<PAGE>
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT FILED PURSUANT TO RULE 424(b)(5)
(TO PROSPECTUS DATED JANUARY 25, 1996) FILE NO. 333-00309
</TABLE>
$150,000,000
LA QUINTA INNS, INC.
MEDIUM-TERM NOTES
-----------------
DUE MORE THAN NINE MONTHS FROM DATE OF ISSUE
-----------------
LA QUINTA INNS, INC. (THE "COMPANY") MAY OFFER FROM TIME TO TIME ITS
MEDIUM-TERM NOTES, WHICH ARE ISSUABLE IN ONE OR MORE SERIES AND MAY BE OFFERED
AND SOLD IN THE UNITED STATES. THE MEDIUM-TERM NOTES OFFERED BY THIS PROSPECTUS
SUPPLEMENT ARE OFFERED IN THE UNITED STATES AT AN AGGREGATE INITIAL PUBLIC
OFFERING PRICE OF UP TO $150,000,000. SUCH AGGREGATE OFFERING PRICE IS SUBJECT
TO REDUCTION AS A RESULT OF THE SALE BY THE COMPANY OF CERTAIN OTHER DEBT
SECURITIES. SEE "PLAN OF DISTRIBUTION." THE INTEREST RATE ON EACH NOTE WILL BE
EITHER A FIXED RATE ESTABLISHED BY THE COMPANY AT THE DATE OF ISSUE OF SUCH
NOTE, WHICH MAY BE ZERO IN THE CASE OF CERTAIN ORIGINAL ISSUE DISCOUNT NOTES, OR
A FLOATING RATE AS SET FORTH THEREIN AND SPECIFIED IN THE APPLICABLE PRICING
SUPPLEMENT. A FIXED RATE NOTE MAY PAY A LEVEL AMOUNT IN RESPECT OF BOTH INTEREST
AND PRINCIPAL AMORTIZED OVER THE LIFE OF THE NOTE (AN "AMORTIZING NOTE").
UNLESS OTHERWISE SPECIFIED IN THE APPLICABLE PRICING SUPPLEMENT, INTEREST ON
EACH FIXED RATE NOTE IS PAYABLE EACH JANUARY 15 AND JULY 15 AND AT MATURITY OR
UPON EARLIER REDEMPTION OR REPAYMENT. INTEREST ON EACH FLOATING RATE NOTE IS
PAYABLE ON THE DATE SET FORTH HEREIN AND IN THE APPLICABLE PRICING SUPPLEMENT.
UNLESS OTHERWISE SPECIFIED IN THE APPLICABLE PRICING SUPPLEMENT, AMORTIZING
NOTES WILL PAY PRINCIPAL AND INTEREST SEMIANNUALLY EACH JANUARY 15 AND JULY 15,
OR QUARTERLY EACH JANUARY 15, APRIL 15, JULY 15 AND OCTOBER 15, AND AT MATURITY
OR UPON EARLIER REDEMPTION OR REPAYMENT. EACH NOTE WILL MATURE ON ANY DAY MORE
THAN NINE MONTHS FROM THE DATE OF ISSUE, AS SET FORTH IN THE APPLICABLE PRICING
SUPPLEMENT. SEE "DESCRIPTION OF NOTES." UNLESS OTHERWISE SPECIFIED IN THE
APPLICABLE PRICING SUPPLEMENT, THE NOTES MAY NOT BE REDEEMED BY THE COMPANY OR
THE HOLDER PRIOR TO MATURITY AND WILL BE ISSUED IN FULLY REGISTERED FORM IN
DENOMINATIONS OF $1,000 OR ANY AMOUNT IN EXCESS THEREOF WHICH IS AN INTEGRAL
MULTIPLE OF $1,000. EACH NOTE WILL BE REPRESENTED EITHER BY A GLOBAL SECURITY
REGISTERED IN THE NAME OF A NOMINEE OF THE DEPOSITORY TRUST COMPANY, AS
DEPOSITARY (A "GLOBAL NOTE"), OR BY A CERTIFICATE ISSUED IN DEFINITIVE FORM (A
"DEFINITIVE NOTE"), AS SET FORTH IN THE APPLICABLE PRICING SUPPLEMENT. INTERESTS
IN GLOBAL SECURITIES REPRESENTING GLOBAL NOTES WILL BE SHOWN ON, AND TRANSFER
THEREOF WILL BE AFFECTED ONLY THROUGH RECORDS MAINTAINED BY THE DEPOSITARY (WITH
RESPECT TO PARTICIPANTS' INTERESTS) AND ITS PARTICIPANTS. GLOBAL NOTES WILL NOT
BE ISSUABLE AS DEFINITIVE NOTES EXCEPT UNDER THE CIRCUMSTANCES DESCRIBED IN THE
PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY 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................... 100.000% .125% - .750% 99.875% - 99.250%
TOTAL...................... $150,000,000 $187,500 - $1,125,000 $149,812,500 - $148,875,000
</TABLE>
- ------------
(1) UNLESS OTHERWISE SPECIFIED IN THE APPLICABLE PRICING SUPPLEMENT, NOTES
WILL BE OFFERED AT 100% OF THEIR PRINCIPAL AMOUNT. IF THE COMPANY ISSUES
ANY NOTE AT A DISCOUNT FROM OR AT A PREMIUM OVER ITS PRINCIPAL AMOUNT,
THE PRICE TO PUBLIC OF ANY NOTE ISSUED AT A DISCOUNT OR PREMIUM WILL BE
SET FORTH IN THE APPLICABLE PRICING SUPPLEMENT.
(2) THE COMMISSION PAYABLE TO AN AGENT FOR EACH NOTE SOLD THROUGH SUCH AGENT
SHALL RANGE FROM .125% TO .750% OF THE PRINCIPAL AMOUNT OF SUCH NOTE,
PROVIDED, HOWEVER, THAT COMMISSIONS WITH RESPECT TO NOTES MATURING IN
THIRTY YEARS OR GREATER WILL BE NEGOTIATED. THE COMPANY MAY ALSO SELL
NOTES TO AN AGENT, AS PRINCIPAL AT NEGOTIATED DISCOUNTS, FOR RESALE TO
INVESTORS AND OTHER PURCHASERS.
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $200,000.
------------------------
OFFERS TO PURCHASE THE NOTES ARE BEING SOLICITED FROM TIME TO TIME BY MORGAN
STANLEY & CO. INCORPORATED, GOLDMAN, SACHS & CO. AND NATIONSBANC CAPITAL
MARKETS, INC. (INDIVIDUALLY, AN "AGENT" AND COLLECTIVELY, THE "AGENTS"), ON
BEHALF OF THE COMPANY. THE AGENTS HAVE AGREED TO USE REASONABLE EFFORTS TO
SOLICIT PURCHASES OF SUCH NOTES. THE COMPANY MAY ALSO SELL NOTES TO AN AGENT
ACTING AS PRINCIPAL FOR ITS OWN ACCOUNT OR OTHERWISE, TO BE DETERMINED BY SUCH
AGENT. NO TERMINATION DATE FOR THE OFFERING OF THE NOTES HAS BEEN ESTABLISHED.
THE COMPANY OR AN AGENT MAY REJECT ANY ORDER IN WHOLE OR IN PART. THE NOTES WILL
NOT BE LISTED ON ANY SECURITIES EXCHANGE, AND THERE CAN BE NO ASSURANCE THAT THE
NOTES OFFERED HEREBY WILL BE SOLD OR THAT THERE WILL BE A SECONDARY MARKET FOR
THE NOTES. SEE "PLAN OF DISTRIBUTION."
