<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION NO. 333-61379
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMMERCIAL METALS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 75-0725338
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
7800 STEMMONS FREEWAY
DALLAS, TEXAS 75247
(214) 689-4300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID M. SUDBURY
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
7800 STEMMONS FREEWAY
DALLAS, TEXAS 75247
(214) 689-4300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
WILLIAM R. HAYS, III J. KENNETH MENGES, JR., P.C.
ROBERT R. KIBBY AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
HAYNES AND BOONE, LLP 1700 PACIFIC AVENUE
3100 NATIONSBANK PLAZA SUITE 4100
901 MAIN STREET DALLAS, TEXAS 75201
DALLAS, TEXAS 75202-3789 (214) 969-2800
(214) 651-5000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of the Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED FEBRUARY 4, 1999.
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 1999.
<TABLE>
<S> <C> <C>
LOGO $100,000,000
LOGO
% Notes due , 2009
</TABLE>
------------------------
Commercial Metals Company will pay interest on the Notes on and
of each year. The first such payment will be made on
, 1999. The Notes will be issued only in minimum denominations of $100,000 and
integral multiples of $1,000 in excess thereof.
Commercial Metals Company has the option to redeem all or a portion of the
Notes at any time at a price based on the present value on the redemption date,
using a discount rate based on a U.S. Treasury security having a remaining life
to maturity comparable to the Notes, of the then remaining scheduled payments of
principal and interest on the Notes to be redeemed, plus 25 basis points, plus
accrued interest. The redemption price will in no event be less than 100% of the
principal amount of the Notes to be redeemed.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- -----
<S> <C> <C>
Initial public offering price............................... % $
Underwriting discount....................................... % $
Proceeds, before expenses, to Commercial Metals Company..... % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the Notes will accrue from , 1999
and must be paid by the purchaser if Notes are delivered after
, 1999.
------------------------
The underwriters expect to deliver the Notes in book-entry form only
through the facilities of The Depository Trust Company against payment in New
York, New York on , 1999.
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
Prospectus Supplement dated , 1999.
<PAGE> 3
THE COMPANY
The following summary is qualified in its entirety by the more detailed
information and financial statements incorporated by reference in the
Prospectus.
Commercial Metals Company ("CMC" or the "Company") manufactures, recycles
and markets steel and metal products. Steel and steel-related products represent
over 75% of our business. During fiscal 1998, we derived approximately 79% of
our operating profit from our Manufacturing segment, approximately (1%) from our
Recycling segment, and approximately 22% from our Marketing and Trading segment.
Our Manufacturing segment includes four steel minimills, 20 steel
fabrication plants, four steel joist plants, four fence post manufacturing
plants, eight metals recycling plants, a heat treating plant, a railcar
rebuilding facility, 12 concrete related product warehouses, an industrial
products supply company, a rail salvage company and a copper tube mill. Our
steel manufacturing capacity of approximately 2 million tons includes
reinforcing bars, light and mid-size structurals, angles, channels, beams,
special bar quality rounds and flats, squares and special sections used in the
construction, manufacturing, steel fabrication and warehousing, and original
equipment manufacturing industries. Our steel fabrication capacity is over
800,000 tons. Our copper tube mill with 55 million pounds of capacity
manufactures copper water tube and air conditioning and refrigeration tubing.
Our Recycling segment is one of the largest processors of scrap nonferrous
metals and one of the largest regional processors of ferrous metals in the
United States. Our recycling plants processed and shipped 1.9 million tons of
scrap metal in fiscal 1998. Recycled metals provide substantial savings in
energy compared to producing metal from virgin raw materials.
Our Marketing and Trading segment buys and sells steel, primary and
secondary metals and industrial raw materials through a global network of
offices which provide technical information, financing, chartering, storage,
insurance and hedging. We do not, as a matter of policy, speculate on changes in
the commodities markets. This segment sold over 1.4 million tons of steel
products in fiscal 1998.
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used to repay bank
borrowings and short-term commercial paper. The bank borrowings and commercial
paper were utilized for working capital purposes, bear interest at rates ranging
from 5.28% to 6.25%, and at November 30, 1998, totaled $149 million and had
maturities ranging from one day to three months. We intend to utilize the
remaining net proceeds, if any, for general corporate purposes.
S-2
<PAGE> 4
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of November 30, 1998 and as adjusted to give effect to the sale
of the Notes offered hereby and the application of the net proceeds to repay
outstanding borrowings as described under "Use of Proceeds." This table should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto, which are incorporated by reference in the Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1998
------------------------
AS
ACTUAL ADJUSTED
------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Short-term debt
Commercial paper(1)....................................... $ 50,000 $ 25,000
Notes payable(1).......................................... 99,099 24,099
Current maturities of long-term debt(1)................... 11,865 11,865
-------- --------
Total short-term debt.................................. $160,964 $ 60,964
======== ========
Long-term debt(2)
7.20% notes due 2005...................................... $100,000 $100,000
6.80% notes due 2007...................................... 50,000 50,000
8.49% notes due 2001...................................... 21,428 21,428
Other..................................................... 595 595
Notes offered hereby(3)................................... -0- 100,000
-------- --------
Total long-term debt................................... $172,023 $272,023
======== ========
Stockholders' equity
Common stock(4)........................................... $ 40,497 $ 40,497
Additional paid-in capital................................ 13,199 13,199
Retained earnings......................................... 337,714 337,714
-------- --------
Total stockholders' equity............................. $391,410 $391,410
======== ========
Total capitalization................................... $724,397 $724,397
======== ========
</TABLE>
- ---------------
(1) The amounts set forth in the table are as of November 30, 1998. The actual
amounts repaid will vary depending upon the respective amounts of short-term
debt outstanding at the time of repayment.
(2) See notes to the Company's consolidated financial statements for additional
information concerning long-term debt.
(3) Does not include expenses in connection with the issuance of the Notes
offered hereby.
(4) Does not include approximately 2,029,867 shares subject to options at
November 30, 1998.
S-3
<PAGE> 5
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data presented below for, and as of the end of, each
of the years in the five year period ended August 31, 1998, are derived from the
consolidated financial statements of the Company. This summary should be read in
conjunction with the Company's Annual Report on Form 10-K including the selected
financial data and consolidated financial statements and notes thereto. The
information presented below for, and as of the end of, each of the fiscal years
in the three-year period ended August 31, 1998 is derived from the Company's
Annual Report on Form 10-K which is incorporated by reference in the Prospectus.
The balance sheet and income statement information as of November 30, 1998
and 1997 and for the three months then ended has been derived from the Company's
unaudited financial statements, which, in the opinion of management, include all
adjustments (consisting of normally recurring accruals) that the Company
considers necessary for a fair presentation of the financial position and
results of operations at those dates and for those periods. The results of
operations for the first three months of fiscal 1999 are not necessarily
indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED AUGUST 31, NOVEMBER 30,
-------------------------------------------------------------- ---------------------
1998 1997 1996 1995 1994 1998 1997
---- ---- ---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues................................. $2,367,569 $2,258,388 $2,322,363 $2,116,779 $1,666,234 $ 549,376 $550,501
Cost of goods sold....................... 2,039,598 1,963,970 2,030,080 1,856,867 1,476,347 464,400 476,324
Selling, general and administrative
expenses............................... 194,387 175,106 161,941 148,524 109,566 50,663 45,997
Depreciation and amortization............ 47,460 43,720 41,599 38,134 30,143 11,853 11,278
Interest expense......................... 18,055 14,637 15,822 15,246 9,271 4,911 4,179
Earnings before income taxes............. 68,069 60,955 72,921 58,008 40,907 17,548 12,722
Net earnings............................. 42,714 38,605 46,024 38,208 26,170 11,011 8,053
Net earnings per share basic(1).......... 2.88 2.59 3.06 2.56 1.79 .76 .55
Net earnings per share diluted(1)........ 2.82 2.54 3.01 2.51 1.75 .75 .54
FINANCIAL DATA
Working capital.......................... $ 247,437 $ 307,132 $ 275,410 $ 265,723 $ 175,119 $ 214,508 $301,129
Property, plant and equipment -- net..... 318,462 247,261 222,710 209,739 156,808 358,410 258,191
Total assets............................. 1,002,617 839,061 766,756 748,103 604,877 1,029,059 812,229
Long-term debt........................... 173,789 185,211 146,506 158,004 72,061 172,023 183,123
Total debt............................... 286,081 196,713 158,000 177,301 168,825 332,987 222,943
Stockholders' equity..................... 381,389 354,872 335,133 303,164 242,773 391,410 361,898
Capital expenditures..................... 119,915 70,955 47,982 39,311 48,152 51,801 22,208
FINANCIAL RATIOS
Long-term debt as % of total
capitalization(2)...................... 30.1% 33.0% 29.1% 32.9% 21.6% 29.4% 32.4%
Ratio of earnings to fixed charges(3).... 3.9 4.3 4.9 4.2 4.2 3.4 3.6
</TABLE>
- ---------------
(1) Restated in accordance with SFAS No. 128 (Earnings Per Share).
(2) Total capitalization includes stockholders' equity, long-term debt and
non-current deferred income taxes.
(3) For a description of the computation of the ratio of earnings to fixed
charges, see "Ratio of Earnings to Fixed Charges" in the Prospectus.
S-4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT FINANCIAL RESULTS
The following discussion of financial results is qualified in its entirety
by and should be read together with the more detailed information and financial
statements incorporated by reference in the Prospectus.
SEGMENT OPERATING DATA
The Company considers its businesses to be organized into three segments:
(i) Manufacturing, (ii) Recycling, and (iii) Marketing and Trading. Revenues and
operating profit by business segment are shown in the following table (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
AUGUST 31, NOVEMBER 30,
---------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Manufacturing....................................... $1,234 $1,083 $304 $291
Recycling........................................... 415 485 79 104
Marketing and Trading............................... 788 758 184 173
Operating profit:
Manufacturing....................................... 74.8 54.8 23.6 14.7
Recycling........................................... (1.4) 7.6 (4.1) (0.5)
Marketing and Trading............................... 20.6 17.6 4.6 3.4
</TABLE>
The LIFO method of inventory valuation increased net earnings for the three
months ended November 30, 1998, $2.0 million (14 cents per share) compared to an
increase of $521,000 (3 cents per share) last year.
THREE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
1997
MANUFACTURING
The Manufacturing segment includes the CMC Steel Group and Howell Metal
Company.
Operating profit for the Manufacturing segment was 61% above the prior year
quarter on 5% higher revenues. Lower raw material costs resulted in excellent
margins, overcoming weaker mill pricing.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
NOVEMBER 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Average mill selling price.................................. $311 $315
Average fab selling price................................... 675 657
Average scrap purchase price................................ 81 112
</TABLE>
With strong performances in downstream fabrication businesses, lower raw
material costs, and a $1.8 million graphite electrode litigation settlement, the
Steel Group achieved a record first quarter operating profit. Bolstered by a $31
per ton lower average scrap purchase cost which sustained margins, the four
minimills recorded a 34% increase in operating profit despite a 20% decline in
shipments to 419,000 tons. Structural Metals, Inc. ("SMI-Texas"), SMI Steel,
Inc. ("SMI-Alabama") and SMI-South Carolina all had increases in profit over the
prior year.
SMI Steel-Arkansas ("SMI-Arkansas"), although profitable, was impacted more
by the effect of cheaper imported steel. Installation of the new rolling mill
and ancillary equipment at SMI-South Carolina is on schedule as is the new
finishing line at SMI-Alabama.
Operating profit in steel fabrication rose 80% above last year's first
quarter with strong performance in most product lines. Average fabrication
selling price rose $18 per ton, partially
S-5
<PAGE> 7
because of product mix, while the cost of steel purchased generally fell.
Fabricated steel shipments totaled 205,000 tons (196,000 tons in the prior year)
and were a record for a first quarter.
The Copper Tube Division operating profit was over 50% ahead of the
comparable quarter last year. Favorable interest rates kept demand for plumbing
tube strong from the housing sector. Lower copper prices held sales dollars
down, but metal spreads increased. Copper tube shipments and production
decreased 3% versus the first quarter last year.
RECYCLING
The Recycling segment reported a significant loss compared with a marginal
loss in the year ago quarter due to substantially lower global demand and
declining prices coupled with less availability of unprepared scrap. Cash flow
from operations, nonetheless, was positive. Gross margins fell more rapidly than
operating costs. Steel scrap markets were the worst in 25 years. Ferrous scrap
tonnage shipped was up 4%, but ferrous sales prices dropped precipitously by an
average of $40 per ton. Nonferrous markets weakened further to the poorest
levels in many years, and the intake of scrap remained depressed, although
nonferrous margins were steady. Total volume of scrap processed, including Steel
Group processing plants, was 496,000 tons against 449,000 tons last year. During
the quarter the Company acquired the assets of a nonferrous scrap processor in
the Houston area which was not significant to the financial position of the
Company.
MARKETING AND TRADING
Amid the lowest international steel prices over the last 20 years and the
collapse of global markets, the Marketing and Trading segment achieved a
significant 37% increase in operating profit. Purchases from the Far East
continued at a higher level, shipments into North America were steady for most
product lines and business in Europe increased. However, gross margins in steel
marketing and distribution as well as steel trading were under tremendous
pressure. The Company achieved further market penetration for nonferrous metal
products including aluminum, copper and copper alloy semis and maintained
profitability. It was another profitable quarter in ores, minerals, ferrous raw
materials, primary metals and industrial products although results were below
last year's.
FISCAL 1998 COMPARED TO FISCAL 1997
MANUFACTURING
With revenues up 14% and operating profit increasing 36%, the segment set
all-time records for the year. The Steel Group led the way ending the fourth
quarter with all-time record quarterly sales and record fourth quarter
shipments. The Copper Tube Division's annual operating profit was down slightly
from last year.
<TABLE>
<CAPTION>
AUGUST 31,
----------
1998 1997
---- ----
<S> <C> <C>
Average mill selling price.................................. $322 $314
Average fab selling price................................... 660 650
Average scrap purchase price................................ 113 114
</TABLE>
Selling prices were lower at the beginning of the year but recovered, and
combined with record shipments produced a 42% increase in annual operating
profit for the Steel Group. Mill tonnage shipped at 2,008,000 was 4% ahead of
last year.
The four mills showed a 22% increase in operating profit led by SMI-Alabama
and SMI-Arkansas, each with increases in excess of 24%; particularly notable is
the turnaround in profitability of SMI-South Carolina which was profitable all
fiscal year. Its results were all the more noteworthy as they were attained in
the midst of construction of a new rolling mill. SMI-Texas' operating profit
S-6
<PAGE> 8
was 7% ahead of the prior year, a strong performance as last year's results
included a $1.7 million nonrecurring insurance recovery. By year end, the
Company's newest and largest shredder was in successful operation at SMI-Texas.
Operating profit in the Company's steel fabrication businesses more than
doubled with record results in virtually all product areas. Fabricated shipments
of 839,000 tons were well ahead of the previous year of 690,000 tons. SMI Owen
Steel, the large structural fabrication facility in Columbia, South Carolina,
had an operating profit $4.4 million ahead of the prior year. A similar gain was
accomplished by the combined joist plants. As of August 31, 1998, the Company
ceased operations at its railcar rebuilding facility in Tulsa, Oklahoma.
Substantially all employees were released and accruals raised for liabilities
including severance, warranties, and facility costs.
Steel Group computer migration project expense totaled $8.6 million
compared with $6 million last year. Final pension settlement cost of $3.3
million was incurred as the Company's only major defined benefit plan was
terminated.
The Company had a record $120 million in capital spending for fiscal 1998,
primarily at the steel mills. Construction of the new rolling mill and ancillary
equipment at SMI-South Carolina will ultimately double capacity, reduce costs,
and broaden the product line. The finishing upgrade at SMI-Alabama (replacement
of the mill cooling bed, straighteners and stackers) will improve quality,
enhance efficiency and also broaden the product line. Start up of both projects
is scheduled to begin during the first calendar quarter of 1999.
Attractive interest rates continue to strengthen residential construction
markets, maintaining demand for plumbing tube. Margins were weak in the early
months of the year, but improved to moderate proportions by the fourth quarter.
Copper tube shipments increased 11% over the prior year to 51 million pounds.
Annual production was 4% ahead of last year's rate.
RECYCLING
The Asian economic crisis brought the Recycling segment's four-year period
of record operating profits to an abrupt end. Scrap normally exported by
competitors was diverted for domestic consumption. Selling prices fell to their
lowest levels in many years. Margins eroded while total processing costs
increased due to acquisitions; however, the new capacity failed to bring in
sufficient margin increases. All of these factors resulted in a moderate
operating loss -- the first in six years in this cyclical industry.
The fourth quarter saw ferrous scrap markets in full retreat with scrap
sales especially difficult. Nonferrous markets had weakened earlier and remained
soft. For the year, the average copper and brass scrap price dropped 22%,
aluminum fell 6%, and steel scrap was unchanged; at year end this left prices
20% below the previous year. Ferrous scrap shipped increased 11% to 1.28 million
tons; however, nonferrous shipments declined 11% to 188,000 tons, due to a drop
in copper and brass shipments. Total volume of scrap processed, including the
Steel Group processing plants, reached over 1.9 million tons.
During the year the Company made several small acquisitions within existing
geographic areas, none of which were significant to the overall operations of
the Company. In the fourth quarter a new shredder in Jacksonville, Florida and a
new shear in Odessa, Texas came online. The Division restructured its management
into five autonomous profit centers, which should provide better coordination of
processing equipment, personnel, marketing strength, sourcing and management.
MARKETING AND TRADING
Revenues for the Marketing and Trading segment increased 4%, and operating
income rose 17% over the prior year. This was a remarkable performance given the
demise of traditional Far East markets and a higher LIFO credit in the previous
year. Most of the Asian markets did a complete
S-7
<PAGE> 9
reversal and induced a shift in trade flows. Purchases from new sources in the
Far East increased significantly while sales were sharply reduced. Shipments
into North America were brisk for most product lines and business in Europe
increased.
Operating profits from steel marketing and distribution increased; however,
profitability in steel trading decreased because of reduced volume and margins.
Nonferrous metal product tonnage increased, particularly in semi-finished
aluminum products. Activity for ores, minerals and industrial materials
continued solid; meanwhile, new marketing channels were added.
S-8
<PAGE> 10
BUSINESS
The following description of the Company's business is qualified in its
entirety by and should be read together with the more detailed information and
financial statements incorporated by reference in the Prospectus.
The Company considers its businesses to be organized into three segments:
(i) Manufacturing, (ii) Recycling, and (iii) Marketing and Trading. The
Company's activities are primarily concerned with metals related activities. See
the Consolidated Financial Statements incorporated by reference in the
Prospectus for additional information concerning these segments.
CMC was incorporated in 1946 in Delaware as a successor to a secondary
metals recycling business that had been in existence since approximately 1915.
The Company maintains executive offices at 7800 Stemmons Freeway, Dallas, Texas
75247 (telephone 214/689-4300). The terms "Company" or "CMC" as used herein
include Commercial Metals Company and its consolidated subsidiaries.
THE MANUFACTURING SEGMENT
The Manufacturing segment is the Company's dominant and most rapidly
expanding segment in terms of assets employed, capital expenditures, operating
profit and number of employees. It consists of two entities, the CMC Steel Group
and the Howell Metal Company subsidiary, a manufacturer of copper tubing. The
Steel Group is by far the more significant entity in this segment, with
subsidiaries operating four steel minimills, 20 steel fabricating plants, four
steel joist manufacturing plants, four fence post manufacturing plants, eight
metals recycling plants, a heat treating plant, a railcar rebuilding facility,
12 warehouse stores, which sell supplies and equipment to the concrete
installation trade, an industrial products supply company and a rail salvage
company.
The Company endeavors to operate all of its minimills at full capacity in
order to minimize product costs. Increases in capacity and productivity are
continuously emphasized through both operating and capital improvements. The
steel minimill business is capital intensive, with substantial capital
expenditures required on a regular basis to remain competitive as a low cost
producer. Over the past three fiscal years, approximately $173 million, or 72%,
of the Company's total capital expenditures have been for minimill projects.
This emphasis on productivity improvements is reflected in a generally increased
number of tons of steel melted, rolled and shipped from the minimills during
each of the last five years and three months ended November 30, 1998 as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30, FISCAL FISCAL FISCAL FISCAL FISCAL
1998 1997 1998 1997 1996 1995(1) 1994
------------ ------------ ------ ------ ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Tons Melted.................... 475 458 1,932 1,755 1,561 1,532 1,122
Tons Rolled.................... 370 402 1,693 1,581 1,477 1,487 1,207
Tons Shipped................... 419 522 2,008 1,926 1,730 1,531 1,247
</TABLE>
- ---------------
(1) Includes SMI-South Carolina, which was acquired in November, 1994.
The Company's largest steel minimill, SMI-Texas, is located at Seguin,
Texas, near San Antonio. SMI-Texas manufactures steel reinforcing bars, angles,
rounds, channels, flats, and special sections used primarily in highways,
reinforced concrete structures and manufacturing. This minimill has been
continually modernized and has a very broad product line.
SMI-Alabama, a subsidiary of CMC that owns and operates a steel minimill in
Birmingham, Alabama, was acquired in 1983. A substantial program to modernize
and improve productivity at SMI-Alabama was implemented, with over $121 million
of capital expenditures from acquisition through fiscal 1998.
S-9
<PAGE> 11
SMI-Alabama manufactures primarily larger size products than SMI-Texas,
such as mid-size structurals, including angles, channels, up to eight inch wide
flange beams and special bar quality rounds and flats.
SMI-South Carolina has an annual melting capacity of approximately 550,000
tons and rolling capacity of approximately 350,000 tons. Reinforcing bar is
SMI-South Carolina's primary product line. In July, 1997, the Company began a
$100 million capital expenditure, the largest single project in the Company's
history, to replace SMI-South Carolina's existing rolling mill with a new
state-of-the-art rolling mill. The new rolling mill will have a capacity of over
700,000 tons with a substantially broader product line and is expected to be
completed by the end of March 1999.
