Rule 424(b)(3)
Registration No. 33-62777
PRICING SUPPLEMENT NO. 6 dated July 31, 1996
The Walt Disney Company
Medium-Term Notes
This Pricing Supplement accompanies and supplements the Prospectus dated
March 7, 1996 (the "Prospectus"), as supplemented by the Prospectus Supplement,
dated March 7, 1996 (the "Prospectus Supplement").
The S&P 500 Indexed Notes (the "S&P 500 Indexed Notes" or the "Notes") have the
following terms:
Issuer: The Walt Disney Company (the "Company")
Principal Amount: $50,000,000
Original Issue Date
(Settlement Date): August 7, 1996
Stated Maturity Date: August 7, 2003
CUSIP No.: 25468 PAF 3
Issue Price: 100%
Specified Currency: U.S. Dollars
Authorized
Denominations: $100,000 and integral multiples of $1,000 in excess
thereof.
Periodic Interest: Fixed Rate Note; Interest Rate per annum: 2.5%
Interest Payment Dates: February 7 and August 7, commencing February 7, 1997.
Regular Record Dates: Fifteenth calendar day (whether or not a Business Day)
next preceding each Interest Payment Date.
Calculation Agent: Bankers Trust Company. All determinations made by
the Calculation Agent shall be at its sole discretion
and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the Company
and holders of the Notes.
Redemption Date(s): The Company may not redeem the S&P 500 Indexed Notes
prior to the Stated Maturity Date.
Repayment Date(s): A beneficial owner may not demand repayment of the
S&P 500 Indexed Notes prior to the Stated Maturity
Date.
Form of Note: Book-Entry
Original Issue
Discount Note: [ ] Yes
[ X ] No
Interest Payment
Provisions: Holders of the S&P 500 Indexed Notes will be entitled
to receive periodic payments of interest at a rate of
2.5% of the principal amount per annum, calculated on
the basis of a 360-day year comprised of twelve 30-day
months, payable in arrears on February 7 and August 7
of each year prior to the Stated Maturity Date,
beginning February 7, 1997. If the Interest Payment
Date for any periodic interest falls on a day that is
not a Business Day (as defined in the Prospectus
Supplement), payment of interest with respect to such
Note will be paid on the next succeeding Business Day
with the same force and effect as if made on the due
date, and no interest shall be payable on the date of
payment for the period from and after the due date.
At the Stated Maturity Date, the beneficial owner of a
Note will be entitled to receive, in addition to
accrued periodic interest, an amount in U.S. Dollars
equal to the sum of 100% of the face amount of such
Note (the "Principal Redemption Amount") and the
Supplemental Redemption Amount (as defined below),
if any. See "Redemption Amount."
Events of Default
and Acceleration: In case of an Event of Default with respect to the
Notes shall have occurred and be continuing, the
amount payable to a beneficial owner of a Note upon
any acceleration permitted by the Notes will be equal
to the amount that would be payable as though the
Stated Maturity Date of the Notes was the date on
which early repayment is due, and the Final Index
Value (as defined below) was calculated based on the
Closing Index Value (as defined below) of the Index
(as defined below) on the date of early repayment, or
the first succeeding Index Business Day (as defined
below) in the event that the date of early repayment
is not an Index Business Day, plus accrued and unpaid
interest to the date of repayment; provided, however,
that if the Closing Index Value on any Index Business
Day prior to such date of early repayment has equaled
or exceeded the Threshold Value (as defined below),
the amount payable to a beneficial owner of a Note
upon acceleration will be equal to the sum of
(x) 100% of the face amount of such Note and (y)
85.785% of the face amount of such Note, with such
sum being discounted from the Stated Maturity Date
to the date of such early repayment in accordance
with generally accepted financial practices on a
semiannual basis at a discount rate equal to the
LIBOR Reuters rate, determined in accordance with the
procedures set forth in the accompanying Prospectus
Supplement for LIBOR Notes, using the rate for a
LIBOR obligation with a period to maturity similar to
the period from the date of such early repayment to
the Stated Maturity Date, plus accrued and unpaid
interest to the date of repayment. If a bankruptcy
proceeding is commenced in respect of the Company, the
claim of the beneficial owner of a Note may be
limited, under Section 502(b)(2) of Title 11 of the
United States Code, to the amount of the Notes that
would be due if the Stated Maturity Date of the Notes
were the date of the commencement of the proceeding.
Agent: The Notes offered hereby are being sold through BT
Securities Corporation as agent for the Company.