---------------------
MORGAN STANLEY & CO.
INCORPORATED
GOLDMAN, SACHS & CO.
NATIONSBANC CAPITAL MARKETS, INC.
SEPTEMBER 16, 1996
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY (THE
"OFFERING") TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT, AND THE ACCOMPANYING
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE AGENTS. THIS
PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT, AND THE ACCOMPANYING PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT, OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Description of Notes................................................................... S-3
Certain U.S. Federal Income Tax Considerations......................................... S-16
Plan of Distribution................................................................... S-23
Legal Matters.......................................................................... S-23
PROSPECTUS
Available Information.................................................................. 2
Incorporation of Certain Information by Reference...................................... 2
The Company............................................................................ 3
Ratio of Earnings to Fixed Charges..................................................... 3
Use of Proceeds........................................................................ 3
Description of Debt Securities......................................................... 3
Plan of Distribution................................................................... 15
Legal Matters.......................................................................... 16
Experts................................................................................ 16
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
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 reference is hereby made. The particular terms of
the Notes sold pursuant to any pricing supplement (a "Pricing Supplement") will
be described therein. The terms and conditions set forth in "Description of
Notes" will apply to each Note unless otherwise specified in the applicable
Pricing Supplement and in such Note.
GENERAL
The Notes will be issued under the Indenture dated as of September 15, 1995
(the "Indenture") between the Company and U.S. Trust Company of Texas, N.A., as
trustee (the "Trustee"). The Notes issued under the Indenture will constitute
one or more series under such Indenture. The Notes will rank PARI PASSU with all
other unsecured and unsubordinated indebtedness of the Company. The Notes may be
issued from time to time in an aggregate principal amount of up to $150,000,000,
subject to reduction as a result of the sale by the Company of other Debt
Securities referred to in the accompanying Prospectus. For the purpose of this
Prospectus Supplement, the principal amount of any Original Issue Discount Note
(as defined below) means the Issue Price (as defined below) of such Note.
The Notes will mature on any day more than nine months from the date of
issue, as set forth in the applicable Pricing Supplement. Except as may be
provided in the applicable Pricing Supplement, the Notes will be issued only in
fully registered form. Unless otherwise provided in the applicable Pricing
Supplement, Notes will be denominated in Authorized Denominations (as defined
below).
The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a Global Note or a Definitive Note. Except as set
forth in the Prospectus under "Description of Debt Securities--Global
Securities," Global Notes will not be issuable as Definitive Notes. The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in Global
Securities. See "Book-Entry System" below.
The Notes may be presented for payment of principal and interest, transfer
of the Notes will be registrable and the Notes will be exchangeable at the
agency in The City of New York, maintained by the Company for such purpose;
provided that Global Notes will be exchangeable only in the manner and to the
extent set forth in the Prospectus under "Description of Debt Securities--Global
Securities." On the date hereof, the agent for the payment, transfer and
exchange of the Notes (the "Paying Agent") is U.S. Trust Company of Texas, N.A.,
acting through its corporate trust office at 770 Broadway, 13th Floor, New York,
New York 10003-9598.
The applicable Pricing Supplement will specify the price (the "Issue Price")
of each Note to be sold pursuant thereto (unless such Note is to be sold at 100%
of its principal amount), the interest rate or interest rate formula, maturity,
and principal amount and any other terms on which each Note will be issued.
As used herein, the following terms shall have the meanings set forth below:
"Authorized Denominations" means, unless otherwise provided in the
applicable Pricing Supplement, $1,000 or any amount in excess thereof which
is an integral multiple of $1,000.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are
authorized or required by law, regulation, or executive order to close in
The City of New York and with respect to LIBOR Notes (as defined below), is
also a London Banking Day.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
S-3
<PAGE>
"London Banking Day" means any day on which dealings in deposits in the
Index Currency are transacted in the London interbank market.
"Original Issue Discount Note" means any Note having an Issue Price less
than its stated redemption price at maturity.
The "Record Date" with respect to any Interest Payment Date shall be the
date 15 calendar days prior to such Interest Payment Date, whether or not
such date shall be a Business Day.
INTEREST AND PRINCIPAL PAYMENTS
Interest will be payable to the person in whose name the Note is registered
at the close of business on the applicable Record Date; provided that the
interest payable upon maturity, redemption or repayment (whether or not the date
of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest payment
on a Note will be made on the first Interest Payment Date falling after the date
the Note is issued; provided, however, that payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Note issued less than
15 calendar days before an Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the holder of record on the Record Date with
respect to such succeeding Interest Payment Date, unless otherwise specified in
the applicable Pricing Supplement. See "Certain U.S. Federal Income Tax
Considerations--U.S. Holders--Original Issue Discount" below.
Payments of interest, other than interest payable at maturity (or on the
date of redemption or repayment, if a Note is redeemed or repaid by the Company
prior to maturity), will be made by check mailed to the address of the person
entitled thereto as shown on the Note register. Payment of principal, premium,
if any, and interest upon maturity, redemption or repayment will be made in
immediately available funds against presentation and surrender of the Note.
Notwithstanding the foregoing, (a) the Depositary, as holder of Global Notes,
shall be entitled to receive payments of interest by wire transfer of
immediately available funds and (b) a holder of $10,000,000 or more in aggregate
principal amount of Definitive Notes having the same Interest Payment Date will
be entitled to receive payments of interest by wire transfer of immediately
available funds upon written request to the Paying Agent, provided such request
is received not later than 15 calendar days prior to the applicable Interest
Payment Date.
Certain Notes, including Original Issue Discount Notes, may be considered to
be issued with original issue discount, which must be included in income for
United States federal income tax purposes at a constant rate. See "Certain U.S.
Federal Income Tax Considerations--U.S. Holders--Original Issue Discount" below.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Original Issue Discount Note is declared to be due and payable
immediately as described under "Description of Debt Securities--Events of
Default" in the Prospectus, the amount of principal due and payable with respect
to such Note shall be limited to the Issue Price of such Note plus the original
issue discount amortized from the date of issue to the date of declaration,
which amortization shall be calculated using the "interest method" (computed in
accordance with generally accepted accounting principles in effect on the date
of declaration). Special considerations applicable to any such Notes will be set
forth in the applicable Pricing Supplement.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the Interest Accrual Date at
the annual rate, each as stated on the face thereof, except as described below
under "Extension of Maturity," until the principal thereof is paid or made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, such interest will be computed on the basis of a 360-day year of
twelve 30-day months. Unless otherwise specified in the applicable Pricing
Supplement, payments of interest on Fixed Rate Notes other than Amortizing Notes
will be made semiannually on each January 15 and July 15 and at maturity or upon
any earlier redemption or repayment. Unless otherwise specified in the
applicable Pricing Supplement, payments of principal and interest on Amortizing
Notes, which are securities on which payments of principal and interest are made
in equal installments over the life of the security, will be made either
S-4
<PAGE>
quarterly on each January 15, April 15, July 15 and October 15 or semiannually
on each January 15 and July 15, as set forth in the applicable Pricing
Supplement, and at maturity or upon any earlier redemption or repayment.
Payments with respect to Amortizing Notes will be applied first to interest due
and payable thereon and then to the reduction of the unpaid principal amount
thereof. A table setting forth repayment information in respect of each
Amortizing Note will be provided to the original purchaser and will be
available, upon request, to subsequent holders.