The SMI-Texas, SMI-Alabama and SMI-South Carolina mills consist of melt
shops with electric arc furnaces that melt the steel scrap, continuous casting
facilities to shape the molten metal into billets, reheating furnaces, rolling
mills, mechanical cooling beds, finishing facilities and supporting facilities.
The mills utilize both a Company-owned fleet of trucks and private haulers to
transport finished products to customers and Company-owned fabricating shops.
Mill capacity at SMI-Texas and SMI-Alabama is approximately 900,000 and 600,000
tons per year melted, respectively.
The primary raw material for SMI-Texas, SMI-Alabama and SMI-South Carolina
is secondary (scrap) ferrous metal purchased primarily from suppliers generally
within a 300 mile radius of each mill. A portion of the ferrous raw material,
generally less than half, is supplied from Company-owned recycling plants. The
supply of scrap is believed to be adequate to meet future needs, but has
historically been subject to significant price fluctuations. All three of these
mills consume large amounts of electricity and natural gas, both of which are
believed to be readily available at competitive prices.
Operations began in 1987 at a fourth, much smaller mill located near
Magnolia, Arkansas, SMI-Arkansas. No melting facilities are located at
SMI-Arkansas, because this mill utilizes as its raw material rail salvaged from
abandoned railroads for rerolling and, on occasion, billets from Company
minimills or other suppliers. The rail or billets are heated in a reheat furnace
and processed on a rolling mill and finished at facilities similar to, but on a
smaller scale, than the other mills. SMI-Arkansas' finished product is primarily
metal fence post stock, small diameter reinforcing bar and sign posts with some
high quality round and flat products being rolled. Fence post stock is
fabricated into metal fence posts at Company-owned facilities at the Magnolia
mill site, San Marcos, Texas, Brigham City, Utah, and West Columbia, South
Carolina. Because this mill does not include melting facilities, it is dependent
on an adequate supply of competitively priced billets or used rail, the
availability of which fluctuates with the pace of railroad abandonments, rate of
rail replacement by railroads and demand for used rail from domestic and foreign
rail rerolling mills. Capacity at SMI-Arkansas is approximately 150,000 tons per
year.
The Steel Group's downstream processing facilities are engaged in the
fabrication of reinforcing and structural steel, steel warehousing, joist
manufacturing, fence post manufacturing and railcar repair and rebuilding. Steel
fabrication capacity now exceeds 850,000 tons. Steel for fabrication may be
obtained from unrelated vendors as well as Company owned mills. Fabrication
activities are conducted at various locations in Texas in the cities of
Beaumont, Buda (near Austin), Corpus Christi, Dallas, Houston, San Marcos,
Seguin, Victoria, and Waco, as well as Baton Rouge and Slidell, Louisiana;
Magnolia and Hope, Arkansas; Brigham City, Utah; Starke, Florida and Fallon,
Nevada. The Owen acquisition in fiscal year 1995 added fabrication facilities in
Cayce, Columbia, and Taylors, South Carolina; Whitehouse, Florida;
Lawrenceville, Georgia; Gastonia, North Carolina and Fredericksburg, Virginia.
Fabricated steel products are used primarily in the construction of commercial
and non-commercial buildings, industrial plants, power plants, highways, arenas,
stadiums, and dams. Sales of fabricated steel are generally made in response to
bid solicitation from construction contractors or owners on a competitive bid
basis and less frequently on a negotiated basis. The SMI-Owen structural steel
operations have historically been active in large projects such as high rise
office towers, stadiums, convention centers and hospitals.
S-10
<PAGE> 12
Safety Railway Service, located in Victoria, Texas, repairs, rebuilds and
provides custom maintenance with some manufacturing of railroad freight cars
owned by railroad companies and private industry. That work is obtained
primarily on a bid and contract basis and may include maintenance of the cars.
During 1998, a second location operated by Safety Railway Service in Tulsa,
Oklahoma, was closed. Secondary metals recycling plants in Austin, Texas, and at
the SMI-Texas mill in Seguin, Texas, and Cayce, South Carolina, together with
five smaller feeder facilities nearby, operate as part of the Steel Group due to
the predominance of secondary ferrous metals sales to the nearby SMI minimills.
The Cayce recycling plant installed and began operating a new automobile
shredder during 1997 at a cost of approximately $5 million and the Seguin
recycling facility began operating a new automobile shredder in late 1998 at a
cost of approximately $9 million. These recycling plants have an aggregate
annual capacity in excess of 400,000 tons.
The joist manufacturing facility, SMI Joist Company, headquartered in Hope,
Arkansas, manufactures steel joists and decking for roof supports at locations
in Hope, Arkansas, Starke, Florida, Cayce, South Carolina and Fallon, Nevada
using steel obtained primarily from the Steel Group's minimills. Joist consumers
are typically construction contractors or large chain store owners. Joists are
generally made to order and sales, which may include custom design and
fabrication, are primarily obtained on a competitive bid basis.
The Company sells concrete related supplies including the sale or rental of
equipment to the concrete installation trade at eleven warehouse locations in
Texas and one new location in Atlanta, Georgia. This business operates under the
Shepler's name. A smaller operation which emphasizes a broader industrial
product supply is located in Columbia, South Carolina.
In January 1997, the operating assets of Allegheny Heat Treating, Inc.
("AHT"), of Chicora, Pennsylvania, were purchased. AHT is the Steel Group's
entry into the steel heat treating business. AHT performs heat treating on a
tolling basis and works closely with SMI-Alabama and other mills that sell
specialized heat treated steel for customer specific use, primarily in original
or special equipment manufacturing. AHT's operating capacity is approximately
30,000 tons per year.
The copper tube minimill operated by Howell Metal Company is located in New
Market, Virginia. It manufactures copper water, air conditioning and
refrigeration tubing in straight lengths and coils for use in commercial,
industrial and residential construction. Its customers, largely equipment
manufacturers and wholesale plumbing supply firms, are located primarily east of
the Mississippi River. High quality copper scrap supplemented occasionally by
virgin copper ingot, is the raw material used in the melting and casting of
billets. The scrap is readily available subject to rapid price fluctuations
generally related to the price or supply of virgin copper. A small portion of
the scrap is supplied by the Company's metal recycling yards. Howell's
facilities include melting, casting, piercing, extruding, drawing, finishing and
other departments. Capacity is approximately 55 million pounds per year. Demand
for copper tube is dependent mainly on the level of new residential construction
and renovation.
No single customer purchases ten percent or more of the Manufacturing
segment's production. The nature of certain stock products sold in the
Manufacturing segment are, with the exception of the steel fabrication and joist
jobs, not characteristic of a long lead time order cycle. Orders for other stock
products are generally filled promptly from inventory or near term production.
As a result, the Company does not believe backlog levels are a significant
factor in evaluating most operations. Backlog in the CMC Steel Group at fiscal
1998 year-end was approximately $300.2 million. Backlog at fiscal 1997 year-end
was approximately $261.5 million.
THE RECYCLING SEGMENT
The Recycling segment is engaged in processing secondary (scrap) metals for
further recycling into new metal products. This segment consists of the
Company's 39 secondary metals processing division's recycling plants (excluding
eight such facilities operated by the CMC Steel Group as a part of the
Manufacturing segment). During the past fiscal year the secondary metals
S-11
<PAGE> 13
division purchased operating assets of recycling facilities in Houston, Texas,
Joplin, Missouri, Miami, Oklahoma and Frontenac and Independence, Kansas. In
addition the operating assets and inventory of three automobile salvage yards
located in Ocala, Leesburg and Gainesville, Florida, were purchased in 1998 and
constitute the Recycling division's entry into the automobile salvage business.
The Company's metal recycling plants purchase ferrous and nonferrous
secondary or scrap metals, processed and unprocessed, in a variety of forms.
Sources of metals for recycling include manufacturing and industrial plants,
metal fabrication plants, electric utilities, machine shops, factories,
railroads, refineries, shipyards, ordinance depots, demolition businesses,
automobile salvage and wrecking firms. Numerous small secondary metals
collection firms are also, in the aggregate, major suppliers.
These plants processed and shipped approximately 1.47 million tons of scrap
metal during fiscal 1998, up from 1.37 million the prior year. Ferrous metals
comprised the largest tonnage of metals recycled at approximately 1.28 million
tons, approximately 126,000 tons more than the prior year, followed by
approximately 188,055 tons compared to 212,000 in fiscal 1997, of nonferrous
metals, primarily aluminum, copper and stainless steel. The Company also
purchased and sold an additional 187,000 tons of metals processed by other metal
recycling facilities. With the exception of precious metals, practically all
metals capable of being recycled are processed by these plants. The CMC Steel
Group's eight metals recycling facilities processed and shipped an additional
360,000 tons of primarily ferrous scrap metal during fiscal 1998.
The metal recycling plants generally consist of an office and warehouse
building equipped with specialized equipment for processing both ferrous and
nonferrous metal. Most of the larger plants are equipped with scales, shears,
baling presses, briquetting machines, conveyors and magnetic separators. Two
locations have extensive equipment for mechanically processing large quantities
of insulated wire to segregate metallic content. All ferrous processing centers
are equipped with either presses, shredders or hydraulic shears, locomotive and
crawler cranes and railway tracks to facilitate shipping and receiving. The
segment operates six large shredding machines capable of pulverizing obsolete
automobiles or other ferrous metal scrap, including operation of a sixth
shredder which began during June 1998 in Jacksonville, Florida. Two additional
shredders are operated by the Manufacturing segment's recycling facilities. A
typical recycling plant includes several acres of land used for receiving,
sorting, processing and storage of metals. Several recycling plants devote a
small portion of their site or a nearby location for display and sales of metal
products considered reusable for their original purpose.
The automobile salvage operations in Gainesville, Ocala and Leesburg,
Florida, assist in the supply of crushed auto bodies, an important feed stock,
to the new Jacksonville shredder. These operations purchase wrecked or
inoperable motor vehicles at prices related to estimated recovery value of
usable parts prior to ultimate sale to scrap metal processors, usually shredding
facilities. The operating assets of scrap processing facilities in Joplin,
Missouri, Miami, Oklahoma and Independence and Frontenac, Kansas, acquired
during 1998 extend the geographic area served by the Company's Springfield,
Missouri facility.
Recycled metals are sold to steel mills and foundries, aluminum sheet and ingot
manufacturers, brass and bronze ingot makers, copper refineries and mills, brass
mills, secondary lead smelters, specialty steel mills, high temperature alloy
manufacturers and other consumers. Sales of material processed through the
Company's recycling plants are coordinated through the Recycling segment's
office in Dallas. Export sales are negotiated through the Company's network of
foreign offices as well as the Dallas office.
No single source of material or customer of the Recycling segment
represents more than ten percent of the Company's purchases or revenues. The
Recycling segment competes with other secondary processors and primary
nonferrous metals producers, both domestic and foreign, for sales of nonferrous
materials. Consumers of nonferrous scrap metals often have the capability to
S-12
<PAGE> 14
utilize primary or "virgin" ingot processed by mining companies interchangeably
with secondary metals. The prices for nonferrous scrap metals are normally
closely related to but generally less than, the prices of the primary or
"virgin" metal producers. Ferrous scrap is the primary raw material for electric
arc furnaces such as those operated by the Company's steel minimills. The need
for low residual elements in the melting process have recently caused some
minimills to supplement purchases of scrap metal with direct reduced iron and
pig iron for certain product lines.
THE MARKETING AND TRADING SEGMENT
The Marketing and Trading segment buys and sells, through a network of
trading offices located around the globe, steel, nonferrous metals, specialty
metals, chemicals, industrial minerals, ores, concentrates, ferroalloys, and
other basic industrial materials. The products are purchased primarily from
producers in domestic and foreign markets. On occasion these materials are
purchased from trading companies or industrial consumers with surplus supplies.
Long-term contracts, spot market purchases and trading or barter transactions
are all utilized to obtain materials. A large portion of these transactions
involve fabricated semi-finished or finished product.
Customers for these materials include industrial concerns such as the
steel, nonferrous metals, metal fabrication, chemical, refractory and
transportation sectors. Sales are generally made directly to consumers through
and with coordination of offices in Dallas; New York City; Englewood Cliffs, New
Jersey; Los Angeles; Hurstville, near Sydney, Australia; Singapore; Zug,
Switzerland; Hong Kong; Surrey and Sandbach, United Kingdom; and Bergisch
Gladbach, Germany. The Company also maintains representative offices in Moscow,
Seoul, and Beijing, as well as agents in other significant international
markets. These offices form a network for the exchange of information on the
materials marketed by the Company as well as servicing sources of supply and
purchasers. In most transactions the Company acts as principal and often as a
marketing representative. The Company utilizes agents when appropriate and
occasionally acts as broker. The Company participates in transactions in
practically all major markets of the world where trade by American-owned
companies is permitted.
This segment focuses on the marketing of physical products as contrasted to
traders of commodity futures contracts who frequently do not take delivery of
the commodity. Sophisticated global communications and the development of easily
accessible, although not always accurate, quoted market prices for many products
has resulted in the Company emphasizing creative service functions for both
sellers and buyers. Actual physical market pricing and trend information, as
contrasted with sometimes more speculative metal exchange market information,
technical information and assistance, financing, transportation and shipping
(including chartering of vessels), storage, warehousing, just in time delivery,
insurance, hedging and the ability to consolidate smaller purchases and sales
into larger, more cost efficient transactions are examples of the services
offered. The Company attempts to limit its exposure to price fluctuations by
offsetting purchases with concurrent sales and entering into foreign exchange
contracts as hedges of trade receivables and payables denominated in foreign
currencies. The Company does not, as a matter of policy, speculate on changes in
the markets and hedges only firm commitments, not anticipated transactions.
During the last fiscal year over 1.4 million tons of steel products were sold by
the Marketing and Trading segment. The Australian operations maintain three
warehousing facilities for just in time delivery of steel and industrial
products and operate a heat treating service for special steel products.
S-13
<PAGE> 15
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby 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. Certain terms
not defined in this description are defined in the Prospectus.
GENERAL
The % Notes due , 2009 (the "Notes") will be limited to
$100,000,000 aggregate principal amount and will mature on , 2009. The
Notes will be issued only in the form of one or more Global Securities (as
defined below) in minimum denominations of $100,000 and integral multiples of
$1,000 in excess thereof. See "Book-Entry Notes" below. The Notes will be
redeemable at the Company's option prior to maturity as set forth below under
"Optional Redemption" and are not entitled to any sinking fund. The Notes will
be unsecured and unsubordinated obligations of the Company and will rank on a
parity with all other unsecured and unsubordinated debt of the Company.
INTEREST
The Notes will bear interest at the rate set forth on the cover page of
this Prospectus Supplement from , 1999, or the most recent interest
payment date to which interest has been paid or provided for, payable
semi-annually on and of each year, beginning ,
1999, to the person in whose name a Note (or any predecessor Note) is registered
at the close of business on the or , as the case may be,
next preceding such interest payment date.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, at any time in
whole, or from time to time in part, upon not less than 30 and not more than 60
days' notice mailed to each holder of Notes to be redeemed at the holder's
address appearing in the Note register, at a price equal to 100% of the
principal amount thereof plus accrued interest to the redemption date (subject
to the right of holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the redemption
date) plus a Make-Whole Premium, if any (the "Redemption Price"). In no event
will the Redemption Price ever be less than 100% of the principal amount of the
Notes plus accrued interest to the redemption date.
The amount of the Make-Whole Premium with respect to any Note (or portion
thereof) to be redeemed will be equal to the excess, if any, of:
(1) the sum of the present values, calculated as of the redemption
date, of:
(a) each interest payment that, but for such redemption, would have
been payable on the Note (or portion thereof) being redeemed on each
interest payment date occurring after the redemption date (excluding any
accrued interest for the period prior to the redemption date); and
(b) the principal amount that, but for such redemption, would have
been payable at the final maturity of the Note (or portion thereof)
being redeemed;
over
(2) the principal amount of the Note (or portion thereof) being
redeemed.
The present value of interest and principal payments referred to in clause
(1) above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the
S-14
<PAGE> 16
date that each such payment would have been payable, but for the redemption, to
the redemption date at a discount rate equal to the Treasury Yield (as defined
below) plus 25 basis points.
The Make-Whole Premium will be calculated by an independent investment
banking institution of national standing appointed by the Company. If the
Company fails to make such appointment at least 45 business days prior to the
redemption date, or if the institution so appointed is unwilling or unable to
make such calculation, Goldman, Sachs & Co. ("Goldman Sachs") will make such
calculation. If Goldman Sachs is unwilling or unable to make such calculation,
an independent investment banking institution of national standing appointed by
the trustee will make such calculation.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means
a rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Notes, calculated to the nearest 1/12 of a
year (the "Remaining Term"). The Treasury Yield will be determined as of the
third business day immediately preceding the applicable redemption date.
The weekly average yields of United States Treasury Notes will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States Treasury
Notes having a constant maturity that is the same as the Remaining Term, then
the Treasury Yield will be equal to such weekly average yield. In all other
cases, the Treasury Yield will be calculated by interpolation, on a
straight-line basis, between the weekly average yields on the United States
Treasury Notes that have a constant maturity closest to and greater than the
Remaining Term and the United States Treasury Notes that have a constant
maturity closest to and less than the Remaining Term (in each case as set forth
in the H.15 Statistical Release). Any weekly average yields so calculated by
interpolation will be rounded to the nearest 0.01% with any figure of 0.005% or
more being rounded upward. If weekly average yields for United States Treasury
Notes are not available in the H.15 Statistical Release or otherwise, then the
Treasury Yield will be calculated by interpolation of comparable rates selected
by the independent investment banking institution.
If less than all of the Notes are to be redeemed, the trustee will select
the Notes to be redeemed by such method as the trustee deems fair and
appropriate. The trustee may select for redemption Notes and portions of Notes
in amounts of $1,000 or whole multiples of $1,000.
The Notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption provisions.
BOOK-ENTRY NOTES
The Notes will be issued in whole or in part in the form of one or more
permanent Global Securities deposited with, or on behalf of, The Depositary
Trust Company, as the Depositary (the "Depositary"), and registered in the name
of a nominee of the Depositary. Except under the limited circumstances described
in the Prospectus under "Description of Debt Securities -- Book-Entry Debt
Securities," owners of beneficial interests in Global Securities will not be
entitled to physical delivery of Notes in certificated form. Global Securities
may not be transferred except as a whole by the Depositary to a nominee of the
Depositary or to a successor of the Depositary of its nominee.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. The Depositary was created to hold securities of its participants and to
facilitate the clearance and settlement of securities transactions, such as
transfers and pledges, among its participants in such securities
S-15
<PAGE> 17
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movements of securities certificates. The
Depositary's participants include securities brokers and dealers (including the
Underwriters), 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. The
rules applicable to the Depositary and its participants are on file with the
Securities and Exchange Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. So long as the Notes are in the form of Book-Entry Notes, all
payments of principal and interest will be made by the Company in immediately
available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Notes
are expected to trade in the Depositary's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Notes will therefore be
required by the Depositary to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Notes.
S-16
<PAGE> 18
UNDERWRITING
The Company and the Underwriters for the Notes named below have entered
into an underwriting agreement and a pricing agreement with respect to the
Notes. Subject to certain conditions, each Underwriter has severally agreed to
purchase the principal amount of Notes indicated in the following table:
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Notes
----------- ----------------
<S> <C>
Goldman, Sachs & Co. ..................................... $
Chase Securities Inc. ....................................
Lehman Brothers Inc. .....................................
Morgan Stanley & Co. Incorporated.........................
NationsBanc Montgomery Securities LLC.....................
------------
Total........................................... $100,000,000
============
</TABLE>
Notes sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this Prospectus
Supplement. Any Notes sold by the Underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to % of the
principal amount of the Notes. Any such securities dealers may resell any Notes
purchased from the Underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to % of the principal
amount of the Notes. If all the Notes are not sold at the initial offering
price, the Underwriters may change the offering price and the other selling
terms.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
In connection with the offering (the "Offering"), the Underwriters may
purchase and sell Notes in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of Notes than they are required to purchase in the Offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Notes while the
Offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discounts received by it because the representatives have repurchased Notes sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Notes. As a result, the price of the Notes may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the Underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The Company estimates that its share of the total expenses of the Offering,
excluding underwriting discounts and commissions, will be approximately
$225,000.
The Company has agreed to indemnity the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged and may in the future engage in commercial banking
and investment banking transactions
S-17
<PAGE> 19
with the Company and its affiliates. The Chase Manhattan Bank, the Trustee, is
an affiliate of Chase Securities Inc. and is a lender to the Company under
certain short term bank facilities. Bank of America National Trust and Savings
Association, which is an affiliate of NationsBanc Montgomery Securities LLC, is
also a lender to the Company. Each of The Chase Manhattan Bank and Bank of
America National Trust and Savings Association will receive a portion of the
amounts repaid with the net proceeds from the sale of the Notes. See "Use of
Proceeds." Because more than 10% of the net proceeds from the sale of the Notes
will be paid to affiliates of members of the National Association of Securities
Dealers, Inc. (the "NASD") who are participating in the sale of the Notes, the
sale of the Notes is being made pursuant to Rule 2710(c)(8) of the NASD Conduct
Rules.
S-18
<PAGE> 20
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1999
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 1999
<TABLE>
<S> <C> <C>
LOGO $100,000,000
LOGO
MEDIUM-TERM NOTES, SERIES A
DUE FROM MONTHS TO YEARS FROM DATE OF ISSUE
</TABLE>
------------------------
The Company may offer from time to time its Medium-Term Notes, Series A, due
from months to years from the date of issue, as selected by the purchaser
and agreed to by the Company, at an aggregate initial public offering price not
to exceed $100,000,000, or its equivalent in another currency or composite
currency.
The Notes may be denominated in U.S. dollars or in such foreign currencies
or composite currencies as may be designated by the Company at the time of
offering. The specific currency or composite currency, interest rate (if any),
issue price and maturity date of any Note will be set forth in the related
Pricing Supplement to this Prospectus Supplement. Unless otherwise specified in
the applicable Pricing Supplement, Notes denominated in other than U.S. dollars
or ECUs will not be sold in, or to residents of, the country issuing the
Specified Currency. See "Description of Notes."