Bankers Trust Company, an affiliate of BT Securities
Corporation ("BT Securities"), will enter into a
hedging transaction with the Company in connection
with the Notes and BT Securities will receive
compensation for arranging the hedging transaction.
THE S&P 500 INDEXED NOTES OFFERED HEREBY ARE NOT AN APPROPRIATE INVESTMENT
FOR INVESTORS WHO ARE NOT SOPHISTICATED WITH RESPECT TO EQUITY INDICES,
OPTIONS AND OPTION TRANSACTIONS AND FOREIGN MARKETS.
All terms used but not defined herein which are defined in the accompanying
Prospectus or Prospectus Supplement shall have the meanings therein assigned to
them.
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500" and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by Bankers Trust Company and its affiliates, and sublicensed by the Company.
The Notes are not sponsored, endorsed, sold or promoted by Standard & Poor's
and Standard & Poor's makes no representations regarding the advisability of
investing in the Notes.
REDEMPTION AMOUNT
Except as provided below, a beneficial owner of a Note will be entitled to
receive, at the Stated Maturity Date, in addition to accrued periodic interest,
an amount (the "Redemption Amount") in U.S. Dollars equal to the sum of:
i) 100% of the face amount of the Note (i.e., the Principal Redemption
Amount) and
ii) an additional amount, if any (the "Supplemental Redemption Amount"),
equal to the product of the face amount of the Note multiplied by
the greater of (a) 0.0% and (b) a percentage calculated as follows:
90.3% X / Final Index Value - Initial Index Value /
/ --------------------------------------- /
/ Initial Index Value /
provided, however, that in no such case will such Redemption Amount (calculated
as the sum of the Principal Redemption Amount and the Supplemental Redemption
Amount, if any) be less than 100.00% or greater than 185.785% of the face
amount of the Notes.
Notwithstanding anything else contained in this section, if the Closing Index
Value on any Index Business Day equals or exceeds the Threshold Value on any
Index Business Day following the Index Reset Date and prior to the beginning of
the Calculation Period, a beneficial owner of a Note will be entitled to
receive at the Stated Maturity Date a Redemption Amount in U.S. Dollars equal
to the product of the face amount of such Note and 185.785%, regardless of the
subsequent performance of the S&P 500 Index.
"Calculation Period" is the five consecutive Index Business Days
ending on, and including, August 6, 2003.
"Closing Index Value" is the value of the Index at the close of
business on any Index Business Day as determined by the Calculation
Agent.
"Final Index Value" will be determined by the Calculation Agent and
will equal the arithmetic average of the Closing Index Values on the
five Index Business Days in the Calculation Period (each, a
"Calculation Date"). Notwithstanding the foregoing, if the
Calculation Agent determines that a Market Disruption Event (as
defined below) has occurred or is continuing at the close of
scheduled trading on any Index Business Day during the Calculation
Period, then the Final Index Value will equal the arithmetic average
of the Closing Index Value on each Index Business Day during the
Calculation Period on which a Market Disruption Event did not
occur or is not continuing at the close of scheduled trading. If
there is a Market Disruption Event on each of the five Index
Business Days during the Calculation Period, then the Calculation
Agent shall determine the Final Index Value as the Closing Index
Value on the last Index Business Day prior to the beginning of the
Calculation Period on which a Market Disruption Event is deemed not
to have occurred.
"Index" or "S&P 500 Index" is the Standard & Poor's 500 Composite
Stock Price Index or a Successor Index (as defined below).
"Index Business Day" is a day that is (or, but for the existence of
a Market Disruption Event, would have been) a trading day on which
the New York Stock Exchange is open for business, other than a day
on which trading is scheduled to close prior to the regular weekday
closing time.
"Index Sponsor" is Standard & Poor's, a division of The McGraw-Hill
Companies, Inc.
"Initial Index Value" is equal to the average of 639.95 and the
Closing Index Value on the Index Reset Date (as defined below).
"Index Reset Date" is any Index Business Day from and including
July 31, 1996 through and including October 29, 1996 (or, if such
day is not an Index Business Day, the next following Index Business
Day) as selected by the holders of a majority in aggregate principal
amount of the Notes by irrevocable notice to the Calculation Agent
not later than 12:00 noon, New York time on the Index Reset Date;
provided, however, if no Index Reset Date is selected and noticed
prior to October 29, 1996 (or, if such day is not an Index
Business Day, the next following Index Business Day), October 29,
1996 will be deemed to be the Index Reset Date; provided, further,
that if a Market Disruption Event occurs and is continuing at the
close of business on the date so designated, the Index Reset Date
shall be the next succeeding Index Business Day on which no Market
Disruption Event occurs and is continuing at the close of business.
