<PAGE>
Filed Pursuant to Rule No. 424(b)(2)
Registration No. 333-16955
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 10, 1996)
$750,000,000
[LOGO OF PHILIP MORRIS COMPANIES INC. APPEARS HERE]
PHILIP MORRIS COMPANIES INC.
7 3/4% DEBENTURES DUE 2027
----------------
Interest on the 7 3/4% Debentures Due 2027 (the "Debentures") is payable
semiannually on January 15 and July 15 of each year, beginning July 15, 1997.
The Debentures may not be redeemed by the Company prior to maturity and do not
provide for any sinking fund.
The Debentures will be represented by one or more Global Securities
(collectively, the "Global Security") registered in the name of the nominee of
The Depository Trust Company (the "Depository"). Beneficial interests in the
Global Security will be shown on, and transfers thereof will be effected only
through, records maintained by the Depository (in respect of its participants)
and by its participants. See "Description of Debt Securities--United States
Book-Entry System" in the Prospectus. Except as described in the Prospectus,
Debentures in definitive form will not be issued. See "Description of Debt
Securities--Global Securities" in the Prospectus. Settlement for the
Debentures will be made in immediately available funds.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(1) (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture............... 99.148% .875% 98.273%
- -------------------------------------------------------------------------------
Total....................... $743,610,000 $6,562,500 $737,047,500
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued interest from January 15, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933.
(3) Before deducting expenses payable by the Company estimated to be $350,000.
----------------
The Debentures are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters, and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Debentures will be made through the facilities of The
Depository Trust Company on or about January 17, 1997.
----------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
----------------
The date of this Prospectus Supplement is January 14, 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
RECENT DEVELOPMENTS
On December 13, 1996, the Company issued $500,000,000 aggregate principal
amount of its 6.80% Notes due December 1, 2003 and on November 1, 1996, the
Company issued DM 300,000,000 (equivalent to U.S. $196,000,000 on October 10,
1996) aggregate principal amount of its 5 5/8% Bearer Bonds of 1996/2002.
----------------
Note 2 ("Note 2") to the Company's condensed consolidated financial
statements, incorporated herein by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, describes certain
litigation pending against the Company and its subsidiaries. This litigation
includes actions by certain states, municipalities and counties seeking, among
other relief, reimbursement of Medicaid and other expenditures related to
medical conditions allegedly caused by cigarette smoking.
In January 1997, Philip Morris Incorporated ("PM Inc."), the Company's
domestic tobacco subsidiary, along with three other cigarette manufacturers,
commenced an action in federal court in Alaska seeking to prevent the State of
Alaska from proceeding with its threatened Medicaid reimbursement suit on the
grounds that such a suit would violate plaintiffs' rights under the United
States Constitution and federal statutes. Also in January 1997, the court in
the Medicaid reimbursement action brought by the Louisiana Attorney General,
discussed in Note 2, denied defendants' challenge to the authority of the
Attorney General to bring the action (Ieyoub, et al. v. The American Tobacco
Company, et al.). In December 1996, PM Inc. and one other party filed a
petition for a writ of certiorari to the United States Supreme Court seeking
review of that portion of the Florida Supreme Court's decision, discussed in
Note 2, which upheld the constitutionality of certain aspects of Florida's
Medicaid Third Party Liability Act (Associated Industries of Florida, Inc., et
al. v. State of Florida Agency for Health Care Administration, et al.). Later
that month, the court in the Medicaid reimbursement action brought by the State
of Florida, discussed in Note 2, granted defendants' motion to dismiss several
of plaintiffs' statutory claims in their complaint but denied that portion of
the motion directed to plaintiffs' claims under the Florida RICO (Racketeering
Influenced and Corrupt Organizations) Act and a false advertising statute (The
State of Florida, et al. v. The American Tobacco Company, et al.). Thereafter,
the court in this action granted defendants' motion to waive their rights to a
pretrial determination of whether plaintiffs can amend their complaint to
include a punitive damages claim. Under Florida law, defendants have the right
to require that plaintiffs make a showing that there is a reasonable basis for
the recovery of punitive damages before plaintiffs are permitted to assert a
punitive damages claim. In their motion, defendants expressly stated that they
do not concede that there is a reasonable basis to obtain punitive damages and
reserved their rights to challenge the punitive damages claim on factual or
legal bases. In December 1996, the federal district court in Connecticut
dismissed an action, discussed in Note 2, brought by several domestic cigarette
manufacturers, including PM Inc., which sought declaratory judgment as to the
Medicaid reimbursement suit filed by the Attorney General of Connecticut
(Philip Morris, Inc., et al., v. Richard Blumenthal). In November 1996, the
court in the Medicaid reimbursement action brought by the State of Washington,
discussed in Note 2, dismissed claims based on restitution to the State,
special duty and unjust enrichment, but did not dismiss claims based on alleged
antitrust violations of the State's Consumer Protection Act; this claim and
several others remain pending (State of Washington v. American Tobacco Co.,
Inc., et al.). The State of Washington recently moved to amend its complaint.
The State alleges that its amended complaint is intended to correct
deficiencies found by the court to exist in the special duty and unjust
enrichment claims and to add claims for restitution under the State's Consumer
Protection Act and for breach of performance of another's duty to the public.
In November 1996, the State of Iowa filed a Medicaid reimbursement action
against the leading United States cigarette manufacturers.
S-2
<PAGE>
Other states, municipalities and counties have also announced they are
considering filing Medicaid reimbursement actions.
The Company and each of its subsidiaries named as a defendant believe, and
each has been so advised by counsel handling the respective cases, that it has
a number of valid defenses to all litigation pending against it. All such cases
are, and will continue to be, vigorously defended. It is not possible to
predict the outcome of this litigation. Litigation is subject to many
uncertainties, and it is possible that some of these actions could be decided
unfavorably. An unfavorable outcome of a pending smoking and health case could
encourage the commencement of additional similar litigation. There have also
been a number of adverse legislative, regulatory, political and other
developments concerning cigarette smoking and the tobacco industry. These
developments generally receive widespread media attention. The Company is not
able to evaluate the effect of these developing matters on pending litigation
and the possible commencement of additional litigation.
Management is unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome of all pending litigation.
It is possible that the Company's results of operations or cash flows in a
particular quarterly or annual period or its financial position could be
materially affected by an ultimate unfavorable outcome of certain pending
litigation. Management believes, however, that the ultimate outcome of all
pending litigation should not have a material adverse effect on the Company's
financial position.
----------------
In July 1996, an affiliate of Philip Morris International Inc. ("PMI"), the
Company's international tobacco subsidiary, received a request for information
from the Competition Directorate of the European Commission in connection with
an investigation of certain agreements and practices of the Italian state
cigarette monopoly with which certain affiliates of PMI have contractual
relationships. In December 1996, the Italian Anti-Trust Authority announced
that it had opened a preliminary inquiry concerning the Italian state cigarette
monopoly, including its relationship with certain subsidiaries of the Company.
The Company's subsidiaries and affiliates believe that they have acted in
accordance with European Community and Italian antitrust laws.
----------------
In July 1996, PMI learned of a criminal investigation of certain employees
and officers of certain affiliates of PMI by the Criminal Prosecutors Office in
Naples, Italy, regarding an alleged conspiracy to avoid the payment of taxes.
Subsequently, PMI's Italian affiliate, Intertaba, s.p.a. ("Intertaba"), was
served with tax assessments relating to value added taxes on royalties paid to
affiliates of PMI by Amministrazione Autonoma Dei Monopoli di Stato, the
Italian state cigarette monopoly, for the years 1989 to 1994. Recently,
additional tax assessments were sought to be served on PMI and certain
affiliates of PMI relating to income taxes for the year 1987 and value added
taxes for the years 1988, 1989 and 1991 on royalties and the importation of
tobacco products and materials to Italy. The aggregate amount of taxes claimed
to be assessed to date, together with interest and penalties, is $798.4
million. PMI anticipates that further substantial value added and income tax
assessments may be received. PMI and its affiliates believe they have paid all
required taxes and otherwise complied with applicable Italian tax laws and
intend to vigorously contest the assessments. A hearing concerning the value
added taxes assessed against Intertaba is scheduled in the Italian tax court
for February 4, 1997.
S-3
<PAGE>
CERTAIN TERMS OF THE DEBENTURES
The following description of the particular terms of the Debentures offered
hereby (referred to in the Prospectus as "Debt Securities") supplements, and to
the extent inconsistent therewith replaces, the description of the general
terms and provisions of Debt Securities set forth in the Prospectus, to which
description reference is hereby made.
GENERAL
The Debentures will be limited to $750,000,000 aggregate principal amount and
will mature on January 15, 2027. The Debentures will bear interest at the rate
per annum shown on the cover of this Prospectus Supplement from January 15,
1997 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually on January 15 and July 15 of each
year, commencing July 15, 1997, to the person in whose name the Debenture (or
any predecessor Debenture) is registered at the close of business on December
31 or June 30, as the case may be, next preceding such Interest Payment Date.
(Sections 301 and 307). The Debentures may not be redeemed at the option of the
Company prior to maturity and do not provide for any sinking fund. The
Debentures will be issued in denominations of $1,000 and integral multiples
thereof.
UNDERWRITING
Subject to the terms and conditions set forth in the terms agreement and
related underwriting agreement (collectively the "Underwriting Agreement"), the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Credit Suisse First Boston Corporation, Lehman Brothers Inc. and Morgan Stanley
& Co. Incorporated are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company, the respective amount of the
Debentures set forth after its name below. In the Underwriting Agreement, the
several Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all the Debentures offered hereby if any of the Debentures
are purchased. In the event of default by an Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................ $160,785,000
Credit Suisse First Boston Corporation ...................... 160,780,000
Lehman Brothers Inc. ........................................ 160,780,000
Morgan Stanley & Co. Incorporated ........................... 160,780,000
ABN AMRO Securities (USA) Inc. .............................. 11,250,000
Chase Securities Inc. ....................................... 11,250,000
Citicorp Securities, Inc. ................................... 11,250,000
Deutsche Morgan Grenfell Inc. ............................... 11,250,000
HSBC Securities, Inc. ....................................... 11,250,000
Societe Generale Securities Corporation...................... 11,250,000
UBS Securities LLC .......................................... 11,250,000
Blaylock & Partners, L.P. ................................... 5,625,000
Doley Securities, Inc. ...................................... 5,625,000
Guzman & Company............................................. 5,625,000
Muriel Siebert & Co., Inc. .................................. 5,625,000
Utendahl Capital Partners, L.P. ............................. 5,625,000
------------
Total................................................... $750,000,000
============
</TABLE>
S-4
<PAGE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Debentures to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a selling concession not in excess of .50% of the
principal amount of the Debentures. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of .25% of the principal amount
of the Debentures to certain other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
The Representatives have advised the Company that certain of the Underwriters
intend to make a market in the Debentures; however, they are not obligated to
do so, and market making with respect to the Debentures may be discontinued at
any time without notice. There can be no assurance that an active public market
for the Debentures will develop.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect of such liabilities.
