<PAGE>
Rule 424(b)(2)
Registration No. 33-59451
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 28, 1995)
[LOGO OF $150,000,000
DIAMOND SHAMROCK, INC. DIAMOND SHAMROCK, INC.
APPEARS HERE]
MEDIUM-TERM NOTES, SERIES B
DUE FROM NINE MONTHS TO 30 YEARS FROM DATE OF ISSUE
-----------------
Diamond Shamrock, Inc. (the "Company") may offer from time to time its
Medium-Term Notes, Series B (the "Notes"), having an aggregate initial
offering price not to exceed $150,000,000 (or the equivalent thereof in
foreign currencies or currency units), subject to reduction under certain
circumstances as a result of the sale of other securities of the Company
underthe Prospectus to which this Prospectus Supplement relates. The Notes
will be offered in varying maturities from nine months to 30 years from their
date of issue and may be subject to redemption at the option of the Company or
prepayment at the option of the Holder, in each case, in whole or in part
prior to the maturity date (as further defined below, the "Stated Maturity")
thereof as set forth in a Pricing Supplement to this Prospectus Supplement (a
"Pricing Supplement").
(Continued on next page)
-----------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY, SEE "RISK FACTORS" ON PAGE S-3.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT,
ANY PRICING SUPPLEMENT HERETO OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================
Price to Agents' Commission Proceeds to
Public (1) or Discount (2) Company (2)(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note........................ 100% .125% - .750% 99.250% - 99.875%
- --------------------------------------------------------------------------------------------------------
Total (4)....................... $150,000,000 $187,500 - $1,125,000 $148,875,000 - $149,812,500
========================================================================================================
</TABLE>
(1) Unless otherwise indicated in the applicable Pricing Supplement, Notes will
be sold at 100% of their principal amount.
(2) The Company will pay Lehman Brothers, Lehman Brothers Inc. (including its
affiliate, Lehman Government Securities Inc.), CS First Boston Corporation,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Chemical Securities Inc. and NatWest Capital Markets Limited (each an
"Agent," and collectively, the "Agents") a commission ranging from .125% to
.750% of the principal amount of any Note, depending on its Stated Maturity,
sold through such Agent. Any Agent, acting as principal, may also purchase
Notes at a discount for resale to one or more investors or one or more
broker-dealers (acting as principal for purposes of resale) at varying
prices related to prevailing market prices at the time of resale, as
determined by such Agent, or, if so agreed, at a fixed public offering
price. The Company has agreed to reimburse the Agents for certain expenses.
The Company has agreed to indemnify the Agents against certain liabilities,
including liabilities under applicable federal and state securities laws.
(3) Before deducting offering expenses payable by the Company estimated at U.S.
$150,000.
(4) Or the equivalent thereof in foreign currencies or currency units.
-----------------
The Notes are offered on a continuing basis by the Company through the Agents,
each of which has agreed to use its reasonable best efforts to solicit offers to
purchase the Notes. The Company has reserved the right to sell Notes directly to
investors on its own behalf, and on such sales no commissions will be paid. The
Notes will not be listed on any securities exchange, and there can be no
assurance that the Notes will be sold or that there will be a secondary market
for the Notes. The Company reserves the right to withdraw, cancel, or modify the
offer made hereby without notice. The Company or the Agent that solicits an
offer to purchase may reject any such offer to purchase Notes in whole or in
part. See "Supplemental Plan of Distribution."
-----------------
LEHMAN BROTHERS
CS FIRST BOSTON
MERRILL LYNCH & CO.
CHEMICAL SECURITIES INC.
NATWEST MARKETS
July 19, 1995
<PAGE>
(from preceding page)
Each Note will be denominated in U.S. dollars or in other currencies or
currency units (the "Specified Currency") as may be designated by the Company
and set forth in the applicable Pricing Supplement (the "Multi-Currency
Notes"). See "Special Provisions Relating to Multi-Currency Notes" and "Foreign
Currency Risks." The Notes may be issued as "Currency Indexed Notes,"
"Commodity Indexed Notes," "Original Issue Discount Notes," "Amortizing Notes"
or "Reset Notes." See "Description of Notes."
Each Note will bear interest at a fixed rate (a "Fixed Rate Note"), which may
be zero in the case of certain Notes issued at a price representing a discount
from the principal amount payable at maturity (a "Zero-Coupon Note"), or at a
variable rate (a "Floating Rate Note") determined by reference to the
Commercial Paper Rate, CD Rate, CMT Rate, Federal Funds Rate, 11th District
Cost of Funds Rate, LIBOR, Prime Rate, Treasury Rate or such other interest
rate formula (the "Interest Rate Basis") as may be indicated in the
accompanying Pricing Supplement, as adjusted by a Spread or Spread Multiplier,
if any, applicable to such Notes. See "Description of Notes." Unless otherwise
specified in the applicable Pricing Supplement, interest on Fixed Rate Notes
will be payable semi-annually on each May 15 and November 15 (each an "Interest
Payment Date" with respect to such Fixed Rate Notes) and at Stated Maturity.
Interest on Floating Rate Notes will be payable on such dates indicated in the
applicable Pricing Supplement (each an "Interest Payment Date" with respect to
such Floating Rate Notes).
Each Note will be represented by either a Global Security (a "Book-Entry
Note") registered in the name of a nominee of The Depository Trust Company
("DTC") or other depositary (DTC or such other depositary as is indicated in
the applicable Pricing Supplement is referred to herein as the "U.S.
Depositary"), or a certificate issued in definitive form (a "Certificated
Note"), as indicated in the applicable Pricing Supplement. Beneficial interests
in Book-Entry Notes will be shown on, and transfers thereof will be effected
only through, records maintained by the U.S. Depositary and its participants.
Owners of beneficial interests in Book-Entry Notes will be entitled to physical
delivery of Certificated Notes only under the limited circumstances described
herein. See "Description of Notes--Book-Entry System." Unless otherwise
indicated in the applicable Pricing Supplement, Notes denominated in U.S.
dollars will be issued in denominations of $1,000 and integral multiples
thereof. If the Notes are to be issued in a foreign currency or units of a
foreign composite currency, the authorized denominations and currency exchange
rate information will be set forth in the applicable Pricing Supplement.
The Notes will constitute unsecured and unsubordinated indebtedness of the
Company and will rank on parity with the Company's other unsecured and
unsubordinated indebtedness.
S-2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES 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.
----------------
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in Notes that result from such Notes being denominated or payable
in or determined by reference to a currency or composite currency other than
United States dollars or to one or more interest rates, currencies, or other
indices or formulas, either as such risks exist at the date of this Prospectus
Supplement or as they may change from time to time. Prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in such Notes. Such Notes are not an appropriate investment
for investors who are unsophisticated with respect to foreign currency
transactions or transactions involving the applicable interest rate, currency,
or other indices or formulas.
RISKS ASSOCIATED WITH INDEXED NOTES
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, or one or more currencies or composite currencies (including
exchange rates and swap indices between currencies or composite currencies),
commodities, interest rates, or other indices or formulas, entails significant
risks that are not associated with similar investments in a conventional fixed
rate or floating rate debt security. Such risks include, without limitation,
the possibility that such indices or formulas may be subject to significant
changes, that the resulting interest rate will be less than that payable on a
conventional fixed rate or floating rate debt security issued by the Company
at the same time, that the repayment of principal and/or premium, if any, can
occur at times other than that expected by the investor, and that the investor
could lose all or a substantial portion of principal and/or premium, if any,
payable at Maturity. Such risks depend on a number of interrelated factors,
including economic, financial, and political events, over which the Company
has no control. Additionally, if the formula used to determine the amount of
principal, premium, if any, and/or interest payable with respect to such Notes
contains a multiplier or leverage factor, the effect of any change in the
applicable index or indices or formula or formulas will be magnified. In
recent years, values of certain indices and formulas have been highly volatile
and such volatility may be expected to continue in the future. Fluctuations in
the value of any particular index or formula that have occurred in the past
are not necessarily indicative, however, of fluctuations that may occur in the
future.
The secondary market for such Notes will be affected by a number of factors
independent of the creditworthiness of the Company and the value of the
applicable index or indices or formula or formulas, including the complexity
or volatility of each such index, the method of calculating the principal,
premium, if any, and/or interest in respect of such Notes, the time remaining
to Maturity of such Notes, the outstanding amount of such Notes, any
redemption features of such Notes, the amount of other debt securities linked
to such index or formula, and the level, direction, and volatility of market
interest rates generally. Such factors also will affect the market value of
such Notes. In addition, certain Notes may be designed for specific investment
objectives or strategies and, therefore, may have a more limited secondary
market and experience more price volatility than conventional debt securities.
Investors may not be able to sell such Notes readily or at prices that will
enable investors to realize their anticipated yield. No investor should
purchase Notes unless such investor understands and is able to bear the risk
that such Notes may not be readily saleable, that the value of such Notes will
fluctuate over time, and that such fluctuations may be significant.
S-3
<PAGE>
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls. An investment in Multi-Currency Notes
entails significant risks that are not associated with a similar investment in
a security denominated in U.S. dollars. Such risks include, without
limitation, the possibility of significant changes in the rate of exchange
between the U.S. dollar and the Specified Currency and the possibility of the
imposition or modification of foreign exchange controls by either the United
States or foreign governments. Such risks generally depend on economic and
political events over which the Company has no control. In recent years, rates
of exchange between the U.S. dollar and certain foreign currencies have been
highly volatile and such volatility may be expected in the future. The
exchange rate between the U.S. dollar and a foreign currency or currency unit
is at any moment a result of the supply of and demand for such currencies, and
changes in the rate result over time from the interaction of many factors,
among which are rates of inflation, interest rate levels, balances of
payments, and the extent of governmental surpluses or deficits in the
countries of such currencies. These factors are in turn sensitive to the
monetary, fiscal, and trade policies pursued by such governments and those of
other countries important to international trade and finance. Fluctuations in
any particular exchange rate that have occurred in the past are not
necessarily indicative, however, of fluctuations in the rate that may occur
during the term of any Multi-Currency Note. Depreciation of the Specified
Currency applicable to a Multi-Currency Note against the U.S. dollar would
result in a decrease in the U.S. dollar-equivalent yield of such Note, in the
U.S. dollar-equivalent value of the principal repayable at Maturity of such
Note, and, generally, in the U.S. dollar-equivalent market value of such Note.
Foreign exchange rates can either be fixed by sovereign governments or
float. Exchange rates of most economically developed noncommunist nations are
permitted to fluctuate in value relative to the U.S. dollar. Sovereign
governments, however, rarely voluntarily allow their currencies to float
freely in response to economic forces. In fact, such governments use a variety
of techniques, such as intervention by a country's central bank or imposition
of regulatory controls or taxes, to affect the exchange rate of their
currencies. Governments may also issue a new currency to replace an existing
currency or alter the exchange rate or relative exchange characteristics by
devaluation or revaluation of a currency. Thus, a special risk in purchasing
Notes that are denominated in a foreign currency or currency unit is that
their U.S. dollar-equivalent yields could be affected by governmental actions
which could change or interfere with a theretofore freely determined currency
valuation, by fluctuations in response to other market forces, and by the
movement of currencies across borders. There will be no adjustment or change
in the terms of the Multi-Currency Notes in the event that exchange rates
should become fixed, or in the event of any devaluation or revaluation or
imposition of exchange or other regulatory controls or taxes, or in the event
of other developments, affecting the U.S. dollar or any applicable currency or
currency unit.