"Threshold Value" is the product of (i) 195% and (ii) the Initial
Index Value.
"Market Disruption Event" means the occurrence or existence on any
Index Business Day of:
i) the suspension or material limitation (limitations pursuant to
NYSE Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange, the American Stock
Exchange, any other self-regulatory organization or the
Securities and Exchange Commission of similar scope as
determined by the Calculation Agent) on trading during
significant market fluctuations shall be considered
"material" for purposes of this definition), in each case,
for more than two hours of trading in 100 or more of the
securities included in the S&P 500 Index, or
ii) the suspension or material limitation, in each case, for more
than two hours of trading (whether by reason of movements in
price otherwise exceeding levels permitted by the relevant
exchange or otherwise) in (A) futures contracts related to the
S&P 500 Index which are traded on the Chicago Mercantile
Exchange and (B) option contracts related to the S&P 500
Index which are traded on the Chicago Board Options Exchange,
Inc.
For the purposes of this definition: (1) a limitation on hours in a
trading day and/or number of days of trading will not constitute a
Market Disruption Event if it results from an announced change in the
regular business hours of the relevant exchange and (2) a limitation
on trading for more than two hours imposed during the course of a day
by reason of movements in price otherwise exceeding levels permitted
by the relevant exchange will constitute a Market Disruption Event.
The Calculation Agent shall as soon as reasonably practicable under the
circumstances notify the Trustee, the Company and the holders of the Notes of
the existence or occurrence of a Market Disruption Event on the day that, but
for the occurrence or existence of a Market Disruption Event, would have been
an Index Business Day for determination of the Initial Index Value or the
Closing Index Value.
The Calculation Agent will notify the Trustee, the Company and the holders of
the Notes in writing of the Closing Index Value on the Index Reset Date and the
Initial Index Value promptly after the Index Reset Date and if the Closing
Index Value on any Index Business Day equals or exceeds the Threshold Value.
Discontinuance of the S&P 500 Index and Successor Index
If Standard & Poor's ("S&P") discontinues publication of the S&P 500 Index and
S&P or another entity publishes a successor or substitute index that the
Calculation Agent determines, in its sole discretion, to be comparable to the
S&P 500 Index (any such index being referred to hereinafter as a "Successor
Index"), then, upon the Calculation Agent's notification of such determina-
tion to the Trustee and the Company, the Calculation Agent will substitute the
Successor Index as calculated by S&P or such other entity for the S&P 500
Index.
If a Successor Index is selected or the Calculation Agent calculates a value as
a substitute for the S&P 500 Index as described below, such Successor Index
or value shall be substituted for the S&P 500 Index for all purposes,including
for purposes of determining whether a Market Disruption Event exists and
calculating the Supplemental Redemption Amount.
If S&P discontinues publication of the S&P 500 Index and either a Successor
Index is not selected by the Calculation Agent or a Successor Index is not
published on any of the Index Business Days used to determine any Closing
Index Value, the Supplemental Redemption Amount payable on the Stated
Maturity Date, if any, will be computed by the Calculation Agent by reference
to the following:
(1) determining the component stocks of the S&P 500 Index or
any Successor Index as of the last date on which either
of such indices was calculated by S&P or another entity
and quoted on any quotation system (each such component
stock an "Index Component Stock");
(2) for each Index Component Stock, calculating as of each
such Index Business Day the product of the market price
per share and the number of the then outstanding shares
of such stock (such product referred to as the "Market
Value" of such stock), by reference to (a) the closing
market price per share of such Index Component Stock as
quoted by the New York Stock Exchange or the American
Stock Exchange or any other nationally recognized stock
exchange, or if no such quotation is available, then
the closing market price as quoted by any major
regional stock exchange or the National Association of
Securities Dealers Automated Quotation National Market
System ("NASDAQ") (collectively, the "Exchanges") and
(b) the most recent publicly available statement of the
number of outstanding shares of each Index Component
Stock;
(3) aggregating the Market Values obtained in clause (2) for
all Index Component Stocks;
(4) determining the S&P Base Value (as defined below under
"The Standard & Poor's 500 Composite Stock Price Index")
as of the last day on which either the S&P 500 Index or
any Successor Index was published by S&P or another
entity, as adjusted thereafter as described below;
(5) dividing the aggregate Market Value of all Index
Component Stocks by the S&P Base Value (adjusted as
aforesaid); and
(6) multiplying the resulting quotient (expressed in
decimals) by ten.