Interest on the Fixed Rate Notes, unless otherwise specified in the
applicable Pricing Supplement, will be payable each and and at
maturity. Interest on the Floating Rate Notes or Indexed Notes will be payable
on the dates specified therein and in the applicable Pricing Supplement.
Floating Rate Notes will bear interest at a rate determined by reference to the
Commercial Paper Rate, Prime Rate, LIBOR, Treasury Rate, CD Rate or Federal
Funds Rate, as adjusted by a Spread and/or Spread Multiplier, if any, applicable
to such Notes. Zero Coupon Notes will not bear interest.
Unless a Redemption Commencement Date or Repayment Date is specified in the
applicable Pricing Supplement, the Notes will not be redeemable or repayable
prior to their Stated Maturity. If a Redemption Commencement Date or Repayment
Date is so specified, the Notes will be redeemable at the option of the Company
or repayable at the option of the Holder as described herein.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
offered hereby will be issued in global or definitive form in a minimum
denomination of $100,000 or, in the case of Notes denominated in foreign
currencies or composite currencies, the appropriate equivalent of $100,000 in
the Specified Currency, as specified in the applicable Pricing Supplement. A
global Note representing Book-Entry Notes will be registered in the name of The
Depository Trust Company, or its nominee, which will act as Depositary.
Interests in Book-Entry Notes will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to
participants' interests) and its participants. Except as described herein,
owners of beneficial interests in a global Note will not be considered the
Holders thereof and will not be entitled to receive physical delivery of Notes
in definitive form, and no global Note will be exchangeable except for another
global Note of the denomination and terms to be registered in the name of the
Depositary or its nominee. See "Description of Notes."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT
HERETO OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per Note.......................... % %- % %- %
Total(4).......................... $ $ -$ $ -$
</TABLE>
- ---------------
(1) Notes will be issued at 100% of their principal amount, unless otherwise
specified in the applicable Pricing Supplement.
(2) The Company will pay the Agents a commission of from % to %, depending
on maturity, of the principal amount of any Notes sold through them as
Agents (or sold to such Agents as principal in circumstances in which no
other discount is agreed). The Company may sell Notes to any Agent at a
discount or premium for resale to one or more investors at varying prices
related to prevailing market prices at the time of resale, as determined by
such Agent, or at a fixed public offering price. The Company has agreed to
indemnify the Agents against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Supplemental Plan of
Distribution."
(3) Before deducting estimated expenses of $100,000 payable by the Company,
including approximately $30,000 of estimated expenses of the Agents to be
reimbursed by the Company.
(4) Or the equivalent thereof in foreign currencies or composite currencies.
------------------------
Offers to purchase the Notes are being solicited, on a reasonable efforts
basis, from time to time by the Agents on behalf of the Company. Notes may be
sold to the Agents on their own behalf at negotiated discounts. The Company
reserves the right to sell the Notes directly on its own behalf. The Company
also reserves the right to withdraw, cancel or modify the offering contemplated
hereby without notice. No termination date for the offering of the Notes has
been established. The Company or the soliciting Agent may reject any order in
whole or in part. See "Supplemental Plan of Distribution."
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
The date of this Prospectus Supplement is , 1999.
<PAGE> 21
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "SUPPLEMENTAL PLAN OF DISTRIBUTION."
Unless otherwise indicated, currency amounts in this Prospectus Supplement
or any Pricing Supplement hereto are stated in United States dollars ("$,"
"dollars" or "U.S. $").
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<PAGE> 22
DESCRIPTION OF NOTES
GENERAL
The following description of the particular terms of the Notes offered
hereby supplements and, to the extent inconsistent therewith, replaces the
description of the general terms and provisions of the Debt Securities set forth
in the accompanying Prospectus, to which description reference is hereby made.
Unless different terms or additional terms are specified in the applicable
Pricing Supplement, the Notes will have the terms described below. References to
interest payments and interest-related information do not apply to Zero Coupon
Notes (as defined below).
The Notes will be issued pursuant to the Indenture dated as of July 31,
1995 (the "Indenture") between the Company and The Chase Manhattan Bank, as
Trustee (the "Trustee"). The Notes are issuable by the Company from time to time
up to an aggregate initial offering price of $100,000,000 (or the equivalent
thereof in any other currency or currencies or currency units). The Notes will
represent unsecured, unsubordinated debt of the Company and will rank equally
with all other unsecured and unsubordinated debt of the Company. The Notes
constitute a separate series for purposes of the Indenture. The Indenture does
not limit the aggregate principal amount of Debt Securities that may be issued
thereunder. The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the Indenture, including the
definitions therein of certain terms.
The applicable Pricing Supplement will specify any redemption or repayment
terms applicable to the Notes. See "Redemption and Repayment" below.
Unless otherwise specified in the applicable Pricing Supplement and unless
previously redeemed, a Note will mature on the date ("Stated Maturity") that is
specified on the face thereof and in the applicable Pricing Supplement. Unless
otherwise specified in the applicable Pricing Supplement, the term "Market Day"
means (a) with respect to any Note (other than any LIBOR Note), any Business
Day, and (b) with respect to any LIBOR Note, any Business Day which is also a
London Market Day. Unless otherwise specified in the applicable Pricing
Supplement, the term "Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday that is (i) not a day on which banking institutions in The
City of New York generally are authorized or obligated by law or executive order
to close and (ii) if the Note is denominated in a Specified Currency (as defined
below) other than U.S. dollars, not a day on which banking institutions are
authorized or obligated by law or executive order to close in the financial
center of the country issuing the Specified Currency (or, in the case of
European Currency Units ("ECUs"), is not a day designated as an ECU
Non-Settlement Day by the ECU Banking Association or otherwise generally
regarded in the ECU interbank market as a day on which payment in ECUs shall not
be made). Unless otherwise specified in the applicable Pricing Supplement, the
term "London Market Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
Each Note will be denominated in a currency, composite currency or basket
of currencies (each a "Specified Currency") as specified on the face thereof and
in the applicable Pricing Supplement, which may include U.S. dollars or any
other currency, composite currency or basket of currencies set forth in the
applicable Pricing Supplement. Purchasers of the Notes are required to pay for
them by delivery of the requisite amount of the Specified Currency to the
applicable agent, unless other arrangements have been made. Unless otherwise
specified in the applicable Pricing Supplement, payments on the Notes will be
made in the applicable Specified Currency; provided that, at the election of the
Holder thereof and in certain circumstances at the option of the Company,
payments on Notes denominated in other than U.S. dollars may be made in U.S.
dollars. See "Payment of Principal and Interest." The term "Holder" means, with
respect to any Note as of any time, the person in whose name such Note is
registered at such time in the security register for the Notes maintained by the
Company and does not include the owner of a beneficial interest in a Book-Entry
Note as described under "Book-Entry Notes" below.
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<PAGE> 23
Notes denominated in U.S. dollars will be initially issued in denominations
of $100,000 and integral multiples of $1,000 in excess thereof, and Notes
denominated in other than U.S. dollars will be initially issued in denominations
of the amount of the Specified Currency for such Note equivalent, at the noon
buying rate for cable transfers in The City of New York for such Specified
Currency (the "Exchange Rate") on the first Business Day next preceding the date
on which the Company accepts the offer to purchase such Note, to $100,000 and
integral multiples of $1,000 in excess thereof. Unless otherwise agreed by the
Company, Notes issued upon transfer of or in exchange for other Notes will be
issued only in denominations of $100,000 and integral multiples of $1,000 in
excess thereof (or the equivalent thereof in the Specified Currency for each
Note).
Notes will be sold in individual issues of Notes, each of which will have
such interest rate or interest rate formula, if any, Stated Maturity and date of
original issuance as may be specified in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, each Note will
bear interest at either (i) a fixed rate (a "Fixed Rate Note"), which may be
zero in the case of Notes issued at a discount from the principal amount payable
at maturity thereof (a "Zero Coupon Note") or (ii) a floating rate (a "Floating
Rate Note") determined by reference to the interest rate formula, which may be
adjusted by adding or subtracting the Spread or multiplying by the Spread
Multiplier (each term as defined below under "Floating Rate Notes").
The Notes may be issued as Original Issue Discount Notes. An Original Issue
Discount Note is a Note, including any Zero Coupon Note, which is issued at a
price lower than the principal amount thereof and which provides that upon
redemption or acceleration of the maturity thereof an amount less than the
principal thereof shall become due and payable. In the event of redemption or
acceleration of the maturity of an Original Issue Discount Note, the amount
payable to the Holder of such Note upon such redemption or acceleration will be
determined in accordance with the terms of the Note, but will be an amount less
than the amount payable at the Stated Maturity of such Note. In addition, a Note
issued at a discount may, for United States federal income tax purposes, be
considered an original issue discount note, regardless of the amount payable
upon redemption or acceleration of maturity of such Note. See "United States
Taxation -- United States Holders -- Original Issue Discount" below.
Certain Notes ("Indexed Notes") may be issued with the principal amount
payable at maturity, and/or the amount of interest payable on an interest
payment date, to be determined by reference to one or more currencies (including
baskets of currencies), one or more commodities (including baskets of
commodities), one or more securities (including baskets of securities) and/or
any other index as set forth in the applicable Pricing Supplement. Holders of
Indexed Notes may receive a principal amount at maturity that is greater than or
less than the face amount (but not less than zero) of such Notes depending upon
the value at maturity of the applicable index. With respect to any Indexed Note,
information as to the methods for determining the principal amount payable at
maturity and/or the amount of interest payable on an interest payment date, as
the case may be, as to any one or more currencies (including baskets of
currencies), commodities (including baskets of commodities), securities
(including baskets of securities) or other indices to which principal or
interest is indexed, as to any additional foreign exchange or other risks or as
to any additional tax considerations may be set forth in the applicable Pricing
Supplement. See "Risks Relating to Indexed Notes."
The Pricing Supplement relating to each Note will describe one or more of
the following terms: (i) the Specified Currency with respect to such Note (and,
if such Specified Currency is other than U.S. dollars, certain other terms
relating to such Note, including the authorized denominations); (ii) the price
(expressed as a percentage of the aggregate principal amount thereof) at which
such Note will be issued; (iii) the date on which such Note will be issued; (iv)
the date on which such Note will mature; (v) whether such Note is a Fixed Rate
Note or a Floating Rate Note; (vi) if such Note is a Fixed Rate Note, the rate
per annum at which such Note will bear interest, if any, and the interest
payment date or dates, if different from those set forth below under "Fixed Rate
Notes"; (vii) if such Note is a Floating Rate Note, the interest rate basis (the
"Interest Rate Basis") for
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<PAGE> 24
each such Floating Rate Note, which will be (a) the Commercial Paper Rate, in
which case such Note will be a Commercial Paper Rate Note, (b) the Prime Rate,
in which case such Note will be a Prime Rate Note, (c) the London Inter-Bank
Offered Rate ("LIBOR"), in which case such Note will be a LIBOR Note, (d) the
Treasury Rate, in which case such Note will be a Treasury Rate Note, (e) the
Constant Maturity Treasury ("CMT") Rate, in which case such Note will be a CMT
Rate Note, (f) the CD Rate, in which case such Note will be a CD Rate Note, (g)
the Federal Funds Rate, in which case such Note will be a Federal Funds Rate
Note, or (h) such other interest rate formula as is set forth in such Pricing
Supplement, and, if applicable, the Calculation Agent, the Index Maturity, the
Spread or Spread Multiplier, the Maximum Rate, the Minimum Rate, the Initial
Interest Rate, the Interest Payment Dates, the Regular Record Dates, the
Calculation Date, the Interest Determination Date and the Interest Reset Date
with respect to such Floating Rate Note; (viii) whether such Note is an Original
Issue Discount Note and, if so, the yield to maturity; (ix) whether such Note is
an Indexed Note and, if so, the principal amount (or formula to calculate such
principal amount) thereof payable at maturity, or the amount of interest payable
on an interest payment date, as determined by reference to any applicable index,
in addition to certain other information relating to the Indexed Note; (x)
whether such Note may be redeemed at the option of the Company (other than as
described below in the first paragraph under "Redemption and Repayment"), or
repaid at the option of the Holder, prior to Stated Maturity and, if so, the
Redemption Commencement Date, Repayment Date, Redemption Prices, Redemption
Period and other provisions relating to such redemption or repayment (all as
described below under "Redemption and Repayment"); (xi) whether such Note will
be represented by a Certificated Note or a Book-Entry Note (each as defined
below); and (xii) any other terms of such Note not inconsistent with the
provisions of the Indenture.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Notes may be issued in certificated registered form without coupons
("Certificated Notes"). Notes also may be issued in the form of one or more
master or global Notes registered in the name of a depositary or its nominee
("Book-Entry Notes") and as such may be subject to the special restrictions and
Procedures referred to below under "Book-Entry Notes."
Each Certificated Note will be exchangeable for a like aggregate principal
amount of Certificated Notes of authorized denominations and of like tenor and
form. If any Certificated Note is subject to partial redemption, the unredeemed
portion of such Note redeemed in part will be exchangeable for Certificated
Notes of authorized denominations and of like tenor and form. Each Certificated
Note authenticated and delivered upon any transfer or exchange of the whole or
any part of any other Note will carry all the rights, if any, to interest
accrued and unpaid and to accrue that were carried by the whole or such part of
such other Note.
Each Certificated Note may be presented for registration of transfer (with
the form of transfer endorsed thereon duly executed) or exchange at the
corporate trust office of the Trustee or at the office of any transfer agent
that is designated by the Company for such purpose with respect to the Notes and
referred to in the applicable Pricing Supplement, without service charge and
upon payment of any taxes and other governmental charges as described in the
Indenture. Unless otherwise specified in an applicable Pricing Supplement, such
transfer or exchange will be effected upon the Trustee or such transfer agent,
as the case may be, being satisfied with the documents of title and identity of
the person making the request, and subject to such reasonable regulations as the
Company may from time to time agree upon with the Trustee and any transfer
agent.
The Company has initially appointed as security registrar and transfer
agent the Trustee acting through its corporate trust office in the Borough of
Manhattan, The City of New York. Any additional transfer agents initially
designated by the Company for any Notes will be named in the applicable Pricing
Supplement. The Company reserves the right to vary or terminate the appointment
of the Trustee as security registrar or of any transfer agent or to appoint
additional or other registrars or transfer agents or to approve any change in
the office through which any registrar or any transfer
S-5
<PAGE> 25
agent acts, provided that there will be at all times a registrar and transfer
agent in the Borough of Manhattan, The City of New York.
Unless otherwise indicated in the applicable Pricing Supplement, in the
event of a redemption of the Notes in part, the Company will not be required (i)
to register the transfer of or exchange any Notes during a period beginning at
the opening of business 15 days before, and continuing until, the date notice is
given identifying the Notes to be redeemed, or (ii) to register the transfer of
or exchange any Notes, or any portion thereof, called for redemption.
BOOK-ENTRY NOTES
Upon issuance, Book-Entry Notes may be represented by a single master
security (the "Master Security") or by individual global securities each
representing Book-Entry Notes having the same terms ("Global Securities"). The
Master Security and any Global Security will be deposited with, or on behalf of,
the depositary and registered in the name of the depositary or its nominee.
Book-Entry Notes will not be exchangeable for Certificated Notes at the option
of the Holder and, except as set forth below, will not otherwise be issuable in
definitive form. Unless otherwise specified in the applicable Pricing
Supplement, The Depository Trust Company ("DTC") will be the depositary.
With respect to any Book-Entry Note denominated in a Specified Currency
other than U.S dollars, DTC currently has elected to have payments of principal
(and premium, if any) and interest on such Note made in U.S. dollars unless
notified by any of its Participants (as defined below) through which an interest
in such Note is held that it elects to receive such payment of principal (or
premium, if any) or interest in such Specified Currency. Unless otherwise
specified in the applicable Pricing Supplement, a Beneficial Owner of Book-Entry
Notes denominated in a Specified Currency other than U.S. dollars electing to
receive payments of principal or any premium or interest in a currency other
than U.S. dollars must notify the Participant through which its interest is held
on or prior to the applicable Record Date, in the case of a payment of interest,
and on or prior to the sixteenth day prior to the maturity date, in the case of
principal or premium, of such Beneficial Owner's election to receive all or a
portion of such payment in such Specified Currency. Such Participant must notify
DTC of such election on or prior to the third Business Day after such Record
Date or after such sixteenth day. DTC will notify the Trustee of such election
on or prior to the fifth Business Day after such Record Date or after such
sixteenth day. If complete instructions are received by the Participant and
forwarded by the Participant to DTC, and by DTC to the Trustee, on or prior to
such dates, the Beneficial Owner will receive payments in the Specified
Currency.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934. DTC holds securities that
its participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. "Direct Participants" include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. Access to the DTC system is also available to others, such
as securities brokers and dealers, banks and trust companies, that clear through
or maintain a custodial relationship with a Direct Participant, either directly
or indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the DTC system must be made by or
through Direct Participants. Upon the issuance by the Company of Book-Entry
Notes represented by the Master Security or by any Global Security, the
depositary will credit, on its book-entry system, the respective principal
amounts of the Book-Entry Notes represented by the Master Security or such
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<PAGE> 26
Global Security to the accounts of Participants. The accounts to be credited
shall be designated by the agent of the Company with respect to such Book-Entry
Notes, by certain other agents of the Company or by the Company if such
Book-Entry Notes are offered and sold directly by the Company. The ownership
interest of each actual purchaser of each Book-Entry Note (a "Beneficial Owner")
will be recorded on the Direct and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner
entered into the transaction. Transfers of ownership interests in Book-Entry
Notes are expected to be effected by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Book Entry Notes, except
as set forth below. To facilitate subsequent transfers, all Book-Entry Notes
deposited by Participants with DTC will be registered in the name of DTC's
partnership nominee, Cede & Co. The deposit of Book-Entry Notes with DTC and
their registration in the name of Cede & Co. will not effect any change in
beneficial ownership. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in Book-Entry Notes
represented by the Master Security or by any Global Security.
So long as the depositary for the Master Security or any Global Security,
or its nominee, is the registered owner of the Master Security or such Global
Security, the depositary or its nominee, as the case may be, will be considered
the sole owner or Holder of the Book-Entry Notes represented by such Master
Security or such Global Security for all purposes of such Notes and for all
purposes under the Indenture.
With respect to any Book-Entry Note, unless the depositary therefor has
notified the Company that it is unwilling or unable to continue as depositary
therefor, the depositary has ceased to be a clearing agency registered under the
Securities Exchange Act of 1934, the Company has delivered to the Trustee a
written notice that all Book-Entry Notes shall be exchangeable, an Event of
Default (as defined below under "Events of Default") has occurred and is
continuing with respect to the Notes represented thereby or as otherwise set
forth in the applicable Pricing Supplement, owners of beneficial interests in
such Book-Entry Note will not be entitled to have the Notes represented thereby
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes in exchange therefor and will not be considered
to be the owners or Holders of any Notes represented thereby under the Indenture
or such Book-Entry Note. Unless and until it is exchanged in whole or in part
for individual certificates evidencing the Book-Entry Notes represented thereby,
the Master Security or any Global Security may not be transferred except as a
whole by the depositary for the Master Security or such Global Security to a
nominee of such depositary or by a nominee of such depositary to such depositary
or another nominee of such depositary or by the depositary or any nominee to a
successor depositary or any nominee of such successor.
The Company expects that conveyance of notices and other communications by
DTC to Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. In addition, neither DTC nor
Cede & Co. will consent or vote with respect to Notes. The Company has been
advised that DTC's usual procedure is to mail an omnibus proxy to the Company as
soon as possible after the record date with respect to such consent or vote. The
omnibus proxy would assign Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Notes are credited on such record date
(identified in a listing attached to the omnibus proxy).
Settlement for Book-Entry Notes will be made by the purchasers thereof in
immediately available funds. As long as the depositary continues to make its
same-day funds settlement system available to the Company, all payments of
principal of (and premium, if any) and interest on a Book-
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<PAGE> 27
Entry Note held by the depositary or its nominee will be made by the Company in
immediately available funds.
Secondary trading in notes and debentures of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, Book-Entry Notes will
trade in the depositary's same-day funds settlement system, and secondary market
trading activity in those securities will therefore be required by the
depositary to settle in immediately available funds. No assurance can be given
as to the effect, if any, of settlement in immediately available funds on
trading activity in Book-Entry Notes.
Payments of principal of (and premium, if any) and interest, if any, on the
Book-Entry Notes represented by a Master Security or by a Global Security
registered in the name of the depositary or its nominee will be made by the
Company through the Trustee to the depositary or its nominee, as the case may
be, as the registered owner of such Master Security or such Global Security.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in any Master Security or any Global Security or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company has been advised that DTC will credit the accounts of Direct
Participants with payment in amounts proportionate to their respective holdings
in any Master Security or Global Security as shown on the records of DTC. The
Company has been advised that DTC's practice is to credit Direct Participants'
accounts on the applicable payment date unless DTC has reason to believe that it
will not receive payment on such date. The Company expects that payments by
Participants to Beneficial Owners will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers. Such payments will be the responsibility of such
Participants.
FIXED RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, each Fixed
Rate Note (except any Zero Coupon Note) will bear interest from its date of
issue or from the most recent Interest Payment Date to which interest on such
Note has been paid or duly provided for, at the fixed rate per annum stated on
the face thereof and in the applicable Pricing Supplement until the principal
thereof is paid or made available for payment. Unless otherwise provided in the
applicable Pricing Supplement, interest on a Fixed Rate Note will be payable
semiannually each and (each an "Interest Payment Date") and
at maturity or upon earlier redemption or repayment. Each payment of interest in
respect of an Interest Payment Date will include interest accrued to but
excluding such Interest Payment Date. Unless otherwise specified in the
applicable Pricing Supplement, interest on Fixed Rate Notes will be computed on
the basis of a 360-day year of twelve 30-day months. Interest will be payable on
each Interest Payment Date and at maturity as specified below under "Payment of
Principal and Interest."
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from its date of issue or from
the most recent Interest Payment Date to which interest on such Note has been
paid or duly provided for or if the applicable Interest Reset Dates are weekly,
from the day following the most recent Regular Record Date, at the rate per
annum determined pursuant to the interest rate formula stated therein and in the
applicable Pricing Supplement until the principal thereof is paid or made
available for payment. Interest will be payable on each Interest Payment Date
and at maturity as specified below under "Payment of Principal and Interest."