Judgments. The Multi-Currency Notes will be governed by and construed in
accordance with the laws of the State of New York. A judgment for money
damages by courts in the United States, including money damages based on an
obligation expressed in a foreign currency, will ordinarily be rendered only
in U.S. dollars. New York statutory law provides that in an action based on an
obligation expressed in a currency other than U.S. dollars 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.
Exchange Controls, Etc. Governments have imposed from time to time exchange
controls and may in the future impose or revise exchange controls at or prior
to Maturity of a Multi-Currency Note. Even if there are no exchange controls,
it is possible that the Specified Currency for any particular Multi-Currency
Note would not be available at such Note's Maturity. In that event, the
Company will pay in U.S. dollars on the basis of the Market Exchange Rate on
the second day prior to such payment, or if such Market Exchange Rate is not
then available, on the basis of the most recently available Market Exchange
Rate. See "Special Provisions Relating to Multi-Currency Notes--Payment of
Principal and Interest."
S-4
<PAGE>
An applicable Pricing Supplement with respect to the applicable Specified
Currency (which includes information with respect to applicable current foreign
exchange controls, if any) will be delivered and will become part of this
Prospectus and Prospectus Supplement. The information concerning exchange rates
is furnished as a matter of information only and should not be regarded as
indicative of the range of or trends in fluctuations in currency exchange rates
that may occur in the future.
Unless otherwise indicated in the applicable Pricing Supplement, Multi-
Currency Notes will not be sold in, or to residents of, the country of the
Specified Currency in which particular Multi-Currency Notes are denominated.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding, or receipt of payments of principal of (and
premium, if any) and interest on Multi-Currency Notes. Such persons should
contact their own legal advisors with regard to such matters.
EFFECT OF OPTIONAL REDEMPTION
Any optional redemption of Notes might affect the market value of such Notes.
Since the Company may be expected to redeem such Notes when prevailing interest
rates are relatively low, an investor might not be able to reinvest the
redemption proceeds at an effective interest rate as high as the interest rate
on such Notes.
NO ESTABLISHED TRADING MARKET
The Notes will not have an established trading market when issued, and there
can be no assurance of a secondary market for the Notes or the continued
liquidity of such market if one develops. See "Supplemental Plan of
Distribution."
CREDIT RATINGS
Any credit ratings assigned to the Company's medium-term note program may not
reflect the potential impact of all risks related to structure and other
factors on the market value of the Notes. Accordingly, prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in the Notes and the suitability of such Notes in light of
their particular circumstances.
S-5
<PAGE>
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith, replaces, the
description of the general terms and provisions of the Debt Securities (as
defined in the accompanying Prospectus) set forth under the heading
"Description of Debt Securities" in the accompanying Prospectus, to which
description reference is hereby made. The provisions of the Notes summarized
herein will apply to each Note unless otherwise indicated in the applicable
Pricing Supplement. Capitalized terms used but not defined herein have the
meanings specified in the Indenture referred to in the accompanying Prospectus
(the "Indenture") and/or the Notes.
GENERAL
The Notes offered hereby will be issued under the Indenture referred to in
the accompanying Prospectus. The summary contained herein of certain
provisions of the Notes does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Indenture and the forms of
Notes, each of which has been filed as an exhibit to the Registration
Statement (the "Registration Statement"), of which the accompanying Prospectus
is a part, to which exhibits reference is hereby made.
The Notes constitute a single series for purposes of the Indenture and are
limited to an aggregate initial offering price of U.S. $150,000,000 (or the
equivalent thereof in the Specified Currency, calculated on the applicable
trade date). Unless otherwise indicated in the applicable Pricing Supplement,
currency amounts in this Prospectus Supplement, the accompanying Prospectus
and any Pricing Supplement are stated in United States dollars ("$", "dollars"
or "U.S. $").
The Notes will constitute unsecured and unsubordinated indebtedness of the
Company and will rank on a parity with the Company's other unsecured and
unsubordinated indebtedness. Neither the Indenture nor the Notes contain
provisions permitting the holders of the Notes to require prepayment in the
event of a change in the management or control of the Company, or in the event
the Company enters into one or more highly leveraged transactions, nor are any
such events deemed to be events of default under the terms of the Indenture or
the Notes.
The Notes are offered on a continuing basis and will mature on a day from
nine months to 30 years from their date of issue, as selected by the initial
purchaser and agreed to by the Company, and may be subject to redemption at
the option of the Company or prepayment at the option of the Holder prior to
Maturity. See "Redemption and Prepayment" below.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars and payments of principal of (and premium,
if any) and any interest on the Notes will be made in U.S. dollars. If any of
the Notes are to be denominated other than in U.S. dollars, or if the
principal of (and premium, if any) or any interest on any of the Notes is to
be payable at the option of the Holder or the Company in a currency or
composite currency unit other than that in which such Notes are denominated,
the applicable Pricing Supplement will provide additional information,
including authorized denominations and applicable exchange rate information
pertaining to the terms of such Notes and certain other matters of interest to
the Holders thereof. See "Special Provisions Relating to Multi-Currency
Notes."
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note. Except as set forth under "Book-Entry System" below, Book-
Entry Notes will not be issuable in certificated form. Unless otherwise
specified in the applicable Pricing Supplement or as provided below with
respect to Multi-Currency Notes, Notes will be issued in denominations of
$1,000 and integral multiples thereof.
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other things, the aggregate principal amount of the
Notes purchased in any single transaction.
S-6
<PAGE>
Payments of interest and principal (and premium, if any) to Beneficial Owners
(as defined below) of Book-Entry Notes are expected to be made in accordance
with the U.S. Depositary's and its participants' procedures in effect from time
to time as described below under "Book-Entry System."
Unless otherwise specified in the applicable Pricing Supplement, payments of
interest and, in the case of Amortizing Notes, principal with respect to any
Certificated Note (other than interest and, in the case of Amortizing Notes,
principal payable at Stated Maturity) will be made by mailing a check to the
Holder at the address of such Holder appearing on the Security Register for the
Notes on the applicable Regular Record Date (as defined below). Notwithstanding
the foregoing, at the option of the Company, all payments of interest and, in
the case of Amortizing Notes, principal on the Notes may be made by wire
transfer of immediately available funds to an account at a bank located within
the United States as designated by each Holder not less than 15 calendar days
prior to the applicable Interest Payment Date. A Holder of $10,000,000 or more
in aggregate principal amount of Notes of like tenor and terms with the same
Interest Payment Date may demand payment by wire transfer but only if
appropriate payment instructions have been received in writing by the Trustee,
not less than 15 calendar days prior to the applicable Interest Payment Date.
In the event that payment is so made in accordance with instructions of the
Holder, such wire transfer shall be deemed to constitute full and complete
payment of such interest and principal on the Notes. Payment of the principal
of (and premium, if any) and interest due with respect to any Certificated Note
at Maturity will be made in immediately available funds upon surrender of such
Note at the principal office of the Trustee in the Borough of Manhattan, The
City of New York accompanied by wire transfer instructions, provided that the
Certificated Note is presented to the Trustee in time for the Trustee to make
such payments in such funds in accordance with its normal procedures.
Notwithstanding anything in this Prospectus Supplement or the accompanying
Prospectus to the contrary, unless otherwise specified in the applicable
Pricing Supplement, if a Note is an Original Issue Discount Note (as defined
below), the amount payable on such Note in the event the principal thereof is
declared to be due and payable immediately as described in the accompanying
Prospectus under "Description of Debt Securities--Events of Default" or in the
event of the redemption or prepayment thereof prior to its Stated Maturity
shall be the Amortized Face Amount of such Note as of the date of declaration,
redemption, or repayment, as the case may be. The "Amortized Face Amount" of an
Original Issue Discount Note shall be the amount equal to (i) the principal
amount of such Note multiplied by the Issue Price (as defined below) set forth
in the applicable Pricing Supplement plus (ii) the portion of the difference
between the dollar amount determined pursuant to the preceding clause (i) and
the principal amount of such Note that has accreted at the yield to maturity
set forth in the Pricing Supplement (computed in accordance with generally
accepted United States bond yield computation principles) to such date of
declaration, redemption, or prepayment, but in no event shall the Amortized
Face Amount of an Original Issue Discount Note exceed its principal amount.
The Pricing Supplement relating to each Note will describe, among other
things, the following items: (i) the Specified Currency with respect to such
Note (and, if such Specified Currency is other than U.S. dollars, certain other
terms relating to such Note, including the authorized denominations); (ii) the
price (expressed as a percentage of the aggregate principal amount thereof) at
which such Note will be issued (the "Issue Price"); (iii) the date on which
such Note will be issued (the "Original Issue Date"); (iv) the date on which
such Note will mature (the "Stated Maturity") and whether the Stated Maturity
may be extended by the Company, and if so, the Extension Periods and the Final
Maturity Date (each as defined below); (v) whether such Note is a Fixed Rate
Note or a Floating Rate Note; (vi) if such Note is a Fixed Rate Note, the rate
per annum at which such Note will bear interest, if any, the Interest Payment
Date or Dates, if different from those set forth below under "Fixed Rate Notes"
and whether such rate may be changed by the Company prior to Stated Maturity;
(vii) if such Note is a Floating Rate Note, the Initial Interest Rate, the
Interest Rate Basis, the Interest Reset Dates, the Interest Payment Dates, the
Index Maturity, the maximum interest rate, if any, the minimum interest rate,
if any, the Spread, if any, the Spread Multiplier, if any (each as defined
herein), and any other terms relating to the particular method of calculating
the interest rate for such Note, and whether any such Spread and/or Spread
Multiplier may be changed by the Company prior to Stated Maturity; (viii)
whether such Note is an Original Issue Discount Note, and if so, the yield to
maturity; (ix) whether such Note is a Currency Indexed Note (as
S-7
<PAGE>
defined below) or a Commodity Indexed Note and if so, the specific terms
thereof; (x) whether such Note is an Amortizing Note, and if so, the basis or
formula for the amortization of principal and/or interest and the payment dates
for such periodic principal payments; (xi) the regular record date or dates (a
"Regular Record Date") if other than as set forth below; (xii) whether such
Note may be redeemed at the option of the Company, or repaid at the option of
the Holder, prior to Stated Maturity and, if so, the provisions relating to
such redemption or repayment; (xiii) whether such Note will be issued initially
as a Book-Entry Note or a Certificated Note; and (xiv) any other terms of such
Note not inconsistent with the provisions of the Indenture.
Certificated Notes may be presented for registration of transfer or exchange
at the corporate trust office of the Trustee in the Borough of Manhattan, The
City of New York.
All percentages resulting from any calculation with respect to any Notes will
be rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upward (e.g.,
9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all
dollar amounts used in or resulting from such calculation on any Notes will be
rounded to the nearest cent with one half cent being rounded upward.