If any Index Component Stock is no longer publicly traded on any Exchange or in
the over-the-counter market, the last available market price per share for such
Index Component Stock as quoted by any Exchange, and the number of outstanding
shares thereof at such time, will be used in computing the last available
Market Value of such Index Component Stock. Such Market Value will be used in
all computations of the S&P 500 Index thereafter.
If a company that has issued an Index Component Stock and another company that
has issued an Index Component Stock are consolidated to form a new company, the
common stock of such new company will be considered an Index Component Stock
and the common stocks of the constituent companies will no longer be considered
Index Component Stocks. If any company that has issued an Index Component
Stock merges with, or acquires, a company that has not issued an Index
Component Stock, the common stock of the surviving corporation will, upon the
effectiveness of such merger or acquisition, be considered an Index Component
Stock. However, in each case, the S&P Base Value will be adjusted (in
accordance with the formula set forth in the third paragraph under "The
Standard & Poor's 500 Composite Stock Price Index - Computation of the S&P 500
Index" as such formula was applied by S&P prior to the discontinuance of
publication of the S&P 500 Index). As a result of this adjustment, the S&P
Base Value immediately after such consolidation, merger or acquisition will
equal (a) the S&P Base Value immediately prior to such event, multiplied by
(b) the quotient of the aggregate Market Value of all Index Component Stocks
immediately after such event, divided by the aggregate Market Value for all
Index Component Stocks immediately prior to such event.
If a company that has issued an Index Component Stock issues a stock dividend,
declares a stock split or issues new shares pursuant to the acquisition of
another company, then, in each case, the S&P Base Value will be adjusted (in
accordance with the procedures set forth below under "The Standard & Poor's
500 Composite Stock Price Index - Computation of the S&P 500 Index" as such
formula was applied by S&P prior to the discontinuance of publication of the
S&P 500 Index) so that the S&P Base Value immediately after the time the
particular Index Component Stock commences trading ex-dividend, the effective-
ness of the stock split or the time new shares of such Index Component Stock
commence trading equals (a) the S&P Base Value immediately prior to such
event, multiplied by (b) the quotient obtained by dividing the aggregate
Market Value for all Index Component Stocks immediately after such event by the
aggregate Market Value of all Index Component Stocks immediately prior to such
event. The S&P Base Value used by the Calculation Agent to calculate the value
described above will not necessarily be adjusted in all cases in which S&P, in
its discretion, might adjust the S&P Base Value (as described below under "The
Standard & Poor's 500 Composite Stock Price Index - Computation of the S&P
500 Index" as such formula was applied by S&P prior to the discontinuance of
publication of the S&P 500 Index).
If at any time the method of calculating the S&P 500 Index or a Successor
Index, or the value thereof, is changed in a material respect, or if the S&P
500 Index or a Successor Index is in any other way modified so that such Index
does not, in the opinion of the Calculation Agent, fairly represent the value
of the S&P 500 Index or such Successor Index had such changes or modifications
not been made, then, from and after such time, the Calculation Agent shall, at
the close of business in New York, New York, on each date a Closing Index Value
or the Final Index Value is to be calculated, make such adjustments as, in the
good faith judgment of the Calculation Agent, may be necessary in order to
arrive at a calculation of a value of a stock index comparable to the S&P 500
Index or such Successor Index, as the case may be, as if such changes or
modifications had not been made, and calculate such closing value with
reference to the S&P 500 Index or such Successor Index, as adjusted.
Accordingly, if the method of calculating the S&P 500 Index or a Successor
Index is modified so that the value of such Index is a fraction or multiple of
what it would have been if it had not been modified (e.g., due to a split in
the Index), then the Calculation Agent shall adjust such Index in order to
arrive at a value of the S&P 500 Index or such Successor Index as if it had not
been modified (e.g., as if such split had not occurred). In such event, the
Calculation Agent shall also adjust proportionally the Initial Index Value,
which will result in a commensurate adjustment of the Threshold Value.
The following table illustrates for a range of hypothetical Final Index Values,
the percentage change in the S&P 500 Index from the Initial Index Value to the
Final Index Value, the corresponding Redemption Amount of the Notes, and the
pre-tax annualized rate of return to investors.