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, financial advisory and investment banking services to
the Company and its affiliates, for which such Underwriters have received and
will receive customary fees and commissions. Certain of the Underwriters are
also affiliated with commercial banking institutions that have agreed in the
ordinary course of their business to loan money to, and have other customary
banking relationships with, the Company and its affiliates.
S-5
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
[LOGO OF PHILIP MORRIS COMPANIES INC. APPEARS HERE]
PHILIP MORRIS COMPANIES INC.
Debt Securities
and
Warrants to Purchase Debt Securities
----------------
Philip Morris Companies Inc. (the "Company") intends to offer from time to
time up to $3,337,550,000 aggregate principal amount of its debt securities
(the "Debt Securities") or warrants to purchase the Debt Securities (the "Debt
Warrants"). The Debt Securities and Debt Warrants will be offered in one or
more separate series or issues in amounts, at prices, in currencies or
currency units and on terms to be determined at the time of offering. The Debt
Warrants may be offered with the Debt Securities or separately. See "Plan of
Distribution".
The Debt Securities and the Debt Warrants will be unsecured and will rank
pari passu with all other unsecured and unsubordinated indebtedness of the
Company.
Debt Securities of a series may be issuable in registered form without
coupons ("Registered Securities"), in bearer form with or without coupons
attached ("Bearer Securities") or in the form of one or more global securities
(each a "Global Security"). Bearer Securities will not be offered or sold to
persons who are within the United States or to United States persons. See
"Limitations on Issuance of Bearer Securities".
The terms of the Debt Securities, including, where applicable, the specific
designation, aggregate principal amount, authorized denominations, maturity,
rate (or manner of calculation thereof) and time of payment of interest, if
any, and any redemption or repayment terms, the currency, currencies or
currency unit or units in which the Debt Securities shall be payable (and
similar information with respect to the Debt Securities purchasable upon
exercise of each Debt Warrant) and the terms of the Debt Warrants, including
the exercise price, detachability, expiration date and other terms, in respect
of which this Prospectus is being delivered are set forth in the accompanying
Prospectus Supplement (the "Prospectus Supplement"). This Prospectus may not
be used to offer or sell Debt Securities or Debt Warrants unless accompanied
by a Prospectus Supplement.
The Company may sell the Debt Securities and Debt Warrants to or through
underwriters or dealers and also may sell Debt Securities and Debt Warrants
directly to other purchasers or through agents. See "Plan of Distribution".
The Prospectus Supplement sets forth the initial public offering price, the
net proceeds to the Company, the names of, and principal amount of Debt
Securities and Debt Warrants to be purchased by or through underwriters,
dealers or agents, if any, the compensation of such underwriters, dealers or
agents and other special terms in connection with the offering and sale of the
applicable series of Debt Securities or Debt Warrants, as the case may be.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 10, 1996
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY AGENT, UNDERWRITER OR DEALER. THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE DEBT SECURITIES OR DEBT WARRANTS
IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and definitive proxy or information
statements filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the
Commission: 7 World Trade Center, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. The
Company's Common Stock is listed on the New York Stock Exchange and such
reports, proxy statements and other information concerning the Company can
also be inspected and acquired at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission, Washington, D.C., registration
statements on Form S-3 (Registration Nos. 333-16955 and 33-49195) under the
Securities Act of 1933, as amended (the "1933 Act"), with respect to the Debt
Securities and Debt Warrants offered hereby (together with all amendments and
exhibits, the "Registration Statements"). This Prospectus does not contain all
of the information set forth in the Registration Statements, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information pertaining to the Debt Securities, Debt
Warrants and the Company, reference is made to the Registration Statements,
the Exhibits thereto and the documents incorporated by reference herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference and made a part
hereof: (i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1995; (ii) the Company's Quarterly Reports on Form 10-Q for the
periods ended March 31, 1996, June 30, 1996 and September 30, 1996; and (iii)
the Company's Current Reports on Form 8-K dated February 1, 1996 and September
20, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Debt Securities and Debt Warrants shall
be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which also is incorporated or deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
2
<PAGE>
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request, a copy of any or
all of the foregoing documents incorporated by reference herein (not including
exhibits to such documents unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to Philip
Morris Companies Inc., 120 Park Avenue, New York, New York 10017, Attention:
Secretary (telephone (212) 880-5000).
THE COMPANY
GENERAL
The Company is a holding company whose principal wholly-owned subsidiaries,
Philip Morris Incorporated, Philip Morris International Inc., Kraft Foods,
Inc. and Miller Brewing Company, are engaged primarily in the manufacture and
sale of various consumer products. A wholly-owned subsidiary of the Company,
Philip Morris Capital Corporation ("PMCC"), engages in various financing and
investment activities. As used herein, unless the context indicates otherwise,
the term "Company" means Philip Morris Companies Inc. and its subsidiaries.
The Company is the largest consumer packaged goods company in the world.*
Philip Morris Incorporated ("PM Inc."), which conducts business under the
trade name "Philip Morris U.S.A.", and its subsidiaries and affiliates are
engaged primarily in the manufacture and sale of cigarettes. PM Inc. is the
largest cigarette company in the United States. Philip Morris International
Inc. ("Philip Morris International") is a holding company whose subsidiaries
and affiliates and their licensees are engaged primarily in the manufacture
and sale of tobacco products (mainly cigarettes); certain Latin American
subsidiaries and affiliates manufacture and sell a wide variety of food
products. A subsidiary of Philip Morris International is the leading United
States exporter of cigarettes. Marlboro, the principal cigarette brand of
these companies, has been the world's largest selling cigarette brand since
1972.
The Company's food subsidiary, Kraft Foods, Inc. ("Kraft"), is the largest
processor and marketer of retail packaged foods in the United States. A wide
variety of grocery, coffee, cheese, confectionery and processed meat products
are manufactured and marketed in the United States and Canada by Kraft and by
its subsidiary, Kraft Foods International, Inc., in Europe and the
Asia/Pacific region.
Miller Brewing Company ("Miller") is the second largest brewing company in
the United States.
OTHER
The Company is a legal entity separate and distinct from PM Inc., Philip
Morris International, Kraft, Miller, PMCC and its other subsidiaries.
Accordingly, the right of the Company, and thus the right of the Company's
creditors and stockholders, to participate in any distribution of the assets
or earnings of any subsidiary is subject to the prior claims of creditors of
such subsidiary, except to the extent that claims of the Company itself as a
creditor may be recognized. As a holding company, the Company's principal
source of funds is dividends from its subsidiaries. The Company's principal
wholly-owned subsidiaries currently are not limited by long-term debt or other
agreements in their ability to pay cash dividends or to make other
distributions with respect to their common stock.
USE OF PROCEEDS
Except as may be set forth in the Prospectus Supplement, the Company intends
to use the proceeds from the sale of the Debt Securities and Debt Warrants and
the proceeds, if any, from the exercise of Debt Warrants for general corporate
purposes and to refinance existing short-term and long-term borrowings. At
September 30, 1996, outstanding short-term and long-term borrowings of the
Company carried a weighted average interest rate of 6.95% and 7.26%,
respectively.
- --------
* References to the Company's competitive ranking in its various businesses
are based on sales data or, in the case of cigarettes and beer, shipments.
3
<PAGE>
The Company expects to issue additional long-term and short-term debt from
time to time. The nature and amount of the Company's long-term and short-term
debt and the proportionate amount of each can be expected to vary from time to
time as a result of business requirements, market conditions and other
factors.
SELECTED FINANCIAL INFORMATION
HISTORICAL FINANCIAL STATEMENT DATA
The following consolidated summary information with respect to the Company
is based upon, and should be read in conjunction with, the consolidated
financial statements of the Company, including the notes thereto, included or
incorporated by reference in the documents described under "Incorporation of
Certain Documents by Reference".
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ---------------
1996 1995 1995 1994
---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Earnings Data
Operating revenues....................... $52,414 $50,335 $66,071 $65,125
Interest and other debt expense, net
(consumer products)..................... 824 916 1,179 1,233
Earnings before income taxes and
cumulative effect of
accounting changes...................... 8,190 7,190 9,347 8,216
Earnings before cumulative effect of
accounting changes...................... 4,832 4,206 5,478 4,725
Net earnings............................. 4,832 4,178 $ 5,450 4,725
Balance Sheet Data
Working capital (consumer products)...... $ 1,557 $ 1,144 $ 606 $ 943
Total assets
Consumer products...................... 48,934 48,280 48,180 47,456
Financial services and real estate..... 5,787 5,410 5,631 5,193
Short-term debt
Consumer products (including current
portion of long-term debt)............ 2,075 1,936 2,048 893
Financial services and real estate .... 221 483 671 604
Long-term debt
Consumer products...................... 13,093 13,324 12,324 14,085
Financial services and real estate..... 1,140 923 783 890
Stockholders' equity..................... 14,375 13,898 13,985 12,786
Cash Flow Data
Net cash provided by operating activities
Consumer products...................... $ 4,220 $ 4,086 $ 6,209 $ 6,611
Financial services and real estate..... 302 351 478 328
Capital expenditures (consumer
products)............................... 1,108 1,054 1,621 1,726
Dividends paid........................... 2,483 2,101 2,939 2,487
Repurchase of outstanding stock.......... 2,097 1,513 2,111 1,532
</TABLE>
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, for its non-U.S. retiree benefit
plans, which requires the Company to accrue the estimated cost of retiree
benefit payments, other than pensions, during employees' active service
periods. The cumulative effect at January 1, 1995 of adopting SFAS No. 106 was
a decrease in 1995 net earnings of $21 million. Adoption of SFAS No. 106 did
not materially reduce 1995 earnings before cumulative effect of accounting
changes.