As used herein, "Business Day" means, unless otherwise specified in the
applicable Pricing Supplement, any Monday, Tuesday, Wednesday, Thursday or
Friday that in The City of New York is not a day on which banking institutions
are authorized or required by law, regulation, or executive order to close and,
with respect to Notes as to which LIBOR (as defined below) is an applicable
Base Rate (as defined below), is also a London Business Day; provided, however,
that with respect to Multi-Currency Notes, such day is also not a day on which
banking institutions are authorized or required by law, regulation or executive
order to close in the principal financial center of the country of such
Specified Currency (or, in the case of ECUs, is not a day designated as an ECU
Non-Settlement Day by the ECU Banking Association in Paris or otherwise
generally regarded in the ECU interbank market as a day on which payments on
ECUs shall not be made). As used herein, "London Business Day" means any day
(i) if the Designated LIBOR Currency (as defined below) is other than the ECU,
on which dealings in deposits in such Designated LIBOR Currency are transacted
in the London interbank market, or (ii) if the Designated LIBOR Currency is the
ECU, that is not designated as a ECU Non-Settlement Day by the ECU Banking
Association in Paris or otherwise generally regarded in the ECU interbank
market as a day on which payments on ECUs shall not be made.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will have the terms described below.
INTEREST AND INTEREST RATES
Each Note (other than a Zero-Coupon Note) will bear interest from its
Original Issue Date or from and including the most recent Interest Payment Date
to which interest on such Note has been paid or duly provided for at a fixed
rate per annum or at a rate per annum determined pursuant to an Interest Rate
Basis, stated therein and in the applicable Pricing Supplement, that may be
adjusted by a Spread and/or Spread Multiplier, until the principal thereof is
paid or made available for payment. Unless otherwise set forth in the
applicable Pricing Supplement, interest will be payable on each Interest
Payment Date and at Maturity. "Maturity" means the date on which the principal
of a Note becomes due and payable in full in accordance with its terms and the
terms of the Indenture, whether at Stated Maturity, upon acceleration,
redemption, repayment, or otherwise. Interest (other than defaulted interest
which may be paid on a special record date) will be payable to the Holder at
the close of business on the Regular Record Date next preceding such Interest
Payment Date; provided, however, that the first payment of interest on any Note
originally issued between a Regular Record Date and the next Interest Payment
Date will be made on the Interest Payment Date following the next succeeding
Regular Record Date to the Holder on such next succeeding Regular Record Date.
Interest rates, interest rate formulae, and other variable terms of the Notes
are subject to change by the Company from time to time, but no such change will
affect any Note already issued or as to which an offer to
S-8
<PAGE>
purchase has been accepted by the Company. Unless otherwise indicated in the
applicable Pricing Supplement, the Interest Payment Dates and the Regular
Record Dates for Fixed Rate Notes shall be as described below under "Fixed Rate
Notes." The Interest Payment Dates for Floating Rate Notes shall be as
indicated in the applicable Pricing Supplement, and unless otherwise indicated
in the applicable Pricing Supplement, each Regular Record Date for a Floating
Rate Note will be the 15th day (whether or not a Business Day) preceding each
Interest Payment Date.
Each Note (other than a Zero-Coupon Note) will bear interest at either (i) a
fixed rate, or (ii) a floating rate determined by reference to an Interest Rate
Basis which may be adjusted by a Spread and/or Spread Multiplier. Any Floating
Rate Note may also have either or both of the following: (a) a maximum
numerical interest rate limitation, or ceiling, on the rate of interest which
may accrue during any interest period, and (b) a minimum numerical interest
rate limitation, or floor, on the rate of interest which may accrue during any
interest period. The applicable Pricing Supplement relating to each Note will
designate either a fixed rate of interest per annum on the applicable Fixed
Rate Note or one or more of the following Interest Rate Bases as applicable to
the relevant Floating Rate Note: (1) the Commercial Paper Rate, in which case
such Note will be a "Commercial Paper Rate Note," (2) the CD Rate, in which
case such Note will be a "CD Rate Note," (3) the CMT Rate, in which case such
Note will be a "CMT Rate Note," (4) the Federal Funds Rate, in which case such
Note will be a "Federal Funds Rate Note," (5) the 11th District Cost of Funds
Rate, in which case such Note will be an "11th District Cost of Funds Rate
Note," (6) LIBOR, in which case such Note will be a "LIBOR Note," (7) the Prime
Rate, in which case such Note will be a "Prime Rate Note," (8) the Treasury
Rate, in which case such Note will be a "Treasury Rate Note," or (9) such other
Interest Rate Basis as is set forth in such Pricing Supplement.
Notwithstanding the determination of the interest rate as provided below, the
interest rate on the Notes for any interest period shall not be greater than
the maximum interest rate, if any, or less than the minimum interest rate, if
any, specified in the applicable Pricing Supplement. The interest rate on the
Notes will in no event be higher than the maximum rate permitted by New York or
other applicable law, as the same may be modified by United States law of
general application. Under present New York law, the maximum rate of interest
is 25% per annum on a simple interest basis. This limit may not apply to Notes
in which $2,500,000 or more has been invested.
FIXED RATE NOTES
Each Fixed Rate Note (other than a Zero-Coupon Note) will bear interest from
its date of issue at the annual rate stated on the face thereof, as specified
in the applicable Pricing Supplement. Payments of interest on any Fixed Rate
Note with respect to any Interest Payment Date will include interest accrued
from and including the Original Issue Date, or from and including the next
preceding Interest Payment Date, to but excluding the applicable Interest
Payment Date or Maturity. Fixed Rate Notes may bear one or more annual rates of
interest during the periods or under the circumstances specified therein and in
the applicable Pricing Supplement. Interest on Fixed Rate Notes will be
computed and paid on the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable Pricing Supplement, the Interest
Payment Dates for Fixed Rate Notes (other than Amortizing Notes) will be semi-
annually on each May 15 and November 15 and the Regular Record Dates will be
each May 1 and November 1 (whether or not a Business Day). Unless otherwise
specified in the applicable Pricing Supplement, payments of principal of and
interest on Fixed Rate Amortizing Notes will be made either quarterly on each
February 15, May 15, August 15 and November 15, or semi-annually on each May 15
and November 15, as set forth in the applicable Pricing Supplement, and at
Maturity. Unless otherwise specified in the applicable Pricing Supplement,
Regular Record Dates with respect to Fixed Rate Amortizing Notes will be the
15th day (whether or not a Business Day) next preceding each Interest Payment
Date. If the Interest Payment Date or Maturity for any Fixed Rate Note is a day
that is not a Business Day, all payments to be made on such day will be made on
the next succeeding Business Day with the same force and effect as if made on
the due date, and no additional interest shall be payable as a result of such
delayed payment.
S-9
<PAGE>
Payments with respect to Fixed Rate Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in
respect of each Fixed Rate Amortizing Note will be provided to the original
purchaser thereof and will be available, upon request, to subsequent Holders.
FLOATING RATE NOTES
The interest rate on each Floating Rate Note will be equal to either (i) the
interest rate calculated by reference to the specified Interest Rate Basis plus
or minus the Spread, if any, or (ii) the interest rate calculated by reference
to the specified Interest Rate Basis multiplied by the Spread Multiplier, if
any. The "Spread" is the number of basis points (one basis point equals one-
hundredth of a percentage point) specified in the applicable Pricing Supplement
as being applicable to such Note, and the "Spread Multiplier" is the percentage
specified in the applicable Pricing Supplement as being applicable to such
Note. The applicable Pricing Supplement will specify the Interest Rate Basis
and the Spread or Spread Multiplier, if any, and the maximum or minimum
interest rate limitation, if any, applicable to each Floating Rate Note. In
addition, such Pricing Supplement will contain particulars as to the
Calculation Agent, Index Maturity, Original Issue Date, the interest rate in
effect for the period from the Original Issue Date to the first Interest Reset
Date set forth in the applicable Pricing Supplement (the "Initial Interest
Rate"), Interest Determination Dates, Interest Payment Dates, Regular Record
Dates and Interest Reset Dates with respect to such Note.
Except as provided below or in the applicable Pricing Supplement, interest on
Floating Rate Notes, including Floating Rate Amortizing Notes, will be payable
(i) in the case of Floating Rate Notes that reset daily, weekly, or monthly, on
the third Wednesday of each month or on the third Wednesday of March, June,
September, and December of each year, as specified on the face thereof and in
the applicable Pricing Supplement; (ii) in the case of Floating Rate Notes,
including Floating Rate Amortizing Notes, that reset quarterly, on the third
Wednesday of March, June, September, and December of each year; (iii) in the
case of Floating Rate Notes, including Floating Rate Amortizing Notes, that
reset semiannually, on the third Wednesday of each of two months of each year
specified on the face thereof and in the applicable Pricing Supplement; and
(iv) in the case of Floating Rate Notes, including Floating Rate Amortizing
Notes, that reset annually, on the third Wednesday of one month of each year
specified on the face thereof and in the applicable Pricing Supplement (each
such day being an "Interest Payment Date") and, in each case, at Maturity. If
any Interest Payment Date, other than Maturity, for any Floating Rate Note
would otherwise be a day that is not a Business Day, such Interest Payment Date
shall be postponed to the next day that is a Business Day, except that in the
case of a LIBOR Note, if such Business Day is in the next succeeding calendar
month, such Interest Payment Date shall be the immediately preceding London
Business Day. If the Maturity for any Floating Rate Note falls on a day that is
not a Business Day, payment of principal of (and premium, if any) and interest
with respect to such Note will be made on the next succeeding Business Day with
the same force and effect as if made on the due date, and no additional
interest shall be payable as a result of such delayed payment.
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually, or annually (such period being the "Reset
Period" for such Note, and the first day of each Reset Period being an
"Interest Reset Date"), as specified in the applicable Pricing Supplement. The
Interest Reset Date will be, in the case of Floating Rate Notes which reset
daily, each Business Day; in the case of Floating Rate Notes (other than
Treasury Rate Notes) which reset weekly, the Wednesday of each week; in the
case of Treasury Rate Notes which reset weekly, the Tuesday of each week,
except as provided below; in the case of Floating Rate Notes which reset
monthly, the third Wednesday of each month (with the exception of monthly reset
11th District Cost of Funds Rate Notes, which will reset on the first calendar
day of the month); in the case of Floating Rate Notes which reset quarterly,
the third Wednesday of each March, June, September, and December; in the case
of Floating Rate Notes which reset semiannually, the third Wednesday of the two
months of each year specified in the applicable Pricing Supplement; and in the
case of Floating Rate Notes which reset annually, the third Wednesday of one
month of each year specified in the applicable Pricing Supplement; provided,
however, that the interest rate in effect from the Original Issue Date to the
first Interest Reset Date with respect to a Floating Rate Note will be the
Initial Interest Rate (as set forth in the applicable Pricing Supplement). If
any Interest
S-10
<PAGE>
Reset Date for any Floating Rate Note would otherwise be a day that is not a
Business Day for such Floating Rate Note, the Interest Reset Date for such
Floating Rate Note shall be postponed to the next day that is a Business Day
for such Floating Rate Note, except that in the case of a LIBOR Note, if such
Business Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Business Day. Each adjusted rate shall be
applicable on and after the Interest Reset Date to which it relates, to, but
not including, the next succeeding Interest Reset Date or until Stated Maturity
or the date of redemption or prepayment, as the case may be.