If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is a
Business Day, and no interest on such payment shall accrue for the period from
and after the Interest Payment Date. If the maturity (or date of redemption or
repayment) of any Fixed Rate Note falls on a day that is not a Business Day, the
payment of interest and principal (and premium, if any) will be made on the next
succeeding Business Day, and no interest on such payment shall accrue for the
period from and after the maturity date (or date of redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest from
and including the date of issue or from and including the last date in respect
of which interest has been paid, as the case may be, to, but excluding, the
Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from the date of issuance until
the principal thereof is paid or made available for payment at a rate determined
by reference to an interest rate basis or formula (the "Base Rate"), which may
be adjusted by a Spread and/or Spread Multiplier (each as defined below). The
applicable Pricing Supplement will designate one or more of the following Base
Rates as applicable to each Floating Rate Note: (a) the CD Rate (a "CD Rate
Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate Note"), (c) the
Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a "LIBOR Note"),
(e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate (a "Treasury
Rate Note"), (g) the CMT Rate (a "CMT Rate Note") or (h) such other Base Rate or
interest rate formula as is set forth in such Pricing Supplement and in such
Floating Rate Note. The "Index Maturity" for any Floating Rate Note is the
period of maturity of the instrument or obligation from which the Base Rate is
calculated and will be specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, and/or (ii) multiplied
by the Spread Multiplier, if any. The "Spread" is the number of basis points
(one one-hundredth of a percentage point) specified in the applicable Pricing
Supplement to be added to or subtracted from the Base Rate for such Floating
Rate Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement to be applied to the Base Rate for such Floating
Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or ceiling,
on the rate of interest which may accrue during any interest period ("Maximum
Interest Rate"); and (ii) a minimum limitation, or floor, on the rate of
interest which may accrue during any interest period ("Minimum Interest Rate").
In addition to any Maximum Interest Rate that may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on a Floating Rate
Note 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
current New York law, the maximum rate of interest, subject to certain
exceptions, for any loan in an amount less than $250,000 is 16% and for any loan
in the amount of $250,000 or more but less than $2,500,000 is 25% per annum. New
York law does not currently limit or restrict the rate of interest on any loan
of $2,500,000 or more.
S-5
<PAGE>
Unless otherwise specified in the applicable Pricing Supplement, the rate of
interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually (such period being the "Interest Reset
Period" for such Note, and the first day of each Interest Reset Period being an
"Interest Reset Date"), as specified in the applicable Pricing Supplement.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each Business
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, the Tuesday of each week, except as provided below; 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 January, April, July and October; in the case of Floating Rate
Notes which reset semiannually, 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 set
forth in the applicable Pricing Supplement (the "Initial Interest Rate") and (b)
unless otherwise specified in the applicable Pricing Supplement, the interest
rate in effect for the ten calendar days immediately prior to maturity,
redemption or repayment will be that in effect on the tenth calendar day
preceding such maturity, redemption or repayment date. If any Interest Reset
Date for any Floating Rate Note would otherwise be a day that is not a Business
Day, such Interest Reset Date shall be postponed to the next succeeding Business
Day, except that in the case of a LIBOR Note, if such Business Day is in the
next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset Date,
on the third Wednesday of each month or on the third Wednesday of January,
April, July and October, as specified in the applicable Pricing Supplement; (ii)
in the case of Floating Rate Notes with a quarterly Interest Reset Date, on the
third Wednesday of January, April, July and October; (iii) in the case of
Floating Rate Notes with a semiannual Interest Reset Date, on the third
Wednesday of the two months specified in the applicable Pricing Supplement; and
(iv) in the case of Floating Rate Notes with an annual Interest Reset Date, on
the third Wednesday of the month specified in the applicable Pricing Supplement.
If any Interest Payment Date for any Floating Rate Note would fall on a day that
is not a Business Day with respect to such Floating Rate Note, such Interest
Payment Date will be postponed to the following day that is a Business Day with
respect to such Floating Rate Note, except that, in the case of a LIBOR Note, if
such Business Day is in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding day that is a Business Day with
respect to such LIBOR Note. 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
Business Day, the payment of principal, premium, if any, and interest will be
made on the next succeeding Business 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.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes shall be the amount of interest accrued from
and including the date of issue or from and including the last date to which
interest has been paid to, but excluding, the Interest Payment Date or maturity
date or date of redemption or repayment.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by the
actual number of days in the year, in the case of Treasury Rate Notes and CMT
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-
S-6
<PAGE>
millionths of a percentage point rounded upward, and all dollar amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded to the
nearest cent, with one-half cent rounded upward. The interest rate in effect on
any Interest Reset Date will be the applicable rate as reset on such date. The
interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).
Unless otherwise stated in the applicable Pricing Supplement, the
calculation agent (the "Calculation Agent") with respect to any issue of
Floating Rate Notes shall be U.S. Trust Company of Texas, N.A. 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 that will
become effective on the next Interest Reset Date with respect to such Floating
Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date for
CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, CMT Rate
Notes and Prime Rate Notes will be the second Business Day next preceding such
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a LIBOR Note will be the second London Banking Day preceding such
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a Treasury Rate Note 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 normally sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, but 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 Interest Determination Date pertaining to the Interest
Reset Date occurring in the next succeeding week. If an auction falls on a day
that is an Interest Reset Date, such Interest Reset Date will be the next
following Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD RATE NOTES
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity designated in
the applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity
S-7
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designated in the Pricing Supplement 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 certificates of deposit of major United
States money center banks; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as set forth above, the CD
Rate in effect for the applicable period will be the same as the CD Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the CD Rate Notes for which such
CD Rate is being determined shall be the Initial Interest Rate).
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Interest Determination Date, the Money
Market Yield (as defined below) of the rate on such date for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement, as
such rate shall be published in H.15(519), under the heading "Commercial Paper."
In the event that such rate is not published by 9:00 A.M., New York City time,
on the Calculation Date pertaining to such Interest Determination Date, then the
Commercial Paper Rate shall be the Money Market Yield of the rate on such
Interest Determination Date for commercial paper of the specified Index Maturity
as published in Composite Quotations under the heading "Commercial Paper." If by
3:00 P.M., New York City time, on such Calculation Date such rate is not yet
available in either H.15(519) or Composite Quotations, then the Commercial Paper
Rate shall be the Money Market Yield of the arithmetic mean of the offered rates
as of 11:00 A.M., New York City time, on such Interest Determination Date of
three leading dealers of commercial paper in The City of New York selected by
the Calculation Agent for commercial paper of the specified Index Maturity,
placed for an industrial issuer whose bond rating is "AA," or the equivalent,
from a nationally recognized statistical rating agency; provided, however, that
if the dealers selected as aforesaid by the Calculation Agent are not quoting
offered rates as mentioned in this sentence, the Commercial Paper Rate in effect
for the applicable period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the Commercial Paper Rate Notes
for which such Commercial Paper Rate is being determined shall be the Initial
Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = -------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days for which interest is being calculated.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rate (calculated
with reference to the Federal Funds Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Federal Funds Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations
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under the heading "Federal Funds/Effective Rate." If such rate is not yet
published in either H.15(519) or the Composite Quotations by 3:00 P.M., New York
City time, on the Calculation Date pertaining to such Interest Determination
Date, the Federal Funds Rate for such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the rates
for the last transaction in overnight Federal funds, as of 9:00 A.M., New York
City time, on such Interest Determination Date, arranged by three leading
brokers of Federal funds transactions in The City of New York selected by the
Calculation Agent; provided, however, that if the brokers selected as aforesaid
by the Calculation Agent are not quoting as set forth above, the Federal Funds
Rate in effect for the applicable period will be the same as the Federal Funds
Rate for the immediately preceding Interest Reset Period (or, if there was no
such Interest Reset Period, the rate of interest payable on the Federal Funds
Rate Notes for which such Federal Funds Rate is being determined shall be the
Initial Interest Rate).