Effective January 1, 1995, the Company adopted SFAS No. 116, Accounting for
Contributions Received and Contributions Made, which requires the Company to
recognize an unconditional promise to make a
4
<PAGE>
contribution as an expense in the period the promise is made. The cumulative
effect at January 1, 1995 of adopting SFAS No. 116 was a decrease in 1995 net
earnings of $7 million. Adoption of SFAS No. 116 did not materially reduce
1995 earnings before cumulative effect of accounting changes.
During 1995, the Company sold its bakery businesses and its North American
margarine, specialty oils, marshmallows, caramels and Kraft Foodservice
distribution businesses. In addition, several smaller international food
businesses were sold. Operating revenues of these businesses for the period
owned in 1995 and for the year ended December 31, 1994 were $2.0 billion and
$5.9 billion, respectively.
The Company's credit facilities include a revolving bank credit agreement
which enables the Company to refinance short-term debt on a long-term basis.
Accordingly, short-term debt intended to be refinanced was reclassified as
long-term debt.
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED DECEMBER 31,
ENDED SEPTEMBER 30, ------------------------
1996 1995 1994 1993 1992 1991
------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratios of earnings to fixed
charges......................... 8.7 7.2 6.3 4.6 6.0 4.7
</TABLE>
Earnings available for fixed charges represent earnings before income taxes
and cumulative effect of accounting change(s) and fixed charges (excluding
interest capitalized, net of amortization), reduced by undistributed earnings
of less than 50% owned affiliates. Fixed charges represent interest incurred
plus that portion of rental expense deemed to be the equivalent of interest.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of
December 2, 1996 (the "Indenture") between the Company and The Chase Manhattan
Bank, as Trustee (the "Trustee"). A copy of the form of the Indenture is filed
as an exhibit to the Registration Statements. The following description
summarizes certain provisions of the Indenture and is subject to the detailed
provisions of the Indenture. Whenever any particular section of the Indenture
or any term defined therein is referred to, such section or definition is
incorporated herein by reference, and the statement in connection with which
such reference is made is qualified in its entirety by such reference.
Capitalized terms appearing in this Prospectus that are not defined herein
have the meanings set forth in the Indenture.
GENERAL
The Indenture does not limit the amount of Debt Securities which can be
issued thereunder and provides that additional Debt Securities may be issued
thereunder up to the aggregate principal amount which may be authorized from
time to time by the Company's Board of Directors. Reference is made to the
Prospectus Supplement for the following terms of the particular series of Debt
Securities being offered thereby: (i) the designation, aggregate principal
amount and authorized denominations of the series; (ii) the percentage of
principal amount at which the series will be issued; (iii) the date or dates
on which the series will mature (or manner of determining the same); (iv) the
rate or rates per annum, if any, at which the series will bear interest
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(or the manner of calculation thereof) and the date or dates from which such
interest will accrue; (v) the times at which any interest will be payable (or
manner of determining the same) and the Regular Record Dates for such Interest
Payment Dates for Debt Securities which are Registered Securities; (vi) the
place or places where the principal of (and premium, if any) and interest, if
any, on the series will be payable and each office or agency, as described
below under "Denominations, Registration and Transfer", where the Debt
Securities may be presented for transfer or exchange; (vii) the currency,
currencies or currency unit or units for which such Debt Securities may be
purchased and the currency, currencies or currency unit or units in which the
principal of (and premium, if any) and interest, if any, on such Debt
Securities may be payable; (viii) the period or periods within which, and the
terms and conditions upon which, an election may be made by the Company or a
holder, as the case may be, for payment of the principal of (and premium, if
any) and interest, if any, on the series in the currency, currencies or
currency unit or units other than that in which the series is stated to be
payable; (ix) whether the Debt Securities are to be issuable as Registered
Securities or Bearer Securities or both, and if Bearer Securities are issued,
the circumstances and places for the exchange of Bearer Securities for
Registered Securities; (x) whether such Debt Securities are to be issued in
the form of one or more temporary or permanent Global Securities and, if so,
the identity of the Depositary for such Global Security or Securities; (xi) if
a temporary Global Security is to be issued with respect to such series,
whether any interest thereon payable on an interest payment date prior to the
issuance of a permanent Global Security or definitive Bearer Securities will
be credited to the account of the persons entitled thereto on such interest
payment date; (xii) if a temporary Global Security is to be issued with
respect to such series, the terms upon which interests in such temporary
Global Security may be exchanged for interests in a permanent Global Security
or for definitive Debt Securities of the series and the terms upon which
interests in a permanent Global Security, if any, may be exchanged for
definitive Debt Securities of the series; (xiii) any mandatory or optional
sinking fund or analogous provision; (xiv) the date, if any, after which, and
the price or prices in the currency, currencies or currency unit or units in
which, such Debt Securities are payable pursuant to any optional or mandatory
redemption provisions; (xv) any provisions for payment of additional amounts
for taxes and any provision for redemption, in the event the Company must
comply with reporting requirements in respect of a Debt Security or must pay
such additional amounts in respect of any Debt Security; (xvi) the terms and
conditions, if any, upon which the Debt Securities of such series may be
repayable prior to maturity at the option (which option may be conditional) of
the holder thereof (in which case the Company will comply with the
requirements of Section 14(e) and Rule 14e-1 under the 1934 Act in connection
therewith, if then applicable) and the price or prices in the currency,
currencies or currency unit or units in which such Debt Securities are
payable; (xvii) any index used to determine the amount of payments of
principal of (and premium, if any) and interest, if any, on such Debt
Securities; (xviii) the terms and conditions, if any, pursuant to which Debt
Securities may be converted or exchanged for other debt securities of the
Company; (xix) additional information with respect to book-entry procedures,
if any; and (xx) any other terms of the Debt Securities not inconsistent with
the Indenture. (Section 301).
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or foreign currency unit or units or if the
principal of (and premium, if any) or interest, if any, on any series of Debt
Securities is payable in a foreign currency or currencies or foreign currency
unit or units, the restrictions, elections, tax consequences, specific terms
and other information with respect to such issue of Debt Securities and such
foreign currency or currencies or foreign currency unit or units will be set
forth in the applicable Prospectus Supplement relating thereto.
Some of the Debt Securities may be issued as Discounted Securities (bearing
no interest or interest at a rate which at the time of issuance is below
market rates) to be sold at a substantial discount below their stated
principal amount. Federal income tax consequences and other special
considerations applicable to any Discounted Securities will be described in
the Prospectus Supplement relating thereto.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Debt Securities of a series will be issuable as Registered Securities,
Bearer Securities or both. Debt Securities of a series may be issuable in the
form of one or more Global Securities, as described below under
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"Global Securities". Unless otherwise provided in an applicable Prospectus
Supplement with respect to a series of Debt Securities, Registered Securities
denominated in U.S. dollars will be issued only in denominations of $1,000 or
any integral multiple thereof and Bearer Securities denominated in U.S.
dollars will be issued only in denominations of $5,000 with coupons attached.
A Global Security will be issued in a denomination equal to the aggregate
principal amount of Outstanding Debt Securities of the series represented by
such Global Security. The Prospectus Supplement relating to a series of Debt
Securities denominated in a foreign or composite currency will specify the
denominations thereof. (Sections 201, 301, 302 and 305).
In connection with its sale, during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury regulations
(generally, the first 40 days after the closing date and, with respect to
unsold allotments, until sold), no Bearer Security shall be mailed or
otherwise delivered to any location in the United States (as defined below
under "Limitations on Issuance of Bearer Securities") and any such Bearer
Security may be delivered only if the person entitled to receive such Bearer
Security furnishes written certification, in the form required by the
Indenture, to the effect that such Bearer Security is not being acquired by or
on behalf of a United States person (as defined under "Limitations on Issuance
of Bearer Securities"), or, if a beneficial interest in such Bearer Security
is being acquired by or on behalf of a United States person, that such United
States person is a person described in Section 1.163-5(c)(2)(i)(D)(6) of the
United States Treasury regulations or is a financial institution who has
purchased such Bearer Security for resale during the restricted period and who
certifies that it has not acquired such Bearer Security for purposes of resale
to a United States person or to a person within the United States. (Sections
303 and 304). See "Global Securities" and "Limitations on Issuance of Bearer
Securities".
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations. In addition, if Debt
Securities of any series are issuable as both Registered Securities and Bearer
Securities, at the option of the holder upon request confirmed in writing, and
subject to the terms of the Indenture, Bearer Securities (with all unmatured
coupons, except as provided below, and all matured coupons in default) of such
series will be exchangeable for Registered Securities of the same series of
any authorized denominations and of a like aggregate principal amount and
tenor. Unless otherwise indicated in an applicable Prospectus Supplement, any
Bearer Security surrendered in exchange for a Registered Security between a
Regular Record Date or a Special Record Date and the relevant date for payment
of interest shall be surrendered without the coupon relating to such date for
payment of interest and interest will not be payable in respect of the
Registered Security issued in exchange for such Bearer Security, but will be
payable only to the holder of such coupon when due in accordance with the
terms of the Indenture. (Section 305). Except as provided in an applicable
Prospectus Supplement, Bearer Securities will not be issued in exchange for
Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer duly executed), at the
office of the Security Registrar or at the office of any transfer agent
designated by the Company for such purpose with respect to any series of Debt
Securities and referred to in an applicable Prospectus Supplement, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. Such transfer or exchange will be effected upon
the Security Registrar or such transfer agent, as the case may be, being
satisfied with the documents of title and identity of the person making the
request. The Company has initially appointed the Trustee as Security Registrar
under the Indenture. (Section 305). If a Prospectus Supplement refers to any
transfer agents (in addition to the Security Registrar) initially designated
by the Company with respect to any series of Debt Securities, the Company may
at any time rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent acts, except
that, if Debt Securities of a series are issuable only as Registered
Securities, the Company will be required to maintain a transfer agent in each
Place of Payment for such series and, if Debt Securities of a series are
issuable as Bearer Securities, the Company will be required to maintain (in
addition to the Security Registrar) a transfer agent in a Place of Payment for
such series located outside the United States. The Company may at any time
designate additional transfer agents with respect to any series of Debt
Securities. (Section 1002).