The interest rate for each Reset Period will be the rate determined by the
Calculation Agent on the Calculation Date (as defined below) pertaining to the
Interest Determination Date pertaining to the Interest Reset Date for such
Reset Period. Unless otherwise specified in the applicable Pricing Supplement,
the "Interest Determination Date" pertaining to an Interest Reset Date for (i)
a Commercial Paper Rate Note (the "Commercial Paper Interest Determination
Date"), (ii) a CD Rate Note (the "CD Interest Determination Date"), (iii) a CMT
Rate Note (the "CMT Interest Determination Date"), (iv) a Federal Funds Rate
Note (the "Federal Funds Interest Determination Date"), or (v) a Prime Rate
Note (the "Prime Interest Determination Date") will be the second Business Day
prior to such Interest Reset Date. Unless otherwise specified in the applicable
Pricing Supplement, the Interest Determination Date pertaining to an Interest
Reset Date for an 11th District Cost of Funds Rate Note (the "11th District
Interest Determination Date") will be the last Business Day of the month
immediately preceding such Interest Reset Date on which the Federal Home Loan
Bank of San Francisco (the "FHLB of San Francisco") publishes the Index (as
defined below). Unless otherwise specified in the applicable Pricing
Supplement, the Interest Determination Date pertaining to an Interest Reset
Date for a LIBOR Note (the "LIBOR Interest Determination Date") will be the
second London Business Day immediately preceding each Interest Reset Date.
Unless otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate
Note (the "Treasury Interest Determination Date") will be the day of the week
in which such Interest Reset Date falls on which Treasury bills would normally
be auctioned. Treasury bills are usually sold at auction on Monday of each
week, unless that day is a legal holiday, in which case the auction is usually
held on the following Tuesday, except that such auction may be held on the
preceding Friday. If, as a result of a legal holiday, an auction is so held on
the preceding Friday, such Friday will be the Treasury Interest Determination
Date pertaining to the Reset Period commencing in the next succeeding week. If
an auction date shall fall on any Interest Reset Date for a Treasury Rate Note,
then such Interest Reset Date shall instead be the first Business Day
immediately following such auction date. Unless otherwise specified in the
applicable Pricing Supplement, the "Calculation Date" pertaining to any
Interest Determination Date shall be the earlier of (i) the tenth calendar day
after the Interest Determination Date or, if such day is not a Business Day,
the next succeeding Business Day, or (ii) the Business Day preceding the
applicable Interest Payment Date or Maturity, as the case may be.
"Index Maturity" means, with respect to a Floating Rate Note, the period to
maturity of the instrument or obligation on which the interest rate formula is
based, as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, payments
with respect to Floating Rate Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in
respect of each Floating Rate Amortizing Note will be provided to the original
purchaser thereof and will be available, upon request, to subsequent Holders.
Unless otherwise indicated in the applicable Pricing Supplement, interest on
Floating Rate Notes will accrue from and including the Original Issue Date or
from and including the immediately preceding Interest Payment Date in respect
of which interest has been paid or duly provided for, as the case may be, to
but excluding the Interest Payment Date or Maturity, as the case may be. With
respect to Floating Rate Notes, accrued interest is calculated by multiplying
the face amount of a Note by an accrued interest factor. This accrued interest
factor is computed by adding the interest factors calculated for each day from
the Original Issue Date, or from the last date to which interest has been paid
or duly provided for, to the date for which accrued interest is being
calculated. The interest factor for each such day (unless otherwise specified)
is computed by dividing the interest rate applicable to such day by 360, in the
case of Commercial Paper Rate Notes, CD Rate Notes, Federal Funds
S-11
<PAGE>
Rate Notes, 11th District Cost of Funds Rate Notes, LIBOR Notes and Prime Rate
Notes or by the actual number of days in the year, in the case of CMT Rate
Notes or Treasury Rate Notes.
The Calculation Agent shall calculate the interest rate on the Floating Rate
Notes, as provided below. The Calculation Agent will, upon the request of the
Holder of any Floating Rate Note, provide the interest rate then in effect and,
if then determined, the interest rate which will become effective as a result
of a determination made with respect to the most recent Interest Determination
Date with respect to such Note. The Trustee shall act as the initial
Calculation Agent for the Notes. For purposes of calculating the rate of
interest payable on Floating Rate Notes, the Company will enter into an
agreement with the Calculation Agent. The Calculation Agent's determination of
any interest rate shall be final and binding in the absence of manifest error.
COMMERCIAL PAPER RATE NOTES
Each Commercial Paper Rate Note will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any) specified in the Commercial Paper Rate Note and in
the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Commercial Paper Interest Determination
Date, the Money Market Yield (calculated as described below) of the rate on
such date for commercial paper having the Index Maturity specified in the
applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates" or any successor publication of the Board of Governors ("H.15(519)")
under the heading "Commercial Paper." In the event that such rate is not
published prior to 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Commercial Paper Interest Determination Date, then the
Commercial Paper Rate with respect to such Commercial Paper Interest
Determination Date shall be the Money Market Yield of the rate on such
Commercial Paper Interest Determination Date for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release
"Composite 3:30 P.M. Quotations for U.S. Government Securities" or any
successor publication ("Composite Quotations") under the heading "Commercial
Paper." If by 3:00 P.M., New York City time, on such Calculation Date such rate
is not yet published in either H.15(519) or Composite Quotations, then the
Commercial Paper Rate for such Commercial Paper Interest Determination Date
shall be calculated by the Calculation Agent and shall be the Money Market
Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Commercial Paper Interest Determination Date of three
leading dealers of commercial paper in The City of New York selected by the
Calculation Agent for commercial paper having the Index Maturity designated in
the applicable Pricing Supplement placed for an industrial issuer whose bond
rating is "AA," or the equivalent, from a nationally recognized securities
rating agency; provided, however, that if the dealers selected as aforesaid by
the Calculation Agent are not quoting as mentioned in this sentence, the
Commercial Paper Rate with respect to such Commercial Paper Interest
Determination Date will be the Commercial Paper Rate in effect immediately
prior to such Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage rounded, if
necessary, to the nearest one hundred-thousandth of a percent) calculated in
accordance with the following formula:
D X 360
Money Market Yield = ------------- X 100
360 - (D X M)
where "D" refers to the per annum rate for commercial paper, quoted on a bank
discount basis and expressed as a decimal, and "M" refers to the actual number
of days in the period for which accrued interest is being calculated.
CD RATE NOTES
Each CD Rate Note will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in the CD Rate Note and in the applicable Pricing Supplement.
S-12
<PAGE>
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means with respect to any CD Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity specified in
the applicable Pricing Supplement as published in H.15(519) under the heading
"CDs (Secondary Market)." In the event that such rate is not published prior to
9:00 A.M., New York City time, on the Calculation Date pertaining to such CD
Interest Determination Date, then the CD Rate with respect to such CD Interest
Determination Date shall be the rate on such CD Interest Determination Date for
negotiable certificates of deposit having the Index Maturity specified in the
applicable Pricing Supplement as published in Composite Quotations under the
heading "Certificates of Deposit." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, then the CD Rate on such CD Interest Determination Date shall be
calculated by the Calculation Agent and shall be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such CD
Interest Determination Date of three leading nonbank dealers in negotiable U.S.
dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major United States
money market banks (in the market for negotiable certificates of deposit) with
a remaining maturity closest to the Index Maturity designated in the applicable
Pricing Supplement in a denomination of $5,000,000; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the CD Rate with respect to such CD Interest
Determination Date will be the CD Rate in effect immediately prior to such CD
Interest Determination Date.
CMT RATE NOTES
Each CMT Rate Note will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in the CMT Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any CMT Interest Determination Date, the rate displayed
on the Designated CMT Telerate Page (as defined below) under the caption "......
Treasury Constant Maturities.... Federal Reserve Board Release H.15..... Mondays
Approximately 3:45 P.M.,'' under the column for the Designated CMT Maturity
Index (as defined below) for (i) if the Designated CMT Telerate Page is 7055,
the rate on such CMT Interest Determination Date, and (ii) if the Designated
CMT Telerate Page is 7052, the week or the month, as applicable, ended
immediately preceding the week in which the applicable CMT Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 P.M., New York City time, on the Calculation
Date pertaining to such CMT Interest Determination Date, then the CMT Rate for
such CMT Interest Determination Date will be such treasury constant maturity
rate for the Designated CMT Maturity Index as published in the relevant
H.15(519). If such rate is no longer published, or if not published by 3:00
P.M., New York City time, on the Calculation Date pertaining to such CMT
Interest Determination Date, then the CMT Rate for such CMT Interest
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the
Board of Governors of the Federal Reserve System or the United States
Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Designated CMT Telerate Page
and published in the relevant H.15(519). If such information is not provided by
3:00 P.M., New York City time, on the Calculation Date pertaining to such CMT
Interest Determination Date, then the CMT Rate for the CMT Interest
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity, based on the arithmetic mean of the secondary market closing
offer side prices as of approximately 3:30 P.M., New York City time, on the CMT
Interest Determination Date reported, according to their written records, by
three leading primary United States government securities dealers (each, a
""Reference Dealer'') in The City of New York selected by the Calculation Agent
(from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for the most recently issued direct noncallable fixed rate
obligations of the United States (""Treasury Notes'') with an original maturity
of approximately the Designated CMT Maturity Index and a remaining term
S-13
<PAGE>
to maturity of not less than such Designated CMT Maturity Index minus one year.
If the Calculation Agent cannot obtain three such Treasury Note quotations, the
CMT Rate for such CMT Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offer side prices as of approximately 3:30 P.M., New
York City time, on the CMT Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent and eliminating the highest quotation (or, in the event
of equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least $150 million. If three or four (and not
five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as described herein, the CMT Rate will be the CMT Rate in
effect on such CMT Interest Determination Date. If two Treasury Notes with an
original maturity as described in the second preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the
quotes for the Treasury Note with the shorter remaining term to maturity will
be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page specified in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as published in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as published in H.15(519).
If no such page is specified in the applicable Pricing Supplement, the
Designated CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
Treasury Notes (either one, two, three, five, seven, ten, twenty, or thirty
years) specified in the applicable Pricing Supplement with respect to which the
CMT Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
FEDERAL FUNDS RATE NOTES
Each Federal Funds Rate Note will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any) specified in the Federal Funds Rate Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Federal Funds Rate Interest
Determination Date, the rate on such date for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)." In the event that such
rate is not published prior to 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Federal Funds Interest Determination Date,
then the Federal Funds Rate with respect to such Federal Funds Interest
Determination Date shall be the rate on such Federal Funds Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, then the Federal Funds Rate with respect to such Federal Funds
Interest Determination Date shall be calculated by the Calculation Agent and
shall be the arithmetic mean (each as rounded, if necessary, to the nearest one
hundred-thousandth of a percent) of the rates as of 9:00 A.M., New York City
time, on such Federal Funds Interest Determination Date for the last
transaction in overnight Federal Funds arranged by three leading brokers of
Federal Funds transactions in The City of New York selected by the Calculation
Agent; provided, however, that if the brokers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the Federal
Funds Rate with respect to such Federal Funds Interest Determination Date will
be the Federal Funds Rate in effect immediately prior to such Federal Funds
Interest Determination Date.