LIBOR NOTES
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any) specified in
the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR" for
each Interest Determination Date will be determined by the Calculation Agent as
follows:
(i) As of the Interest Determination Date, LIBOR will be either: (a) if
"LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the specified Designated LIBOR
Page (as defined below) by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in the Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, that appear on the Designated
LIBOR Page as of 11:00 A.M., London time, on that Interest Determination
Date, if at least two such offered rates appear (unless, as aforesaid, only
a single rate is required) on such Designated LIBOR Page, or (b) if "LIBOR
Telerate" is specified in the applicable Pricing Supplement, the rate for
deposits in the Index Currency having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, that appears on the
Designated LIBOR Page as of 11:00 A.M., London time, on that Interest
Determination Date. If fewer than two offered rates appear (if "LIBOR
Reuters" is specified in the applicable Pricing Supplement and calculation
of LIBOR is based on the arithmetic means of the offered rates) or no rate
appears (if "LIBOR Telerate" is specified in the applicable Pricing
Supplement or if "LIBOR Reuters" is specified in the applicable Pricing
Supplement and the Designated LIBOR Page by its terms provides only for a
single rate), LIBOR in respect of the related Interest Determination Date
will be determined as if the parties had specified the rate described in
clause (ii) below.
(ii) With respect to an Interest Determination Date on which fewer than
two offered rates appear (if "LIBOR Reuters" is specified in the applicable
Pricing Supplement and calculation of LIBOR is based on the arithmetic mean
of the offered rates) or no rate appears (if "LIBOR Telerate" is specified
in the applicable Pricing Supplement or if "LIBOR Reuters" is specified in
the applicable Pricing Supplement and the Designated LIBOR Page by its terms
provides only for a single rate) the Calculation Agent will request the
principal London offices of each of four major reference banks in the London
interbank market, as selected by the Calculation Agent, to provide the
Calculation Agent with its offered quotation for deposits in the Index
Currency for the period of the Index Maturity designated in the applicable
Pricing Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, to prime banks in the London
interbank market at approximately 11:00 A.M., London time, on such Interest
Determination Date and in a principal amount of not less than $1,000,000
that is representative of a single transaction in such Index Currency in
such market at such time. If at least two such quotations are provided,
LIBOR determined on such Interest Determination Date will be the arithmetic
mean of such quotations. If fewer than two quotations are provided, LIBOR
determined on such Interest Determination Date will
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be the arithmetic mean of the rates quoted at approximately 11:00 A.M. (or
such other time specified in the applicable Pricing Supplement), in the City
of New York on such Interest Determination Date, by three major banks in the
City of New York selected by the Calculation Agent for loans in the Index
Currency to leading European banks, having the Index Maturity designated in
the applicable Pricing Supplement and in a principal amount of not less than
$1,000,000 commencing on the second London Banking Day immediately following
such Interest Determination Date that is representative for a single
transaction in such Index Currency in such market at such time; provided,
however, that if the banks so selected by the Calculation Agent are not
quoting as mentioned in this sentence, LIBOR in effect for the applicable
period will be the same as LIBOR for the immediately preceding Interest
Reset Period (or, if there was no such Interest Reset Period, the rate of
interest payable on the LIBOR Notes for which such LIBOR is being determined
shall be the Initial Interest Rate).
"Index Currency" means U.S. dollars unless otherwise specified in the
applicable Pricing Supplement.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated in
the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the Index Currency, or (b) if "LIBOR Telerate" is designated in the
applicable Pricing Supplement, the display on the Dow Jones Telerate Service for
the purpose of displaying the London interbank rates of major banks for the
Index Currency. If neither LIBOR Reuters nor LIBOR Telerate is specified in the
applicable Pricing Supplement, LIBOR for the Index Currency will be determined
as if LIBOR Telerate (Page 3750) had been specified.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 (as defined below)
as such bank's prime rate or base lending rate as in effect for such Interest
Determination Date as quoted on the Reuters Screen USPRIME1 on such Interest
Determination Date, or, if fewer than four such rates appear on the Reuters
Screen USPRIME1 for such Interest Determination Rate, the rate shall be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by 360 as of the close of business on such Interest
Determination Date by at least two of the three major money center banks in The
City of New York selected by the Calculation Agent from which quotations are
requested. If fewer than two quotations are provided, the Prime Rate shall be
calculated by the Calculation Agent and shall be determined as the arithmetic
mean on the basis of the prime rates in The City of New York by the appropriate
number of substitute banks or trust companies organized and doing business under
the laws of the United States, or any State thereof, in each case having total
equity capital of at least $500 million and being subject to supervision or
examination by federal or state authority, selected by the Calculation Agent to
quote such rate or rates; provided, however, that if the banks or trust
companies selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the "Prime Rate" in effect for the applicable period will be the
same as the Prime Rate for the immediately preceding Interest Reset Period (or,
if there was no such Interest Reset Period, the rate of interest payable on the
Prime Rate Notes for which such Prime Rate is being determined shall be the
Initial Interest Rate). "Reuters Screen USPRIME1" means the display designated
as page "USPRIME1" on the Reuters Monitor Money Rates Services (or such other
page as may replace USPRIME1 on that service for the purpose of displaying prime
rates or base lending rates of major United States banks).
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<PAGE>
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rate (calculated with
reference to the Treasury Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Treasury Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury
Bills--auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury Bills having the Index Maturity designated in the applicable Pricing
Supplement are not published or reported as provided above by 3:00 P.M., New
York City time, on such Calculation Date or if no such auction is held on such
Interest Determination Date, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) calculated using the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 P.M., New York City time, on such
Interest Determination Date, of three leading primary United States government
securities dealers selected by the Calculation Agent for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity designated in the
applicable Pricing Supplement; provided, however, that if the dealers selected
as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in
this sentence, the Treasury Rate for such Interest Reset Date will be the same
as the Treasury Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the
Treasury Rate Notes for which the Treasury Rate is being determined shall be the
Initial Interest Rate).