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In the event of any redemption in part, the Company shall not be required to
(i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of Debt Securities of that series
selected to be redeemed and ending at the close of business on (A) if Debt
Securities of the series are issuable only as Registered Securities, the day
of mailing of the relevant notice of redemption, and (B) if Debt Securities of
the series are issuable as Bearer Securities, the day of the first publication
of the relevant notice of redemption or, if Debt Securities of that series are
also issuable as Registered Securities and there is no publication, the
mailing of the relevant notice of redemption; (ii) register the transfer of or
exchange any Registered Security, or portion thereof, called for redemption,
except the unredeemed portion of any Registered Security being redeemed in
part; or (iii) exchange any Bearer Security called for redemption, except to
exchange such Bearer Security for a Registered Security of that series and
like tenor which is immediately surrendered for redemption. (Section 305).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and interest, if any, on Registered
Securities (other than a Global Security) will be made at the office of such
Paying Agent or Paying Agents as the Company may designate from time to time,
except that at the option of the Company payment of any interest may be made
(i) by check mailed or delivered to the address of the Person entitled thereto
as such address shall appear in the Security Register or (ii) by wire transfer
to an account maintained by the Person entitled thereto as specified in the
Security Register. (Sections 305, 307 and 1002). Unless otherwise indicated in
an applicable Prospectus Supplement, payment of any instalment of interest on
Registered Securities will be made to the Person in whose name such Registered
Security is registered at the close of business on the Regular Record Date for
such interest payment. (Section 307).
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and interest, if any, on Bearer
Securities will be payable, subject to any applicable laws and regulations, at
the offices of such Paying Agents outside the United States as the Company may
designate from time to time, except that at the option of the Company, payment
of any interest may be made by check or by transfer to an account maintained
by the payee outside the United States. (Sections 307 and 1002). Unless
otherwise indicated in an applicable Prospectus Supplement, payment of
interest on Bearer Securities on any Interest Payment Date will be made only
against surrender of the coupon relating to such Interest Payment Date.
(Section 1001). No payment of interest on a Bearer Security will be made
unless on the earlier of the date of the first such payment by the Company or
the date of delivery by the Company of the Bearer Security, a written
certificate, in the form required by the Indenture, is provided to the Company
stating that on such date the Bearer Security is not owned by or on behalf of
a United States person (as defined under "Limitations on Issuance of Bearer
Securities") or, if a beneficial interest in such Bearer Security is owned by
or on behalf of a United States person, that such United States person is a
person described in Section 1.163-5(c)(2)(i)(D)(6) of the United States
Treasury regulations or is a financial institution who has purchased such
Bearer Security for resale during the restricted period and who certifies that
it has not acquired such Bearer Security for purposes of resale to a United
States person or to a person within the United States. No payment with respect
to any Bearer Security will be made at any office or agency of the Company in
the United States or by check mailed to any address in the United States or by
transfer to an account maintained in the United States. Payments will not be
made in respect of Bearer Securities or coupons appertaining thereto pursuant
to presentation to the Company or its designated Paying Agents within the
United States or any other demand for payment to the Company or its designated
Paying Agents within the United States. Notwithstanding the foregoing, payment
of principal of (and premium, if any) and interest, if any, on Bearer
Securities denominated and payable in U.S. dollars will be made at the office
of the Company's Paying Agent in the United States if, and only if, payment of
the full amount thereof in U.S. dollars at all offices or agencies outside the
United States is illegal or effectively precluded by exchange controls or
other similar restrictions and the Company has delivered to the Trustee an
opinion of counsel to that effect. (Section 1002).
Unless otherwise indicated in an applicable Prospectus Supplement, the
principal office of the Trustee in The City of New York will be designated as
the Company's sole Paying Agent for payments with respect to
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Debt Securities which are issuable solely as Registered Securities. Any Paying
Agents outside the United States and any other Paying Agents in the United
States initially designated by the Company for the Debt Securities will be
named in the related Prospectus Supplement. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agents or approve a change in the office through which any Paying Agent acts,
except that, if Debt Securities of a series are issuable only as Registered
Securities, the Company will be required to maintain a Paying Agent in each
Place of Payment for such series, and if the Debt Securities of a series may
be issuable as Bearer Securities, the Company will be required to maintain (i)
a Paying Agent in a Place of Payment for that series in the United States for
payments with respect to any Registered Securities of the series (and for
payments with respect to Bearer Securities of the series in the circumstances
described above, but not otherwise), (ii) a Paying Agent in a Place of Payment
located outside the United States where Debt Securities of such series and any
coupons appertaining thereto may be presented and surrendered for payment;
provided that if the Debt Securities of such series are listed on the
Luxembourg Stock Exchange or any other stock exchange located outside the
United States and such stock exchange shall so require, the Company will
maintain a Paying Agent in Luxembourg or any other required city located
outside the United States, as the case may be, for the Debt Securities of such
series, and (iii) a Paying Agent in a Place of Payment located outside the
United States where (subject to applicable laws) Registered Securities of such
series may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company may be served. (Section 1002).
All moneys paid by the Company to a Paying Agent for the payment of
principal of (and premium, if any) and interest, if any, on any Debt Security
which remains unclaimed at the end of two years after such principal, premium
or interest shall have become due and payable will be repaid to the Company
and the holder of such Debt Security or any coupon will thereafter look only
to the Company for payment thereof. (Section 1003).
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on
behalf of, a Depositary which shall be The Depository Trust Company, as set
forth below under "Description of Debt Securities--United States Book-Entry
System", unless otherwise provided in the Prospectus Supplement relating to
such series. Global Securities may be issued in either registered or bearer
form and in either temporary or permanent form. Unless and until it is
exchanged for Debt Securities in definitive form, a temporary Global Security
in registered form may not be transferred except as a whole by the Depositary
for such Global Security to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
such Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor. (Section 305).
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be as set forth below under "Description of Debt
Securities--United States Book-Entry System" unless otherwise provided in the
Prospectus Supplement relating to such series. The Company anticipates that
the following provisions will apply to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit the accounts of persons held with it with
the respective principal amounts of the Debt Securities represented by such
Global Security. Such accounts shall be designated by the underwriters or
agents with respect to such Debt Securities or by the Company if such Debt
Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Global Security will be limited to persons that have
accounts with the Depositary for such Global Security or its nominee
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests in such Global Security will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by the Depositary or its nominee (with respect to interests of
participants) for such Global Security and on the records of participants
(with respect to interests of persons other than participants). The laws of
some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
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So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have Debt
Securities of the series represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Debt Securities of such series in definitive form and will not be considered
the owners or holders thereof under the Indenture governing such Debt
Securities.
Principal, premium, if any, and interest payments on Debt Securities
registered in the name of a Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the registered owner of the
Global Security representing such Debt Securities. Neither the Company, the
Trustee for such Debt Securities, any Paying Agent nor the Security Registrar
for such Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of the Global Security for such Debt Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Subject to the restrictions discussed under "Limitations on Issuance of
Bearer Securities" below, the Company expects that the Depositary for a series
of Debt Securities or its nominee, upon receipt of any payment of principal,
premium or interest, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the Global Security for such Debt Securities as shown
on the records of such Depositary or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name",
and will be the responsibility of such participants. Receipt by owners of
beneficial interests in a temporary Global Security of payments in respect of
such temporary Global Security will be subject to restrictions discussed under
"Limitations on Issuance of Bearer Securities" below.
If a Depositary for a series of Debt Securities is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, the Company will issue Debt Securities of such
series in definitive form in exchange for the Global Security representing
such series of Debt Securities. In addition, the Company may at any time and
in its sole discretion determine not to have the Registered Securities of a
series represented by a Global Security and, in such event, will issue
Registered Securities of such series in definitive form in exchange for the
Global Security representing such series of Registered Securities. Further, if
the Company so specifies with respect to the Debt Securities of a series, an
owner of a beneficial interest in a Global Security representing Debt
Securities of such series may, on terms acceptable to the Company and the
Depositary for such Global Security, receive Debt Securities of such series in
definitive form. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in definitive form of
Debt Securities of the series represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name (if the Debt Securities of such series are issuable as
Registered Securities). Debt Securities of such series so issued in definitive
form will be issued (a) as Registered Securities in denominations, unless
otherwise specified by the Company, of $1,000 and integral multiples thereof
if the Debt Securities of such series are issuable as Registered Securities,
(b) as Bearer Securities in the denomination, unless otherwise specified by
the Company, of $5,000 if the Debt Securities of such series are issuable as
Bearer Securities or (c) as either Registered or Bearer Securities, if the
Debt Securities of such series are issuable in either form. (Section 305).
See, however, "Limitations on Issuance of Bearer Securities" below for a
description of certain restrictions on the issuance of a Bearer Security in
definitive form in exchange for an interest in a Global Security.
UNITED STATES BOOK-ENTRY SYSTEM
Unless otherwise described in the Prospectus Supplement relating to each
series, the Debt Securities of each series offered, sold or delivered in the
United States will be issued in the form of one or more fully registered
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global notes (collectively, the "Global Note") which will be deposited with,
or on behalf of, The Depository Trust Company, New York, New York (the
"Depository") and registered in the name of the Depository's nominee.
The Depository has advised as follows: it is a limited-purpose trust company
which was created to hold securities for its participating organizations (the
"Participants") and to facilitate the clearance and settlement of securities
transactions between Participants in such securities through electronic book-
entry changes in accounts of its Participants. Participants include securities
brokers and dealers (including the underwriters for such Debt Securities),
banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants"). Persons who are not Participants may
beneficially own securities held by the Depository only through Participants
or indirect participants.
Principal (and premium, if any) and interest payments on the Debt Securities
of each series registered in the name of the Depository's nominee will be made
by the Trustee to the Depository's nominee as the registered owner of the
Global Note. Under the terms of the Indenture, the Company and the Trustee
will treat the persons in whose names the Debt Securities of each series are
registered as the owners of such Debt Securities for the purpose of receiving
payment of principal (and premium, if any) and interest on the Debt Securities
and for all other purposes whatsoever. Therefore, neither the Company, the
Trustee nor any Paying Agent has any direct responsibility or liability for
the payment of principal (and premium, if any) or interest on the Debt
Securities to owners of beneficial interests in a Global Note. The Depository
has advised the Company and the Trustee that its present practice is, upon
receipt of any payment of principal (and premium, if any) or interest, to
immediately credit the accounts of the Participants with such payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interests in such Global Note as shown on the records of the
Depository.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered, sold or delivered during the restricted period
(as defined under "Denominations, Registration and Transfer") in the United
States or to United States persons (each as defined below) except to the
extent permitted under Section 1.163-5(c)(2)(i)(D) of the United States
Treasury regulations (the "D Rules"), and any underwriters, agents and dealers
participating in the offering of such Debt Securities must agree that they
will not offer any Bearer Securities for sale or resale in the United States
or to United States persons, except to the extent permitted under the D Rules,
nor deliver Bearer Securities within the United States.