S-14
<PAGE>
11TH DISTRICT COST OF FUNDS RATE NOTES
Each 11th District Cost of Funds Rate Note will bear interest at the interest
rate (calculated with reference to the 11th District Cost of Funds Rate and the
Spread and/or Spread Multiplier, if any) specified in the 11th District Cost of
Funds Rate Note and in the Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "11th
District Cost of Funds Rate" means, with respect to any 11th District Interest
Determination Date, the rate equal to the monthly weighted average cost of
funds for the calendar month preceding such 11th District Cost of Funds Rate
Interest Determination Date as set forth under the caption "11th District" on
Telerate Page 7058 as of 11:00 A.M., San Francisco time, on such 11th District
Interest Determination Date. If such rate does not appear on Telerate Page 7058
on any related 11th District Interest Determination Date, the 11th District
Cost of Funds Rate for such 11th District Interest Determination Date shall be
the monthly weighted average cost of funds paid by member institutions of the
Eleventh Federal Home Loan Bank District that was most recently announced (the
"Index") by the FHLB of San Francisco as such cost of funds for the calendar
month preceding the date of such announcement. If the FHLB of San Francisco
fails to announce such rate for the calendar month next preceding such 11th
District Interest Determination Date, then the 11th District Cost of Funds Rate
for such 11th District Interest Determination Date will be the 11th District
Cost of Funds Rate then in effect on such 11th District Interest Determination
Date.
LIBOR NOTES
Each LIBOR Note will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any) specified
in the LIBOR Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "LIBOR"
means, with respect to any LIBOR Interest Determination Date, the rate
determined in accordance with the following provisions:
(i) With respect to any LIBOR Interest Determination Date, LIBOR will be
either: (a) if "LIBOR Reuters" is specified in the Note and the applicable
Pricing Supplement, the arithmetic mean of the offered rates (unless the
specified designated LIBOR Page (as defined below) by its terms provides
only for a single rate, in which case such single rate shall be used) for
deposits in the Designated LIBOR Currency having the Index Maturity
designated in the Note and the applicable Pricing Supplement, commencing on
the second London Business Day immediately following the LIBOR Interest
Determination Date, which appear on the Designated LIBOR Page specified in
the Note and the applicable Pricing Supplement as of 11:00 A.M., London
time, on that LIBOR Interest Determination Date, if at least two such
offered rates appear (unless, as aforesaid, only a single rate is required)
on such Designated LIBOR Page, or (b) if "LIBOR Telerate" is specified in
the Note and the applicable Pricing Supplement, the rate for deposits in
the Designated LIBOR Currency having the Index Maturity designated in the
Note and the applicable Pricing Supplement, commencing on the second London
Business Day immediately following such LIBOR Interest Determination Date,
which appears on the Designated LIBOR Page specified in the Note and the
applicable Pricing Supplement as of 11:00 A.M. London time on that LIBOR
Interest Determination Date. Notwithstanding the foregoing, if fewer than
two offered rates appear on the Designated LIBOR Page with respect to LIBOR
Reuters (unless the specified Designated LIBOR Page with respect to LIBOR
Reuters by its terms provides only for a single rate, in which case such
single rate shall be used), or if no rate appears on the Designated LIBOR
Page with respect to LIBOR Telerate, whichever may be applicable, LIBOR in
respect of the related LIBOR Interest Determination Date will be determined
as if the parties had specified the rate described in clause (ii) below.
(ii) With respect to any LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Designated LIBOR Page with respect to
LIBOR Reuters (unless the Designated LIBOR Page by its terms provides only
for a single rate, in which case such single rate shall be used), or if no
rate appears on the Designated LIBOR Page with respect to LIBOR Telerate,
as the case may be, the Calculation Agent will request the principal London
office of each of four major banks in the London interbank market selected
by the Calculation Agent to provide the Calculation Agent with its offered
rate quotation for deposits in the
S-15
<PAGE>
Designated LIBOR Currency for the period of the Index Maturity designated
in the Note and the applicable Pricing Supplement, commencing on the second
London Business Day immediately following such LIBOR Interest Determination
Date, to prime banks in the London interbank market as of 11:00 A.M.,
London time, on such LIBOR Interest Determination Date and in a principal
amount that is representative for a single transaction in such Designated
LIBOR Currency in such market at such time. If at least two such quotations
are provided, LIBOR determined on such LIBOR Interest Determination Date
will be the arithmetic mean of such quotations. If fewer than two
quotations are provided, LIBOR determined on such LIBOR Interest
Determination Date will be the arithmetic mean of the rates quoted as of
11:00 A.M. in the applicable Principal Financial Center (as defined below),
on such LIBOR Interest Determination Date by three major banks in such
Principal Financial Center selected by the Calculation Agent for loans in
the Designated LIBOR Currency to leading banks, commencing on the second
London Business Day immediately following such LIBOR Interest Determination
Date, having the Index Maturity designated in the Note and the applicable
Pricing Supplement in a principal amount that is representative for a
single transaction in such Designated LIBOR Currency in such market at such
time; provided, however, that if the banks so selected by the Calculation
Agent are not quoting as mentioned in this sentence, LIBOR determined on
such LIBOR Interest Determination Date will be LIBOR in effect on such
LIBOR Interest Determination Date.
"Designated LIBOR Currency" means, as with respect to any LIBOR Note, the
currency (including a composite currency), if any, designated in the Note and
the applicable Pricing Supplement as the Designated LIBOR Currency. If no such
currency is designated in the Note and the applicable Pricing Supplement, the
Designated LIBOR Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (i) the display on the Reuters Monitor
Money Rates Service for the purpose of displaying the London interbank rates of
major banks for the applicable Designated LIBOR Currency (if "LIBOR Reuters" is
designated in the Note and the applicable Pricing Supplement), or (ii) the
display on the Dow Jones Telerate Service for the purpose of displaying the
London interbank rates of major banks for the applicable designated LIBOR
Currency (if "LIBOR Telerate" is designated in the Note and the applicable
Pricing Supplement). If neither LIBOR Reuters nor LIBOR Telerate is specified
in the Note and applicable Pricing Supplement, LIBOR for the applicable
Designated LIBOR Currency will be determined as if LIBOR Telerate (and, if the
U.S. dollar is the Designated LIBOR Currency, page 3750) had been chosen.
"Principal Financial Center" means, with respect to any LIBOR Note, unless
otherwise specified in the Note and the applicable Pricing Supplement, the
capital city of the country that issues as its legal tender the Designated
LIBOR Currency of such Note, except that with respect to U.S. dollars and ECUs,
the Principal Financial Center shall be The City of New York and Brussels,
respectively.
PRIME RATE NOTES
Each Prime Rate Note will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any)
specified in the Prime Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime Rate"
means, with respect to any Prime Interest Determination Date, the rate set
forth on such date in H.15(519) under the heading "Bank Prime Loan." In the
event that such rate is not published prior to 9:00 A.M., New York City time,
on the Calculation Date pertaining to such Prime Interest Determination Date,
then the Prime Rate with respect to such Prime Interest Determination Date
shall be the arithmetic mean of the rates of interest publicly announced by
each bank that appears on the Reuters Screen NYMF Page as such bank's prime
rate or base lending rate as in effect for that Prime Interest Determination
Date. If fewer than four such rates appear on the Reuters Screen NYMF Page for
the Prime Interest Determination Date, the Prime Rate with respect to such
Prime Interest Determination Date shall be the arithmetic mean of the prime
rates quoted on the basis of the actual number of days in the year divided by
360 as of the close of business on such Prime Interest Determination Date by at
least two of the three major money center banks in The City of New York
selected by the Calculation Agent. If fewer than two
S-16
<PAGE>
quotations are provided, the Prime Rate with respect to such Prime Interest
Determination Date shall be determined on the basis of the rates furnished in
The City of New York by the appropriate number of substitute banks or trust
companies organized and doing business under the laws of the United States, or
any state thereof, having total equity capital of at least U.S. $500 million
and being subject to supervision or examination by Federal or state authority,
selected by the Calculation Agent to provide such rate or rates; provided,
however, that if the bank or trust company selected as aforesaid is not quoting
as mentioned in this sentence, the Prime Rate with respect to such Prime
Interest Determination Date will be the Prime Rate in effect immediately prior
to such Prime Interest Determination Date. "Reuters Screen NYMF Page" means the
display designated as page "NYMF" on the Reuters Monitor Money Rate Service (or
such other page as may replace the NYMF page on the service for the purpose of
displaying the prime rate or base lending rate of major banks).
TREASURY RATE NOTES
Each Treasury Rate Note will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any) specified in the Treasury Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Treasury Interest Determination Date, the rate
for the most recent auction of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable
Pricing Supplement as published in H.15(519) under the heading, "Treasury
bills--auction average (investment)" or, if not so published by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Treasury Interest
Determination Date, the average auction rate (expressed as a bond equivalent,
on the basis of a year of 365 or 366 days, as applicable, and applied on a
daily basis) as otherwise announced by the United States Department of the
Treasury. In the event that such rate is not available by 3:00 P.M., New York
City time, on such Treasury Interest Determination Date, or if no such auction
is held in a particular week, then the Treasury Rate with respect to such
Treasury Interest Determination Date shall be calculated by the Calculation
Agent and shall be a yield to maturity (expressed as a bond equivalent, on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) of the arithmetic mean of the secondary market bid rates, as of
approximately 3:30 P.M., New York City time, on such Treasury Interest
Determination Date, of three leading primary U.S. government securities dealers
selected by the Calculation Agent for the issue of Treasury bills with a
remaining maturity closest to the Index Maturity designated in the applicable
Pricing Supplement; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, the Treasury Rate with respect to such Treasury Interest
Determination Date will be the Treasury Rate in effect immediately prior to
such Treasury Interest Determination Date.
CURRENCY INDEXED NOTES
General. The Company may from time to time offer Notes, the principal amount
payable at Maturity and/or the interest rate of which is determined by a
formula which makes reference to the rate of exchange between one currency
("Currency I") and another currency ("Currency II"; together with Currency I,
the "Selected Currencies," both as specified in the applicable Pricing
Supplement), neither of which need be the Specified Currency of such Notes (the
"Currency Indexed Notes"). Unless otherwise specified in the applicable Pricing
Supplement, Holders of Currency Indexed Notes will be entitled to receive (i)
an amount in respect of principal equal to the principal amount of the Currency
Indexed Notes plus an adjustment, which may be negative or positive, based on
the change in the relationship between Selected Currencies, or (ii) an amount
of interest calculated at the stated rate of interest on their Currency Indexed
Note plus an adjustment, which may be negative or positive, based on the change
in the relationship between the Selected Currencies, in each case determined as
described below under "--Payment of Principal and Interest." As specified in
the Pricing Supplement, the exchange rate designated as the base exchange rate
(the "Base Exchange Rate") will be the initial rate at which Currency I can be
exchanged for Currency II and from which the change in such exchange rate will
be measured. See "Risk Factors--Risks Associated with Indexed Notes."