Investment $50,000,000.000
PAR Amount 100%
Participation 90.30%
Hypothetical Initial Index Value 700
<TABLE>
<CAPTION>
Hypothetical
Percentage Hypothetical Pre-Tax
Hypothetical Change in Redemption Annualized Rate Hypothetical
Final the S&P 500 Amount of Return to Redemption
Index Value Index(1) of Notes Maturity(2) Amount
- ------------- ------------- ------------- ----------------- -------------
<C> <C> <C> <C> <C>
1,540 120.00% 185.785% 11.21% $92,892,500.00
1,470 110.00% 185.785% 11.21% $92,892,500.00
1,400 100.00% 185.785% 11.21% $92,892,500.00
1,365 95.00% 185.785% 11.21% $92,892,500.00
1,330 90.00% 181.270% 10.85% $90,635,000.00
1,260 80.00% 172.240% 10.09% $86,120,000.00
1,190 70.00% 163.210% 9.31% $81,605,000.00
1,120 60.00% 154.180% 8.48% $77,090,000.00
1,050 50.00% 145.150% 7.62% $72,575,000.00
980 40.00% 136.120% 6.71% $68,060,000.00
910 30.00% 127.090% 5.75% $63,545,000.00
840 20.00% 118.060% 4.74% $59,030,000.00
770 10.00% 109.030% 3.66% $54,515,000.00
700 0.00% 100.000% 2.50% $50,000,000.00
630 -10.00% 100.000% 2.50% $50,000,000.00
560 -20.00% 100.000% 2.50% $50,000,000.00
</TABLE>
(1) Percentage change of hypothetical Final Index Value relative to the
hypothetical Initial Index Value.
(2) Pre-tax annualized rate of return from August 7, 1996 to the Stated
Maturity Date is calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Note: The Redemption Amount of the Notes may be fixed and determined prior to
the Stated Maturity Date at 185.785% of the face amount of the Notes as
described above.
The above figures are for purposes of illustration only. The actual Redemption
Amount of the Notes and the pre-tax annualized rate of return represented
thereby will depend entirely upon the actual Initial Index Value and Final
Index Value determined by the Calculation Agent as provided herein.
The Indenture provides that the Indenture and the Notes will be governed by and
construed in accordance with the laws of the State of New York. Under present
New York law, the maximum rate of interest is 25% per annum on a simple
interest basis. This limit may not apply to Notes in which $2,500,000 or more
has been invested. While the Company believes that New York law would be given
effect by a state or federal court sitting outside of New York, state laws
frequently regulate the amount of interest that may be charged to and paid by a
borrower (including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company has covenanted for the benefit of the
beneficial owners of the Notes, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a beneficial owner of the Notes.
RISK FACTORS
Payment at Maturity
Redemption Amount of Notes. In all cases, except as provided below, if the
Final Index Value is equal to or less than the Initial Index Value, the bene-
ficial owners of the Notes will be entitled to receive, in addition to periodic
interest, only the face amount of the Notes at the Stated Maturity Date. This
will be true even though the value of the Index as of some interim date or
dates prior to the Calculation Period may have exceeded the Initial Index
Value, because the Redemption Amount (calculated as the sum of the Principal
Redemption Amount and the Supplemental Redemption Amount, if any) payable on
the Notes is calculated based on the Final Index Value only. However, if the
Closing Index Value on any Index Business Day following the Index Reset Date
and prior to the beginning of the Calculation Period equals or exceeds the
Threshold Value, which is the product of (i) 195% and (ii) the Initial Index
Value, the Redemption Amount of the Notes is fixed at 185.785% of the original
face amount of the Notes regardless of the subsequent performance of the Index.
Capped Principal Redemption. Because the maximum Redemption Amount of the
Notes is capped at 185.785% of the original face amount of the Notes, the yield
to maturity on the Notes may be lower than the yield provided by investing
directly in the stocks underlying the Index over an identical period of time,
particularly in the event that the Final Index Value exceeds 195% of the
Initial Index Value.
Time Value of Money. Holders of the Notes will be entitled to receive periodic
payments of interest until the Stated Maturity Date at a rate of 2.5% of the
principal amount per annum, calculated on the basis of a 360-day year comprised
of twelve 30-day months. Such 2.5% minimum return is below what the Company
would pay as interest as of the date hereof if the Company issued fixed-rate
non-callable senior debt securities with a similar maturity as that of the
Notes. The minimum Redemption Amount to be received at the Stated Maturity Date
is not expected to reflect the full opportunity cost implied by inflation and
other factors relating to the time value of money.
Redemption Amount of the Notes Does Not Reflect Dividends Paid on the Index.
The Redemption Amount is calculated based on the price appreciation, if any, of
the Index. Because the Redemption Amount calculation does not account for the
payment of dividends on the individual stocks comprising the Index, the yield
to maturity of the Notes may produce a lower yield than if such stocks
underlying the Index were purchased and held for a similar period.