The interest rate for each Floating Rate Note will be determined by
reference to an interest rate formula which may be adjusted by adding or
subtracting the Spread and/or multiplying by the Spread Multiplier. A Floating
Rate Note may also have either or both of the following: (a) a
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maximum numerical interest rate limitation, or ceiling, on the rate of interest
which may accrue during any interest period (a "Maximum Rate") and (b) a minimum
numerical interest rate limitation, or floor, on the rate of interest which may
accrue during any interest period (a "Minimum Rate"). The "Spread" is the number
of basis points specified in the applicable Pricing Supplement as being
applicable to the interest rate for such Note and the "Spread Multiplier" is the
percentage specified in the applicable Pricing Supplement as being applicable to
the interest rate for such Note. "Index Maturity" means, with respect to a
Floating Rate Note, the period to maturity of the instrument or obligation on
which the interest rate formula is based, as specified in the applicable Pricing
Supplement. The calculation agent (the "Calculation Agent") will be specified in
the applicable Pricing Supplement with respect to the Floating Rate Notes.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semi-annually, annually or otherwise as specified in
the applicable Pricing Supplement (each an "Interest Reset Date"). Unless
otherwise specified in the applicable Pricing Supplement, the Interest Reset
Date will be, in the case of Floating Rate Notes which reset daily, each Market
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly (except as otherwise provided in the next succeeding
paragraph), the Tuesday of each week; in the case of Floating Rate Notes which
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes which reset quarterly, the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes which reset semi-annually, the
third Wednesday of two months of each year as specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes which reset annually,
the third Wednesday of one month of each year as specified in the applicable
Pricing Supplement; provided, however, that (a) the interest rate in effect from
the date of issue to the first Interest Reset Date with respect to a Floating
Rate Note will be the Initial Interest Rate (as set forth in the applicable
Pricing Supplement) and (b) except as otherwise specified in the applicable
Pricing Supplement, with respect to Floating Rate Notes that reset daily or
weekly, the interest rate in effect for each day following the second Market Day
prior to an Interest Payment Date to, but excluding, such Interest Payment Date,
and for each day following the second Market Day prior to the maturity date,
shall be the rate in effect on such second Market Day. If any Interest Reset
Date for any Floating Rate Note would otherwise be a day that is not a Market
Day with respect to such Floating Rate Note, the Interest Reset Date for such
Floating Rate Note shall be postponed to the next day that is a Market Day with
respect to such Floating Rate Note, except that, in the case of a LIBOR Note, if
such Market Day is in the next succeeding calendar month, such Interest Reset
Date shall be the immediately preceding Market Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination Date"),
for a Prime Rate Note (the "Prime Rate Interest Determination Date"), for a CD
Rate Note (the "CD Rate Interest Determination Date"), for a CMT Rate Note (the
"CMT Rate Interest Determination Date") and for a Federal Funds Rate Note (the
"Federal Funds Rate Interest Determination Date") will be the Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for a
LIBOR Note (the "LIBOR Interest Determination Date") will be the second London
Market Day preceding such Interest Reset Date. The Interest Determination Date
pertaining to an Interest Reset Date for a Treasury Rate Note (the "Treasury
Interest Determination Date") will be the day of the week in which such Interest
Reset Date falls on which Treasury bills would normally be auctioned. Treasury
bills are usually sold at auction on the 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 Interest Determination Date pertaining to the
Interest Reset Date occurring in the next succeeding week, and the Interest
Reset Date in such next succeeding week will be the Monday in such week. If an
auction date shall fall on any Interest Reset Date for a Treasury Rate Note,
then such Interest Reset Date shall instead be the first Market Day
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<PAGE> 29
immediately following such auction date. The Interest Determination Date for any
other Floating Rate Note will be as specified in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date" 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 Market Day, the next succeeding Market Day or (ii) the
Market Day immediately preceding the applicable Interest Payment Date or the
maturity date, as the case may be.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point (e.g., 9.876541% (or .09876541)
being rounded to 9.87655% (or .0987655)), and all U.S. dollar amounts used in or
resulting from such calculations will be rounded to the nearest cent (with one-
half cent or more being rounded upwards).
In addition to any maximum interest rate which may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on the
Floating Rate Notes will in no event be higher than the maximum rate permitted
by New York law, as the same may be modified by United States law of general
application. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis, with certain exceptions. The limit does not
apply to Floating Rate Notes in which $2,500,000 or more has been invested.
Upon the 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 which will become effective on the next Interest Reset Date with
respect to such Floating Rate Note. The Calculation Agent's determination of any
interest rate will be final and binding in the absence of manifest error.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Commercial Paper Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Reset Date, the
Money Market Yield (calculated as described below) of the per annum rate for the
relevant Commercial Paper Interest Determination Date for commercial paper
having the specified Index Maturity as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)"), under the heading "Commercial Paper." In the event
that such rate is not so published prior to 3:00 P.M., New York City time, on
the relevant Calculation Date, then the Commercial Paper Rate with respect to
such Interest Reset Date shall be the Money Market Yield of such rate on such
Commercial Paper Interest Determination Date for commercial paper having the
specified Index Maturity as published by the Federal Reserve Bank of New York in
its daily statistical release, "Composite 3:30 P.M. Quotations for U.S.
Government Securities," or any successor publication published by the Federal
Reserve Bank of New York ("Composite Quotations"), under the heading "Commercial
Paper -- Nonfinancial" (with an Index Maturity of one month or three months
being deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If 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, the
Commercial Paper Rate with respect to such Interest Reset Date shall be
calculated by the Calculation Agent and shall be the Money Market Yield of the
arithmetic mean of the offered per annum rates, as of 11:00 A.M., New York City
time, on such Commercial Paper Interest Determination Date, of three leading
dealers of U.S. dollar commercial paper in The City of New York selected by the
Calculation Agent for U.S. dollar commercial paper of the specified Index
Maturity placed for an industrial issuer whose bond rating is "Aa," or the
equivalent, from a
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<PAGE> 30
nationally recognized statistical rating agency; provided, however, that if
fewer than three dealers selected as aforesaid by the Calculation Agent are
quoting as mentioned in this sentence, the Commercial Paper Rate with respect to
such Interest Reset Date will be the Commercial Paper Rate in effect on the day
prior to such Commercial Paper Interest Determination Date (or, if the Initial
Interest Rate is then in effect, the Commercial Paper Rate will be the Initial
Interest Rate and will not be adjusted by any Spread and/or Spread Multiplier).
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
<TABLE>
<S> <C>
360 X D
-------------
Money Market Yield = 100 X 360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to, if the Index
Maturity approximately corresponds to the length of the period for which such
rate is being determined, the actual number of days in such period and,
otherwise, the actual number of days in the period from, and including, the
Interest Reset Date to, but excluding, the day that numerically corresponds to
such Interest Reset Date (or, if there is not any such numerically corresponding
day, the last day) in the calendar month that is the number of months
corresponding to the specified Index Maturity after the month in which such
Interest Reset Date falls.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the Prime Rate Note and
in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Reset Date, the rate set forth for the
relevant Prime Rate Interest Determination Date in H.15(519) under the heading
"Bank Prime Loan." In the event that such rate is not published prior to 3:00
P.M., New York City time, on the relevant Calculation Date, then the Prime Rate
with respect to such Interest Reset Date will be the arithmetic mean of the
rates of interest publicly announced by each bank that appears on the display
designated as page "NYMF" on the Reuters Monitor Money Rates Service (or such
other page as may replace the NYMF page on that service for the purpose of
displaying prime rates or base lending rates of major United States banks)
("Reuters Screen NYMF Page") as such bank's prime rate or base lending rate as
in effect for such Prime Rate Interest Determination Date. If fewer than four
such rates appear on the Reuters Screen NYMF Page on such Prime Rate Interest
Determination Date, the Prime Rate with respect to such Interest Reset Date will
be the arithmetic mean of the prime rates or base lending rates (quoted on the
basis of the actual number of days in the year divided by a 360-day year) as of
the close of business on such Prime Rate Interest Determination Date of three
major banks in The City of New York selected by the Calculation Agent; provided,
however, that if fewer than three banks selected as aforesaid by the Calculation
Agent are quoting as mentioned in this sentence, the Prime Rate with respect to
such Interest Reset Date will be the Prime Rate in effect on the day prior to
such Prime Rate Interest Determination Date (or, if the Initial Interest Rate is
then in effect, the Prime Rate will be the Initial Interest Rate and will not be
adjusted by any Spread or Spread Multiplier).
LIBOR NOTES
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any), and will be
payable on the dates, specified on the face of the LIBOR Note and in the
applicable Pricing Supplement.
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<PAGE> 31
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR,
with respect to any Interest Reset Date, will be determined by the Calculation
Agent in accordance with the following provisions:
(i) On the relevant LIBOR Interest Determination Date, LIBOR will be
determined on the basis of the offered rate for deposits in U.S. dollars
having the specified Index Maturity, commencing on the second London Market
Day immediately following such LIBOR Interest Determination Date, which
appears on the display designated as Page 3750 on the Dow Jones Telerate
Service (or such other page as may replace Page 3750 on that service for
the purpose of displaying London interbank offered rates of major banks)
("Telerate Page 3750") as of 11:00 A.M., London time. If no such offered
rate appears, LIBOR with respect to such Interest Reset Date will be
determined as described in (ii) below.
(ii) With respect to any LIBOR Interest Determination Date on which no
such offered rate for the applicable Index Maturity appears on Telerate
Page 3750 as described in (i) above, LIBOR will be determined on the basis
of the rates at approximately 11:00 A.M., London time, on such LIBOR
Interest Determination Date at which deposits in U.S. dollars having the
specified Index Maturity are offered to prime banks in the London interbank
market by four major banks in the London interbank market selected by the
Calculation Agent commencing on the second London Market Day immediately
following such LIBOR Interest Determination Date and in a principal amount
equal to an amount that in the Calculation Agent's judgment is
representative for a single transaction in such market at such time (a
"Representative Amount"). The Calculation Agent will request the principal
London office of each of such banks to provide a quotation of its rate. If
at least two such quotations are provided, LIBOR with respect to such
Interest Reset Date will be the arithmetic mean of such quotations. If
fewer than two quotations are provided, LIBOR with respect to such Interest
Reset Date will be the arithmetic mean of the rates quoted at approximately
11:00 A.M., New York City time, on such Interest Reset Date by three major
banks in The City of New York, selected by the Calculation Agent, for loans
in U.S. dollars to leading European banks having the specified Index
Maturity commencing on the Interest Reset Date and in a Representative
Amount; provided, however, that if fewer than three banks selected as
aforesaid by the Calculation Agent are quoting as mentioned in this
sentence, LIBOR with respect to such Interest Reset Date will be the LIBOR
in effect on such LIBOR Interest Determination Date (or, if the Initial
Interest Rate is then in effect, LIBOR will be the Initial Interest Rate
and will not be adjusted by any Spread or Spread Multiplier).
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if
any), and will be payable on the dates, specified on the face of the Treasury
Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Interest Reset Date, the rate for the auction
on the relevant Treasury Interest Determination Date of direct obligations of
the United States ("Treasury bills") having the specified Index Maturity as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Auction Average (investment)" or, if not so published by 3:00 P.M., New
York City time, on the relevant Calculation Date, the Bond Equivalent Yield (as
defined below) of the auction average rate for such auction as otherwise
announced by the United States Department of the Treasury. In the event that the
results of such auction of Treasury bills 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 for such week,
then the Treasury Rate shall be the rate set forth in H.15(519) for the relevant
Treasury Interest Determination Date for the specified Index Maturity under the
heading "U.S. Government Securities/Treasury Bills/Secondary Market." In the
event such rate is not so published by 3:00 P.M., New York City time, on the
relevant Calculation Date, the
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<PAGE> 32
Treasury Rate with respect to such Interest Reset Date shall be calculated by
the Calculation Agent and shall be the Bond Equivalent Yield of the arithmetic
mean of the secondary market bid rates as of approximately 3:30 P.M., New York
City time, on such Treasury Interest Determination Date, of three primary United
States government securities dealers in The City of New York selected by the
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if fewer than
three such dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the Treasury Rate with respect to such Interest
Reset Date will be the Treasury Rate in effect on such Treasury Interest
Determination Date (or, if the Initial Interest Rate is then in effect, the
Treasury Rate will be the Initial Interest Rate and will not be adjusted by any
Spread or Spread Multiplier).
"Bond Equivalent Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
<TABLE>
<S> <C>
D X N
-------------
Bond Equivalent Yield = 100 X 360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for Treasury bills (or, in the case of a
CMT Rate Note, Treasury Notes), quoted on a bank discount basis and expressed as
a decimal; "N" refers to 365 or 366, as the case may be; and "M" refers to, if
the Index Maturity approximately corresponds to the length of the period for
which such rate is being determined, the actual number of days in such period
and, otherwise, the actual number of days in the period from, and including, the
Interest Reset Date to, but excluding, the day that numerically corresponds to
that Interest Reset Date (or, if there is not any such numerically corresponding
day, the last day) in the calendar month that is the number of months
corresponding to the specified Index Maturity after the month in which that
Interest Reset Date occurs.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rates (calculated with
reference to the CMT Rate and the Spread or Spread Multiplier, if any), and will
be payable on the dates, specified on the face of the CMT Rate Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Reset Date, the treasury constant maturity
rate for direct obligations of the United States ("Treasury Notes") on the
relevant CMT Rate Interest Determination Date for the relevant Index Maturity as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Constant Maturities." In the event that such rate is not published by 3:00 P.M.,
New York City time, on the relevant Calculation Date, the CMT Rate will be the
Bond Equivalent Yield of the arithmetic mean of the secondary market bid rates
as of approximately 3:30 P.M., New York City time, on such CMT Rate Interest
Determination Date of three primary United States government securities dealers
in The City of New York selected by the Calculation Agent for the issue of
Treasury Notes with a remaining maturity closest to the Index Maturity;
provided, however, that if fewer than three dealers selected as aforesaid by the
Calculation Agent are quoting as mentioned in this sentence, the CMT Rate with
respect to such Interest Reset Date will be the CMT Rate in effect on the day
prior to such CMT Rate Interest Determination Date (or, if the Initial Interest
Rate is then in effect, the CMT Rate will be the Initial Interest Rate and will
not be adjusted by any Spread or Spread Multiplier).
CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any), and will
be payable on the dates, specified on the face of the CD Rate Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Reset Date, the rate for the relevant CD
Rate Interest Determination Date for
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<PAGE> 33
negotiable certificates of deposit having the specified Index Maturity 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
relevant Calculation Date, then the CD Rate with respect to such Interest Reset
Date shall be the rate on such CD Rate Interest Determination Date for
negotiable certificates of deposit having the specified Index Maturity 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
published in either H.15(519) or Composite Quotations, the CD Rate with respect
to such Interest Reset Date shall be calculated by the Calculation Agent and
shall be the arithmetic mean of the secondary market offered rates, as of 10:00
A.M., New York City time, on such CD Rate Interest Determination Date, of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable U.S. dollar
certificates of deposit of major United States money market banks with a
remaining maturity closest to the specified Index Maturity and in a
Representative Amount; provided, however, that if fewer than three dealers
selected as aforesaid by the Calculation Agent are quoting as mentioned in this
sentence, the CD Rate with respect to such Interest Reset Date will be the CD
Rate in effect on the day prior to such CD Rate Interest Determination Date (or,
if the Initial Interest Rate is then in effect, the CD Rate will be the Initial
Interest Rate and will not be adjusted by any Spread or Spread Multiplier).
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Federal Funds Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Reset Date, the rate on the
relevant 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 relevant Calculation Date, then the Federal Funds Rate with respect to such
Interest Reset Date will be the rate on such Federal Funds Rate 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, the Federal Funds Rate with respect to such Interest Reset Date
shall be calculated by the Calculation Agent and shall be the arithmetic mean of
the rates, as of 9:00 A.M., New York City time, on such Federal Funds Rate
Interest Determination Date, for the last transaction in overnight U.S. dollar
Federal Funds arranged by three leading brokers of U.S. dollar Federal Funds
transactions in The City of New York selected by the Calculation Agent;
provided, however, that if fewer than three brokers selected as aforesaid by the
Calculation Agent are quoting as mentioned in this sentence, the Federal Funds
Rate with respect to such Interest Reset Date will be the Federal Funds Rate in
effect on the day prior to such Federal Funds Rate Interest Determination Date
(or, if the Initial Interest Rate is then in effect, the Federal Funds Rate will
be the Initial Interest Rate and will not be adjusted by any Spread or Spread
Multiplier).
PAYMENT OF PRINCIPAL AND INTEREST
Payments of principal of (and premium, if any) and interest on all
Book-Entry Notes will be payable in accordance with the procedures of the
depositary and its Participants in effect from time to time as described under
"Book-Entry Notes" above. Unless otherwise specified in the applicable Pricing
Supplement, payments of principal of (and premium, if any) and interest on all
Fixed Rate Notes and Floating Rate Notes which are Certificated Notes will be
made in the applicable Specified Currency. Notwithstanding the foregoing,
payments of principal of (and premium, if any) and interest on Notes denominated
in other than U.S. dollars will nevertheless be made in U.S. dollars (i) with
respect to any Certificated Notes, at the option of the Holders thereof under
the procedures
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<PAGE> 34
described in the two following paragraphs and (ii) with respect to any Notes, at
the option of the Company in the case of imposition of exchange controls or
other circumstances beyond the control of the Company as described in the last
paragraph under this heading. In the case of an Indexed Note, the amount of
principal payable on such Note may be determined by reference to an index or
formula described in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, and except
as provided in the next paragraph, payments of principal (and premium, if any)
and interest with respect to any Certificated Note denominated in other than
U.S. dollars will be made in U.S. dollars if the registered Holder of such Note
on the relevant Regular Record Date or at maturity, as the case may be, has
transmitted a written request for such payment in U.S. dollars to the Trustee at
its Corporate Trust Office in The City of New York on or prior to such Regular
Record Date or the date 15 days prior to maturity, as the case may be. Such
request may be in writing (mailed or hand delivered) or by telecopier. Any such
request made with respect to any Certificated Note by a registered Holder will
remain in effect with respect to any further payments of principal (and premium,
if any) and interest with respect to such Note payable to such Holder, unless
such request is revoked on or prior to the relevant Regular Record Date or the
date 15 days prior to maturity, as the case may be. Holders of Certificated
Notes denominated in other than U.S. dollars whose Notes are registered in the
name of a broker or nominee should contact such broker or nominee to determine
whether and how an election to receive payments in U.S. dollars may be made.
Unless otherwise specified in the applicable Pricing Supplement, the U.S.
dollar amount to be received by a Holder of a Note (including a Book-Entry Note)
denominated in other than U.S. dollars who elects to receive payment in U.S.
dollars will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent (as defined below) as of 11:00 A.M., New
York City time, on the second Business Day next preceding the applicable payment
date from three recognized foreign exchange dealers (one of which may be the
Exchange Rate Agent) for the purchase by the quoting dealer of the Specified
Currency for U.S. dollars for settlement on such payment date in the aggregate
amount of the Specified Currency payable to all Holders of Notes electing to
receive U.S. dollar payments and at which the applicable dealer commits to
execute a contract. If three such bid quotations are not available on the second
Business Day preceding the date of payment of principal (and premium, if any) or
interest with respect to any Note, such payment will be made in the Specified
Currency. All currency exchange costs associated with any payment in U.S.
dollars on any such Note will be borne by the Holder thereof by deductions from
such payment. Unless otherwise provided in the applicable Pricing Supplement,
Goldman, Sachs & Co. will be the Exchange Rate Agent (the "Exchange Rate Agent")
with respect to the Notes.
Interest will be payable to the person in whose name a Note is registered
at the close of business on the Regular Record Date next preceding each Interest
Payment Date; provided, however, that interest payable at maturity will be
payable to the person to whom principal shall be payable. The first payment of
interest on any Note originally issued between a Regular Record Date and an
Interest Payment Date will be made on the Interest Payment Date following the
next succeeding Regular Record Date to the registered owner on such next
succeeding Regular Record Date. Unless otherwise indicated in the applicable
Pricing Supplement, the "Regular Record Date" with respect to any Floating Rate
Note or Fixed Rate Note shall be the date 15 calendar days prior to each
Interest Payment Date, whether or not such date shall be a Market or Business
Day.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate Notes
which reset daily, on the dates specified in the applicable Pricing Supplement;
in the case of Floating Rate Notes which reset weekly, on the third Wednesday of
March, June, September and December of each year; in the case of Floating Rate
Notes which reset monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year (as indicated in
the applicable Pricing Supplement); in the case of Floating Rate Notes which
reset quarterly, on the third Wednesday of March, June, September and December
of each year; in the case of Floating Rate Notes which reset semi-annually, on
the third Wednesday of the two months of each year specified in the applicable
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<PAGE> 35
Pricing Supplement; and in the case of Floating Rate Notes which reset annually,
on the third Wednesday of the month specified in the applicable Pricing
Supplement (each an "Interest Payment Date"); and, in each case, at maturity.
Payments of interest on any Fixed Rate Note or Floating Rate Note with
respect to any Interest Payment Date or at maturity will include interest
accrued to but excluding such Interest Payment Date and such maturity date, as
the case may be.
With respect to a Floating Rate Note, accrued interest from the date of
issue or from the last date to which interest has been paid or duly provided for
is calculated by multiplying the face amount of such Floating Rate Note by an
accrued interest factor. Such accrued interest factor is computed by adding the
interest factor calculated for each day from the date of issue, or from the last
date to which interest has been paid or duly provided for, to but excluding the
date for which accrued interest is being calculated. The interest factor
(expressed as a decimal) for each such day is computed by dividing the interest
rate (expressed as a decimal) applicable to such date by 360, in the case of
Commercial Paper Rate Notes, Prime Rate Notes, LIBOR Notes, CD Rate Notes or
Federal Funds Rate Notes, or by the actual number of days in the year, in the
case of Treasury Rate Notes or CMT Rate Notes.
