE NOTES DESCRIBED IN
THIS PROSPECTUS SUPPLEMENT. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH NOTES IN
ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
-----------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Company Description............................ S-2
Pricing Supplement............................. S-2
Description of Notes........................... S-2
Currency Risks................................. S-17
Certain United States Federal Income Tax
Considerations............................... S-18
Plan of Distribution........................... S-24
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Enforceability of Civil Liabilities Against
Foreign Persons.............................. 2
Prospectus Summary............................. 4
Risk Factors................................... 6
Use of Proceeds................................ 9
Ratio of Earnings to Fixed Charges............. 9
Description of Debt Securities................. 9
Certain U.S. Federal Income Tax
Considerations............................... 29
Plan of Distribution........................... 33
Certain Legal Matters.......................... 34
Experts........................................ 34
</TABLE>
$235,000,000
CITGO PETROLEUM
CORPORATION
MEDIUM-TERM NOTES
[LOGO]
SALOMON BROTHERS INC
CHASE SECURITIES INC.
PROSPECTUS SUPPLEMENT
DATED OCTOBER 28, 1997