Bearer Securities and any coupons appertaining thereto will bear a legend
substantially to the following effect: "Any United States person who holds
this obligation will be subject to limitations under the United States income
tax laws, including the limitations provided in Sections 165(j) and 1287(a) of
the Internal Revenue Code". Under Sections 165(j) and 1287(a) of the United
States Internal Revenue Code of 1986, as amended, and the regulations
thereunder (the "Code"), holders that are United States persons, with certain
exceptions, will not be entitled to deduct any loss on Bearer Securities and
must treat as ordinary income any gain realized on the sale or other
disposition (including the receipt of principal) of Bearer Securities.
As used herein, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision
thereof, an estate the income of which is subject to United States federal
income taxation regardless of its source, or a trust subject to the
supervision of a court within the United States and the control of a United
States fiduciary as described in Section 7701(a)(30) of the Code, and "United
States" means the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (including the Commonwealth of Puerto Rico). The
term "United States Alien" means any corporation, partnership, individual or
fiduciary that is, as to the United States, a foreign corporation, a
nonresident alien individual, a nonresident fiduciary of a foreign estate or
trust, or a foreign partnership one or
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more of the members of which is, as to the United States, a foreign
corporation, a nonresident alien individual or a nonresident fiduciary of a
foreign estate or trust.
CERTAIN COVENANTS OF THE COMPANY
Except as otherwise described in this paragraph, the Company will not and
will not permit any Subsidiary to create, assume, incur or suffer to be
created, assumed or incurred any mortgage, lien, charge or encumbrance of any
kind (herein referred to as "liens") (i) upon any shares of stock issued by
any Subsidiary or (ii) upon any manufacturing plant or facility owned and
operated by the Company or any Subsidiary, which is determined to be a
materially important manufacturing plant or facility by the Company's Board of
Directors in its discretion, without, in each case, making effective provision
whereby all the Debt Securities shall be directly secured equally and ratably
with the indebtedness or other obligations secured by such lien. This covenant
does not apply to: (i) liens for taxes, assessments or governmental charges or
levies not yet delinquent or being diligently contested by appropriate
proceedings, in good faith, if any reserve or provision required by generally
accepted accounting principles shall have been made; (ii) liens incurred in
the ordinary course of business in connection with workmen's compensation,
unemployment insurance and other types of social security or to secure
statutory, excise tax and similar obligations (other then for payment of
borrowed money) and judgment liens unless the judgment shall not have been
discharged or execution stayed pending appeal within 60 days or not discharged
within 60 days after any such stay; (iii) in the case of any materially
important manufacturing facility and if incurred in the ordinary course of
business (a) liens of landlords, mechanics and materialmen for monies not yet
due or being diligently contested in good faith by appropriate proceeding, if
any reserve or provision required by generally accepted accounting principles
shall have been made, (b) leases or subleases granted to others and
(c) easements and other similar encumbrances not interfering with the ordinary
conduct of the business of the Company; (iv) in the case of liens upon any
materially important manufacturing facility, liens incurred in connection with
the issuance by a state or a political subdivision thereof of any securities
the interest on which is exempt from federal income taxes by virtue of Section
103 of the Code, or any other laws and regulations in effect at the time of
such issuance; (v) liens securing indebtedness owed by a Subsidiary to the
Company or another Subsidiary; (vi) liens on property or shares of stock
existing when acquired (including through merger and consolidation) or
securing the payment of all or part of the purchase price, construction or
improvement thereof incurred prior to, at the time of, or within 120 days
after the later of the acquisition, completion of construction or commencement
of full operation of such property or within 120 days after the acquisition of
such shares for the purpose of financing all or a portion of such purchase
thereof or construction thereon; or (vii) any extension, renewal or
replacement (or successive extensions, renewals or replacements), in whole or
in part of liens referred to in this sentence. Notwithstanding the foregoing,
the Company may create or assume liens in addition to those otherwise
permitted by the preceding sentence of this paragraph, provided that such
additional liens secure an aggregate amount of indebtedness, which together
with the aggregate "value" of sale and leaseback transactions referred to
below (other than such transactions in which debt has been retired in
accordance with the following paragraph), does not exceed 10% of Consolidated
Net Tangible Assets. (Section 1007).
Sales and leasebacks by the Company or any Subsidiary of any materially
important manufacturing facility are prohibited unless an amount equal to the
greater of the proceeds of sale or the fair value of the property is applied
to the retirement of long-term non-subordinated indebtedness for money
borrowed (including the Debt Securities) of the Company, except that such
sales and leasebacks are permitted to the extent that the "value" thereof plus
the other secured debt referred to in the last sentence of the previous
paragraph does not exceed the amount stated therein. (Section 1008).
Consolidated Net Tangible Assets means the excess over current liabilities
of all assets properly appearing on a consolidated balance sheet of the
Company and its Subsidiaries after deducting goodwill, trademarks, patents,
other like intangibles, and the minority interests of others in Subsidiaries.
A Subsidiary is defined to mean any corporation of which at least a majority
of all outstanding stock having ordinary voting power in the election of
directors of such corporation is at the time, directly or indirectly, owned by
the Company or by one or more Subsidiaries or by the Company and one or more
Subsidiaries. (Section 101).
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There are no other restrictive covenants in the Indenture. The Indenture
does not require the Company to maintain any financial ratios, minimum levels
of net worth or liquidity or restrict the payment of dividends, the making of
other distributions on the Company's capital stock or the redemption or
purchase of its capital stock. Moreover, the Indenture does not contain any
provision requiring the Company to repurchase or redeem any Debt Securities or
Debt Warrants or modify the terms thereof or afford the holders thereof any
other protection in the event of a change of control of the Company, any
highly leveraged transaction or any other event involving the Company that may
materially adversely affect the creditworthiness of the Company or the value
of the Debt Securities or Debt Warrants.
TAX REDEMPTION; SPECIAL TAX REDEMPTION
If and to the extent specified in an applicable Prospectus Supplement, the
Debt Securities of a series will be subject to redemption at any time, as a
whole but not in part, at a redemption price equal to the principal amount
thereof together with accrued and unpaid interest to the date fixed for
redemption, upon publication of a notice as described below, if (x) the
Company determines that (a) as a result of any change in or amendment to the
laws (or any regulations or rulings promulgated thereunder) of the United
States or of any political subdivision or taxing authority thereof or therein
affecting taxation, or any change in official position regarding application
or interpretation of such laws, regulations or rulings (including a holding by
a court of competent jurisdiction), which change or amendment is announced or
becomes effective on or after a date specified in the applicable Prospectus
Supplement, the Company has or will become obligated to pay additional amounts
with respect to any Debt Security of such series as described below under
"Payment of Additional Amounts" or (b) on or after a date specified in the
applicable Prospectus Supplement, any action has been taken by any taxing
authority of, or any decision has been rendered in a court of competent
jurisdiction in, the United States or any political subdivision or taxing
authority thereof or therein, including any of those actions specified in (a)
above, whether or not such action was taken or decision was rendered with
respect to the Company, or any change, amendment, application or
interpretation shall be officially proposed, which, in any such case, in the
written opinion to the Company of independent legal counsel of recognized
standing, will result in a material probability that the Company will become
obligated to pay additional amounts with respect to any Debt Security of such
series, and (y) in any such case the Company in its business judgment
determines that such obligation cannot be avoided by the use of reasonable
measures available to the Company.
If the Company shall determine that any payment made outside the United
States by the Company or any Paying Agent of principal or interest due in
respect of any Bearer Security (an "Affected Security") or any coupon
appertaining thereto would, under any present or future laws or regulations of
the United States, be subject to any certification, information or other
reporting requirement of any kind, the effect of which requirement is the
disclosure to the Company, any Paying Agent or any governmental authority of
the nationality, residence or identity (as distinguished from, for example,
status as a United States Alien) of a beneficial owner of such Affected
Security of such series or coupon who is a United States Alien (other than
such a requirement which (a) would not be applicable to a payment made (i)
directly to the beneficial owner or (ii) to a custodian, nominee or other
agent of the beneficial owner, (b) can be satisfied by such custodian, nominee
or other agent certifying to the effect that such beneficial owner is a United
States Alien, provided that, in each case referred to in items (a)(ii) and
(b), payment by such custodian, nominee or other agent to such beneficial
owner is not otherwise subject to any such requirement (other than a
requirement which is imposed on a custodian, nominee or other agent described
in (d) of this sentence), (c) would not be applicable to a payment made by at
least one other Paying Agent of the Company or (d) is applicable to a payment
to a custodian, nominee or other agent of the beneficial owner who is a United
States person, a controlled foreign corporation for United States tax
purposes, a foreign person 50% or more of whose gross income for the three-
year period ending with the close of its taxable year preceding the year of
payment is effectively connected with a United States trade or business, or is
otherwise related to the United States), the Company at its election shall
either (x) redeem the Affected Securities of such series, as a whole, at a
redemption price equal to the principal amount thereof, together with accrued
and unpaid interest to the date fixed for redemption, or (y) if the conditions
of the next succeeding paragraph are satisfied, pay the additional amounts
specified in such paragraph. The Company shall make such
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determination and election as soon as practicable and give prompt notice
thereof (the "Determination Notice") in the manner described under "Notices"
below, stating the effective date of such certification, information or
reporting requirements, whether the Company has elected to redeem the Affected
Securities of such series, or to pay the additional amounts specified in the
next succeeding paragraph, and (if applicable) the last date by which the
redemption of the Affected Securities of such series must take place, as
provided in the next succeeding sentence. If the Company elects to redeem the
Affected Securities of such series, such redemption shall take place on such
date, not later than one year after the publication of the Determination
Notice, as the Company shall elect by notice to the Trustee given not less
than 45 nor more than 75 days before the date fixed for redemption. Notice of
such redemption of the Affected Securities of such series will be given to the
holders thereof not less than 30 nor more than 60 days prior to the date fixed
for redemption. Notwithstanding the foregoing, the Company shall not so redeem
the Affected Securities of such series if the Company shall subsequently
determine, not less than 30 days prior to the date fixed for redemption, that
subsequent payments would not be subject to any such requirement, in which
case the Company shall give prompt notice of such determination in the manner
described under "Notices" below and any earlier redemption notice shall be
revoked and of no further effect. The right of the holders of Affected
Securities called for redemption to exchange such Affected Securities for
Registered Securities (which Registered Securities will remain Outstanding
following such redemption) will terminate on the 16th day prior to the date
fixed for redemption, and no further exchanges of Affected Securities for
Registered Securities shall be permitted unless the Company shall have made
the subsequent determination and given the notice referred to in the preceding
sentence.