Except as set forth above in the third paragraph under "Floating Rate
Notes" or in the applicable Pricing Supplement, the interest rate with respect
to a Floating Rate Note in effect on each day shall be (i) if such day is an
Interest Reset Date, the interest rate determined with respect to such Interest
Reset Date or (ii) if such day is not an Interest Reset Date, the interest rate
determined with respect to the most recent Interest Reset Date.
If any Interest Payment Date for any Fixed Rate Note would fall on a day
that is not a Market Day, the interest payment shall be postponed to the next
day that is a Market Day, and no interest on such payment shall accrue for the
period from and after the Interest Payment Date. If the maturity date or any
earlier redemption or repayment date of a Fixed Rate Note would fall on a day
that is not a Market Day, the payment of principal, premium, if any, and
interest otherwise due on such day will be made on the next succeeding Market
Day, and no interest on such payment shall accrue for the period from and after
such maturity, redemption or repayment date, as the case may be.
If any Interest Payment Date for any Floating Rate Note (other than an
Interest Payment Date which is the maturity date or earlier redemption or
repayment date for such Note) would fall on a day that is not a Market Day with
respect to such Floating Rate Note, such Interest Payment Date will be the
following day that is a Market Day with respect to such Floating Rate Note,
except that, in the case of a LIBOR Note, if such Market Day is in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding day that is a Market Day with respect to such LIBOR Note (and interest
shall accrue to, but excluding, such Interest Payment Date as rescheduled). If
the maturity date or any earlier redemption or repayment date of a Floating Rate
Note would fall on a day that is not a Market Day, the payment of principal,
premium, if any, and interest otherwise due on such day will be made on the next
succeeding Market Day, and no interest on such payment shall accrue for the
period from and after such maturity, redemption or repayment date, as the case
may be.
Payment of the principal of (and premium, if any) and any interest due with
respect to any Certificated Note at maturity to be made in U.S. dollars will be
made in immediately available funds upon surrender of such Note at the Corporate
Trust Office of the Trustee in the Borough of Manhattan, The City of New York,
provided that the Certificated Note is presented to the Paying Agent in time for
the Paying Agent to make such payments in such funds in accordance with its
normal procedures. Payments of interest with respect to any Certificated Note to
be made in U.S. dollars other than at maturity will be made by check mailed to
the address of the person entitled thereto as it appears in the Security
Register or by wire transfer to such account as may have been appropriately
designated by such person as provided in such Note.
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<PAGE> 36
Unless otherwise specified in the applicable Pricing Supplement, payments
of interest and principal (and premium, if any) with respect to any Certificated
Note to be made in a Specified Currency other than U.S. dollars will be made by
wire transfer of immediately available funds to such account with a bank located
in the country issuing the Specified Currency (or, with respect to Certificated
Notes denominated in ECU, to an ECU account) or other jurisdiction acceptable to
the Company and the Trustee as shall have been designated at least five Business
Days prior to the Interest Payment Date or Stated Maturity, as the case may be,
by the registered Holder of such Note on the relevant Regular Record Date or
maturity, provided that, in the case of payment of principal (and premium, if
any) and any interest due at maturity, the Note is presented to the Paying Agent
in time for the Paying Agent to make such payments in such funds in accordance
with its normal procedures. Such designation shall be made by filing the
appropriate information with the Trustee at its Corporate Trust Office in the
Borough of Manhattan, The City of New York, and, unless revoked, any such
designation made with respect to any Certificated Note by a registered Holder
will remain in effect with respect to any further payments with respect to such
Note payable to such Holder. If a payment with respect to any such Note cannot
be made by wire transfer because the required designation has not been received
by the Trustee on or before the requisite date or for any other reason, a notice
will be mailed to the Holder at its registered address requesting a designation
pursuant to which such wire transfer can be made and, upon the Trustee's receipt
of such a designation, such payment will be made within five Business Days of
such receipt. The Company will pay any administrative costs imposed by banks in
connection with making payments by wire transfer, but any tax, assessment or
governmental charge imposed upon payments will be borne by the Holders of the
Certificated Notes in respect of which payments are made.
If the principal of (and premium, if any) or interest on any Note is
payable in other than U.S. dollars and such Specified Currency (other than ECUs)
is not available due to the imposition of exchange controls or other
circumstances beyond the control of the Company, the Company will be entitled to
satisfy its obligations to the Holder of such Note by making such payment
(including any such payment at maturity) in U.S. dollars on the basis of the
most recently available Exchange Rate. If the principal of (and premium, if any)
and interest on any Note is payable in ECUs, and the ECU is not available due to
the imposition of exchange controls or other circumstances beyond the control of
the Company or the ECU is used neither as the unit of account of the European
Communities nor as the currency of the European Union, the Company will be
entitled to satisfy its obligations to the Holder of such Note by making such
payment (including any such payment at maturity) as described under "Foreign
Currency Risks -- Notes Denominated in ECUs." Any payment made under such
circumstances in such a manner will not constitute an Event of Default under any
Note or the Indenture.
REDEMPTION AND REPAYMENT
The Notes will not be subject to any sinking fund and, unless an initial
date on which a Note may be redeemed by the Company (a "Redemption Commencement
Date") or a date on which a Note may be repayable at the option of a holder
thereof (a "Repayment Date") is specified in the applicable Pricing Supplement,
will not be redeemable or repayable prior to their stated maturity. If a
Redemption Commencement Date or Repayment Date is so specified with respect to
any Note, the applicable Pricing Supplement will also specify one or more
redemption or repayment prices (expressed as a percentage of the principal
amount of such Note) ("Redemption Prices" or "Repayment Prices," respectively)
and the redemption or repayment period or periods ("Redemption Periods" or
"Repayment Periods," respectively) during which such Redemption Prices or
Repayment Prices shall apply. Unless otherwise specified in the Pricing
Supplement, any such Note shall be redeemable at the option of the Company or
repayable at the option of the holder thereof (as specified in such Pricing
Supplement) at any time on or after such specified Redemption Commencement Date
or Repayment Date, as the case may be, at the specified Redemption Price or
Repayment Price applicable to the Redemption Period or Repayment Period during
which such Note is to be redeemed or repaid, together with interest accrued to
the redemption or repayment date.
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With respect to the redemption of Global Securities, the Depositary advises that
if less than all of the Notes with like tenor or terms are to be redeemed, the
particular interests (in integral multiples of $1,000) in the Book-Entry Notes
representing the Notes to be redeemed shall be selected by the Depository's
impartial lottery procedures.
In the event that the option of the holder to elect repayment described
above is deemed to be a "tender offer" within the meaning of Rule 14e-1 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Company will comply with Rule 14e-1 as then in effect to the extent applicable.
RISKS RELATING TO INDEXED NOTES
IN ADDITION TO POTENTIAL FOREIGN CURRENCY RISKS AS DESCRIBED BELOW UNDER
"FOREIGN CURRENCY RISKS," AN INVESTMENT IN INDEXED NOTES PRESENTS CERTAIN
SIGNIFICANT RISKS NOT ASSOCIATED WITH OTHER TYPES OF SECURITIES. CERTAIN RISKS
ASSOCIATED WITH A PARTICULAR INDEXED NOTE MAY BE SET FORTH MORE FULLY IN THE
APPLICABLE PRICING SUPPLEMENT. INDEXED NOTES MAY PRESENT A HIGH LEVEL OF RISK,
AND INVESTORS IN CERTAIN INDEXED NOTES MAY LOSE THEIR ENTIRE INVESTMENT.
The treatment of Indexed Notes for United States federal income tax
purposes is often unclear due to the absence of any authority specifically
addressing the issues presented by any particular Indexed Note. Accordingly,
investors in Indexed Notes should, in general, be capable of independently
evaluating the federal income tax consequences applicable in their particular
circumstances of purchasing an Indexed Note.
LOSS OF PRINCIPAL OR INTEREST
The principal amount of an Indexed Note payable at maturity, and/or the
amount of interest payable on an interest payment date, will be determined by
reference to one or more currencies (including baskets of currencies), one or
more commodities (including baskets of commodities), one or more securities
(including baskets of securities) and/or any other index (each an "Index"). The
direction and magnitude of the change in the value of the relevant Index will
determine either or both the principal amount of an Indexed Note payable at
maturity or the amount of interest payable on an interest payment date. The
terms of a particular Indexed Note may or may not include a guaranteed return of
a percentage of the face amount at maturity or a minimum interest rate.
Accordingly, the Holder of an Indexed Note may lose all or a portion of the
principal invested in an Indexed Note and may receive no interest thereon.
VOLATILITY
Certain Indices are highly volatile. The expected principal amount payable
at maturity of, or the interest rate on, an Indexed Note based on a volatile
Index may vary substantially from time to time. Because the principal amount
payable at the maturity of, or interest payable on, an Indexed Note is generally
calculated based on the value of the relevant Index on a specified date or over
a limited period of time, volatility in the Index increases the risk that the
return on the Indexed Notes may be adversely affected by a fluctuation in the
level of the relevant Index.
The volatility of an Index may be affected by political or economic events,
including governmental actions, or by the activities of participants in the
relevant markets, any of which could adversely affect the value of an Indexed
Note.
AVAILABILITY AND COMPOSITION OF INDICES
Certain Indices reference several different currencies, commodities,
securities or other financial instruments. The compiler of such an Index
typically reserves the right to alter the composition of the Index and the
manner in which the value of the Index is calculated. Such an alteration may
result in a decrease in the value of or return on an Indexed Note which is
linked to such Index.
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An Index may become unavailable due to such factors as war, natural
disasters, cessation of publication of the Index, or suspension of or disruption
in trading in the currency or currencies, commodity or commodities, security or
securities or other financial instrument or instruments comprising or underlying
such Index. If an Index becomes unavailable, the determination of principal of
or interest on an Indexed Note may be delayed or an alternative method may be
used to determine the value of the unavailable Index. Alternative methods of
valuation are generally intended to produce a value similar to the value
resulting from reference to the relevant Index. However, it is unlikely that
such alternative methods of valuation will produce values identical to those
which would be produced were the relevant Index to be used. An alternative
method of valuation may result in a decrease in the value of or return on an
Indexed Note.
Certain Indexed Notes are linked to Indices which are not commonly utilized
or have been recently developed. The lack of a trading history may make it
difficult to anticipate the volatility or other risks to which such a Note is
subject. In addition, there may be less trading in such Indices or instruments
underlying such Indices, which could increase the volatility of such Indices and
decrease the value of or return on Indexed Notes relating thereto.
FOREIGN CURRENCY RISKS
GENERAL
THIS PROSPECTUS SUPPLEMENT AND THE APPLICABLE PRICING SUPPLEMENT DO NOT
DESCRIBE ALL THE RISKS OF AN INVESTMENT IN THE NOTES DENOMINATED IN OTHER THAN
U.S. DOLLARS. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN THE NOTES DENOMINATED IN A
CURRENCY (INCLUDING ANY COMPOSITE CURRENCY) OTHER THAN U.S. DOLLARS. SUCH NOTES
ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH
RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
THE INFORMATION SET FORTH IN THIS PROSPECTUS SUPPLEMENT IS DIRECTED TO
PROSPECTIVE PURCHASERS 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, HOLDING OR RECEIPT OF PAYMENTS OF PRINCIPAL OF (AND
PREMIUM, IF ANY) AND INTEREST ON THE NOTES. SUCH PERSONS SHOULD CONSULT THEIR
OWN FINANCIAL AND LEGAL ADVISORS WITH REGARD TO SUCH MATTERS.
The information set forth below is by necessity incomplete and prospective
purchasers of Foreign Currency Notes should consult their own financial and
legal advisors with respect to any matters that may affect the purchase or
holding of a Foreign Currency Note in a Specified Currency (as defined below).
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in 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 the various foreign currencies or composite currencies and the
possibility of the imposition or modification of foreign exchange controls by
either the U.S. or foreign governments. Such risks generally depend on factors
over which the Company has no control, 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 foreign 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 in which a Note is
denominated against the U.S. dollar could result in a decrease in the effective
yield of such Note and, in certain circumstances, could result in a loss to the
investor on a U.S. dollar basis.
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Governments have imposed from time to time and may in the future impose
exchange controls which could affect exchange rates as well as the availability
of the Specified Currency at a Note's maturity or on any other payment date in
respect thereof. Even if there are no actual exchange controls, it is possible
that the Specified Currency for any particular Note would not be available on
any one or more days on which payment is due in respect of such Note. In that
event, the Company will be entitled to make all payments due in respect of such
Note on any such payment date (including maturity) in U.S. dollars on the basis
of the most recently available Exchange Rate. See "Description of
Notes -- Payment of Principal and Interest" above.
Unless otherwise indicated in the applicable Pricing Supplement, payments
on Notes made in a Specified Currency other than U.S. dollars may be made, at
the Company's option, from an account with a bank located in the country issuing
the Specified Currency (or, with respect to Notes denominated in ECUs, from an
ECU account). See "Description of Notes -- Payment of Principal and Interest."
Except as otherwise indicated in the applicable Pricing Supplement or as
permitted by applicable law, Notes denominated in other than U.S. dollars or
ECUs will not be sold in, or to residents of, the country issuing the Specified
Currency in which particular Notes are denominated.
GOVERNING LAW AND JUDGMENTS
The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York. A judgment for money in an action based
on a Note denominated in a foreign currency or currency unit in a federal or
state court in the United States ordinarily would be enforced in the United
States only in United States dollars. The date used to determine the rate of
conversion of the currency or currency unit in which any particular Note is
denominated into United States dollars will depend upon various factors,
including which court renders the judgment. Under Section 27 of the New York
Judiciary Law, a state court in the State of New York rendering a judgment on a
Note denominated in a foreign currency would be required to render such judgment
in the specified currency, and such judgment would be converted into United
States dollars at the exchange rate prevailing on the date of entry of the
judgment.
NOTES DENOMINATED IN ECUS
VALUE OF THE ECU
Except as otherwise provided below, the value of the ECU for the purpose of
any Notes denominated in ECUs, as referred to in Article 109G and 109L.4 of the
Treaty establishing the European Community, as amended (the "EC Treaty"), is
equal to the value of the ECU that is at present used as the unit of account of
the European Communities and which is from time to time valued on the basis of
specified amounts of the currencies of the member states of the European
Community as shown below.
Pursuant to Council Regulation (EC) No. 3320/94 of 22 December, 1994, the
ECU is at present defined as the sum of the following components:
<TABLE>
<S> <C>
0.6242 German mark 0.130 Luxembourg franc
0.08784 Pound sterling 0.1976 Danish krone
1.332 French Francs 0.008552 Irish Pound
151.8 Italian Lire 1.440 Greek drachmas
0.2198 Dutch guilder 6.885 Spanish pesetas
3.301 Belgian francs 1.393 Portuguese escudos
</TABLE>
Article 109G of the EC Treaty, as amended by the Treaty on European Union,
is applicable from November 1, 1993. This Article provides: "The currency
composition of the ECU shall not be changed. From the start of the third stage,
the value of the ECU shall be irrevocably fixed in accordance with Article
109L.4." Changes as to the nature or composition of the ECU may be made
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by the European Community in conformity with the provisions of the EC Treaty.
References herein to the ECU shall be deemed to be references to the ECU as so
changed.
CHOICE OF COMPONENT CURRENCIES FOR FUTURE PAYMENTS
With respect to any payment date in respect of Notes denominated in ECUs on
which the ECU is not available due to the imposition of exchange controls or
other circumstances beyond the control of the Company or the ECU is used neither
as the unit of account of the European Communities nor as the currency of the
European Union, the Exchange Rate Agent shall, without liability on its part,
choose a component currency of the ECU (the "chosen currency") in which all
payments due on that payment date with respect to such Notes shall be made.
Notice of the chosen currency selected by the Exchange Rate Agent shall, where
practicable, be given to Holders of Notes as set forth above under "Description
of Notes -- Payment of Principal and Interest." The amount of each payment in
the chosen currency shall be computed on the basis of the equivalent of the ECU
in that currency, determined as set forth herein as of the fourth Business Day
prior to the date on which such payment is due.
CHOICE OF COMPONENT CURRENCY FOR PAYMENTS ALREADY DUE
On the first Business Day on which the ECU is not available due to the
imposition of exchange controls or other circumstances beyond the control of the
Company or the ECU is used neither as the unit of account of the European
Communities nor as the currency of the European Union, the Exchange Rate Agent
shall, without liability on its part, choose a component currency of the ECU
(the "chosen currency") in which all payments of principal, interest or other
amounts in respect of Notes denominated in ECU having a payment date prior
thereto but not yet presented for payment are to be made. The amount of each
payment in the chosen currency shall be computed on the basis of the equivalent
of the ECU in that currency, determined as set forth herein as of such first
Business Day.
DETERMINATION OF EQUIVALENT IN COMPONENT CURRENCY
The equivalent of the ECU in the relevant chosen currency as of any date
(the "Day of Valuation") shall be determined on the following basis by the
Exchange Rate Agent. The component currencies of the ECU for this purpose (the
"Components") shall be the currency amounts which were components of the ECU
when the ECU was most recently used as the unit of account of the European
Communities. The equivalent of the ECU in the chosen currency shall be
calculated by first aggregating the U.S. dollar equivalents of the Components
and then, using the rate used for determining the U.S. dollar equivalent of the
Component in the chosen currency as set forth below, calculating the equivalent
in the chosen currency of such aggregate amount in U.S. dollars.
U.S. DOLLAR EQUIVALENT OF COMPONENT CURRENCIES
The U.S. dollar equivalent of each of the Components shall be determined by
the Exchange Rate Agent, on the basis of the middle spot delivery quotations
prevailing at 2:30 P.M. (Luxembourg time) on the Day of Valuation of one or more
leading banks, as selected by the Exchange Rate Agent (following consultation,
if practicable, with the Company), in the country of issue of the Component in
question.
NO DIRECT QUOTATION FOR COMPONENT CURRENCY
If no direct quotations are available for a Component as of a Day of
Valuation from any of the banks selected by the Exchange Rate Agent for this
purpose because foreign exchange markets are closed in the country of issue of
that currency or for any other reason, the most recent direct quotations for
that currency obtained by the Exchange Rate Agent shall be used in computing the
equivalents of the ECU on such Day of Valuation; provided, however, that such
most recent
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<PAGE> 41
quotations may be used only if they were prevailing in the country of issue not
more than two Business Days before such Day of Valuation. Beyond such period of
two Business Days, the Exchange Rate Agent shall determine the U.S. dollar
equivalent of such Component on the basis of cross rates derived from the middle
spot delivery quotations for such component currency and for the U.S. dollar
prevailing at 2:30 P.M. (Luxembourg time) on such Day of Valuation of one or
more leading banks, as selected by the Exchange Rate Agent (following
consultation, if practicable, with the Company), in a country other than the
country of issue of such Component. Within such period of two Business Days, the
Exchange Rate Agent shall determine the U.S. dollar equivalent of such Component
on the basis of such cross rates if the Exchange Rate Agent judges that the
equivalent so calculated is more representative than the U.S. dollar equivalent
calculated on the basis of such most recent direct quotations. Unless otherwise
specified by the Exchange Rate Agent, if there is more than one market for
dealing in any Component by reason of foreign exchange regulations or for any
other reason, the market to be referred to in respect of such currency shall be
that upon which a non-resident issuer of securities denominated in such currency
would purchase such currency in order to make payments in respect of such
securities.
EXCHANGE RATE AGENT
All determinations made by the Exchange Rate Agent shall be at its sole
discretion (except to the extent expressly provided herein or in the applicable
Pricing Supplement that any determination is subject to approval by the Company)
and, in the absence of manifest error, shall be conclusive for all purposes and
binding on Holders of the Notes and the Company, and the Exchange Rate Agent
shall have no liability therefor.
UNITED STATES TAXATION
The following summary of the principal United States federal income tax
consequences of the ownership of Notes deals only with Notes held as capital
assets by initial purchasers, and not with Notes held by special classes of
investors, such as dealers in securities or currencies, banks, tax-exempt
organizations, life insurance companies, investors that hold Notes that are a
hedge or that are hedged against currency risks or that are part of a straddle
or conversion transaction, or investors whose functional currency is not the
U.S. dollar. Moreover, the summary deals only with Notes that are due to mature
30 years or less from the date on which they are issued. The United States
federal income tax consequences of ownership of Notes that are due to mature
more than 30 years from their date of issue will be discussed in the applicable
Pricing Supplement.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations thereunder,
published rulings and court decisions, all as currently in effect and all
subject to change at any time, perhaps with retroactive effect. Prospective
purchasers of Notes should consult their own tax advisors concerning the
consequences, in their particular circumstances, under the Code and the laws of
any other taxing jurisdiction, of the ownership of Notes.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Interest on a Note, whether payable in U.S. dollars or a currency,
composite currency or basket of currencies other than U.S. dollars (a "foreign
currency"), other than interest on a "Discount Note" that is not "qualified
stated interest" (each as defined below under "Original Issue
Discount -- General"), will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the United States
Holder's method of accounting for tax purposes. A United States Holder is a
beneficial owner who or that is (i) a citizen or resident of the United States,
(ii) a domestic corporation or (iii) otherwise subject to United States federal
income taxation on a net income basis in respect of a Note.
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<PAGE> 42
If an interest payment is denominated in, or determined by reference to, a
foreign currency, the amount of income recognized by a cash basis United States
Holder will be the U.S. dollar value of the interest payment, based on the
exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a foreign currency in accordance with either of two methods. Under
the first method, the amount of income accrued will be based on the average
exchange rate in effect during the interest accrual period (or, with respect to
an accrual period that spans two taxable years, the part of the period within
the taxable year). Upon receipt of the interest payment (including a payment
attributable to accrued but unpaid interest upon the sale or retirement of a
Note) denominated in, or determined by reference to, a foreign currency, the
United States Holder will recognize ordinary income or loss measured by the
difference between the average exchange rate used to accrue interest income and
the exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period (or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year). Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all debt
instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service (the "Service").