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date, the rate displayed on
the Designated CMT Telerate Page (as defined below) under the caption
" . . . Treasury Constant Maturities . . . Federal Reserve Board Release
H.15 . . . Mondays Approximately 3:45 p.m.," under the column for the Designated
CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate
Page is 7055, such Interest Determination Date and (ii) if the Designated CMT
Telerate Page is 7052, the week or the month, as applicable, ended immediately
preceding the week or month, as applicable in which the related Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 p.m., New York City time, on the related
Calculation Date, then the CMT Rate for such Interest Determination Date will be
such Treasury Constant Maturity rate for the Designated CMT Maturity Index as
published in the relevant H.15(519). If such rate is no longer published, or, if
not published by 3:00 p.m., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such Treasury
Constant Maturity rate for the Designated CMT Maturity Index (or other United
States Treasury rate for the Designated CMT Maturity Index) for the Interest
Determination Date with respect to such Interest Reset Date as may then be
published by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the Designated CMT Telerate
Page and published in the relevant H.15(519). If such information is not
provided by 3:00 p.m., New York City time, on the related
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Calculation Date, then the CMT Rate for the Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity, based on
the arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 p.m., New York City time on the Interest Determination Date
reported, according to their written records, by three leading primary United
States government securities dealers (each, a "Reference Dealer") in The City of
New York (which may include the Agents or their affiliates) selected by the
Calculation Agent (from five such Reference Dealers selected by the Calculation
Agent, after consultation with the Company, and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the lowest
quotation (or, in the event of equality, one of the lowest)), for the most
recently issued direct noncallable fixed rate obligations of the Unites States
("Treasury notes") with an original maturity of approximately the Designated CMT
Maturity Index and remaining term to maturity of not less than such Designated
CMT Maturity Index minus one year. If the Calculation Agent cannot obtain three
such Treasury notes quotations, the CMT Rate for such Interest Determination
Date will be calculated by the Calculation Agent and will be a yield to maturity
based on the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 p.m., New York City time, on the Interest Determination Date
of three Reference Dealers in The City of New York (from five such Reference
Dealers selected by the Calculation Agent and eliminating the highest quotation
(or, in the event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for Treasury notes with an
original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index and in an amount of at least $100,000,000. If
three or four (and not five) of such Reference Dealers are quoting as described
above, then the CMT Rate will be based on the arithmetic mean of the offer
prices obtained and neither the highest nor the lowest of such quotes will be
eliminated; provided however, that if fewer than three Reference Dealers
selected by the Calculation Agent are quoting as described herein, the CMT Rate
for such Interest Reset Date will be the same as the CMT Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the CMT Rate Notes for which the
CMT Rate is being determined shall be the Initial Interest Rate). If two
Treasury notes with an original maturity as described in the second preceding
sentence have remaining terms to maturity equally close to the Designated CMT
Maturity Index, the quotes for the Treasury note with the shorter remaining term
to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in an applicable Pricing Supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)), for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no such
page is specified in the applicable Pricing Supplement, the Designated CMT
Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" shall be the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in an applicable Pricing Supplement with respect to which the CMT Rate
will be calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be two years.
RENEWABLE NOTES
The Company may also issue from time to time variable rate renewable notes
(the "Renewable Notes") that will bear interest at the interest rate (calculated
with reference to a Base Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Renewable Notes and in the applicable Pricing Supplement.
The Renewable Notes will mature on an Interest Payment Date as specified in
the applicable Pricing Supplement (the "Initial Maturity Date"), unless the
maturity of all or any portion of the principal amount thereof is extended in
accordance with the procedures described below. On the Interest Payment Dates in
January 15 and July 15 in each year (unless different Interest Payment Dates are
specified in the applicable Pricing Supplement) (each such Interest Payment
Date, an "Election Date"), the maturity of the Renewable Notes will be extended
to the Interest Payment Date occurring twelve months after such
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Election Date, unless the holder thereof elects to terminate the automatic
extension of the maturity of the Renewable Notes or of any portion thereof
having a principal amount of $1,000 or any integral multiple of $1,000 in excess
thereof by delivering a notice of such effect to the Paying Agent not less than
nor more than a number of days to be specified in the applicable Pricing
Supplement prior to such Election Date. Such option may be exercised with
respect to less than the entire principal amount of the Renewable Notes;
provided that the principal amount for which such option is not exercised is at
least $1,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, the maturity of the Renewable Notes may not be
extended beyond the Final Maturity Date, as specified in the applicable Pricing
Supplement (the "Final Maturity Date"). If the holder elects to terminate the
automatic extension of the maturity of any portion of the principal amount of
the Renewable Notes and such election is not revoked as described below, such
portion will become due and payable on the Interest Payment Date falling six
months (unless another period is specified in the applicable Pricing Supplement)
after the Election Date prior to which the holder made such election.
An election to terminate the automatic extension of maturity may be revoked
as to any portion of the Renewable Notes having a principal amount of $1,000 or
any integral multiple of $1,000 in excess thereof by delivering a notice to such
effect to the Paying Agent on any day following the effective date of the
election to terminate the automatic extension of maturity and prior to the date
15 days before the date on which such portion would otherwise mature. Such a
revocation may be made for less than the entire principal amount of the
Renewable Notes for which the automatic extension of maturity has been
terminated; provided that the principal amount of the Renewable Notes for which
the automatic extension of maturity has been terminated and for which such a
revocation has not been made is at least $1,000 or any larger amount that is an
integral multiple of $1,000. Notwithstanding the foregoing, a revocation may not
be made during the period from and including a Record Date to but excluding the
immediately succeeding Interest Payment Date.
An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon such subsequent holder.
The Renewable Notes may be redeemed in whole or in part at the option of the
Company on the Interest Payment Dates in each year specified in the applicable
Pricing Supplement, commencing with the Interest Payment Date specified in the
applicable Pricing Supplement, at a redemption price as stated in the applicable
Pricing Supplement, together with accrued and unpaid interest to the date of
redemption. Notwithstanding anything to the contrary in this Prospectus
Supplement, notice of redemption will be provided by mailing a notice of such
redemption to each holder by first class mail, postage prepaid, at least 180
days prior to the date fixed for redemption.
INDEXED NOTES
The Notes may be issued, from time to time, as Notes of which the principal
amount payable on a date more than nine months from the date of original issue
(the "Stated Maturity") and/or on which the amount of interest payable on an
Interest Payment Date will be determined by reference to currencies, currency
units, commodity prices, financial or non-financial indices or other factors
(the "Indexed Notes"), as indicated 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 of such Notes depending upon the
fluctuation of the relative value, rate or price of the specified index.
Specific information pertaining to the method for determining the principal
amount payable at maturity, a historical comparison of the relative value, rate
or price of the specified index and the face amount of the Indexed Note and
certain additional United States federal tax considerations will be described in
the applicable Pricing Supplement.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note (other than an Amortizing Note)
will indicate whether the Company has the option to extend the maturity of such
Note for one or more periods of one or more
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whole years (each an "Extension Period") up to but not beyond the date (the
"Final Maturity Date") set forth in such Pricing Supplement. If the Company has
such option with respect to any such Note (an "Extendible Note"), the following
procedures will apply, unless modified as set forth in the applicable Pricing
Supplement.
The Company may exercise such option with respect to an Extendible Note by
notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has already
been extended, prior to the maturity date then in effect (an "Extended Maturity
Date"). No later than 38 days prior to the Original Maturity Date or an Extended
Maturity Date, as the case may be (each, a "Maturity Date"), the Paying Agent
will mail to the holder of such Note a notice (the "Extension Notice") relating
to such Extension Period, by first class mail, postage prepaid, setting forth
(a) the election of the Company to extend the maturity of such Note; (b) the new
Extended Maturity Date; (c) the interest rate applicable to the Extension Period
(which, in the case of a Floating Rate Note, will be calculated with reference
to a Base Rate and the Spread and/or Spread Multiplier, if any); and (d) the
provisions, if any, for redemption during the Extension Period, including the
date or dates on which, the period or periods during which and the price or
prices at which such redemption may occur during the Extension Period. Upon the
mailing by the Paying Agent of an Extension Notice to the holder of an
Extendible Note, the maturity of such Note shall be extended automatically, and,
except as modified by the Extension Notice and as described in the next
paragraph, such Note will have the same terms it had prior to the mailing of
such Extension Notice.