S-17
<PAGE>
Payment of Principal and Interest. Unless otherwise specified in the
applicable Pricing Supplement, the payment of principal at Maturity and
interest on each Interest Payment Date (until the payment thereof is paid or
made available for payment) will be payable in the Specified Currency in
amounts calculated in the manner described below.
Unless otherwise specified in the applicable Pricing Supplement, principal at
Maturity, if indexed, will be payable in an amount equal to the principal
amount of the Currency Indexed Note plus or minus an amount determined by
reference to the difference between the Base Exchange Rate specified in the
applicable Pricing Supplement and the rate at which Currency I can be exchanged
for Currency II on the second Business Day prior to the Maturity (the
"Determination Date") of such Currency Indexed Note, as determined by the
determination agent specified in the applicable Pricing Supplement (the
"Determination Agent"). Unless otherwise specified in the applicable Pricing
Supplement, the interest payable on any Interest Payment Date, if indexed, will
be payable in an amount equal to the stated interest rate of the Currency
Indexed Note, plus or minus a rate adjustment determined by reference to the
difference between the Base Exchange Rate specified in the applicable Pricing
Supplement and the rate at which Currency I can be exchanged for Currency II on
the second Business Day prior to the Interest Payment Date (the "Indexed
Interest Determination Date") of such Currency Indexed Note, as determined by
the Determination Agent, applied to the average principal amount outstanding of
such Note for the period being measured. For the purpose of this section, such
rate of exchange on the Determination Date or the Indexed Interest
Determination Date, as the case may be, will be the average of quotations for
settlement on the Maturity Date or the relevant Interest Payment Date, as the
case may be, obtained by the Determination Agent from three Reference Dealers
in The City of New York at approximately 11:00 A.M., New York City time, on
either the Determination Date or the relevant Indexed Interest Determination
Date, as the case may be.
The formulas to be used by the Determination Agent to determine the principal
amount and/or the stated interest rate of a Currency Indexed Note payable at
Maturity or any Interest Payment Date will be specified in the applicable
Pricing Supplement by reference to the appropriate formula and will be as
follows:
Principal. If principal is to increase when the Spot Rate exceeds the Base
Exchange Rate, and if principal is to decrease when the Spot Rate is less than
the Base Exchange Rate, the formula to determine the principal amount of a
Currency Indexed Note payable at Maturity shall equal:
[Spot Rate - Base Exchange Rate]
Principal Amount + (Principal Amount X F X --------------------------------)
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference Dealer's
quotation will be the rate at which such Reference Dealer will sell Currency I
in exchange for a single unit of Currency II.
If principal is to increase when the Base Exchange Rate exceeds the Spot
Rate, and if principal is to decrease when the Base Exchange Rate is less than
the Spot Rate, the formula to determine the principal amount of a Currency
Indexed Note payable at Maturity shall equal:
[Base Exchange Rate - Spot Rate]
Principal Amount + (Principal Amount X F X --------------------------------)
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference Dealer's
quotation will be the rate at which such Reference Dealer will purchase
Currency I in exchange for a single unit of Currency II.
In each of the above formulas "F" will be the leverage factor, if any, used
in such formula.
Interest. If interest is to increase when the Spot Rate exceeds the Base
Exchange Rate, and if interest is to decrease when the Spot Rate is less than
the Base Exchange Rate, the formula to determine the interest rate payable on
any Interest Payment Date on a Currency Indexed Note shall equal:
(Spot Rate - Base Exchange Rate)
Stated Interest Rate + F X --------------------------------
Spot Rate
S-18
<PAGE>
To determine the "Spot Rate" for use in this formula, each Reference Dealer's
quotation will be the rate at which such Reference Dealer will sell Currency I
in exchange for a single unit of Currency II.
If interest is to increase when the Base Exchange Rate exceeds the Spot Rate,
and if interest is to decrease when the Base Exchange Rate is less than the
Spot Rate, the formula to determine the interest rate payable on any Interest
Payment Date on a Currency Indexed Note shall equal:
(Base Exchange Rate - Spot Rate)
Stated Interest Rate + F X
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference Dealer's
quotation will be the rate at which such Reference Dealer will purchase
Currency I in exchange for a single unit of Currency II.
In each of the above formulas "F" will be the leverage factor, if any, used
in such formula.
COMMODITY INDEXED NOTES
The Pricing Supplement relating to a Commodity Indexed Note will set forth
the method by which the amount of interest payable and the amount payable at
Stated Maturity in respect of such Commodity Indexed Note will be determined,
the tax consequences to holders of Commodity Indexed Notes, a description of
certain risks associated with investments in Commodity Indexed Notes and other
information relating to such Commodity Indexed Notes. See "Risk Factors--Risks
Associated with Indexed Notes."
ORIGINAL ISSUE DISCOUNT NOTES
The Company may from time to time offer Original Issue Discount Notes. The
Pricing Supplement applicable to certain Original Issue Discount Notes may
provide that Holders of such Notes will not receive periodic payments of
interest. For purposes of determining whether Holders of the requisite
principal amount of Notes outstanding under the Indenture have made a demand or
given a notice or waiver or taken any other action, the outstanding principal
amount of Original Issue Discount Notes shall be deemed to be the amount of the
principal that would be due and payable upon declaration of acceleration of the
Stated Maturity thereof as of the date of such determination. See "General."
"Original Issue Discount Note" means (i) a Note that has a stated redemption
price at Maturity that exceeds its Issue Price (as defined for U.S. Federal
income tax purposes) by at least 0.25% of its stated redemption price at
maturity multiplied by the number of full years from the Original Issue Date to
the Stated Maturity for such Notes, and (ii) any other Note designated by the
Company as issued with original issue discount for U.S. Federal income tax
purposes.
AMORTIZING NOTES
The Company may from time to time offer Notes for which payments of principal
and interest are made in installments over the life of the Note ("Amortizing
Notes"). Interest on each Amortizing Note will be computed as set forth in a
Pricing Supplement or in the Book-Entry Note representing such Amortizing Note.
Unless otherwise provided in such Pricing Supplement or in such Book-Entry
Note, payments with respect to Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information with
respect to each Amortizing Note will be provided to the original purchaser of
such Note and will be available upon request to the subsequent Holders thereof.
RESET NOTES
The Pricing Supplement relating to each Note will indicate whether the
Company has the option with respect to such Note to reset the interest rate, in
the case of a Fixed Rate Note, or to reset the Spread and/or
S-19
<PAGE>
Spread Multiplier, in the case of a Floating Rate Note (in each case, a "Reset
Note"), and, if so (i) the date or dates on which such interest rate or such
Spread and/or Spread Multiplier, as the case may be, may be reset (each an
"Optional Interest Reset Date"), and (ii) the basis or formula, if any, for
such resetting.
The Company may exercise such option with respect to a Note by notifying the
Trustee of such exercise at least 45 but not more than 60 calendar days prior
to an Optional Interest Reset Date for such Note. If the Company so notifies
the Trustee of such exercise, not later than 40 calendar days prior to such
Optional Interest Reset Date, the Trustee will send by telegram, telex,
facsimile transmission, or letter (first class, postage prepaid) to the Holder
of such Note a notice (the "Reset Notice") indicating (i) that the Company has
elected to reset the interest rate, in the case of a Fixed Rate Note, or the
Spread and/or Spread Multiplier, in the case of a Floating Rate Note, (ii) such
new interest rate or such new Spread and/or Spread Multiplier, as the case may
be, and (iii) the provisions, if any, for redemption during the period from
such Optional Interest Reset Date to the next Optional Interest Reset Date or,
if there is no such next Optional Interest Reset Date, to the Stated Maturity
of such Note (each such period a "Subsequent Interest Period"), including the
date or dates on which or the period or periods during which and the price or
prices at which such redemption may occur during such Subsequent Interest
Period.
Notwithstanding the foregoing, not later than 20 calendar days prior to an
Optional Interest Reset Date for a Note, the Company may, at its option, revoke
the interest rate, in the case of a Fixed Rate Note, or the Spread and/or
Spread Multiplier, in the case of a Floating Rate Note, provided for in the
Reset Notice and establish a higher interest rate, in the case of a Fixed Rate
Note, or a higher Spread and/or Spread Multiplier, in the case of a Floating
Rate Note, for the Subsequent Interest Period commencing on such Optional
Interest Reset Date by causing the Trustee to send by telegram, telex,
facsimile transmission, or letter (first class, postage prepaid) notice of such
higher interest rate or higher Spread and/or Spread Multiplier, as the case may
be, to the Holder of such Note. Such notice shall be irrevocable. All Notes
with respect to which the interest rate or Spread and/or Spread Multiplier is
reset on an Optional Interest Reset Date will bear such higher interest rate,
in the case of a Fixed Rate Note, or higher Spread and/or Spread Multiplier, in
the case of a Floating Rate Note, whether or not tendered for prepayment as
provided in the next paragraph.
If the Company elects prior to an Optional Interest Reset Date to reset the
interest rate or the Spread and/or Spread Multiplier of a Note, the Holder of
such Note will have the option to elect prepayment of such Note by the Company
on such Optional Interest Reset Date at a price equal to the principal amount
thereof plus any accrued interest to such Optional Interest Reset Date. In
order for a Note to be so prepaid on an Optional Interest Reset Date, the
Holder thereof must follow the procedures set forth below under "Redemption and
Prepayment" for optional prepayment, except that the period for delivery of
such Note or notification to the Trustee shall be at least 25 but not more than
35 calendar days prior to such Optional Interest Reset Date. A Holder who has
tendered a Note for prepayment following receipt of a Reset Notice may revoke
such tender for prepayment by written notice to the Trustee received prior to
5:00 P.M., New York City time, on the 10th calendar day prior to such Optional
Interest Reset Date.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note will indicate whether the
Company has the option to extend the Stated Maturity of such Note for one or
more periods of from one to five whole years (each an "Extension Period") up to
but not beyond the date (the "Final Maturity Date") set forth in such Pricing
Supplement.
The Company may exercise such option with respect to a Note by notifying the
Trustee of such exercise at least 45 but not more than 60 calendar days prior
to Stated Maturity of such Note in effect prior to the exercise of such option
(the "Original Stated Maturity Date"). If the Company so notifies the Trustee
of such exercise, not later than 40 calendar days prior to the Original Stated
Maturity Date, the Trustee will send by telegram, telex, facsimile
transmission, or letter (first class, postage prepaid) to the Holder of such
Note a notice (the "Extension Notice") relating to such Extension Period,
indicating (i) that the Company has elected to extend the Stated Maturity of
such Note, (ii) the new Stated Maturity, (iii) in the case of a Fixed Rate
Note, the interest
S-20
<PAGE>
rate applicable to the Extension Period or, in the case of a Floating Rate
Note, the Spread and/or Spread Multiplier applicable to the Extension Period,
and (iv) the provisions, if any, for redemption during the Extension Period,
including the date or dates on which or the period or periods during which and
the price or prices at which such redemption may occur during the Extension
Period. Upon the sending by the Trustee of an Extension Notice to the Holder of
a Note, the Stated Maturity of such Note shall be extended automatically and,
except as modified by the Extension Notice and as described in the next two
paragraphs, such Note will have the same terms as prior to the sending of such
Extension Notice.