If and so long as the certification, information or other reporting
requirements referred to in the preceding paragraph would be fully satisfied
by payment of a withholding tax, backup withholding tax or similar charge, the
Company may elect to pay such additional amounts as may be necessary so that
every net payment made outside the United States following the effective date
of such requirements by the Company or any Paying Agent of principal (or
premium, if any) or interest, if any, due in respect of any Affected Security
of such series or any coupon to a holder who certifies that the beneficial
owner is a United States Alien (but without any requirement that the
nationality, residence or identity of such beneficial owner be disclosed to
the Company, any Paying Agent or any governmental authority), after deduction
or withholding for or on account of such withholding tax, backup withholding
tax or similar charge (other than a withholding tax, backup withholding tax or
similar charge which (a) is the result of a certification, information or
other reporting requirement described in the second parenthetical clause of
the first sentence of the preceding paragraph or (b) is imposed as a result of
presentation of such Affected Security or coupon for payment more than 10 days
after the date on which such payment becomes due and payable or on which
payment thereof is duly provided for, whichever occurs later), will not be
less than the amount provided for in such Affected Security or coupon to be
then due and payable. In the event the Company elects to pay such additional
amounts, the Company will have the right, at its sole option, at any time, to
redeem the Affected Securities of such series as a whole, but not in part, at
a redemption price equal to the principal amount thereof, together with
accrued and unpaid interest to the date fixed for redemption. If the Company
has made the determination described in the preceding paragraph with respect
to certification, information or other reporting requirements applicable only
to interest and subsequently makes a determination in the manner and of the
nature referred to in such preceding paragraph with respect to such
requirements applicable to principal, the Company will redeem the Affected
Securities of such series in the manner and on the terms described in the
preceding paragraph unless the Company elects to have the provisions of this
paragraph apply rather than the provisions of the immediately preceding
paragraph. If in such circumstances the Affected Securities of such series are
to be redeemed, the Company shall have no obligation to pay additional amounts
pursuant to this paragraph with respect to principal (or premium, if any) or
interest, if any, accrued and unpaid after the date of the notice of such
determination indicating such redemption, but will be obligated to pay such
additional amounts with respect to interest accrued and unpaid to the date of
such determination. If the Company elects to pay additional amounts pursuant
to this paragraph and the condition specified in the first sentence of this
paragraph should no longer be satisfied, then the Company shall promptly
redeem such Affected Securities in whole but not in part. (Section 1107).
In the event that the Company elects or is required to redeem the Debt
Securities of such series pursuant to the provisions set forth in the
preceding three paragraphs, the Company shall deliver to the Trustee a
certificate,
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signed by an authorized officer, stating that the Company is entitled to
redeem the Debt Securities of such series pursuant to their terms.
Notice of intention to redeem the Debt Securities of such series and all
other notices in accordance with the provisions of the preceding paragraphs
will be given in accordance with "Notices" below. In the case of a redemption,
notice will be given once not more than 60 nor less than 30 days prior to the
date fixed for redemption and will specify the date fixed for redemption.
PAYMENT OF ADDITIONAL AMOUNTS
If and to the extent specified in an applicable Prospectus Supplement, the
Company will, subject to the exceptions and limitations set forth below, pay
to the holder of any Debt Security or coupon who is a United States Alien such
additional amounts as may be necessary in order that every net payment on such
Debt Security or coupon, after withholding by the Company or any of its Paying
Agents for or on account of any present or future tax, assessment or other
governmental charge imposed upon or as a result of such payment by the United
States (or any political subdivision or taxing authority thereof or therein)
will not be less than the amount provided for in such Debt Security or in such
coupon to be then due and payable. However, the Company will not be required
to make any payment of additional amounts for or on account of:
(1) any tax, assessment or other governmental charge that would not have
been so imposed but for (i) the existence of any present or former
connection between such holder (or between a fiduciary, settlor or
beneficiary of, or a person holding a power over, such holder, if such
holder is an estate or trust, or a member or shareholder of such holder, if
such holder is a partnership or corporation) and the United States,
including, without limitation, such holder (or such fiduciary, settlor,
beneficiary, person holding a power, member or shareholder) being or having
been a citizen, resident or treated as a resident thereof or being or
having been engaged in a trade or business or present therein or having or
having had a permanent establishment therein, or (ii) such holder's present
or former status as a personal holding company, foreign personal holding
company, controlled foreign corporation or passive foreign investment
company with respect to the United States or as a corporation that
accumulates earnings to avoid United States federal income tax;
(2) any tax, assessment or other governmental charge which would not have
been so imposed but for the presentation by the holder of such Debt
Security or coupon for payment on a date more than 10 days after the date
on which such payment became due and payable or the date on which payment
thereof is duly provided for, whichever occurs later;
(3) any estate, inheritance, gift, sales, transfer, personal property tax
or any similar tax, assessment or other governmental charge;
(4) any tax, assessment or other governmental charge that is payable
otherwise than by withholding from a payment on a Debt Security or coupon;
(5) any tax, assessment or other governmental charge imposed on a holder
of a Debt Security or coupon that actually or constructively owns 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of Section 871(h)(3) of the
Code or that is a controlled foreign corporation related to the Company
through stock ownership;
(6) any tax, assessment or other governmental charge imposed as a result
of the failure to comply with applicable certification, information,
documentation or other reporting requirements concerning the nationality,
residence, identity or connection with the United States of the holder or
beneficial owner of a Debt Security or coupon, if such compliance is
required by statute, or by regulation of the United States, as a
precondition to relief or exemption from such tax, assessment or other
governmental charge;
(7) any tax, assessment or other governmental charge required to be
withheld by any Paying Agent from any payment on a Debt Security or coupon
if such payment can be made without such withholding by at least one other
Paying Agent;
(8) any tax, assessment or other governmental charge imposed with respect
to payments on any Registered Security by reason of the failure of the
holder to fulfill the statement requirement of Section 871(h) or Section
881(c) of the Code; or
(9) any combination of items (1), (2), (3), (4), (5), (6), (7) and (8);
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nor will additional amounts be paid with respect to any payment on a Debt
Security or coupon to a holder who is a fiduciary or partnership or other than
the sole beneficial owner of such payment to the extent such payment would be
required by the laws of the United States (or any political subdivision
thereof) to be included in the income for federal income tax purposes of a
beneficiary or settlor with respect to such fiduciary or a member of such
partnership or a beneficial owner who would not have been entitled to payment
of the additional amounts had such beneficiary, settlor, member or beneficial
owner been the holder of such Debt Security or coupon. (Section 1011).
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may consolidate or merge with or into any other corporation, and
the Company may convey or transfer its properties and assets substantially as
an entirety to another corporation, provided, among other things, that (a) the
corporation formed by or resulting from any such consolidation or merger or
the transferee of such assets shall be a corporation organized and existing
under the laws of the United States, any State thereof or the District of
Columbia and shall expressly assume by supplemental indenture payment of the
principal of (and premium, if any) and interest, if any, on the Debt
Securities and the performance and observance of the Indenture, (b) after
giving effect to the transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, shall
have occurred and be continuing, and (c) certain other conditions are met.
(Section 801).
Upon any consolidation or merger, or any conveyance or transfer of the
properties and assets of the Company substantially as an entirety in
accordance with the preceding paragraph, the successor corporation formed by
such consolidation or into which the Company is merged or to which such
conveyance or transfer is made shall be substituted for the Company with the
same effect as if such successor corporation had been named as the Company.
Thereafter the Company shall be relieved of all obligations and covenants
under the Indenture and the Company may thereupon or any time thereafter be
dissolved, wound up, or liquidated. (Section 802).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Debt Securities: (i) default in the payment of any
instalment of interest on any Debt Securities in such series and any related
coupons for 30 days after becoming due; (ii) default in the payment of the
principal of (or premium, if any, on) any Debt Securities in such series when
due; (iii) default in the performance of any other covenant for 90 days after
notice; and (iv) certain events of bankruptcy, insolvency or reorganization.
(Section 501). If an Event of Default shall occur and be continuing with
respect to a series of Debt Securities, either the Trustee or the holders of
at least 25% in principal amount of the outstanding Debt Securities of such
series may declare the entire principal amount, or, in the case of Discounted
Securities, such lesser amount as may be provided for in such Discounted
Securities, of all the Debt Securities of such series to be immediately due
and payable. (Section 502). A default under any other indebtedness of the
Company will not constitute a default under the Indenture and a default under
one series of Debt Securities or Debt Warrants will not constitute a default
under any other series of Debt Securities or Debt Warrants.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default with respect to a particular series of Debt
Securities, give the holders of the Debt Securities of such series notice of
such default known to it (the term default to mean the events specified above
without grace periods); provided that, except in the case of a default in the
payment of principal of (or premium, if any) or interest, if any, on any of
the Debt Securities of such series, the Trustee shall be protected in
withholding such notice if it in good faith determines the withholding of such
notice is in the interest of the holders of the Debt Securities of such
series. (Section 602).
The Company is required to furnish the Trustee annually a statement by
certain officers of the Company to the effect that to the best of their
knowledge the Company is not in default in the fulfillment of any of its
obligations under the Indenture or, if there has been a default in the
fulfillment of any such obligation, specifying each such default. (Section
1005).