ORIGINAL ISSUE DISCOUNT
General. A Note, other than a Note with a term of one year or less (a
"short-term Note"), will be treated as issued at an original issue discount (a
"Discount Note") if the excess of the Note's "stated redemption price at
maturity" over its issue price is more than a "de minimis amount" (as defined
below). Generally, the issue price of a Note will be the first price at which a
substantial amount of Notes included in the issue of which the Note is a part is
sold to other than bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers. The
stated redemption price at maturity of a Note is the total of all payments
provided by the Note that are not payments of "qualified stated interest." A
qualified stated interest payment is generally any one of a series of stated
interest payments on a Note that are unconditionally payable at least annually
at a single fixed rate (with certain exceptions for lower rates paid during some
periods) applied to the outstanding principal amount of the Note. Special rules
for "Variable Rate Notes" (as defined below under "Original Issue
Discount -- Variable Rate Notes") are described below under "Original Issue
Discount -- Variable Rate Notes."
In general, if the excess of a Note's stated redemption price at maturity
over its issue price is less than 1/4 of 1 percent of the Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity (the "de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount Note. Unless the
election described below under "Election to Treat All Interest as Original Issue
Discount" is made, a United States Holder of a Note with de minimis original
issue discount must include such de minimis original issue discount in income as
stated principal payments on the Note are made. The includible amount with
respect to each such payment will equal the product of the total amount of the
Note's de minimis original issue discount and a fraction, the numerator of which
is the amount of the principal payment made and the denominator of which is the
stated principal amount of the Note.
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<PAGE> 43
United States Holders of Discount Notes having a maturity of more than one
year from their date of issue must include original issue discount ("OID") in
income calculated on a constant-yield method before the receipt of cash
attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Note. The amount of OID
includible in income by a United States Holder of a Discount Note is the sum of
the daily portions of OID with respect to the Discount Note for each day during
the taxable year or portion of the taxable year on which the United States
Holder holds such Discount Note ("accrued OID"). The daily portion is determined
by allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Note may be
of any length selected by the United States Holder and may vary in length over
the term of the Note as long as (i) no accrual period is longer than one year
and (ii) each scheduled payment of interest or principal on the Note occurs on
either the final or first day of an accrual period. The amount of OID allocable
to an accrual period equals the excess of (a) the product of the Discount Note's
adjusted issue price at the beginning of the accrual period and such Note's
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of the payments of qualified stated interest on the Note allocable
to the accrual period. The "adjusted issue price" of a Discount Note at the
beginning of any accrual period is the issue price of the Note increased by (x)
the amount of accrued OID for each prior accrual period and decreased by (y) the
amount of any payments previously made on the Note that were not qualified
stated interest payments. For purposes of determining the amount of OID
allocable to an accrual period, if an interval between payments of qualified
stated interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual period
immediately following the interval) is allocated pro rata on the basis of
relative lengths to each accrual period in the interval, and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but that is not payable until the end of the
interval. The amount of OID allocable to an initial short accrual period may be
computed using any reasonable method if all other accrual periods other than a
final short accrual period are of equal length. The amount of OID allocable to
the final accrual period is the difference between (x) the amount payable at the
maturity of the Note (other than any payment of qualified stated interest) and
(y) the Note's adjusted issue price as of the beginning of the final accrual
period.
Acquisition Premium. A United States Holder that purchases a Note for an
amount less than or equal to the sum of all amounts payable on the Note after
the purchase date, other than payments of qualified stated interest, but in
excess of its adjusted issue price (as determined above under "Original Issue
Discount -- General") (any such excess being "acquisition premium") and that
does not make the election described below under "Election to Treat All Interest
as Original Issue Discount" is permitted to reduce the daily portions of OID by
a fraction, the numerator of which is the excess of the United States Holder's
adjusted basis in the Note immediately after its purchase over the adjusted
issue price of the Note, and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date, other than payments
of qualified stated interest, over the Note's adjusted issue price.
Market Discount. A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i) the amount for
which a United States Holder purchased the Note is less than the Note's issue
price (as determined above under "Original Issue Discount -- General") and (ii)
the Note's stated redemption price at maturity or, in the case of a Discount
Note, the Note's "revised issue price," exceeds the amount for which the United
States Holder purchased the Note by at least 1/4 of 1 percent of such Note's
stated redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the Note's maturity. If such
excess is not sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount" and such Note is not
subject to the rules discussed in the following paragraphs. The Code provides
that, for these purposes, the "revised
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<PAGE> 44
issue price" of a Note generally equals its issue price, increased by the amount
of any OID that has accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a United States
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such an election shall apply to all debt
instruments with market discount acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Internal
Revenue Service (the "Service").
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked without the consent of the
Service. A United States Holder of a Market Discount Note that does not elect to
include market discount in income currently generally will be required to defer
deductions for interest on borrowings allocable to such Note in an amount not
exceeding the accrued market discount on such Note until the maturity or
disposition of such Note.
Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year of the Note's
issue date and (iii) the payment will equal or exceed the amount of pre-issuance
accrued interest, then the United States Holder may elect to decrease the issue
price of the Note by the amount of pre-issuance accrued interest. In that event,
a portion of the first stated interest payment will be treated as a return of
the excluded pre-issuance accrued interest and not as an amount payable on the
Note.
Notes Subject to Contingencies Including Optional Redemption. In general,
if a Note provides for an alternative payment schedule or schedules applicable
upon the occurrence of a contingency or contingencies and the timing and amounts
of the payments that comprise each payment schedule are known as of the issue
date, the yield and maturity of the Note are determined by assuming that the
payments will be made according to the Note's stated payment schedule. If,
however, based on all the facts and circumstances as of the issue date, it is
more likely than not that the Note's stated payment schedule will not occur,
then, in general, the yield and maturity of the Note are computed based on the
payment schedule most likely to occur. The Company's determination of the
applicable payment schedule is binding on all holders of a Note unless such
holder explicitly discloses to the Service that its determination differs from
the Company's determination.
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Company has an unconditional
option or options to redeem a Note, or the holder has an unconditional option or
options to cause a Note to be repurchased, prior to the Note's stated maturity,
then (i) in the case of an option or options of the Company, the Company will be
deemed to exercise or not exercise an option or combination of options in the
manner that minimizes the yield on the Note and (ii) in the case of an option or
options of the holder, the holder will be deemed to exercise or not exercise an
option or combination of options in the manner that maximizes the yield on the
Note. For purposes of those calculations, the yield on the Note is determined by
using (i) any date on which the Note may be redeemed or repurchased as the
maturity date and (ii) the amount payable on such date in accordance with the
terms of the Note as the principal amount payable at maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the Note
is repaid as a result of a change in circumstances and solely for purposes of
the accrual of OID, the yield and maturity of the Note are redetermined by
treating the Note as reissued on the date of the change in circumstances for an
amount equal to the Note's adjusted issue price on that date.
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Election to Treat All Interest as Original Issue Discount. A United States
Holder may elect to include in gross income all interest that accrues on a Note
using the constant-yield method described above under the heading "Original
Issue Discount -- General," with the modifications described below. For purposes
of this election, interest includes stated interest, OID, de minimis original
issue discount, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium (described below under
"Notes Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal its cost to the
electing United States Holder, the issue date of the Note will be the date of
its acquisition by the electing United States Holder, and no payments on the
Note will be treated as payments of qualified stated interest. This election
will generally apply only to the Note with respect to which it is made and may
not be revoked without the consent of the Service. If this election is made with
respect to a Note with amortizable bond premium, then the electing United States
Holder will be deemed to have elected to apply amortizable bond premium against
interest with respect to all debt instruments with amortizable bond premium
(other than debt instruments the interest on which is excludible from gross
income) held by the electing United States Holder as of the beginning of the
taxable year in which the Note with respect to which the election is made is
acquired or thereafter acquired. The deemed election with respect to amortizable
bond premium may not be revoked without the consent of the Service.
If the election to apply the constant-yield method to all interest on a
Note is made with respect to a Market Discount Note, then the electing United
States Holder will be treated as having made the election discussed above under
"Original Issue Discount -- Market Discount" to include market discount in
income currently over the life of all debt instruments held or thereafter
acquired by such United States Holder.
Variable Rate Notes. A "Variable Rate Note" is a Note that: (i) has an
issue price that does not exceed the total noncontingent principal payments by
more than the lesser of (1) the product of (x) the total noncontingent principal
payments, (y) the number of complete years to maturity from the issue date and
(z) .015, or (2) 15 percent of the total noncontingent principal payments, and
(ii) provides for stated interest compounded or paid at least annually at (1)
one or more "qualified floating rates," (2) a single fixed rate and one or more
qualified floating rates, (3) a single "objective rate" or (4) a single fixed
rate and a single objective rate that is a "qualified inverse floating rate."
A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the Note
is denominated or (ii) it is equal to the product of such a rate and either (a)
a fixed multiple that is greater than .65 but not more than 1.35, or (b) a fixed
multiple greater than .65 but not more than 1.35, increased or decreased by a
fixed rate. If a Note provides for two or more qualified floating rates that (i)
are within .25 percent of each other on the issue date or (ii) can reasonably be
expected to have approximately the same values throughout the term of the Notes,
the qualified floating rates together constitute a single qualified floating
rate. A rate is not a qualified floating rate, however, if the rate is subject
to certain restrictions (including caps, floors, governors, or other similar
restrictions) unless such restrictions are fixed throughout the term of the Note
or are not reasonably expected to affect the yield on the Note significantly.
An "objective rate" is a rate, other than a qualified floating rate, that
is determined using a single, fixed formula and that is based on objective
financial or economic information. For example, an objective rate generally
includes a rate that is based on one or more qualified floating rates or on
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<PAGE> 46
the yield of "actively traded personal property" (within the meaning of Code
section 1092(d)(1)). A variable rate is not an objective rate, however, if it is
reasonably expected, as of the Note's issue date, that the average value of the
rate during the first half of the Note's term will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the Note's term. An objective rate is a "qualified inverse
floating rate" if (i) the rate is equal to a fixed rate minus a qualified
floating rate and (ii) the variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the qualified floating rate.
If interest on a Note is stated at a fixed rate for an initial period of
one year or less (the "Initial Fixed Rate" followed by either a qualified
floating rate or an objective rate for a subsequent period and (i) the initial
fixed rate and the qualified floating rate or objective rate have values on the
issue date of the Note that do not differ by more than .25 percent or (ii) the
value of the qualified floating rate or objective rate on the issue date is
intended to approximate the initial fixed rate, the initial fixed rate and the
qualified floating rate or the objective rate together constitute a single
qualified floating rate or objective rate.
Under these rules, Commercial Paper Rate Notes, Prime Rate Notes, LIBOR
Notes, Treasury Rate Notes, CMT Rate Notes, CD Rate Notes, and Federal Funds
Rate Notes will generally be treated as Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a
single qualified floating rate or objective rate, all stated interest on the
Note is qualified stated interest and the amount of OID, if any, is determined
by using, in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or qualified
inverse floating rate, or, in the case of any other objective rate, a fixed rate
that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or a single objective rate, and also does not provide
for interest payable at a fixed rate (other than at an initial fixed rate), the
amount of interest and OID accruals on the Note are generally determined by (i)
determining a fixed rate substitute for each variable rate provided under the
Variable Rate Note (generally, the value of each variable rate as of the issue
date or, in the case of an objective rate that is not a qualified inverse
floating rate, a rate that reflects the reasonably expected yield on the Note),
(ii) constructing the equivalent fixed rate debt instrument (using the fixed
rate substitutes described above), (iii) determining the amount of qualified
stated interest and OID with respect to the equivalent fixed rate debt
instrument, and (iv) making the appropriate adjustments for actual variable
rates during the applicable accrual period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at an
initial fixed rate), the amount of interest and OID accruals are determined as
in the immediately preceding paragraph with the modification that the Variable
Rate Note is treated, for purposes of the first three steps of the
determination, as if it provided for a qualified floating rate (or a qualified
inverse floating rate, as the case may be) rather than the fixed rate. The
qualified floating rate (or qualified inverse floating rate) replacing the fixed
rate must be such that the fair market value of the Variable Rate Note as of the
issue date would be approximately the same as the fair market value of an
otherwise identical debt instrument that provides for the qualified floating
rate (or qualified inverse floating rate) rather than the fixed rate.
Short-Term Notes. In general, an individual or other cash basis United
States Holder of a short-term Note is not required to accrue OID (as specially
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis United
States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common trust funds,
United States Holders who hold Notes as part of certain identified hedging
transactions, certain pass-through entities and cash basis United States Holders
who so elect, are required to accrue OID on short-term Notes on either a
straight-
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<PAGE> 47
line basis or under the constant-yield method (based on daily compounding), at
the election of the United States Holder. In the case of a United States Holder
not required and not electing to include OID in income currently, any gain
realized on the sale or retirement of the short-term Note 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. United States Holders who are not required and do
not elect to accrue OID on short-term Notes 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, all
interest payments on a short-term Note, including stated interest, are included
in the short-term Note's stated redemption price at maturity.
Foreign Currency Discount Notes. OID for any accrual period on a Discount
Note that is denominated in, or determined by reference to, a foreign currency
will be determined in the foreign currency and then translated into U.S. dollars
in the same manner as stated interest accrued by an accrual basis United States
Holder, as described above under "Payments of Interest." Upon receipt of an
amount attributable to OID (whether in connection with a payment of interest or
the sale or retirement of a Note), a United States Holder may recognize ordinary
income or loss.
NOTES PURCHASED AT A PREMIUM
A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium,"
in which case the amount required to be included in the United States Holder's
income each year with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's yield to
maturity) to such year. In the case of a Note that is denominated in, or
determined by reference to, a foreign currency, amortizable bond premium will be
computed in units of foreign currency, and amortizable bond premium will reduce
interest income in units of the foreign currency. At the time amortized bond
premium offsets interest income, exchange gain or loss (taxable as ordinary
income or loss) is realized measured by the difference between exchange rates at
that time and at the time of the acquisition of the Note. Any election to
amortize bond premium shall apply to all bonds (other than bonds the interest on
which is excludible from gross income) held by the United States Holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States Holder, and is irrevocable without the consent of
the Service. See also "Original Issue Discount -- Election to Treat All Interest
as Original Issue Discount."
PURCHASE, SALE AND RETIREMENT OF THE NOTES
A United States Holder's tax basis in a Note will generally be its U.S.
dollar cost, increased by the amount of any OID or market discount included in
the United States Holder's income with respect to the Note and the amount, if
any, of income attributable to de minimis original issue discount and de minimis
market discount included in the United States Holder's income with respect to
the Note, and reduced by (i) the amount of any payments that are not qualified
stated interest payments, and (ii) the amount of any amortizable bond premium
applied to reduce interest on the Note. The U.S. dollar cost of a Note purchased
with a foreign currency will generally be the U.S. dollar value of the purchase
price on the date of purchase or, in the case of Notes traded on an "established
securities market," as defined in the applicable Treasury Regulations, that are
purchased by a cash basis United States Holder (or an accrual basis United
States Holder that so elects), on the settlement date of the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. The amount realized on a sale
or retirement for an amount in foreign currency will be the U.S. dollar value of
such amount on the date of sale or retirement or, in the case of Notes traded on
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<PAGE> 48
an established securities market sold by a cash basis United States Holder (or
an accrual basis United States Holder that so elects), on the settlement date of
the sale. Except to the extent described above under "Original Issue
Discount -- Short-Term Notes" or "Original Issue Discount -- Market Discount" or
described in the next succeeding paragraph or attributable to accrued but unpaid
interest, gain or loss recognized on the sale or retirement of a Note will be
capital gain or loss and will be long-term capital gain or loss if the Note was
held for more than one year.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Note that is attributable to changes in exchange rates will be treated as
ordinary income or loss. However, exchange rate gain or loss is taken into
account only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on a Note or on the sale or
retirement of a Note will have a tax basis equal to its U.S. dollar value at the
time such interest is received or at the time of such sale or retirement.
Foreign currency that is purchased will generally have a tax basis equal to the
U.S. dollar value of the foreign currency on the date of purchase. Any gain or
loss recognized on a sale or other disposition of a foreign currency (including
its use to purchase Notes or upon exchange for U.S. dollars) will be ordinary
income or loss.
INDEXED NOTES
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Indexed Notes that are
not subject to the rules governing Variable Rate Notes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder who or that is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership, estate or trust, in either case not subject to United
States federal income tax on a net income basis in respect of a Note. Under
present United States federal income and estate tax law and subject to the
discussion of backup withholding below:
(i) payments of principal, premium and interest (including OID) by the
Company or any of its paying agents to any holder of a Note who or which is
a United States Alien Holder will not be subject to United States federal
withholding tax if, in the case of interest or OID, (a) the beneficial
owner of the Note does not actually or constructively own 10% or more of
the voting stock of the Company, (b) the beneficial owner of the Note is
not a controlled foreign corporation that is related to the Company through
stock ownership, (c) either (A) the beneficial owner of the Note certifies
to the Company or its agent, under penalties of perjury, that it is not a
United States Holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Note on behalf of the beneficial
owner certifies to the Company or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof, and (d) the Note is not subject to the rules of
Section 871(h)(4) of the Code dealing with payments contingent upon certain
factors relating to the Company or a person related to the Company;
(ii) a United States Alien Holder of a Note will not be subject to
United States federal withholding tax on any gain realized on the sale or
exchange of a Note; and
(iii) a Note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's
gross estate for purposes of the United States
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<PAGE> 49
federal estate tax as a result of the individual's death if (a) the
individual did not actually or constructively own 10% or more of the voting
stock of the Company, and (b) the income on the Note would not have been
effectively connected with a United States trade or business of the
individual at the individual's death, provided that if the Note is subject
to the rules of Section 871(h)(4) of the Code dealing with payments
contingent upon certain factors relating to the Company or a person related
to the Company, an appropriate portion (as determined in a manner to be
prescribed by the Internal Revenue Service) of the value of such Note will
be included in the individual's gross estate, and provided that the Note
was issued with an initial term of 184 days or more.
BACKUP WITHHOLDING AND INFORMATION REPORTING
United States Holders. In general, information reporting requirements will
apply to payments of principal, premium and interest on a Note and the proceeds
of the sale of a Note before maturity within the United States to, and to the
accrual of OID on a Discount Note with respect to, non-corporate United States
Holders, and "backup withholding" at a rate of 31% will apply to such payments
and to payments of OID if the United States Holder fails to provide an accurate
taxpayer identification number or to report all interest and dividends required
to be shown on its federal income tax returns.
United States Alien Holders. Information reporting and backup withholding
will not apply to payments of principal, premium and interest (including OID)
made by the Company or a paying agent to a United States Alien Holder on a Note
if the certification described in clause (i)(c) under "United States Alien
Holders" above is received, provided that the payor does not have actual
knowledge that the holder is a United States person.
Payments of the proceeds from the sale by a United States Alien Holder of a
Note made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Note to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Distribution Agreement
dated as of , 1999, the Notes are being offered on a continuing basis
by the Company through Goldman, Sachs & Co., Chase Securities Inc., Lehman
Brothers Inc. (including its affiliate Lehman Government Securities Inc.),
Morgan Stanley & Co. Incorporated and NationsBanc Montgomery Securities LLC (the
"Agents"), who have agreed to use their reasonable efforts to solicit purchases
of the Notes. The Company will have the sole right to accept offers to purchase
Notes and may reject any proposed purchase of Notes in whole or in part. The
Agents will have the right, in their discretion reasonably exercised, to reject
any proposed offer to purchase Notes in whole or in part. The Company will pay
the Agents commissions of from % to % of the principal amount of
Notes, depending upon maturity, for sales made through them as Agents.
In connection with any offering, the Agents may purchase and sell the Notes
in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Agents in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Notes; and short positions created by the Agents
involve the sale by the Agents of a greater number of Notes than they are
required to purchase from the Company in the offering. The Agents
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<PAGE> 50
also may impose a penalty bid, whereby selling concessions allowed to
broker-dealers in respect of the Notes 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.
The Company may also sell Notes to each of the Agents acting as principal
for their own accounts at a discount to be agreed upon at the time of sale, or
the purchasing Agents may receive from the Company a commission or discount
equivalent to that set forth on the cover page hereof in the case of any such
principal transaction in which no other discount is agreed. Such Notes may be
resold at prevailing market prices, or at prices related thereto, at the time of
such resale, as determined by the Agents or at fixed offering prices. The
Company reserves the right to sell Notes directly to persons other than the
Agents on its own behalf. No commission will be payable on any Notes sold
directly by the Company.
In addition, the Agents may offer the Notes they have purchased as
principal to other dealers. The Agents may sell Notes to any dealer at a
discount and, unless otherwise specified in the applicable Pricing Supplement,
such discount allowed to any dealer may include all or part of the discount to
be received from the Company. Unless otherwise indicated in the applicable
Pricing Supplement, any Note sold to an Agent as principal will be purchased by
such Agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to any agency sale of a Note of
identical maturity. After the initial public offering of Notes to be resold to
investors and other purchasers on a fixed public offering price basis, the
public offering price, concession and discount may be changed.
The Agents, as agents or principals, may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Act"). The
Company has agreed to indemnify each of the Agents against certain liabilities,
including liabilities under the Act. The Company has agreed to reimburse the
Agents for certain expenses.
The Agents may sell to or through dealers who may resell to investors, and
the Agents may pay all or part of their discount or commission to such dealers.
Such dealers may be deemed to be "underwriters" within the meaning of the Act.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of Notes will be required to be made in immediately available
funds in The City of New York.
In the ordinary course of their respective businesses, the Agents and their
affiliates have engaged and may in the future engage in commercial banking and
investment banking transactions with the Company and its affiliates. The Chase
Manhattan Bank, the Trustee, is an affiliate of Chase Securities Inc., one of
the Agents. Additionally, affiliates of Chase Securities Inc. and NationsBanc
Montgomery Securities LLC are lenders to the Company under certain short-term
bank 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 portion of the 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 with Rule 2710(c)(8) of the NASD Conduct
Rules.
The Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. No assurance can be given as
to the liquidity of the trading market for the Notes.
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<PAGE> 51
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED FEBRUARY 4, 1999.