Trading
The Notes have not been approved for listing on any securities exchange, and
the Company has no intention of seeking a listing for the Notes in the future.
Purchasers of the Notes should be aware that there is no precedent to indicate
how the Notes will trade in the secondary market or whether such market will
be liquid. BT Securities has advised the Company that it intends to make a
market in the Notes. However, BT Securities is under no obligation to do so
and may discontinue market making activities at any time. It is expected that
the secondary market for the Notes will be affected by a number of factors
independent of the creditworthiness of the Company.
The trading values of the Notes may be affected by a number of interrelated
factors, including, but not limited to, the extent, if any, to which the Index
appreciates, the existence of a cap on the Redemption Amount, the level of
volatility of the Index, the interest rate environment, changes in dividend
rates on stocks comprising the Index and the time remaining to the Stated
Maturity Date. The relationship among these factors is complex. Accordingly,
investors should be aware that factors other than the level of the Index are
likely to affect their trading value.
The factors affect not only the value of the fixed-income components of the
Notes, but also the value of the embedded option which would generally be
calculated using option pricing models. Each of the factors is interrelated.
No single factor should be viewed in isolation and, in fact, changes in one or
more of the factors listed may have indirect effects on other factors. In
addition, no assessment has been made as to the likely magnitude of any change
in the trading value of the Notes resulting from a change in one or more of
such factors.
Discretion of Calculation Agent
Bankers Trust Company, in its capacity as Calculation Agent, has been granted
certain discretionary powers to determine the value of the Index in the event
of a Market Disruption Event or in the event that the Index Sponsor (as defined
above) ceases to publish the Index. As such, the decisions of the Calculation
Agent may influence the Redemption Amount of the Notes, but in no event will
the Redemption Amount (calculated as the sum of the Principal Redemption Amount
and the Supplemental Redemption Amount, if any) be less than 100.00% of the
face amount of the Notes. Bankers Trust Company has also provided a hedge to
the Company against its exposure to price movements in the Index in connection
with the Notes.
Certain Federal Income Tax Considerations
Prospective investors should also consider the tax consequences of investing in
the Notes. See "Certain United States Federal Income Tax Considerations" in
this Pricing Supplement.
IT IS SUGGESTED THAT PROSPECTIVE INVESTORS WHO CONSIDER PURCHASING
THE NOTES SHOULD BE EXPERIENCED WITH RESPECT TO EQUITY INDICES,
OPTIONS AND OPTION TRANSACTIONS AND FOREIGN MARKETS AND REACH AN
INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING, WITH THEIR
ADVISERS, THE SUITABILITY OF THE NOTES IN THE LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES.
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
All disclosures contained in this Pricing Supplement regarding the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index"),
including, without limitation, its make-up, method of calculation and changes
in its components, are derived from publicly available information prepared by
S&P and neither the Company nor BT Securities Corporation has independently
verified any of such information. Neither the Company nor BT Securities takes
any responsibility for the accuracy or completeness of this information.
General
The Index is published by S&P and is intended to provide an indication of the
pattern of common stock price movement. The calculation of the value of the
Index which is disclosed below in further detail is based on the relative value
of the aggregate average Market Value (as defined above) of the common stocks
of 500 companies as compared to the aggregate average Market Value of the
common stocks of 500 similar companies during the base period from 1941 through
1943. As of May 31, 1995, the 500 companies included in the Index represented
74 percent of the aggregate Market Value of common stocks traded on the New
York Stock Exchange; however, the 500 companies are not the 500 largest
companies listed on the New York Stock Exchange and not all 500 companies are
listed on such exchange. S&P chooses companies for inclusion in the Index with
the aim of achieving a distribution by broad industry grouping that
approximates the distribution of these groupings in the common stock population
of the New York Stock Exchange, which S&P uses as an assumed model for the
composition of the total market. Relevant criteria employed by S&P include:
the viability of the particular company, the extent to which that company
represents the industry group to which it is assigned, the extent to which the
market price of its common stock is generally responsive to changes in the
affairs of the respective industry and the Market Value and trading activity of
the common stock of that company. S&P may from time to time, in its sole
discretion, add companies to, or delete companies from, the Index to achieve
the objectives stated above.