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The holders of a majority in principal amount of a particular series of
Outstanding Debt Securities have the right, subject to certain limitations, to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee with respect to such series or exercising any trust
or power conferred on the Trustee, and to waive certain defaults. (Sections
512 and 513). The Indenture provides that in case an Event of Default shall
occur and be continuing, the Trustee shall exercise such of its rights and
powers under the Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs. (Section 601). Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the holders of the Debt
Securities unless they shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request. (Section 603).
A judgment for money damages by courts in the United States, including a
money judgment based on an obligation expressed in a foreign currency, will
ordinarily be rendered only in U.S. dollars. New York statutory law provides
that a court shall render a judgment or decree in the foreign currency of the
underlying obligation and that the judgment or decree shall be converted into
U.S. dollars at the exchange rate prevailing on the date of entry of the
judgment or decree.
If, for the purpose of obtaining a judgment in any court with respect to any
obligation of the Company under any Debt Security or any related coupon, it
becomes necessary to convert into any other currency or currency unit any
amount in the currency or currency unit due under such Debt Security or
coupon, the conversion will be made by the Currency Determination Agent at the
Market Exchange Rate in effect on the date of entry of the judgment (the
"Judgment Date"). If pursuant to any such judgment, conversion is made on a
date (the "Substitute Date") other than the Judgment Date and a change has
occurred between the Market Exchange Rate in effect on the Judgment Date and
the Market Exchange Rate in effect on the Substitute Date, the Indenture
requires the Company to pay such additional amounts (if any) as may be
necessary to ensure that the amount paid is equal to the amount in such other
currency or currency unit which, when converted at the Market Exchange Rate in
effect on the Judgment Date, is the amount then due under such Debt Security
or coupon. The Company will not, however, be required to pay more in the
currency or currency unit due under such Debt Security or coupon at the Market
Exchange Rate in effect when payment is made than the amount of currency or
currency unit stated to be due under such Debt Security or coupon, and the
Company will be entitled to withhold (or be reimbursed for, as the case may
be) any excess of the amount actually realized upon any such conversion over
the amount due and payable on the date of payment. (Section 516).
SATISFACTION AND DISCHARGE
Except as may otherwise be set forth in the Prospectus Supplement relating
to a series of Debt Securities, the Indenture provides that the Company shall
be discharged from its obligations under the Debt Securities of such series
(with certain exceptions) at any time prior to the Stated Maturity or
redemption thereof when (a) the Company has irrevocably deposited with the
Trustee, in trust, (i) sufficient funds in the currency, currencies or
currency unit or units in which the Debt Securities of such series are payable
to pay the principal of (and premium, if any) and interest, if any, to Stated
Maturity (or redemption) on, the Debt Securities of such series, or (ii) such
amount of direct obligations of, or obligations the principal of (and premium,
if any) and interest, if any, on which are fully guaranteed by, the government
which issued the currency, and are payable in the currency, in which the Debt
Securities of such series are payable, and which are not subject to
prepayment, redemption or call, as will, together with the predetermined and
certain income to accrue thereon without consideration of any reinvestment
thereof, be sufficient to pay when due the principal of (and premium, if any)
and interest, if any, to Stated Maturity (or redemption) on, the Debt
Securities of such series or (iii) such amount equal to the amount referred to
in clause (i) or (ii) in any combination of currency or currency units or
government obligations, (b) the Company has paid all other sums payable with
respect to the Debt Securities of such series and (c) certain other conditions
are met. Upon such discharge, the holders of the Debt Securities of such
series shall no longer be entitled to the benefits of the Indenture, except
for certain rights, including
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registration of transfer and exchange of the Debt Securities of such series
and replacement of mutilated, destroyed, lost or stolen Debt Securities, and
shall look only to such deposited funds or obligations. (Sections 401 and
403).
Such discharge may be treated as a taxable exchange of the related Debt
Securities for an issue of obligations of the trust or a direct interest in
the cash and securities held in the trust. In that case, holders of such Debt
Securities would recognize gain or loss as if the trust obligations or the
cash or securities deposited, as the case may be, had actually been received
by them in exchange for their Debt Securities. Such holders thereafter might
be required to include in income a different amount than would be includable
in the absence of discharge. Prospective investors are urged to consult their
own tax advisors as to the specific consequences of discharge.
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Debt Securities of any series so provide, the Company
may omit to comply with the restrictive covenants in Section 801 ("Company May
Consolidate, Etc., Only on Certain Terms"), Section 1007 ("Limitations on
Liens") and Section 1008 ("Sale and Leaseback Transactions") and any such
omission with respect to such Sections shall not be an Event of Default with
respect to the Debt Securities of such series, if (a) the Company deposits or
causes to be deposited with the Trustee for the Debt Securities of such series
in trust an amount of (i) cash in the currency or currency unit in which the
Debt Securities of such series are payable (except as otherwise specified with
respect to the Securities of such series), (ii) government obligations of the
type referred to under "Satisfaction and Discharge" or (iii) a combination of
such cash and government obligations which amount, in the case of (ii) or
(iii), together with the predetermined and certain income to accrue on any
such government obligations when due (without the consideration of any
reinvestment thereof), is sufficient to pay and discharge when due the entire
indebtedness on all such Outstanding Securities of such series and any related
coupons for unpaid principal (and premium, if any) and interest, if any, to
the Stated Maturity or any Redemption Date, as the case may be and (b) certain
other conditions are met. The obligations of the Company under the Indenture
with respect to the Debt Securities of such series, other than with respect to
the covenants referred to above shall remain in full force and effect.
(Section 1010).
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the holders of more than 50% in principal
amount of the Outstanding Debt Securities of each series issued under the
Indenture affected by such modification or amendment; provided, however, that
no such modification or amendment may, without the consent of the holder of
each Outstanding Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any instalment of principal of or interest,
if any, on any Debt Security, (b) reduce the principal amount of (or premium,
if any) or interest, if any, on any Debt Security, (c) change any obligation
of the Company to pay additional amounts as set forth under "Payment of
Additional Amounts", (d) reduce the amount of principal of a Discounted
Security payable upon acceleration of the Maturity thereof, (e) change the
Place of Payment, (f) change the currency or currency unit of payment of
principal of (or premium, if any) or interest, if any, on any Debt Security,
(g) impair the right to institute suit for the enforcement of any payment on
or with respect to any Debt Security on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date), or (h)
reduce the percentage in principal amount of Outstanding Debt Securities of
any series, the consent of the holders of which is required for modification
or amendment of the applicable Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults.
(Section 902).
The holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain restrictive provisions of the
Indenture. (Section 1009). The holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series may on
behalf of the holders of all Debt Securities of that series and any coupons
appertaining thereto waive any past default under the Indenture with respect
to that series, except a default in the payment of the principal of (or
premium, if any)
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and interest, if any, on any Debt Security of that series or in respect of a
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Outstanding Debt Security of that series
affected. (Section 513).
The Indenture contains provisions for convening meetings of the holders of
Debt Securities of a series if Debt Securities of that series are issuable as
Bearer Securities. A meeting may be called at any time by the Trustee, and
also, upon request, by the Company or the holders of at least 10% in principal
amount of the Outstanding Debt Securities of such series, in any such case
upon notice given in accordance with "Notices" below. (Section 1302). Any
resolution passed or decision taken at any meeting of holders of Debt
Securities of any series duly held in accordance with the Indenture will be
binding on all holders of Debt Securities of that series and the related
coupons. The quorum at any meeting called to adopt a resolution, and at any
reconvened meeting, will be persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series. (Section
1304).
NOTICES
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, notices to holders of Bearer
Securities will be given by publication in a daily newspaper in the English
language of general circulation in The City of New York and in London, and so
long as such Bearer Securities are listed on the Luxembourg Stock Exchange and
the Luxembourg Stock Exchange shall so require, in a daily newspaper of
general circulation in Luxembourg or, if not practical, elsewhere in Western
Europe. Such publication is expected to be made in The Wall Street Journal,
the Financial Times and the Luxemburger Wort. Notices to holders of Registered
Securities will be given by mail to the addresses of such holders as they
appear in the Security Register. (Sections 101 and 106).
TITLE
Title to any temporary Global Security, any permanent Global Security, any
Bearer Securities and any coupons appertaining thereto will pass by delivery.
The Company, the Trustee and any agent of the Company or the Trustee may treat
the bearer of any Bearer Security and the bearer of any coupon and the
registered owner of any Registered Security as the absolute owner thereof
(whether or not such Debt Security or coupon shall be overdue and
notwithstanding any notice to the contrary) for the purpose of making payment
and for all other purposes. (Section 308).
GOVERNING LAW
The Indenture and the Debt Securities are governed by and construed in
accordance with the laws of the State of New York.
CONCERNING THE TRUSTEE
The Company and its subsidiaries have customary banking relationships with
The Chase Manhattan Bank, which is the Trustee under the Indenture. As of
March 31, 1988, the Company had issued pursuant to an Indenture dated as of
December 1, 1985 between the Company and The Chase Manhattan Bank its 8 3/8%
Sinking Fund Debentures Due 2017 which are still outstanding as of the date
hereof. Subsequent to March 31, 1988, the Company has issued pursuant to an
Amended and Restated Indenture, dated as of April 1, 1988, amending, restating
and supplementing an Indenture dated as of December 1, 1985 between the
Company and The Chase Manhattan Bank, the following securities which are still
outstanding as of the date hereof: its 9% Notes Due 1998, its 9 1/4% Notes Due
2000, its 9 3/4% Notes Due 1997 and a Medium-Term Note, Series B, due 1997
with an interest rate of 9.65%. Subsequent to August 1, 1990, the Company has
issued pursuant to an Indenture, dated as of August 1, 1990, as supplemented
and amended by a First Supplemental Indenture dated as of February 1, 1991 and
a Second Supplemental Indenture dated as of January 21, 1992 between the
Company and The Chase Manhattan Bank, the following securities which are still
outstanding as of the date hereof: its 9 1/4% Notes Due 1997, its 9% Notes Due
2001, its 8 5/8% Notes Due 1999, its 8 3/4% Notes Due 2001, its 8 3/4% Notes
Due June 15, 1997, its 8 1/4% Notes Due 2003, its 7 1/2% Notes Due 2002, its
7 3/8% Notes Due 1999, its 7 1/2% Notes Due
19
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1997, its 7 3/4% Notes Due 1999, its 7 5/8% Notes Due 2002, its 7 1/8% Notes
Due 2002, its 7 1/8% Notes Due 2004, its 7 1/8% Notes Due 1999, its 6 3/8%
Notes Due 1998, its 7 1/4% Notes Due 2003, its 6 3/8% Notes Due 2006, its
6.95% Notes Due 2006, its 7.65% Notes Due July 1, 2008, its 7 1/4% Notes Due
2001 and its Medium-Term Notes, Series C, with interest rates ranging from
6.15% to 9.70% and maturities ranging from 1997 to 2000.