<TABLE>
<S> <C> <C>
$200,000,000
LOGO
LOGO
</TABLE>
Debt Securities
------------------------
Commercial Metals Company may from time to time issue up to $200,000,000
aggregate principal amount of Debt Securities. The accompanying Prospectus
Supplement will specify the terms of the Debt Securities.
Commercial Metals Company may sell these securities to or through
underwriters, and also to other purchasers or through agents. Goldman, Sachs &
Co., Chase Securities Inc., Lehman Brothers Inc., Morgan Stanley & Co.
Incorporated and NationsBanc Montgomery Securities, LLC may be some of such
underwriters. The names of the underwriters will be set forth in the
accompanying Prospectus Supplement.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
Prospectus dated February , 1999.
<PAGE> 52
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any reports, proxy statements and other information filed by us at the
SEC's Public Reference Room at (a) 450 Fifth Street, N.W., Washington, D.C.
20549; (b) Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and (c) Seven World Trade Center, Suite 1300, New York, New York
10048. You can also request copies of these documents, upon payment of a
duplicating fee, by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the SEC's Public
Reference Room. Our SEC filings are also available to the public on the SEC's
Internet site (http://www.sec.gov).
We have filed a registration statement on Form S-3 with the SEC covering
the securities described in this prospectus. For further information with
respect to us and those securities, you should refer to our registration
statement and its exhibits. We have summarized certain key provisions of
contracts and other documents that we refer to in this prospectus. Because a
summary may not contain all the information that is important to you, you should
review the full text of the document. We have included copies of these documents
as exhibits to our registration statement.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to another document that we filed with the SEC. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), until we sell all of the securities.
- Our Annual Report to Shareholders, Form 10-K for the fiscal year ended
August 31, 1998; and
- Our Quarterly Report on Form 10-Q for the quarter ended November 30,
1998.
You may request a copy of these filings at no cost, by writing or
telephoning us at 7800 Stemmons Freeway, Dallas, Texas 75247, telephone (214)
689-4300, attention: Secretary.
You should rely only on the information contained or incorporated by
reference in this prospectus, any prospectus supplement or any pricing
supplement. We have not authorized anyone to provide you with any other
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus, any accompanying prospectus supplement or any document incorporated
by reference is accurate as of any date other than the date on the front of the
document.
THE COMPANY
Commercial Metals Company ("CMC" or the "Company") manufactures, recycles
and markets steel and metal products. Steel and steel-related products represent
over 75% of our business. During fiscal 1998, we derived approximately 79% of
our operating profit from our Manufacturing segment, approximately (1%) from our
Recycling segment, and approximately 22% from our Marketing and Trading segment.
Our Manufacturing segment includes four steel minimills, 20 steel
fabrication plants, four steel joist plants, four fence post manufacturing
plants, eight metals recycling plants, a heat treating plant, a railcar
rebuilding facility, 12 concrete related product warehouses, an industrial
products supply company, a rail salvage company, and a copper tube mill. Our
steel manufacturing capacity of approximately 2 million tons includes
reinforcing bars, light and mid-size structurals, angles,
2
<PAGE> 53
channels, beams, special bar quality rounds and flats, squares and special
sections used in the construction, manufacturing, steel fabrication and
warehousing, and original equipment manufacturing industries. Our steel
fabrication capacity is over 800,000 tons. Our copper tube mill with 55 million
pounds of capacity manufactures copper water tube and air conditioning and
refrigeration tubing.
Our Company's Recycling segment is one of the largest processors of scrap
nonferrous metals and one of the largest regional processors of ferrous metals
in the United States. Our recycling plants processed and shipped 1.9 million
tons of scrap metal in fiscal 1998. Recycled metals provide substantial savings
in energy compared to producing metal from virgin raw materials.
Our Marketing and Trading segment buys and sells steel, primary and
secondary metals and industrial raw materials through a global network of
offices which provide technical information, financing, chartering, storage,
insurance and hedging. We do not, as a matter of policy, speculate on changes in
the commodities markets. This segment sold over 1.4 million tons of steel
products in fiscal 1998.
Our principal executive offices are located at 7800 Stemmons Freeway,
Dallas, Texas 75247, and our telephone number is (214) 689-4300.
USE OF PROCEEDS
Except as may be set forth in an applicable Prospectus Supplement
accompanying this Prospectus, the net proceeds from the sale of the Debt
Securities offered hereby will be used to refinance certain debt and for other
general corporate purposes. Pending such applications, the funds may be used to
reduce short-term borrowings or may be invested in short-term marketable
securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED AUGUST 31, NOVEMBER 30,
- ---------------------------- ------------
1998 1997 1996 1995 1994 1998 1997
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
3.9 4.3 4.9 4.2 4.2 3.4 3.6
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
are divided by fixed charges. For this purpose, earnings consist of net earnings
plus income taxes, interest expense, such portion of rent expense as is
representative of the interest factor and amortization expense of capitalized
interest. Fixed charges consist of interest expense, such portion of rent
expense and capitalized interest. Such portion of rent expense, capitalized
interest and amortization of capitalized interest amounted to $3.2, $1.6 and
$0.4 million in fiscal 1998, $2.9, $0.8 and $0.5 million in fiscal 1997, $2.6,
$0.3 and $0.5 million in fiscal 1996, $2.7, $0.1 and $0.6 million in fiscal 1995
and $2.0, $1.2 and $0.4 million in fiscal 1994, and amounted to $0.7, $1.2 and
$0.1 million and $0.7, $0.1 and $0.1 million in the first three months of fiscal
1999 and 1998, respectively.
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<PAGE> 54
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of July
31, 1995 (the "Indenture"), between the Company and The Chase Manhattan Bank, as
Trustee (the "Trustee"). A copy of such Indenture is filed as an exhibit to the
Registration Statement. The following statements relating to the Debt Securities
and the Indenture are summaries of provisions contained therein and do not
purport to be complete. The provisions of the Indenture referred to in the
following summaries are incorporated herein by reference and the summaries are
qualified in their entirety thereby. Capitalized terms not otherwise defined
herein shall have the respective meanings given to them in the Indenture.
Section numbers set forth below refer to provisions of the Indenture.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement will be described in such Prospectus Supplement
relating to the Debt Securities offered thereby.
GENERAL
The Debt Securities will be unsecured obligations of the Company and will
rank on a parity with all other unsecured and unsubordinated debt of the
Company.
The Indenture does not limit the amount of the Debt Securities that may be
issued thereunder and provides that Debt Securities may be issued thereunder
from time to time in one or more series. This Prospectus or the Prospectus
Supplement will describe the following terms, as applicable, of each series of
Debt Securities: (1) the title of the Debt Securities; (2) any limit on the
aggregate principal amount of the Debt Securities; (3) the date or dates on
which the Debt Securities will mature; (4) the rate or rates (which may be fixed
or variable) at which the Debt Securities will bear interest, if any, and the
date or dates from which such interest will accrue; (5) the dates on which such
interest, if any, will be payable and the Regular Record Dates for such Interest
Payment Dates; (6) any mandatory or optional sinking fund or analogous
provisions; (7) the price at which, the periods within which, and the terms and
conditions upon which the Debt Securities may, pursuant to any optional or
mandatory redemption provisions, be redeemed at the option of the Company; (8)
the terms and conditions upon which the Debt Securities may be repayable prior
to final maturity at the option of the Holder thereof (which option may be
conditional); (9) the portion of the principal amount of the Debt Securities, if
other than the principal amount thereof, payable upon acceleration of maturity
thereof; (10) certain Events of Default under the Indenture; (11) if other than
in United States dollars, the currency or currencies, including composite
currencies, of payment of principal of and premium, if any, and interest on the
Debt Securities (and federal income tax consequences and other special
considerations applicable to any such Debt Securities denominated in a currency
or currencies other than United States dollars); (12) any index used to
determine the amount of payments of principal of and premium, if any, and
interest, if any, on the Debt Securities; (13) if the Debt Securities will be
issuable only in the form of a Global Security as described under "Book-Entry
Debt Securities," the Depositary or its nominee with respect to the Debt
Securities and the circumstances under which the Global Security may be
registered for transfer or exchange in the name of a Person other than the
Depositary or its nominee; and (14) any other specific terms of the Debt
Securities. (Section 301)
Unless otherwise indicated in the Prospectus Supplement relating to Debt
Securities, principal of and premium, if any, and interest, if any, on the Debt
Securities will be payable, and transfers thereof will be registrable, at the
office or agency of the Trustee in New York City, New York, provided that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register. (Sections 301, 305 and 1002) Any payment of principal and premium, if
any, and interest, if any, required to be made on an Interest Payment Date,
Redemption Date or at Stated Maturity which is not a Business Day at any Place
of Payment need not be made at such Place of Payment on such day, but may be
made on the next succeeding Business Day with the same force and effect as if
made on the Interest Payment
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<PAGE> 55
Date, Redemption Date or at Stated Maturity, as the case may be, and no interest
shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity. (Section 113)
Unless otherwise indicated in the Prospectus Supplement relating to the
Debt Securities of any series, the Debt Securities will be issued only in
registered form, without coupons, in denominations of $100,000 or any integral
multiple thereof. (Section 302) No service charge will be made for any transfer
or exchange of the Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount from their
stated principal amount. In addition, under proposed Treasury Regulations it is
possible that Debt Securities which are offered and sold at their stated
principal amount would, under certain circumstances, be treated as issued at an
original issue discount for federal income tax purposes. Federal income tax
consequences and other special considerations applicable to any such Original
Issue Discount Securities (or other Debt Securities treated as issued at an
original issue discount) will be described in the Prospectus Supplement relating
thereto. "Original Issue Discount Security" means any security that provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof upon the occurrence of an
Event of Default and the continuation thereof. (Section 101)
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more registered global securities (the "Global Securities"). The
specific terms of the depositary arrangement with respect to any Debt Securities
of any series will be described in the Prospectus Supplement relating to such
series. The Company anticipates that the following provisions will apply to all
depositary arrangements.
Each Global Security will be deposited with, or on behalf of, a Depositary
identified in the Prospectus Supplement (the "Depositary") and registered in the
name of the Depositary or a nominee thereof. Unless and until it is exchanged in
whole or in part for Debt Securities in certificated form, no Global Security
may be transferred, except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary. Debt
Securities in certificated form will not be issued in exchange for Global
Securities, except under the circumstances described herein.
Upon the issuance of a Global Security and the deposit of such Global
Security with the Depositary, the Depositary will credit, on its book-entry
registration and transfer system, the respective principal amounts of the Debt
Securities represented by such Global Security to the accounts of institutions
that have accounts with such Depositary or its nominee ("participants"). The
account to be credited will be designated by any dealers, underwriters or agents
participating in the distribution of such Debt Securities. Ownership of
beneficial interests in a Global Security will be limited to participants or
persons that may hold such interests through participants. Ownership of
beneficial interests in a Global Security will be shown on, and the transfer of
such ownership will be effected only through, records maintained by the
Depositary (with respect to interests of participants) and by participants or
persons that hold through participants (with respect to interests of persons
other than participants). The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
certificated form. Such limits and laws may impair the ability to own or
transfer beneficial interests in a Global Security.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Debt Securities represented by such
Global Security for all purposes under the Indenture. Except as
5
<PAGE> 56
set forth below, owners of beneficial interests in a Global Security will not be
entitled to have Debt Securities represented by such Global Security registered
in their names, will not receive or be entitled to receive physical delivery of
such Debt Securities in certificated form and will not be considered the owners
or holders thereof under the Indenture. Accordingly, each person owning a
beneficial interest in a Global Security must rely on the procedures of the
Depositary for such Global Security and, if such person is not a participant, on
the procedures of the participant through which such person owns its interest,
to exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if the Company requests any action of
holders or if an owner of a beneficial interest in a Global Security desires to
give or take any action which a holder is entitled to give or take under the
Indenture, the Depositary for such Global Security would authorize the
participants holding the relevant beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners holding through them.
Principal and interest payments on Debt Securities represented by a Global
Security registered in the name of the Depositary or its nominee will be made to
the Depositary or its nominee, as the case may be, as the registered owner or
holder of such Global Security. None of the Company, the Trustee or any other
agent of the Company or the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in such Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for any Debt Securities represented
by a Global Security, upon receipt of any payment of principal or interest in
respect of such Global Security, will credit immediately participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Security as shown on the records of such
Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in "street name," and will be the responsibility of such
participants.
If the Depositary for any Debt Securities represented by a Global Security
is at any time unwilling or unable to continue as depositary, or if at any time
the Depositary ceases to be a clearing agency registered under the Exchange Act,
and a successor depositary is not appointed by the Company within 90 days or if
there shall have occurred and be continuing an Event of Default (as defined in
the Indenture) or an event which, with the giving of notice or lapse of time, or
both, would constitute an Event of Default with respect to such Debt Securities,
then the Company will issue such Debt Securities in certificated form in
exchange for the Global Security representing the Debt Securities. In addition,
the Company may at any time and in its sole discretion determine not to have any
Debt Securities represented by one or more Global Securities and, in such event,
will issue such Debt Securities in certificated form in exchange for the Global
Security representing the Debt Securities. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to physical delivery
of such Debt Securities in certificated form equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name.
Unless otherwise specified in the Prospectus Supplement, Debt Securities issued
in certificated form will be issued as registered securities in minimum
denominations of $100,000 and integral multiples of $1,000 in excess thereof.
LIMITATION ON LIENS
The Indenture provides that the Company may not, and may not permit any
Principal Subsidiary of the Company to, incur or suffer to exist any Lien upon
any Principal Property, or upon any shares of stock of any Principal Subsidiary
of the Company (whether such Principal Property or shares
6
<PAGE> 57
were owned as of the date of such Indenture or thereafter acquired), to secure
any Debt without making, or causing such Principal Subsidiary to make, effective
provision for securing the Debt Securities issued under such Indenture equally
and ratably with (or prior to) such Debt, unless after giving effect thereto,
the sum of (A) the principal amount of Debt secured by all Liens incurred after
the date of such Indenture and otherwise prohibited by such Indenture and (B)
the Attributable Debt of all Sale and Leaseback Transactions entered into after
the date of such Indenture and otherwise prohibited by such Indenture does not
exceed 10% of Consolidated Net Tangible Assets. The foregoing restrictions will
not apply to Liens existing at the date of such Indenture or to (i) Liens
securing only the Debt Securities issued under such Indenture; (ii) Liens in
favor of only the Company; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Principal Subsidiary of the Company (but only to the extent such Liens cover
such property); (iv) Liens on property existing immediately prior to the time of
acquisition thereof (and not in anticipation of the financing of such
acquisition); (v) any Lien upon a Principal Property (including any property
that becomes a Principal Property after acquisition thereof) to secure Debt
incurred for the purpose of financing all or any part of the purchase price or
the cost of construction or improvement thereof incurred within 270 days after
the later of the purchase thereof and the completion of construction or
improvements thereon; (vi) Liens to secure Debt incurred to extend, renew,
refinance or refund Debt secured by any Lien referred to in the foregoing
clauses (i) to (v); and (vii) any Lien securing Debt owing by the Company to a
wholly owned Principal Subsidiary of the Company. (Section 1007)
"Attributable Debt" means the present value (discounted at the per annum
rate of interest publicly announced by Bank of America National Trust & Savings
Association as its "Reference Rate" or "Prime Rate", provided, that if Bank of
America National Trust & Savings Association is no longer announcing a Reference
Rate or Prime Rate, the per annum rate of interest shall be the Prime Rate most
recently published in The Wall Street Journal, in either case compounded
monthly) of the obligations for rental payments required to be paid during the
remaining term of any lease of more than 12 months. (Section 101)
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles. The stated maturity of such obligation, as of any date
(the "measurement date"), shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date after the measurement
date upon which such lease may be terminated by the lessee, at its sole option,
without payment of a penalty. (Section 101)
"Consolidated Net Tangible Assets" means the net book value of all assets
of the Company and its Consolidated Subsidiaries, excluding any amounts carried
as assets for shares of capital stock held in treasury, debt discount and
expense, goodwill, patents, trademarks and other intangible assets, less all
liabilities of the Company and its Consolidated Subsidiaries (except Funded
Debt, minority interests in Consolidated Subsidiaries, deferred taxes and
general contingency reserves of the Company and its Consolidated Subsidiaries),
which in each case would be included on a consolidated balance sheet of the
Company and its Consolidated Subsidiaries as of the date of determination, all
as determined on a consolidated basis in accordance with generally accepted
accounting principles. (Section 101)
"Consolidated Tangible Net Worth" means the total stockholders' equity of
the Company and its Consolidated Subsidiaries, calculated in accordance with
generally accepted accounting principles and reflected on the most recent
balance sheet of the Company, excluding any amounts carried as assets for shares
of capital stock held in treasury, debt discount and expense, goodwill, patents,
trademarks and other intangible assets. (Section 101)
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<PAGE> 58
"Debt" means (without duplication), with respect to any Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
every reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such Person
and (iv) every obligation of the type referred to in clauses (i) through (iii)
of another Person the payment of which such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise (but only, in the case of clause (iv), to the extent such Person has
guaranteed or is responsible or liable for such obligations). (Section 101)
"Funded Debt" means (i) all Debt of the Company and each Principal
Subsidiary maturing on, or renewable or extendable at the option of the obligor
to, a date more than one year from the date of the determination thereof, (ii)
Capital Lease Obligations payable on a date more than one year from the date of
the determination thereof, (iii) guarantees, direct or indirect, and other
contingent obligations of the Company and each Principal Subsidiary of the
Company in respect of, or to purchase or otherwise acquire or be responsible or
liable for (through the investment of funds or otherwise), any obligations of
the type described in the foregoing clauses (i) or (ii) of others (but not
including contingent liabilities on customers' receivables sold with recourse),
and (iv) amendments, renewals, extensions and refundings of any obligations of
the type described in the foregoing clauses (i), (ii) or (iii). (Section 101)
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien,
encumbrance, or other security arrangement of any kind or nature whatsoever on
or with respect to such property or assets (including any conditional sale or
other title retention agreement having substantially the same economic effect as
any of the foregoing). (Section 101)
"Principal Property" means any facility (together with the land on which it
is erected and fixtures comprising a part thereof) used primarily for
manufacturing, processing, research, warehousing or distribution, owned or
leased by the Company or a Subsidiary of the Company and having a net book value
in excess of 3% of Consolidated Net Tangible Assets, other than any such
facility or portion thereof which is a pollution control facility financed by
state or local government obligations or is not of material importance to the
total business conducted or assets owned by the Company and its Subsidiaries as
an entirety, or any assets or properties acquired with Net Available Proceeds
(defined below) from a Sale and Leaseback Transaction that are irrevocably
designated by the Company or a Subsidiary as a Principal Property, which
designation shall be made in writing to the Trustee. (Section 101)
"Principal Subsidiary" means any Subsidiary of the Company that owns or
leases a Principal Property or owns or controls stock which under ordinary
circumstances has the voting power to elect a majority of the Board of Directors
of a Principal Subsidiary. (Section 101)
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any Principal Property that within 12 months
of the start of such lease and after the Reference Date, has been or is being
sold, conveyed, transferred or otherwise disposed of by such Person to such
lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property. The term
of such arrangement, as of any date (the "measurement date"), shall end on the
date of the last payment of rent or any other amount due under such arrangement
on or prior to the first date after the measurement date on which such
arrangement may be terminated by the lessee, at its sole option, without payment
of a penalty. "Sale Transaction" means any such sale, conveyance, transfer or
other disposition. The "Reference Date" means, for any property that becomes a
Principal Property, the 270th day after the date of the acquisition, completion
of construction and commencement of operation of such property. (Section 101)
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<PAGE> 59
"Subsidiary of the Company" means any corporation of which the Company
directly or indirectly owns or controls stock which under ordinary circumstances
(not dependent upon the happening of a contingency) has the voting power to
elect a majority of the board of directors of such corporation.