Notwithstanding the foregoing, not later than 10:00 A.M., New York City
time, on the twentieth calendar day prior to the Maturity Date then in effect
for an Extendible Note (or, if such day is not a Business Day, not later than
10:00 A.M., New York City time, on the immediately succeeding Business Day), the
Company may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period by causing the Paying Agent to send notice of such higher
interest rate (or, in the case of a Floating Rate Note, a higher Spread and/or
Spread Multiplier, if any) to the holder of such Note by first class mail,
postage prepaid, or by such other means as shall be agreed between the Company
and the Paying Agent. Such notice shall be irrevocable. All Extendible Notes
with respect to which the Maturity Date is extended in accordance with an
Extension Notice will bear such higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period, whether or not tendered for repayment.
If the Company elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Company to repay such
Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be repaid on such Maturity Date, the holder thereof must
follow the procedures set forth below under "Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for delivery
of such Note or notification to the Paying Agent shall be at least 25 but not
more than 35 days prior to the Maturity Date then in effect and except that a
holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not a
Business Day, until 3:00 P.M., New York City time, on the immediately succeeding
Business Day).
BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Global Notes having the same Issue Date,
interest rate, if any, amortization schedule, if any, maturity date and other
terms, if any, will be represented by one or more Global Securities, and all
Floating Rate Global Notes having the same Issue Date, Initial Interest Rate,
Base Rate, Interest Reset Period, Interest Payment Dates, Index Maturity, Spread
and/or Spread Multiplier, if any, Minimum Interest Rate, if any, Maximum
Interest Rate, if any, maturity date and other terms, if any, will be
represented by one or more Global Securities. Each Global Security representing
Global
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Notes will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York (the "Depositary"), and registered in the name of a nominee of
the Depositary. Global Notes will not be exchangeable for Definitive Notes,
except under the circumstances described in the Prospectus under "Description of
Debt Securities--Global Securities." Definitive Notes will not be exchangeable
for Global Notes and will not otherwise be issuable as Global Notes.
A further description of the Depositary's procedures with respect to Global
Securities representing Global Notes is set forth in the Prospectus under
"Description of Debt Securities--Global Securities." The Depositary has
confirmed to the Company, each Agent and the Trustee that it intends to follow
such procedures.
OPTIONAL REDEMPTIONS
The Pricing Supplement will indicate that the Notes cannot be redeemed prior
to maturity or will indicate the terms on which the Notes will be redeemable at
the option of the Company. Notice of redemption will be provided by mailing a
notice of such redemption to each holder by first class mail, postage prepaid,
at least 30 days and not more than 60 days prior to the date fixed for
redemption to the respective address of each holder as that address appears upon
the books maintained by the Paying Agent. Unless otherwise provided in the
applicable Pricing Supplement, the Notes, except for Amortizing Notes, will not
be subject to any sinking fund.
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
If applicable, the Pricing Supplement relating to each Note will indicate
that the Note will be repayable at the option of the holder on a date or dates
specified prior to its maturity date and, unless otherwise specified in such
Pricing Supplement, at a price equal to 100% of the principal amount thereof,
together with accrued interest to the date of repayment, unless such Note was
issued with original issue discount, in which case the Pricing Supplement will
specify the amount payable upon such repayment.
In order for such a Note to be repaid, the Paying Agent must receive at
least 30 days but not more than 60 days prior to the repayment date (i) the Note
with the form entitled "Option to Elect Repayment" or (ii) a telegram, telex,
facsimile transmission or a letter from a member of a national securities
exchange, or the National Association of Securities Dealers, Inc. (the "NASD")
or a commercial bank or trust company in the United States setting forth the
name of the holder of the Note, the principal amount of the Note, the principal
amount of the Note to be repaid, the certificate number or a description of the
tenor and terms of the Note, a statement that the option to elect repayment is
being exercised thereby and a guarantee that the Note to be repaid, together
with the duly completed form entitled "Option to Elect Repayment" on the reverse
of the Note, will be received by the Paying Agent not later than the fifth
Business Day after the date of such telegram, telex, facsimile transmission or
letter, provided, however, that such telegram, telex, facsimile transmission or
letter shall only be effective if such Note and form duly completed are received
by the Paying Agent by such fifth Business Day. Except in the case of Renewable
Notes or Extendible Notes, and unless otherwise specified in the applicable
Pricing Supplement, exercise of the repayment option by the holder of a Note
will be irrevocable. The repayment option may be exercised by the holder of a
Note for less than the entire principal amount of the Note but, in that event,
the principal amount of the Note remaining outstanding after repayment must be
an Authorized Denomination.
If a Note is represented by a Global Security, the Depositary's nominee will
be the holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different deadlines for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other direct or
indirect participant through
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which it holds an interest in a Note in order to ascertain the deadline by which
such an instruction must be given in order for timely notice to be delivered to
the Depositary.
The Company may purchase Notes at any price in the open market or otherwise.
Notes so purchased by the Company may, at the discretion of the Company, be held
or resold or surrendered to the relevant Trustee for cancellation.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates). It deals only with
Notes held as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), does not discuss all of the tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances and does not purport to deal with persons in special
tax situations, such as financial institutions, insurance companies, tax-exempt
organizations, regulated investment companies, dealers in securities or
currencies, persons holding Notes as a hedge against, or which are hedged
against, currency risks, persons holding Notes as a position in a "straddle" for
tax purposes, or persons whose functional currency as defined in Section 985 of
the Code is not the United States dollar. It also does not deal with holders
other than original purchasers (except where otherwise specifically noted).
BECAUSE THE EXACT PRICING AND OTHER TERMS OF THE NOTES WILL VARY, NO ASSURANCE
CAN BE GIVEN THAT THE CONSIDERATIONS DESCRIBED BELOW WILL APPLY TO A PARTICULAR
ISSUANCE OF NOTES. CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES RELATING TO THE OWNERSHIP OF PARTICULAR NOTES (WHERE APPLICABLE)
WILL BE SUMMARIZED IN THE PRICING SUPPLEMENT RELATING TO SUCH NOTES. PERSONS
CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. The term also includes certain
former citizens of the United States. As used herein, the term "non-U.S. Holder"
means a beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST. Payments of interest on a Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular method
of accounting for federal income tax purposes).
ORIGINAL ISSUE DISCOUNT. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Notes issued with original issue discount
("Discount Notes").
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a DE MINIMIS amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first
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price at which a substantial amount of such Notes has been sold for money
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a Note is the sum of all payments
provided by the Note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable as a series of payments in cash or property (other than
debt instruments of the issuer) at least annually during the entire term of the
Note and equal to the outstanding principal balance multiplied by a single fixed
rate of interest. In addition, under final Treasury Regulations (the "OID
Regulations") promulgated by the Internal Revenue Service (the "IRS") under the
original issue discount provisions of the Code, if a Note bears interest for one
or more accrual periods at a rate below the rate applicable for the remaining
term of such Note (E.G., Notes with teaser rates or interest holidays), and if
the greater of either the resulting foregone interest on such Note or any "true"
discount on such Note (I.E., the excess of the Note's stated principal amount
over its issue price) equals or exceeds a specified DE MINIMIS amount, then the
stated interest on the Note would be treated as original issue discount rather
than qualified stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax accounting
for federal income tax purposes). Holders of Notes with a DE MINIMIS amount of
original issue discount, as described above, will generally include such
original issue discount in income, as capital gain, on a pro rata basis as
principal payments are made on the Notes. A U.S. Holder of a Discount Note that
matures more than one year from the date of issuance must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method based on a compounding of
interest in advance of receipt of the cash payments attributable to such income,
regardless of such U.S. Holder's regular method of tax accounting. In general,
the amount of original issue discount included in income by the initial U.S.