Notwithstanding the foregoing, not later than 20 calendar days prior to the
Original Stated Maturity Date for a Note, the Company may, at its option,
revoke the interest rate, in the case of a Fixed Rate Note, or the Spread
and/or Spread Multiplier, in the case of a Floating Rate Note, provided for in
the Extension Notice and establish a higher interest rate, in the case of a
Fixed Rate Note, or a higher Spread and/or Spread Multiplier, in the case of a
Floating Rate Note, for the Extension Period by causing the Trustee to send by
telegram, telex, facsimile transmission, or letter (first class, postage
prepaid) notice of such higher interest rate or higher Spread and/or Spread
Multiplier, as the case may be, to the Holder of such Note. Such notice shall
be irrevocable. All Notes with respect to which the Stated Maturity is extended
will bear such higher interest rate, in the case of a Fixed Rate Note, or
higher Spread and/or Spread Multiplier, in the case of a Floating Rate Note,
for the Extension Period, whether or not tendered for prepayment as provided in
the next paragraph.
If the Company elects to extend the Stated Maturity of a Note, the Holder of
such Note will have the option to elect prepayment of such Note by the Company
on the Original Stated Maturity Date at a price equal to the principal amount
thereof plus any accrued and unpaid interest to such date. In order for a Note
to be so prepaid on the Original Stated Maturity Date, the Holder thereof must
follow the procedures set forth below under "Redemption and Prepayment" for
optional prepayment, except that the period for delivery of such Note or
notification to the Trustee shall be at least 25 but not more than 35 calendar
days prior to the Original Stated Maturity Date. A Holder who has tendered a
Note for prepayment following receipt of an Extension Notice may revoke such
tender for prepayment by written notice to the Trustee received prior to the
close of business on the 10th calendar day prior to the Original Stated
Maturity Date.
RENEWABLE NOTES
The applicable Pricing Supplement will indicate whether a Note (other than an
Amortizing Note) will mature at its Original Stated Maturity Date unless the
term of all or any portion of any such Note is renewed by the Holder in
accordance with the procedures described in such Pricing Supplement.
COMBINATION OF PROVISIONS
If so specified in the applicable Pricing Supplement, any Note may be subject
to all of the provisions, or any combination of the provisions, described above
under "Reset Notes," "Extension of Maturity," and "Renewable Notes."
REDEMPTION AND PREPAYMENT
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the Stated Maturity only if an Initial
Redemption Date is specified in the applicable Pricing Supplement ("Initial
Redemption Date"). If so specified, the Notes will be subject to redemption at
the option of the Company on any date on and after the applicable Initial
Redemption Date in whole or from time to time in part in increments of $1,000
or the minimum denomination specified in such Pricing Supplement (provided that
any remaining principal amount thereof shall be at least $1,000 or such minimum
denomination), at the applicable Redemption Price (as defined below) on notice
given not more than 60 nor less than 30 days prior to the date of redemption
and in accordance with the provisions of the Indenture. "Redemption Price,"
with respect to a Note, means an amount equal to the sum of (i) the Initial
Redemption Percentage specified in such Pricing Supplement (as adjusted by the
Annual
S-21
<PAGE>
Redemption Percentage Reduction, if applicable (as specified in such Pricing
Supplement)), multiplied by the unpaid principal amount or the portion to be
redeemed, plus (ii) accrued interest to the date of redemption. The Initial
Redemption Percentage, if any, applicable to a Note shall decline at each
anniversary of the Initial Redemption Date by an amount equal to the Annual
Redemption Percentage Reduction, if any, until the Redemption Price is equal to
100% of the unpaid principal amount thereof or the portion thereof to be
redeemed.
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be prepaid prior to Stated Maturity or that such Note will be
prepayable at the option of the Holder on a date or dates specified prior to
Stated Maturity at a price or prices set forth in the applicable Pricing
Supplement, together with accrued interest to the date of prepayment.
In order for a Note that is prepayable at the option of the Holder to be
prepaid prior to Stated Maturity, the Paying Agent (initially, the Company has
appointed the Trustee as Paying Agent) must receive at least 30 but not more
than 45 calendar days prior to the prepayment date (i) the Note with the form
entitled "Option to Elect Prepayment" on the reverse of the Note duly
completed, or (ii) a telegram, telex, facsimile transmission, or letter (first
class, postage prepaid) from a member of a national securities exchange or the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company in the United States setting forth the name of the Holder of the Note,
the principal amount of the Note, the principal amount of the Note to be
prepaid, the certificate number or a description of the tenor and terms of the
Note, a statement that the option to elect prepayment is being exercised
thereby, and a guarantee that the Note to be prepaid with the form entitled
"Option to Elect Prepayment" on the reverse of the Note duly completed, will be
received by the Paying Agent not later than five Business Days after the date
of such telegram, telex, facsimile transmission, or letter and such Note and
form duly completed are received by the Paying Agent by such fifth Business
Day. Exercise of the prepayment option by the Holder of a Note shall be
irrevocable, except that a Holder who has tendered a Note for prepayment may
revoke such tender for prepayment by written notice to the Paying Agent
received prior to the close of business on the 10th calendar day prior to the
prepayment date. The prepayment option may be exercised by the Holder of a Note
for less than the entire principal amount of the Note provided that the
principal amount of the Note remaining outstanding after such prepayment is an
authorized denomination.
While the Book-Entry Notes are represented by the Global Securities held by
or on behalf of the U.S. Depositary, and registered in the name of the U.S.
Depositary or the U.S. Depositary's nominee, the option for prepayment may be
exercised by the applicable Participant (as defined below) that has an account
with the U.S. Depositary, on behalf of the beneficial owners of the Global
Security or Securities representing such Book-Entry Notes, by delivering a
written notice substantially similar to the above mentioned form to the Trustee
at its corporate trust office (or such other address of which the Company shall
from time to time notify the Holders), not more than 60 nor less than 30 days
prior to the date of prepayment. Notices of elections from Participants on
behalf of beneficial owners of the Global Security or Securities representing
such Book-Entry Notes to exercise their option to have such Book-Entry Notes
prepaid must be received by the Trustee by 5:00 P.M., New York City time, on
the last day for giving such notice. In order to ensure that a notice is
received by the Trustee on a particular day, the beneficial owner of the Global
Security or Securities representing such Book-Entry Notes must so direct the
applicable Participant before such Participant's deadline for accepting
instructions for that day. Different firms may have different deadlines for
accepting instructions from their customers. Accordingly, beneficial owners of
the Global Security or Securities representing Book-Entry Notes should consult
the Participants through which they own their interest therein for the
respective deadlines for such Participants. All notices shall be executed by a
duly authorized officer of such Participant (with signatures guaranteed) and
shall be irrevocable. In addition, beneficial owners of the Global Security or
Securities representing Book-Entry Notes shall effect delivery at the time such
notices of election are given to the U.S. Depositary by causing the applicable
Participant to transfer such beneficial owner's interest in the Global Security
or Securities representing such Book-Entry Notes, on the U.S. Depositary's
records, to the Trustee. See "--Book-Entry System."
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended, and any other securities
laws or regulations in connection with any such prepayment.
S-22
<PAGE>
REPURCHASE
The Company may at any time purchase Notes at any price or prices in the open
market or otherwise. Notes so purchased by the Company may be held or resold
or, at the discretion of the Company, may be surrendered to the Trustee for
cancellation.
OTHER PROVISIONS
Any provisions with respect to the determination of an interest rate basis,
the specifications of interest rate basis, calculation of the interest rate
applicable to, or the principal payable at Maturity on, any Note, its Interest
Payment Dates or any other matter relating thereto may be modified by the terms
as specified under "Other Provisions" on the face of such Note, or in an
addendum relating thereto if so specified on the face thereof, and in the
applicable Pricing Supplement.
BOOK-ENTRY SYSTEM
DTC will act as securities depositary for the Book-Entry Notes. The Book-
Entry Notes will be issued as fully-registered securities registered in the
name of Cede & Co. (DTC's partnership nominee). One fully-registered Global
Security will be issued for each issue of the Notes, each in the aggregate
principal amount of such issue, and will be deposited with DTC. If, however,
the aggregate principal amount of any issue exceeds $150 million, one Global
Security will be issued with respect to each $150 million of principal amount
and an additional Global Security will be issued with respect to any remaining
principal amount of such issue.
DTC is a limited-purpose trust company organized under the banking laws of
the State of New York (the "New York Banking Law"), a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds
securities that its participants ("Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
("Direct Participants") include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is owned
by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to DTC's system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under DTC's system must be made by or through
Direct Participants, which will receive a credit for the Book-Entry Notes on
DTC's records. The ownership interest of each actual purchaser of each Book-
Entry Note ("Beneficial Owner") is in time to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Book-Entry Notes are to be accomplished by entries
made on the books of Participants acting on behalf of the Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Book-Entry Notes, except in the event that use of the book-entry
system for one or more Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Global Securities with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Book-Entry Notes. DTC's
records reflect only the identity of the Direct
S-23
<PAGE>
Participants to whose accounts such Book-Entry Notes are credited, which may or
may not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the Book-
Entry Notes within an issue are being redeemed, DTC's current practice is to
determine by lot the amount of the interest of each Direct Participant in such
issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to Book-Entry
Notes. Under its usual procedures, DTC will mail an "Omnibus Proxy" to the
Company as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Book-Entry Notes are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Principal and interest payments on the Book-Entry Notes will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payment on the payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as in the case of securities held for the
accounts of customers in bearer form or registered in "street name," and will
be the responsibility of such Participant and not of DTC, or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to DTC is the responsibility of
the Company, disbursement of such payments to Direct Participants shall be the
responsibility of DTC and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Book-Entry Notes
purchased or tendered, through its Participant, to the Paying Agent, and shall
effect delivery of such Book-Entry Notes by causing the Direct Participant to
transfer the Participant's interest in the Book-Entry Notes, on DTC's records,
to the Paying Agent. The requirement for physical delivery of Book-Entry Notes
in connection with a demand for purchase or a mandatory purchase will be deemed
satisfied when the ownership rights in the Book-Entry Notes are transferred by
a Direct Participant on DTC's records.
DTC may discontinue providing its services as securities depositary with
respect to the Book-Entry Notes at any time by giving reasonable notice to the
Company or the Agents. Under such circumstances, in the event that a successor
securities depositary is not obtained, Certificated Notes will be printed and
delivered in exchange for the Book-Entry Notes represented by the Global
Securities held by DTC.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary). In that event,
Certificated Notes will be printed and delivered in exchange for the Book-Entry
Notes represented by the Global Securities held by DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
Neither the Company, the Trustee, any Paying Agent, nor the registrar for the
Notes will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
S-24
<PAGE>
DEFEASANCE
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be subject to defeasance and discharge as described under "Description of
Debt Securities--Defeasance" in the accompanying Prospectus.