DESCRIPTION OF DEBT WARRANTS
The Company may issue Debt Warrants in registered certificated form for the
purchase of Debt Securities. Debt Warrants may be issued together with or
separately from any Debt Securities offered by any Prospectus Supplement and,
if issued together with any Debt Securities, may be attached to or separate
from such Debt Securities. Debt Warrants are to be issued under Debt Warrant
Agreements to be entered into between the Company and a bank or trust company,
as Debt Warrant Agent, all as set forth in the Prospectus Supplement relating
to the particular issue of Debt Warrants. Copies of the forms of Debt Warrant
Agreements and Debt Warrant Certificates are filed as exhibits to the
Registration Statement. The following summaries of certain provisions of the
forms of Debt Warrant Agreements and Debt Warrant Certificates do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the Debt Warrant Agreements and the Debt
Warrant Certificates. Section references herein are references to particular
provisions of the Debt Warrant Agreements. Capitalized terms used in this
Description of Debt Warrants but not defined herein have the meanings ascribed
to such terms in the Debt Warrant Agreements.
GENERAL
The Prospectus Supplement will describe the terms of the Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (i) the offering price; (ii) the designation, aggregate principal
amount and terms of the Debt Securities purchasable upon exercise of the Debt
Warrants; (iii) if applicable, the designation and terms of the Debt
Securities with which the Debt Warrants are issued and the number of Debt
Warrants issued with each such Debt Security; (iv) if applicable, the date on
and after which the Debt Warrants and the related Debt Securities will be
separately transferable; (v) the principal amount of Debt Securities
purchasable upon exercise of one Debt Warrant and the price at which such
principal amount of Debt Securities may be purchased upon such exercise; (vi)
the date on which the right to exercise the Debt Warrants shall commence and
the date (the "Debt Warrant Expiration Date") on which such right shall
expire; (vii) federal income tax consequences; (viii) the identity of the Debt
Warrant Agent; and (ix) any other terms of the Debt Warrants.
Debt Warrant Certificates may be exchanged for new Debt Warrant Certificates
of different denominations, may be presented for registration of transfer, and
may be exercised at the corporate trust office of the Debt Warrant Agent or
any other office indicated in the applicable Prospectus Supplement. (Section
4.01).
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle its holder to purchase such principal amount
of Debt Securities at such exercise price as shall in each case be set forth
in, or calculable from, the Prospectus Supplement relating to the Debt
Warrants. (Section 1.01). Debt Warrants may be exercised at any time up to
5:00 p.m., New York City time, on the Debt Warrant Expiration Date set forth
in the Prospectus Supplement relating to such Debt Warrants. After such time
on the Debt Warrant Expiration Date (or such later date to which such Debt
Warrant Expiration Date may be extended by the Company), unexercised Debt
Warrants will be void. (Section 2.02).
Debt Warrants may be exercised by delivery to the Debt Warrant Agent of
payment as provided in the Prospectus Supplement of the amount required to
purchase the Debt Securities purchasable upon such exercise together with
certain information set forth on the reverse side of the Debt Warrant
Certificate. Debt Warrants will be deemed to have been exercised upon receipt
of the exercise price, subject to the receipt within five business days of the
Debt Warrant Certificate evidencing such Debt Warrants. Upon receipt of such
payment and the Debt Warrant Certificate properly completed and duly executed
at the corporate trust office of the Debt
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Warrant Agent or any other office indicated in the Prospectus Supplement, the
Company will, as soon as practicable, issue and deliver the Debt Securities
purchasable upon such exercise. If fewer than all of the Debt Warrants
represented by such Debt Warrant Certificate are exercised, a new Debt Warrant
Certificate will be issued for the remaining amount of Debt Warrants. (Section
2.03).
MODIFICATIONS
The Debt Warrant Agreement and the terms of the Debt Warrants may be amended
by the Company and the Debt Warrant Agent, without the consent of the holders,
for the purpose of curing any ambiguity, or curing, correcting or
supplementing any defective provision contained therein, or in any other
manner which the Company and the Debt Warrant Agent may deem necessary or
desirable and which will not adversely affect the interests of the holders.
(Section 6.01).
ENFORCEABILITY OF RIGHTS BY HOLDERS; GOVERNING LAW
The Debt Warrant Agent will act solely as an agent of the Company in
connection with the Debt Warrant Certificates and will not assume any
obligation or relationship of agency or trust for or with any holders of Debt
Warrant Certificates. (Section 5.02). Holders may, without the consent of the
Debt Warrant Agent or the Trustee for the applicable series of Debt
Securities, enforce by appropriate legal action, on their own behalf, their
right to exercise their Debt Warrants in the manner provided in their Debt
Warrant Certificates and the Debt Warrant Agreement. (Section 3.03). Prior to
the exercise of their Debt Warrants, holders of Debt Warrants will not have
any of the rights of holders of the Debt Securities purchasable upon such
exercise, including the right to receive payments of principal of (and
premium, if any) or interest, if any, on the Debt Securities purchasable upon
such exercise or to enforce covenants in the Indenture. (Section 3.01). Except
as may otherwise be provided in the Prospectus Supplement relating thereto,
each issue of Debt Warrants and the applicable Debt Warrant Agreement will be
governed by and construed in accordance with the laws of the State of New
York. (Section 6.04).
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities and the Debt Warrants (i) through
underwriters or dealers, (ii) directly to one or more institutional purchasers
or (iii) through agents. The Prospectus Supplement with respect to the Debt
Securities or the Debt Warrants being offered thereby sets forth the terms of
the offering thereof, including the name or names of any underwriters, their
purchase price and the proceeds to the Company from such sale, any
underwriting discounts and other items constituting underwriters'
compensation, any initial public offering price, any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchanges on which
they may be listed. Only underwriters so named in the Prospectus Supplement
are deemed to be underwriters in connection with the Debt Securities or the
Debt Warrants offered thereby.
If underwriters are used in the sale, the Debt Securities or the Debt
Warrants will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of the underwriters to purchase such Debt
Securities or the Debt Warrants will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all the Debt
Securities or the Debt Warrants offered by the Prospectus Supplement relating
to such series if any are purchased. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
Debt Securities or Debt Warrants may also be sold directly by the Company or
through agents designated by the Company from time to time. Any agent involved
in the offering and sale thereof in respect of which this Prospectus is
delivered is named and any commissions payable by the Company to such agent
are set forth in the Prospectus Supplement relating to such series. Unless
otherwise indicated in such Prospectus Supplement, any such agent is acting on
a best efforts basis for the period of its appointment.
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If so indicated in a Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers by certain institutional
investors to purchase Debt Securities or Debt Warrants, as the case may be, to
which such Prospectus Supplement relates providing for payment and delivery on
a future date specified in such Prospectus Supplement. There may be
limitations on the minimum amount which may be purchased by any such
institutional investor or on the portion of the aggregate amount of the
particular Debt Securities or Debt Warrants which may be sold pursuant to such
arrangements. Institutional investors to which such offers may be made, when
authorized, include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and such
other institutions as may be approved by the Company. The obligations of any
such purchasers pursuant to such delayed delivery and payment arrangements
will not be subject to any conditions except that (i) such purchase shall not
at the time of delivery be prohibited under the laws of any jurisdiction in
the United States to which such institution is subject, and (ii) if the
particular Debt Securities or Debt Warrants are being sold to underwriters,
the Company shall have sold to such underwriters the total amount of such Debt
Securities or Debt Warrants less the amount thereof covered by such
arrangements. Underwriters will not have any responsibility in respect of the
validity of such arrangements or the performance of the Company or such
institutional investors thereunder.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the 1933 Act, or to contribution with
respect to payments which the agents or underwriters may be required to make
in respect thereof. Agents and underwriters may engage in transactions with,
or perform services for, the Company in the ordinary course of business.
Each underwriter, dealer and agent participating in the distribution of any
Debt Securities that are issuable as Bearer Securities will agree that it will
not offer, sell or deliver, directly or indirectly, Bearer Securities in the
United States or to United States persons (other than qualifying financial
institutions) in connection with the original issuance of such Debt
Securities.
VALIDITY OF DEBT SECURITIES AND DEBT WARRANTS
The validity of the Debt Securities and Debt Warrants will be passed upon
for the Company by Hunton & Williams, 200 Park Avenue, New York, New York and
for any underwriter or agent by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), 425 Lexington Avenue, New York, New
York. Simpson Thacher & Bartlett acts as counsel in certain matters for
certain subsidiaries of the Company.
EXPERTS
The Company's consolidated financial statements and related financial
statement schedule incorporated by reference or included in its Annual Report
on Form 10-K for the year ended December 31, 1995, incorporated by reference
in this Prospectus, have been incorporated herein in reliance on the reports,
which include an explanatory paragraph related to a change in 1993 in the
method of accounting for postemployment benefits, of Coopers & Lybrand L.L.P.,
independent accountants, given upon the authority of that firm as experts in
accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO-
RATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PRO-
SPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE DEBENTURES IN ANY JU-
RISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS AND SALES MADE HEREUNDER SHALL NOT, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Recent Developments........................................................ S-2
Certain Terms of the Debentures............................................ S-4
Underwriting............................................................... S-4
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by
Reference................................................................. 2
The Company................................................................ 3
Use of Proceeds............................................................ 3
Selected Financial Information............................................. 4
Description of Debt Securities............................................. 5
Description of Debt Warrants............................................... 20
Plan of Distribution....................................................... 21
Validity of Debt Securities and Debt
Warrants ................................................................. 22
Experts.................................................................... 22
</TABLE>
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$750,000,000
[LOGO OF PHILIP MORRIS COMPANIES INC. APPEARS HERE]
PHILIP MORRIS COMPANIES INC.
7 3/4% DEBENTURES DUE 2027
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
JANUARY 14, 1997
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