Holder of a Discount Note is the sum of the daily portions of original issue
discount with respect to such Discount Note for each day during the taxable year
(or portion of the taxable year) on which such U.S. Holder held such Discount
Note. The "daily portion" of original issue discount on any Discount Note is
determined by allocating to each day in any accrual period a ratable portion of
the original issue discount allocable to that accrual period. An "accrual
period" may be of any length and the accrual periods may vary in length over the
term of the Discount Note, provided that each accrual period is no longer than
one year and each scheduled payment of principal or interest occurs either on
the final day of an accrual period or on the first day of an accrual period. The
amount of original issue discount allocable to each accrual period is generally
equal to the difference between (i) the product of the Discount Note's adjusted
issue price at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period and
appropriately adjusted to take into account the length of the particular accrual
period) and (ii) the amount of any qualified stated interest payments allocable
to such accrual period. The "adjusted issue price" of a Discount Note at the
beginning of any accrual period is the sum of the issue price of the Discount
Note plus the amount of original issue discount allocable to all prior accrual
periods minus the amount of any prior payments on the Discount Note that were
not qualified stated interest payments. Under these rules, U.S. Holders
generally will have to include in income increasingly greater amounts of
original issue discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder must
include in its gross income with respect to such Discount Note for any taxable
year (or portion thereof in which the U.S. Holder holds the Discount Note) will
be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes, Renewable Notes and Indexed
Notes (collectively, "Variable Notes") are subject to special rules whereby a
Variable Note will qualify as a "variable rate debt
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instrument" if (a) its issue price does not exceed the total noncontingent
principal payments due under the Variable Note by more than a specified DE
MINIMIS amount and (b) it provides for stated interest, paid or compounded at
least annually, at current values of (i) one or more qualified floating rates,
(ii) a single fixed rate and one or more qualified floating rates, (iii) a
single objective rate, or (iv) a single fixed rate and a single objective rate
that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
is a qualified floating rate if it is equal to either (1) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (2) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Variable Note (e.g., two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Note's issue date) will be treated as a single
qualified floating rate. Notwithstanding the foregoing, a variable rate that
would otherwise constitute a qualified floating rate but which is subject to one
or more restrictions such as a maximum numerical limitation (i.e., a cap) or a
minimum numerical limitation (i.e., a floor) may, under certain circumstances,
fail to be treated as a qualified floating rate under the OID Regulations unless
such cap or floor is fixed throughout the term of the Note. An "objective rate"
is a rate (other than a qualified floating rate) that is obtained using a single
fixed formula and that is based on objective financial or economic information
outside of the issuer's control. The OID Regulations also provide that other
variable interest rates may be treated as objective rates if so designated by
the IRS in the future. Despite the foregoing, a variable rate of interest on a
Variable Note will not constitute an objective rate if it is reasonably expected
that the average value of such rate during the first half of the Variable 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 Variable Note's term. A
"qualified inverse floating rate" is any objective rate where such rate is equal
to a fixed rate minus a qualified floating rate, as long as variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the qualified floating rate. The OID Regulations also provide that if a
Variable Note provides for stated interest at a fixed rate for an initial period
of less than one year followed by a variable rate that is either a qualified
floating rate or an objective rate for a subsequent period, and if the variable
rate on the Variable Note's issue date is intended to approximate the fixed rate
(e.g., the value of the variable rate on the issue date does not differ from the
value of the fixed rate by more than 25 basis points), then the fixed rate and
the variable rate together will constitute either a single qualified floating
rate or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually during
the term of the Note will constitute qualified stated interest and will be taxed
accordingly. Thus, a Variable Note that provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Variable Note is issued at a "true" discount (i.e., at
a price below the Note's stated principal amount) in excess of a specified DE
MINIMIS amount. Original issue discount on such a Variable Note arising from
"true" discount is allocated to an accrual period using the constant yield
method described above by assuming that the variable rate is a fixed rate equal
to (i) in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or (ii) in the case of an objective rate (other
than a qualified inverse floating rate), a fixed rate that reflects the yield
that is reasonably expected for the Variable Note.
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In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. In each accrual period, appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. Generally, if a Variable Note is treated as
a contingent payment obligation, interest payments thereon will be treated as
"contingent interest" payments. Under recently issued Treasury Regulations, any
contingent interest payments on a Variable Note would be includible in income in
a taxable year whether or not the amount of any payment is fixed or determinable
in that year. The amount of interest included in income in any particular
accrual period would be determined by constructing a projected payment schedule
(as determined under the Regulations) for the Variable Note and applying daily
accrual rules similar to those for accruing original issue discount on Notes
issued with original issue discount (as discussed above). If the actual amount
of contingent interest payments is not equal to the projected amount, an
adjustment to income at the time of the payment must be made to reflect the
difference.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, DE
MINIMIS original issue discount, market discount, DE MINIMIS market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
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SHORT-TERM NOTES. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects to
do so. If such an election is not made, any gain recognized by the U.S. Holder
on the sale, exchange or maturity of the Short-Term Note will be ordinary income
to the extent of the original issue discount accrued on a straight-line basis,
or upon election under the constant yield method (based on daily compounding),
through the date of sale, exchange or maturity, and a portion of the deductions
otherwise allowable to the U.S. Holder for interest on borrowings allocable to
the Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
MARKET DISCOUNT. If a U.S. Holder purchases a Note, other than a Discount
Note, for an amount that is less than its stated redemption price at maturity
or, in the case of a Discount Note, for an amount that is less than its adjusted
issue price as of the purchase date, such U.S. Holder will be treated as having
purchased such Note at a "market discount," unless such market discount is less
than a specified DE MINIMIS amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Note, any payment that
does not constitute qualified stated interest) on, or any gain realized on the
sale, exchange, retirement or other disposition of, a Note as ordinary income to
the extent of the lesser of (i) the amount of such payment or realized gain or
(ii) the market discount which has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
U.S. Holder elects to accrue market discount on an economic accrual basis. If
such Note is disposed of in a nontaxable transaction (other than as provided in
Code Sections 1276(c) and (d)), accrued market discount will be includible as
ordinary income to such Holder as if such Holder had sold the Note at its then
fair market value.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions including a nontaxable transaction (other than as
provided in Code Sections 1276(c) and (d)), because a current deduction is only
allowed to the extent the interest expense exceeds an allocable portion of
market discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Note and upon the receipt of certain
cash payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States Federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. Holder on or after the first
day of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
PREMIUM. If a U.S. Holder purchases a Note for an amount that is greater
than the sum of all amounts payable on the Note after the purchase date other
than payments of qualified stated interest, such U.S. Holder will be considered
to have purchased the Note with "amortizable bond premium" equal in amount to
such excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the Note and may offset interest
otherwise required to be included in respect of the Note during any taxable year
by the amortized amount of such excess for the taxable year. However, if the
Note may be optionally redeemed after the U.S. Holder acquires it at a price in
excess of its stated redemption price at maturity, special rules would apply
which could result in a deferral of the amortization of some bond premium until
later in the term of the Note. A U.S. Holder who elects to amortize bond premium
must reduce such holder's tax basis in the Note by the amount of the premium
amortized in any
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year. Any election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the U.S. Holder and may be
revoked only with the consent of the IRS.