LIMITATION ON FUNDED DEBT OF PRINCIPAL SUBSIDIARIES
The Indenture provides that the Company will not permit any Principal
Subsidiary to incur or assume, directly or indirectly, any Funded Debt unless
immediately after giving effect thereto and the receipt and application of the
proceeds thereof, the aggregate principal amount of all outstanding Funded Debt
of all Principal Subsidiaries other than Funded Debt owing to the Company or
another directly or indirectly wholly-owned Subsidiary does not exceed 30% of
Consolidated Tangible Net Worth. The provisions of this limitation shall not
prevent (i) any Funded Debt of a Principal Subsidiary owing to the Company or
another Principal Subsidiary, (ii) any Funded Debt from a mortgage permitted
under the provisions described in clauses (i) through (vii) in the first
paragraph under "Limitation on Liens," or (iii) any extension, renewal or
refunding in whole or in part (without increase in amount) of any Funded Debt
(a) of a Principal Subsidiary as aforementioned, (b) of a Principal Subsidiary
outstanding at the date of the Indenture or (c) of any corporation outstanding
at the time it becomes a Principal Subsidiary.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Restrictions on Sales and Leasebacks. Unless otherwise provided in the
Prospectus Supplement with respect to any series of the Debt Securities, neither
the Company nor any Principal Subsidiary of the Company may enter into any Sale
and Leaseback Transaction, the completion of construction and commencement of
full operation of which has occurred more than 270 days prior thereto, unless
(i) the Company or such Principal Subsidiary of the Company could incur a
mortgage on such property under the restrictions described above under
"Limitations on Liens" in an amount equal to the Attributable Debt with respect
to the Sale and Leaseback Transaction without equally and ratably securing the
Debt Securities or (ii) the Company or a Principal Subsidiary of the Company,
within 270 days, applies the Net Available Proceeds from the Sale and Leaseback
Transaction to any combination of the following: (a) the retirement of its
Funded Debt, (b) the purchase of other property or assets which will (I)
constitute Principal Property and (II) have an aggregate value of at least the
consideration paid for such property or assets or (c) Capital Expenditures with
respect to any existing Principal Property (subject to credits for certain
voluntary retirements of Funded Debt). This restriction will not apply to any
Sale and Leaseback Transaction (I) between the Company and Principal
Subsidiaries of the Company or (II) involving the taking back of a lease for a
period of less than three years. (Section 1008)
"Net Available Proceeds" from any Sale and Leaseback Transaction by any
Person means cash or readily marketable cash equivalents received (including by
way of sale or discounting of a note, installment receivable or other
receivable, but excluding any other consideration received in the form of
assumption by the acquiree of indebtedness or obligations relating to the
properties or assets that are the subject of such Sale and Leaseback Transaction
or received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Sale and Leaseback
Transaction, (ii) all payments made by such Person or its subsidiaries on any
indebtedness which is secured in whole or in part by any such properties and
assets in accordance with the terms of any Lien upon or with respect to any such
properties and assets or which must, by the terms of such Lien or in order to
obtain a necessary consent to such Sale and Leaseback Transaction or by
applicable law, be repaid out of the proceeds from such Sale and Leaseback
Transaction, and (iii) all distributions and other payments made to minority
interest holders in subsidiaries of such Person or joint ventures as a result of
such Sale Transaction. (Section 101)
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<PAGE> 60
RESTRICTIONS ON MERGER AND SALE OF ASSETS
The Indenture provides that the Company may not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and the Company may not permit any
Person to consolidate with or merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the Company,
unless: (i) the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall expressly assume the due and punctual payment
of the principal of and interest on all the Debt Securities issued under the
Indenture and the performance or observance of every covenant of the Indenture
on the part of the Company to be performed or observed; (ii) immediately after
giving effect to such transaction and treating any indebtedness which becomes an
obligation of the Company or any Principal Subsidiary of the Company as a result
of such transaction as having been incurred by the Company or such Principal
Subsidiary of the Company at the time of such transaction, no Event of Default
under the Indenture, and no event which, after notice or lapse of time or both,
would become an Event of Default under the Indenture, shall have happened and be
continuing; and (iii) if, as a result of any such transaction, property or
assets of the Company or any Principal Subsidiary of the Company would become
subject to a Lien which would not be permitted by the limitations on Liens
contained in the Indenture, the Company or, if applicable, the successor to the
Company, as the case may be, shall take such steps as shall be necessary
effectively to secure the Debt Securities issued under the Indenture equally and
ratably with (or prior to) the Debt secured by such Lien. (Section 801)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with respect to
Debt Securities of any series: (i) failure to pay principal of, or premium, if
any, on any Debt Security of that series when due; (ii) failure to pay any
interest on any Debt Security of that series when due, continued for 30 days;
(iii) failure to deposit any sinking fund payment, when due, in respect to any
Debt Securities of that series; (iv) failure to perform any other covenant of
the Company in the Indenture (other than a covenant the performance of which is
dealt with specifically elsewhere in the Indenture or which has been included in
the Indenture solely for the benefit of series of Debt Securities other than
that series), continuing for 60 days after written notice as provided in the
Indenture; (v) failure to pay when due (after applicable grace periods as
provided in the Indenture) the principal of, or the acceleration of, any
indebtedness for money borrowed by the Company or any Principal Subsidiary of
the Company having an aggregate principal amount outstanding in excess of an
amount equal to 3% of Consolidated Net Tangible Assets, if such indebtedness is
not discharged, or such acceleration is not annulled, within 10 days after
written notice as provided in the Indenture; (vi) certain events of bankruptcy,
insolvency or reorganization; and (vii) any other Event of Default provided with
respect to Debt Securities of that series. No Event of Default with respect to a
particular series of Debt Securities issued under the Indenture (except as to
such events of bankruptcy, insolvency or reorganization or the failure to pay
when due indebtedness having an aggregate principal amount outstanding in excess
of an amount equal to 3% of Consolidated Net Tangible Assets) necessarily
constitutes an Event of Default with respect to any other series of Debt
Securities issued thereunder. (Section 501) The notice referred to in clauses
(iv) and (v) may be given by the Trustee under the Indenture or by the Holders
of at least 25% in aggregate principal amount of the Outstanding Debt Securities
of that series. (Section 501) In case an Event of Default under the Indenture
shall occur and be continuing, then, subject to the provisions of the Indenture
and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
relating to the duties of the Trustee under the Indenture, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable indemnity. (Section 603) The Holders of a
majority in aggregate principal amount of the Outstanding Debt Securities of any
series shall have the right,
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<PAGE> 61
subject to such provisions for indemnification of the Trustee to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee under the Indenture or exercising any trust or power conferred on
the Trustee with respect to Debt Securities of that series. (Section 512)
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding shall occur and be continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of that series may, by a notice in writing to the
Company (and to the Trustee if given by Holders), declare to be due and payable
immediately the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities, such portion of the principal amount as may
be specified in the terms of that series) of all Debt Securities of that series.
However, at any time after such a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the Holders of a
majority in the principal amount of Outstanding Debt Securities of that series
may, subject to certain conditions, rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal, with
respect to Debt Securities of that series have been cured or waived as provided
in the indenture. (Section 502) For information as to waiver of defaults, see
"Modification and Waiver" herein. Reference is made to the Prospectus Supplement
relating to any series of Debt Securities which are Original Issue Discount
Securities for the particular provisions relating to acceleration of a portion
of the principal amount of such Original Issue Discount Securities upon the
occurrence of an Event of Default and the continuation thereof.
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt Securities
of that series and unless also the Holders of at least 25% in aggregate
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the Holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of that series a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. (Section 507)
However, such limitations do not apply to a suit instituted by a Holder of any
Debt Security for enforcement of payment of the principal of (and premium, if
any) and any interest on such Debt Security on or after the respective due dates
expressed in such Debt Security. (Section 508)
The Company will be required to furnish to the Trustee annually a statement
as to whether the Company is in default in the performance and observance of any
of the terms, provisions and conditions of the Indenture. (Section 1009) The
Indenture provides that the Trustee may withhold notice to the Holders of Debt
Securities of any series of any default (except in payment of principal, any
premium, interest or any sinking fund payments) with respect to Debt Securities
of such series if it considers it in the interest of the Holders of Debt
Securities of such series to do so. (Section 602)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of each series affected by
such modifications or amendments; provided, however, that no such modification
or amendment may, without the consent of the Holder of each such Outstanding
Debt Security affected thereby, (i) change the Stated Maturity of the principal
of, or any installment of principal or interest on any Debt Security, (ii)
reduce the principal amount of or the rate of interest or the premium (if any)
on any Debt Security or reduce the amount of principal of an Original Issue
Discount Security that would be due and payable upon acceleration, (iii) change
the place or currency of payment of principal of or interest or the premium (if
any) on any Debt Security,
11
<PAGE> 62
(iv) impair the right to institute suit for the enforcement of any payment with
respect to any Debt Security on or after the Stated Maturity thereof, (v) reduce
the above-stated percentage in principal amount of Outstanding Debt Securities
of any series the consent of whose Holders is required for any such supplemental
indenture or (vi) reduce the above-stated percentage of Outstanding Debt
Securities of any series the consent of whose Holders is required for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults thereunder. (Section 902)
The Company may, in the circumstances permitted by the Trust Indenture Act,
set any day as the record date for the purpose of determining the Holders of
Debt Securities of any series issued under the Indenture entitled to give or
take any request, demand, authorization, direction, notice, consent, waiver or
other action as provided or permitted by the Indenture. (Section 104)
The Holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of any series may on behalf of the Holders of all Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with the covenants limiting Liens and Sale and Leaseback
Transactions contained in the Indenture. (Section 1010) The Holders of a
majority in aggregate principal amount of the Outstanding Debt Securities of any
series may on behalf of the Holders of all Debt Securities of that series waive
any past default under the Indenture with respect to that series except a
default in the payment of the principal of (or premium, if any) or any interest
on any Debt Security of that series or in respect of a provision which under the
Indenture cannot be modified or amended without the consent of the Holder of
each Outstanding Debt Security of that series affected. (Section 513)
For purposes of the Indenture, the Debt Securities of any series
"Outstanding" thereunder are deemed to exclude those held by Persons that
control, are controlled by or are under common control with the Company,
provided that any Person who does not own, directly or indirectly, more than 5%
of the outstanding voting securities of the Company will not be deemed to
control the Company. (Section 101)
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company may
elect to deposit or cause to be deposited with the Trustee as trust funds in
trust, for the benefit of the Holders of Outstanding Debt Securities of any
series, money and/or U.S. Government Obligations sufficient to pay and discharge
the principal of (and premium, if any) and any interest on and any mandatory
sinking fund payments in respect of the Debt Securities of such series on the
Stated Maturity of such payments in accordance with the terms of the Indenture
and such Debt Securities, and thereby be discharged from its obligations with
respect to Outstanding Debt Securities of that series (hereinafter called
"Defeasance") on and after the date that (among other things) the Company
provides to the Trustee certain evidence that (i) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling, or (ii)
there has been a change in the applicable Federal income tax law, in each case
to the effect that the Holders of such Outstanding Debt Securities of that
series will not recognize gain or loss for Federal income tax purposes as a
result of the deposit, Defeasance and discharge to be effected with respect to
such Debt Securities and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would be the case if such
deposit, Defeasance and discharge were not to occur. For this purpose, such
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by such Outstanding Debt Securities of such
series and to have satisfied all its other obligations under the Debt Securities
of that series and the Indenture insofar as the Debt Securities of that series
are concerned, except for certain continuing administrative responsibilities. In
the event of any such Defeasance, Holders of Debt Securities of such series
would be able to look only to such trust for payment of principal of (and
premium, if any) and any interest on and any mandatory sinking fund payments in
respect of the Debt Securities of that series. (Section 403)
12
<PAGE> 63
Covenant Defeasance. The Indenture provides that the Company may elect to
deposit or cause to be deposited with the Trustee as trust funds in trust, for
the benefit of the Holders of Outstanding Debt Securities of any series, money
and/or U.S. Government Obligations sufficient to pay and discharge the principal
(and premium, if any) of and any interest on and any mandatory sinking fund
payments in respect of the Debt Securities of such series on the stated maturity
of such payments in accordance with the terms of the Indenture and such Debt
Securities, and thereby (i) be released from its obligations with respect to the
Debt Securities of such series under Section 1005 (Maintenance of Properties),
Section 1006 (Payment of Taxes and Other Claims), Section 1007 (Limitation on
Liens), Section 1008 (Limitation on Sale and Leaseback Transactions) and Section
801 (Consolidation, Merger, Conveyance, Transfer or Lease) of the Indenture and
(ii) have the occurrence of any event specified in (a) Section 501(4) (defaults
in performance, or breach, of covenants and warranties under the Indenture) with
respect to any of Sections 1005 through 1008, inclusive, and Section 801, and
(b) Section 501(5) (defaults under other obligations of the Company) not be
deemed to be or result in an Event of Default, in each case with respect to the
Outstanding Debt Securities of such series (hereinafter called "Covenant
Defeasance"), on and after the date that (among other things) the Company
provides to the Trustee certain evidence that the Holders of Outstanding Debt
Securities of such series will not recognize gain or loss for Federal income tax
purposes as a result of the deposit and Covenant Defeasance to be effected with
respect to such Debt Securities and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would be the case if
such deposit and Covenant Defeasance were not to occur. For this purpose, such
Covenant Defeasance means that the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such specified Section (to the extent so specified in the case of Section
501(4)), whether directly or indirectly by reason of any reference elsewhere in
the Indenture to any such Section or by reason of any reference in any such
Section to any other provision of the Indenture or in any other document, but
the remainder of the Indenture and such Debt Securities of that series shall be
unaffected thereby. The obligations of the Company under the Indenture and the
Debt Securities of that series other than with respect to the covenants referred
to above and the Events of Default other than the Events of Default referred to
above shall remain in full force and effect. (Section 404)
The term "U.S. Government Obligations" means any security that is a direct
obligation, or is subject to an unconditional guarantee, of the United States of
America for the payment of which the full faith and credit of the United States
of America is pledged. (Section 101)
13
<PAGE> 64
PLAN OF DISTRIBUTION
We may sell the Debt Securities through agents, underwriters or dealers, or
directly to one or more purchasers. Goldman, Sachs & Co., Chase Securities Inc.,
Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and NationsBanc
Montgomery Securities LLC may be among such agents or underwriters. In the
ordinary course of their businesses, Goldman, Sachs & Co., Chase Securities
Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and NationsBanc
Montgomery Securities LLC and their respective affiliates have engaged, and may
in the future engage, in commercial banking and/or investment banking
transactions with the Company or its affiliates.
AGENTS
We may designate agents who agree to use their reasonable efforts to
solicit purchases for the period of their appointment or to sell Debt Securities
on a continuing basis.
UNDERWRITERS
If we use underwriters for a sale of Debt Securities, the underwriters will
acquire the Debt Securities for their own account. The underwriters may resell
the Debt Securities in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of the underwriters to purchase the Debt
Securities will be subject to certain conditions precedent. The underwriters
will be obligated to purchase all the Debt Securities of the series offered if
any of the Debt Securities of that series are purchased. Any initial public
offering price and any discounts or concessions allowed or re-allowed or paid to
dealers may be changed from time to time.
DIRECT SALES
We may also sell Debt Securities directly to one or more purchasers without
using underwriters or agents.
Underwriters, dealers and agents that participate in the distribution of
the Debt Securities may be underwriters as defined in the Securities Act of 1933
(the "Securities Act") and any discounts or commissions they receive from us and
any profit on their resale of the Debt Securities may be treated as underwriting
discounts and commissions under the Securities Act. The applicable Prospectus
Supplement will identify any underwriters, dealers or agents and will describe
their compensation. We may have agreements with the underwriters, dealers and
agents to indemnify them against certain civil liabilities, including
liabilities under the Securities Act. Underwriters, dealers and agents may
engage in transactions with or perform services for us or our subsidiaries in
the ordinary course of their businesses.
TRADING MARKETS AND LISTING OF SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, each
class or series of Debt Securities will be a new issue with no established
trading market. We may elect to list any other class or series of Debt
Securities on any exchange, but we are not obligated to do so. It is possible
that one or more underwriters may make a market in a class or series of Debt
Securities, but the underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. We cannot give any
assurances as to the liquidity of the trading market for any of the Debt
Securities.
STABILIZATION ACTIVITIES
Any underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
14
<PAGE> 65
Over-allotment involves sales in excess of the offering size, which create a
short position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Short covering transactions involve purchases of the Debt Securities in the open
market after the distribution is completed to cover short positions. Penalty
bids permit the underwriters to reclaim a selling concession from a dealer when
the Debt Securities originally sold by the dealer are purchased in a covering
transaction to cover short positions. Those activities may cause the price of
the Debt Securities to be higher than it would otherwise be. If commenced, the
Underwriters may discontinue any of the activities at any time.
VALIDITY OF DEBT SECURITIES
Certain legal matters with respect to the offering of the Debt Securities
will be passed upon for the Company by Haynes and Boone, LLP, Dallas, Texas.
Certain legal matters will be passed upon for Goldman, Sachs & Co., Chase
Securities Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and
NationsBanc Montgomery Securities LLC, by Akin, Gump, Strauss, Hauer & Feld,
L.L.P., Dallas, Texas.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
15
<PAGE> 66
- ----------------------------------------------------------
- ----------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this Prospectus Supplement or the
Prospectus. You must not rely on any unauthorized information or
representations. This Prospectus Supplement and the Prospectus are an offer to
sell only the Notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
Prospectus Supplement and the Prospectus is current only as of this date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
The Company.............................. S-2
Use of Proceeds.......................... S-2
Capitalization........................... S-3
Selected Consolidated Financial Data..... S-4
Management's Discussion and Analysis of
Recent Financial Results............... S-5
Business................................. S-9
Description of Notes..................... S-14
Underwriting............................. S-17
Prospectus
Where You Can Find Additional
Information............................ 2
The Company.............................. 2
Use of Proceeds.......................... 3
Ratio of Earnings to Fixed Charges....... 3
Description of Debt Securities........... 4
Plan of Distribution..................... 14
Validity of Debt Securities.............. 15
Experts.................................. 15
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
$100,000,000
LOGO
% Notes
due , 2009
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY
SECURITIES LLC
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 67
- ----------------------------------------------------------
- ----------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or represent anything not contained in this Prospectus Supplement or the
Prospectus. You must not rely on any unauthorized information or
representations. This Prospectus Supplement and the Prospectus are an offer to
sell only the Notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
Prospectus Supplement and the Prospectus is current only as of this date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
Description of Notes..................... S-3
Risks Relating to Indexed Notes.......... S-18
Foreign Currency Risks................... S-19
United States Taxation................... S-22
Supplemental Plan of Distribution........ S-30
Prospectus
Where You Can Find Additional
Information............................ 2
The Company.............................. 2
Use of Proceeds.......................... 3
Ratio of Earnings to Fixed Charges....... 3
Description of Debt Securities........... 4
Plan of Distribution..................... 14
Validity of Debt Securities.............. 15
Experts.................................. 15
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
$100,000,000
LOGO
Medium-Term Notes, Series A
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 68
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 59,000
Rating Agency Fees.......................................... 92,500
Fees and Expenses of Trustee................................ 5,500
Legal Fees and Expenses..................................... 50,000
Blue Sky Fees and Expenses (including legal fees)........... 20,000
Accounting Fees and Expenses................................ 35,000
Printing Expenses........................................... 50,000
Miscellaneous Expenses...................................... 13,000
--------
TOTAL............................................. $325,000
========
</TABLE>
All of the above expenses except the registration fees are estimated. All
of such expenses will be borne by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law generally provides that a corporation is empowered to indemnify
any person who is made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director, officer,
employee or agent of the Company or is or was serving, at the request of the
Company, in any of such capacities of another corporation or other enterprise,
if such director, officer, employee or agent acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 describes in
detail the right of the Company to indemnify any such person. The Certificate of
Incorporation of the Company and indemnification agreements between the Company
and each of its officers and directors provide generally for indemnification of
all such directors, officers and agents to the fullest extent permitted under
law. The Company's Certificate of Incorporation eliminates the liability of
directors to the fullest extent permitted under law. The Company's directors and
officers currently are covered by directors' and officers' liability insurance.
Reference is also made to the indemnification provisions contained in the
Underwriting Agreement and the Distribution Agreement (forms of which are being
filed as Exhibits 1.1 and 1.2 hereto, respectively) with respect to undertakings
to indemnify the Company, its directors, officers and controlling persons within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
against certain liabilities, including liabilities under the Securities Act or
otherwise.
For the undertaking with respect to indemnification, see Item 17 herein.
II-1
<PAGE> 69
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
*1.2 Form of Distribution Agreement.
4.1 Form of Indenture (the "Indenture") between the Company and
The Chase Manhattan Bank (the "Trustee") (filed as Exhibit
4.1 to Amendment No. 1 to the Company's Registration
Statement on Form S-3 (No. 33-60809) and incorporated herein
by reference).
*5.1 Opinion of Haynes and Boone, LLP as to the validity of Debt
Securities to be offered.
*12.1 Statement regarding computation of ratios of earnings to
fixed charges.
*23.1 Consent of Haynes and Boone, LLP, contained in the opinion
filed as Exhibit 5.1.
**23.2 Consent of Deloitte & Touche LLP.
*24.1 Power of Attorney appears on the signature page hereof.
*25.1 Form T-1 Statement of Eligibility and Qualification of the
Trustee.
</TABLE>
- ---------------
* Previously filed
** Filed herewith
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-2
<PAGE> 70
(d) The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, State of Texas, on the 4th day
of February, 1999.
COMMERCIAL METALS COMPANY
By: /s/ LAWRENCE A. ENGELS
----------------------------------
Lawrence A. Engels
Vice President, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-3 has been signed by the following
persons on behalf of the Registrant in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ALBERT A. EISENSTAT* Director February 4, 1999
- -----------------------------------------------------
Albert A. Eisenstat
MOSES FELDMAN* Director February 4, 1999
- -----------------------------------------------------
Moses Feldman
A. LEO HOWELL* Vice President and Director February 4, 1999
- -----------------------------------------------------
A. Leo Howell
WALTER F. KAMMANN* Director February 4, 1999
- -----------------------------------------------------
Walter F. Kammann
RALPH E. LOEWENBERG* Director February 4, 1999
- -----------------------------------------------------
Ralph E. Loewenberg
DOROTHY G. OWEN* Director February 4, 1999
- -----------------------------------------------------
Dorothy G. Owen
CHARLES B. PETERSON* Director February 4, 1999
- -----------------------------------------------------
Charles B. Peterson
STANLEY A. RABIN* President, Chief Executive February 4, 1999
- ----------------------------------------------------- Officer and Director
Stanley A. Rabin
MARVIN SELIG* CMC Steel Group Chairman, February 4, 1999
- ----------------------------------------------------- Chief Executive Officer
Marvin Selig and Director
</TABLE>
II-4
<PAGE> 72
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LAWRENCE A. ENGELS Vice President, Treasurer February 4, 1999
- ----------------------------------------------------- and Chief Financial
Lawrence A. Engels Officer (Principal
Financial Officer)
/s/ WILLIAM B. LARSON Controller (Principal February 4, 1999
- ----------------------------------------------------- Accounting Officer)
William B. Larson
*By: /s/ LAWRENCE A. ENGELS
------------------------------------------------
Lawrence A. Engels
Attorney-in-fact
</TABLE>
II-5
<PAGE> 73
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*1.2 Form of Distribution Agreement.
4.1 Form of Indenture (the "Indenture") between the Company and
The Chase Manhattan Bank (the "Trustee") (filed as Exhibit
4.1 to Amendment No. 1 to the Company's Registration
Statement on Form S-3 (No. 33-60809) and incorporated herein
by reference).
*5.1 Opinion of Haynes and Boone, LLP as to the validity of Debt
Securities to be offered.
*12.1 Statement regarding computation of ratios of earnings to
fixed charges.
*23.1 Consent of Haynes and Boone, LLP, contained in the opinion
filed as Exhibit 5.1.
**23.2 Consent of Deloitte & Touche LLP.
*24.1 Power of Attorney appears on the signature page hereof.
*25.1 Form T-1 Statement of Eligibility and Qualification of the
Trustee.
</TABLE>
- ---------------
* Previously filed
** Filed herewith
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Commercial Metals Company on Form S-3 of our reports dated October 14, 1998,
appearing in the Annual Report on Form 10-K of Commercial Metals Company for
the year ended August 31, 1998 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 4, 1999