Computation of the S&P 500 Index
S&P currently computes the S&P 500 Index as of a particular time as follows:
(1) the Market Value of each component stock is determined as of such time;
(2) the Market Value of all component stocks as of such time (as determined
under clause (1) above) are aggregated;
(3) the mean average of the Market Value as of each week in the base period
from 1941 through 1943 of the common stock of each company in a group of
500 similar companies is determined;
(4) the mean average Market Values of all such common stock over such base
period (as determined under clause (3) above) are aggregated (such
aggregate amount, as adjusted by S&P from time to time in the manner
described below, being hereinafter referred to as the "S&P Base Value");
(5) the aggregate Market Value of all component stocks as of such time (as
determined under clause (2) above) is divided by the S&P Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by ten.
While S&P currently employs this methodology to calculate the Index, no
assurance can be given that S&P will not modify or change such methodology in a
manner that may affect the Supplemental Redemption Amount which may be payable
to beneficial owners of the Notes at the Stated Maturity Date or otherwise.
S&P adjusts the foregoing formula to negate the effect of changes in the Market
Value of a component stock determined by S&P to be arbitrary or not true market
fluctuations. These changes may result from such causes as the issuance of
stock dividends, stock splits, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase of such stock by
employees pursuant to employee benefit plans, certain consolidations and
acquisitions, the granting to shareholders of rights to purchase other
securities of the company, the substitution by S&P of particular component
stocks in the Index and other reasons. In all such cases, S&P first
recalculates the aggregate Market Value of all component stocks (after taking
account of the new market price per share of the particular component stock of
the new number of outstanding shares thereof or both, as the case may be) and
then adjusts the S&P Base Value in accordance with the following formula:
New Market Value
Old S&P Base Value x ---------------- = New S&P Base Value
Old Market Value
The result is that the S&P Base Value will be adjusted in proportion to any
change in the aggregate Market Value of all component stocks resulting from the
causes cited above to the extent necessary to negate the effects of such causes
upon the S&P 500 Index.
The following table sets forth the high, low and closing values of the S&P 500
Index for each quarter in the period from January 1, 1990 through June 30,
1996, as published by S&P. The recent historical experience of the S&P 500
Index should not be taken as an indication of future performance, and no
assurance can be given that the value of the S&P 500 Index will not decline and
thereby reduce or eliminate the Supplemental Redemption Amount which may be
payable to beneficial owners of the Notes at the Stated Maturity Date or
otherwise.
<TABLE>
<CAPTION>
Historical Data on the S&P 500 Index
High Low Closing Value
---- --- -------------
<S>
1990
<S> <C> <C> <C>
1st Quarter 360.59 319.83 339.94
2nd Quarter 368.78 327.76 358.02
3rd Quarter 369.78 295.98 306.05
4th Quarter 333.98 294.51 330.22
1991
1st Quarter 379.66 309.35 375.22
2nd Quarter 391.26 365.83 371.16
3rd Quarter 397.62 370.92 387.86
4th Quarter 418.32 371.36 417.09
1992
1st Quarter 421.18 401.94 403.69
2nd Quarter 418.75 392.41 408.14
3rd Quarter 425.27 407.20 417.80
4th Quarter 442.65 396.80 435.71
1993
1st Quarter 456.76 426.88 451.67
2nd Quarter 455.63 432.30 450.53
3rd Quarter 463.80 441.40 458.93
4th Quarter 471.29 454.36 466.45
1994
1st Quarter 482.85 436.16 445.77
2nd Quarter 463.23 435.86 444.27
3rd Quarter 477.59 443.58 462.69
4th Quarter 474.74 442.88 459.27
1995
1st Quarter 508.15 457.20 500.71
2nd Quarter 551.07 500.20 544.75
3rd Quarter 587.61 542.51 584.41
4th Quarter 622.88 571.55 615.93
1996
1st Quarter 664.23 597.29 645.50
2nd Quarter 681.10 624.14 670.63
</TABLE>
The official closing value of the S&P Index on July 31, 1996 was 639.95 as
quoted by S&P.
The Notes are not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the beneficial owners of the
Notes or any member of the public regarding the advisability of investing in
securities generally or in the Notes particularly or the ability of the Index
to track general stock market performance. S&P's only relationship to the
Company and Bankers Trust Company is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to the Company, Bankers Trust Company or the
Notes. S&P has no obligation to take the needs of the Company, Bankers Trust
Company or the owners of the Notes into consideration in determining, composing
or calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the timing of, prices at, or quantities of
the Notes to be issued or participated in the determination or calculation of
the equation by which the Notes are to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Notes. Neither the Company, BT Securities nor Bankers Trust
Company shall have any responsibility for the calculation and dissemination of
the S&P 500 Index by S&P or any errors or omissions therein.