DISPOSITION OF A NOTE. Except as discussed above, upon the sale, exchange
or retirement of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Note. Such gain or loss generally will be long-term capital
gain or loss if the Note were held for more than one year. The excess of net
long-term capital gains over net short-term capital losses is taxed at a lower
rate than ordinary income for certain non-corporate taxpayers. The distinction
between capital gain or loss and ordinary income or loss is also relevant for
purposes of, among other things, limitations on the deductibility of capital
losses.
EXTENSION OF MATURITY. As described under "Description of Notes--Extension
of Maturity" above, the issuer may have the option to extend the maturity of a
Note and, if the issuer exercises such option, the Holder will have the option
to require the issuer to repay the Note on the Maturity Date. The election by
the Company to extend the maturity of a Note will, under certain circumstances,
be treated for federal income tax purposes as a taxable exchange of such Note
for a modified note. See "Disposition of a Note". Purchasers of such Notes
should carefully examine the applicable Pricing Supplement and should consult
with their tax advisors with respect to such a feature since the tax
consequences will depend, in part, on the particular terms and particular
features of the Note.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder owns actually or
constructively 10% or more of the total combined voting power of all classes of
stock of the Company entitled to vote, is a controlled foreign corporation
related directly or indirectly to the Company through stock ownership or is a
bank receiving interest described in section 881(c)(3)(A) of the Code. To
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding Agent")
must have received in the year in which a payment of interest or principal
occurs, or in either of the two preceding calendar years, a statement that (i)
is signed by the beneficial owner of the Note under penalties of perjury, (ii)
certifies that such owner is not a U.S. Holder and (iii) provides the name and
address of the beneficial owner. The statement may be made on an IRS Form W-8 or
a substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However, in
such case, the signed statement must be accompanied by a copy of the IRS Form
W-8 or the substitute form provided by the beneficial owner to the organization
or institution. In addition, the Treasury Department has recently issued
proposed regulations regarding the withholding and information reporting rules
discussed above. In general, the proposed regulations do not alter the
substantive withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. If finalized
in their current form, the proposed regulations would generally be effective for
payments made after December 31, 1997, subject to certain transition rules.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, unless (i) such Holder is an individual who is present in the United
States for 183 days or more in the taxable year of disposition, and either (a)
such individual has a "tax home" (as defined in Code Section 911(d)(3)) in the
United States (unless such gain is attributable to a fixed place of business in
a foreign country maintained by such individual and
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has been subject to foreign tax of at least 10%) or (b) the gain is attributable
to an office or other fixed place of business maintained by such individual in
the United States or (ii) the gain is effectively connected with the conduct of
a trade or business in the United States by the non-U.S. Holder.
If a non-U.S. Holder of a Note is engaged in a trade or business in the
United States, and if interest (including original issue discount) on the Note
is effectively connected with the conduct of such trade or business, the
non-U.S. Holder, although exempt from the withholding tax discussed in the
preceding paragraph, will generally be subject to regular United States income
tax on interest (including any original issue discount) and on any gain realized
on the sale, exchange or other disposition of a Note in the same manner as if it
were a United States Holder. See the discussion above regarding U.S. Holders. In
lieu of the certificate described above, such a Holder will be required to
provide to the Company a properly executed Internal Revenue Service Form 4224 in
order to claim an exemption from withholding tax. In addition, if such non-U.S.
Holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% (or such lower rate provided by an appliable treaty) of its effectively
connected earnings and profits for the taxable year, subject to certain
adjustments. For purposes of the branch profits tax, interest (including
original issue discount) on and any gain recognized on the sale, exchange or
other disposition of a Note will be included in the effectively connected
earnings and profits of such non-U.S. Holder if such interest or gain, as the
case may be, is effectively connected with the conduct by the non-U.S. Holder of
a trade or business in the United States.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual owns, actually or constructively, 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. However, if such 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 will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a United States person and
certain other conditions are met or the beneficial owner otherwise establishes
an exemption. Under proposed Treasury Regulations, backup withholding may apply
to any payment which such broker is required to report if such broker has actual
knowledge that the payee is a United States person. Payments to or through the
United States office of a broker will be subject to backup withholding and
information reporting unless the Holder certifies, under penalties of perjury,
that it is not a United States person or otherwise establishes an exemption.
Holders should consult their tax advisors regarding their qualification for
an exemption from backup withholding and information reporting and the procedure
for obtaining such an exemption, if applicable. Any amounts withheld under the
backup withholding rules from a payment to a beneficial owner would be allowed
as a refund or a credit against such beneficial owner's United States Federal
income tax provided the required information is furnished to the IRS.
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PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company through the
Agents, who have agreed to use reasonable efforts to solicit offers to purchase
Notes. The Company will have the sole right to accept offers to purchase Notes
and may reject any offer to purchase Notes in whole or in part. An Agent will
have the right to reject any offer to purchase Notes solicited by it in whole or
in part. Payment of the purchase price of the Notes will be required to be made
in immediately available funds. The Company will pay an Agent, in connection
with sales of Notes resulting from a solicitation made or an offer to purchase
received by such Agent, a commission ranging from .125% to .750% of the
principal amount of Notes to be sold, provided, however, that commissions with
respect to Notes maturing in thirty years or greater will be negotiated.
The Company may also sell Notes to an Agent as principal for its own account
at discounts to be agreed upon at the time of sale. Such Notes may be resold to
investors and other purchasers at prevailing market prices, or prices related
thereto at the time of such resale, as determined by the Agent or, if so agreed,
at a fixed public offering price. 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 will not be in excess of
the discount to be received by such Agent from the Company. After the initial
public offering of Notes to be resold to investors and other purchasers, the
public offering price (in the case of Notes to be resold at a fixed public
offering price), concession and discount may be changed.
The Company has reserved the right to sell the Notes directly to investors,
and may solicit and accept offers to purchase Notes directly from investors from
time to time on its own behalf. The Company may accept (but not solicit) offers
to purchase Notes through additional agents and may appoint additional agents
for the purpose of soliciting offers to purchase Notes, in either case on terms
substantially identical to the terms contained in the Distribution Agreement.
Such other agents, if any, will be named in the applicable Pricing Supplement.
An Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933 (the "Securities Act"). The Company and the Agents have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments made in
respect thereof. The Company has also agreed to reimburse the Agents for certain
expenses.
The Company does not intend to apply for the listing of the Notes on a
national securities exchange. The Company has been advised by the Agents that
the Agents intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Agents are not obligated to do so, however, and the Agents
may discontinue making a market at any time without notice. No assurance can be
given as to the liquidity of any trading market for the Notes.
Concurrently with the offering of Notes through the Agents as described
herein, the Company may issue other Debt Securities pursuant to the Indenture
referred to herein.
NationsBanc Capital Markets, Inc., one of the Agents, is an affiliate of
NationsBank, N.A., the administrative agent and one of the lenders under the
Company's $250,000,000 credit facility.
The Agents and/or certain of their affiliates may engage in transactions
with and perform services for the Company and certain of its affiliates in the
ordinary course of business.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by John F.
Schmutz, Vice President-- General Counsel of the Company and Latham & Watkins,
Los Angeles, California, or such other attorney of the Company as the Company
may designate, and for the Agents by Davis Polk & Wardwell, New York, New York.
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