LICENSE AGREEMENT
S&P and Bankers Trust Company entered into a non-exclusive license agreement
providing for the license to Bankers Trust Company, in exchange for a fee, of
the right to use indices owned and published by S&P in connection with certain
securities, including the Notes, and the Company is an authorized sublicensee
thereof.
NONE OF THE COMPANY, BANKERS TRUST COMPANY, BT SECURITIES OR S&P
GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND NONE OF THE COMPANY,
BANKERS TRUST COMPANY, BT SECURITIES OR S&P SHALL HAVE ANY LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
COMPANY, BANKERS TRUST COMPANY, BENEFICIAL OWNERS OF THE NOTES, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA
INCLUDED THEREIN. NEITHER THE COMPANY NOR S&P MAKES ANY EXPRESS
OR IMPLIED WARRANTIES AND EACH OF THEM EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
THE COMPANY OR S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Treatment of Supplemental Redemption Amount
Under current law, there is no precise legal authority that addresses the
treatment of a debt instrument that provides for a payment of contingent
interest based on an index of publicly traded property, such as the payment of
the Supplemental Redemption Amount. The Treasury Department, however, has
recently finalized regulations providing for the treatment of contingent
payment debt instruments issued on or after August 13, 1996, and thus, such
regulations will not be applicable to the Notes. Based on the advice of its
counsel, Skadden, Arps, Slate, Meagher & Flom, the Company intends to treat the
payment of the Supplemental Redemption Amount, for Federal income tax purposes,
in accordance with the income inclusion rules summarized below.
Each prospective investor should be aware that he will be bound by these income
inclusion rules, for Federal income tax purposes, unless he adopts an
alternative method and expressly discloses such method on his annual Federal
income tax return filed with the Internal Revenue Service. Accordingly,
prospective investors are urged to consult their tax advisors regarding the
Federal income tax treatment of the Notes, including the availability of other
possible alternative tax treatments.
Generally, the payment of the Supplemental Redemption Amount will be includible
in income, as ordinary interest income, for both cash and accrual method
holders on the Stated Maturity Date.
In the event that the Closing Index Value equals or exceeds the Threshold Value
(a "Threshold Attainment Event") prior to the beginning of the Calculation
Period, however, the Company will treat a portion of the Supplemental
Redemption Amount as ordinary interest income, includible in the taxable income
of both cash and accrual method holders, for the taxable year within which the
Threshold Attainment Event occurs. Such income inclusion will be equal to the
present value of the Supplemental Redemption Amount on the date of the
Threshold Attainment Event, determined by discounting the Supplemental
Redemption Amount during the period from the Stated Maturity Date to the date
of the Threshold Attainment Event (the "Discount Period") at the then
prevailing applicable Federal rate. Thereafter, the Company will treat the
excess of the Supplemental Redemption Amount over its discounted present value
as original issue discount includible in income during the Discount Period on
the basis of a constant yield method as described in the Prospectus Supplement.
Any amounts includible in income under these rules will increase the holder's
adjusted tax basis in the Notes. See Prospectus, "Certain United States
Federal Tax Considerations -- United States Holders -- Original Issue
Discount."
A holder of the Notes will generally recognize a capital gain or loss upon a
sale or exchange of the Notes in an amount equal to the difference between the
amount realized and the holder's adjusted tax basis in the Notes. It is
possible, however, that the Internal Revenue Service may assert that any gain,
or a portion thereof, recognized upon such sale or exchange should be treated
as ordinary interest income.
The holder of a Note, by purchasing a Note, shall be deemed to have agreed to
(i) compute the amount of (x) the discounted present value of Supplemental
Redemption Amount and (y) the excess of the Supplemental Redemption Amount over
its discounted present value and (ii) include such amounts in income, for
Federal income tax purposes, on a basis consistent with the method described
above, unless in the case of either (i) or (ii) such treatment is not permitted
under applicable Federal income tax laws, rules, regulations or interpretations.
PLAN OF DISTRIBUTION
Pursuant to a Letter Agreement, dated July 31, 1996, between the Company and BT
Securities, BT Securities has been selected and designated as an Agent under
the Distribution Agreement solely with respect to its acting as agent of the
Company solely with respect to the sale of the Notes. Bankers Trust Company,
an affiliate of BT Securities, will enter into a hedging transaction with the
Company in connection with the Notes and BT Securities will receive
compensation for arranging the hedging transaction. In the ordinary course of
their respective businesses, BT Securities and its affiliates have engaged, and
may in the future engage, in commercial banking and investment banking
transactions with the Company and its affiliates.