SPECIAL PROVISIONS RELATING TO MULTI-CURRENCY NOTES
GENERAL
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars and payments of principal of (and premium,
if any) and interest on the Notes will be made in U.S. dollars. If any of the
Notes are to be denominated in a currency or currency unit other than U.S.
dollars, the following provisions shall apply, which are in addition to, and to
the extent inconsistent therewith replace, the description of general terms and
provisions of Notes set forth in the accompanying Prospectus and elsewhere in
this Prospectus Supplement. See "Risk Factors"--Foreign Currency Risks."
Multi-Currency Notes are issuable in registered form only, without coupons.
The authorized denominations for Multi-Currency Notes will be specified in the
applicable Pricing Supplement. Unless otherwise specified in the applicable
Pricing Supplement, payment of the purchase price of Multi-Currency Notes will
be made in immediately available funds.
CURRENCIES
Unless otherwise indicated in the applicable Pricing Supplement, purchasers
are to pay for Multi-Currency Notes in the Specified Currency in immediately
available funds. At the present time there are limited facilities in the United
States for converting U.S. dollars into the Specified Currencies and vice
versa, and banks do not offer non-U.S. dollar checking or savings account
facilities in the United States. However, if requested by a prospective
purchaser of a Multi-Currency Note on or prior to the fifth Business Day
preceding the date of delivery of the Multi-Currency Note, or by such other day
as determined by the Agent who presented such offer to purchase the Multi-
Currency Note to the Company, such Agent is prepared to arrange for the
conversion of U.S. dollars into the applicable Specified Currency to enable
such purchaser to pay for the Multi-Currency Notes. Each such conversion will
be made by the Agent on such terms and subject to such conditions, limitations,
and charges as the Agent may from time to time establish in accordance with
their regular foreign exchange practices. All costs of exchange will be borne
by the purchasers of the Multi-Currency Notes.
Specific information about the foreign currency or currency unit in which a
particular Multi-Currency Note is denominated, including historical exchange
rates and a description of the currency and any exchange controls, will be set
forth in the applicable Pricing Supplement. See "Foreign Currency Risks".
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, payments of
interest and principal (and premium, if any) with respect to any Multi-Currency
Note will be made by wire transfer to such account with a bank located in the
country issuing the Specified Currency (or, with respect to Multi-Currency
Notes denominated in ECUS, Brussels) or other jurisdiction acceptable to the
Company and the Trustee as shall have been designated at least 15 days prior to
the Interest Payment Date or Maturity, as the case may be, by the Holder of
such Multi-Currency Note on the relevant Regular Record Date or at Maturity,
provided that, in the case of payment of principal of (and premium, if any) and
any interest due at Maturity, the Multi-Currency Note is presented to the
Paying Agent in time for the Paying Agent to make such payments in such funds
in accordance with its normal procedures. Such designation shall be made by
filing the appropriate information with the Trustee at its corporate trust
office, and, unless revoked, any such designation made with respect to any
Multi-Currency Note by a Holder will remain in effect with respect to any
further payments with respect to such Multi-Currency Note payable to such
Holder. If a payment with respect to any such Multi-Currency Note cannot be
made by
S-25
<PAGE>
wire transfer because the required designation has not been received by the
Trustee on or before the requisite date or for any other reason, a notice will
be mailed to the Holder at its registered address requesting a designation
pursuant to which such wire transfer can be made and, upon the Trustee's
receipt of such a designation, such payment will be made within 15 days of such
receipt. The Company will pay any administrative costs imposed by banks in
connection with making payments by wire transfer, but any tax, assessment or
governmental charge imposed upon payments will be borne by the Holders of the
Multi-Currency Notes in respect of which such payments are made.
If so specified in the applicable Pricing Supplement, except as provided
below, payments of interest and principal (and premium, if any) with respect to
any Multi-Currency Note will be made in U.S. dollars if the Holder of such
Multi-Currency Note on the relevant Regular Record Date or at Maturity, as the
case may be, has transmitted a written request for such payment in U.S. dollars
to the Paying Agent at its principal office on or prior to such Regular Record
Date or the date 15 days prior to Maturity, as the case may be. Such request
may be delivered by mail, by hand or by cable, telex, or any other form of
facsimile transmission.
Any such request made with respect to any Multi-Currency Note by a Holder
will remain in effect with respect to any further payments of interest and
principal (and premium, if any) with respect to such Multi-Currency Note
payable to such Holder, unless such request is revoked by written notice
received by the Paying Agent on or prior to the relevant Regular Record Date or
the date 15 days prior to Maturity, as the case may be (but no such revocation
may be made with respect to payments made on any such Multi-Currency Note if an
Event of Default has occurred with respect thereto or upon the giving of a
notice of redemption). Holders of Multi-Currency Notes whose Multi-Currency
Notes are registered in the name of a broker or nominee should contact such
broker or nominee to determine whether and how an election to receive payments
in U.S. dollars may be made.
The U.S. dollar amount to be received by a Holder of a Multi-Currency Note
who elects to receive payments in U.S. dollars will be based on the highest
indicated bid quotation for the purchase of U.S. dollars in exchange for the
Specified Currency obtained by the Currency Determination Agent (as defined
below) at approximately 11:00 A.M., New York City time, on the second Business
Day next preceding the applicable payment date (the "Conversion Date") from the
bank composite or multicontributor pages of the Quoting Source for three (or
two if three are not available) major banks in The City of New York. The first
three (or two) such banks selected by the Currency Determination Agent which
are offering quotes on the Quoting Source will be used. If fewer than two such
bid quotations are available at 11:00 A.M., New York City time, on the second
Business Day next preceding the applicable payment date, such payment will be
based on the Market Exchange Rate as of the second Business Day next preceding
the applicable payment date. If the Market Exchange Rate for such date is not
then available, such payment will be made in the Specified Currency. As used
herein, the "Quoting Source" means Reuters Monitor Foreign Exchange Service, or
if the Currency Determination Agent determines that such service is not
available, Telerate Monitor Foreign Exchange Service, or if the Currency
Determination Agent determines that neither service is available, such
comparable display or other comparable manner of obtaining quotations as shall
be agreed between the Company and the Currency Determination Agent. All
currency exchange costs associated with any payment in U.S. dollars on any such
Multi-Currency Note will be borne by the Holder thereof by deductions from such
payment. The currency determination agent (the "Currency Determination Agent")
with respect to any Multi-Currency Notes will be specified in the applicable
Pricing Supplement for such Multi-Currency Notes.
If payment in respect of a Multi-Currency Note is required to be made in any
currency unit (e.g., ECUs) and such currency unit is unavailable, in the good
faith judgment of the Company, due to the imposition of exchange controls or
other circumstances beyond the Company's control, then all payments in respect
of such Multi-Currency Note shall be made in U.S. dollars until such currency
unit is again available. The amount of each payment of U.S. dollars shall be
computed on the basis of the equivalent of the currency unit in U.S. dollars,
which shall be determined by the Currency Determination Agent on the following
basis. The component currencies of the currency unit for this purpose (the
"Component Currencies") shall be the currency amounts that were components of
the currency unit as of the Conversion Date. The equivalent of the currency
unit in
S-26
<PAGE>
U.S. dollars shall be calculated by aggregating the U.S. dollar equivalents of
the Component Currencies. The U.S. dollar equivalent of each of the Component
Currencies shall be determined by the Currency Determination Agent on the basis
of the Market Exchange Rate for each such Component Currency as of the
Conversion Date. "Market Exchange Rate" means the noon buying rate in The City
of New York for cable transfers of such Specified Currency as certified for
customs purposes by the Federal Reserve Bank of New York.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
All determinations referred to above made by the Currency Determination Agent
shall be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on Holders of Multi-Currency Notes.
OUTSTANDING MULTI-CURRENCY NOTES
For purposes of calculating the principal amount of any Multi-Currency Note
payable in a Specified Currency for any purpose under the Indenture, the
principal amount of such Multi-Currency Note at any time outstanding shall be
deemed to be the U.S. dollar equivalent, at the Market Exchange Rate determined
as of the date of the original issuance of such Multi-Currency Note, of the
principal amount of such Multi-Currency Note.
UNITED STATES FEDERAL INCOME TAXATION
The following summary describes the principal United States federal income
tax consequences to purchasers that are likely to result from the purchase,
ownership, and sale or other taxable disposition of Notes, other than certain
Notes specified below, under currently applicable law. In the event the Company
intends to issue Multi-Currency Notes, Currency Indexed Notes, Commodity
Indexed Notes, Reset Notes, Amortizing Notes, or certain extendible and
renewable Notes, the applicable Pricing Supplement will describe relevant
federal income tax consequences. This summary is based upon the current
provisions of the Internal Revenue Code of 1986 (the "Code"), applicable
Treasury Regulations, judicial authority, and administrative rulings and
practice. There can be no assurance that the Internal Revenue Service ("IRS")
will not take a contrary view, and no ruling from the IRS has been or will be
sought. Legislative, judicial, or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences to Holders of Notes. Finally, it is
possible that, based upon the specific terms of a Note as proposed to be issued
or upon subsequent changes in, or interpretations of, applicable law, the
material United States federal income tax consequences could differ from those
described herein.
The following discussion does not address all aspects of United States
federal income taxation that may be relevant to Holders subject to special
rules under the United States federal income tax laws, such as individual
retirement and other tax-deferred accounts, life insurance companies, tax
exempt organizations, dealers in securities or currencies, financial
institutions, persons holding Notes as part of a hedging, straddle, or
conversion transaction, or persons whose functional currency is not the United
States dollar. This discussion deals only with Notes held as capital assets
and, except as otherwise noted, by initial purchasers. As used herein, a "U.S.
Holder" of a Note means a Holder that is 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, or
S-27
<PAGE>
an estate or trust the income of which is subject to United States federal
income tax regardless of its source. A Non-U.S. Holder is a holder other than a
U.S. Holder.
PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES OF ACQUIRING, HOLDING, AND DISPOSING OF THE
NOTES IN LIGHT OF THEIR PARTICULAR SITUATIONS, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY FEDERAL, STATE, LOCAL, OR FOREIGN TAX LAWS, AND THE PROSPECTS
FOR, AND THE POTENTIAL IMPACT OF, ANY CHANGES IN THE APPLICABLE TAX LAWS.
U.S. HOLDERS
Stated Interest. Except as set forth below, all interest payments on a Note
will be includable in a U.S. Holder's gross income as ordinary interest income
in accordance with such Holder's regular method of accounting for tax purposes.
For cash basis U.S. Holders, such payments will be includable in income when
received (or when made available for receipt, if earlier). For accrual basis
U.S. Holders, such payments will be includable in income when all events
necessary to establish the right to receive such payments have occurred.
Original Issue Discount Notes. The following summary is based on existing,
proposed, temporary, and final Treasury Regulations, changes to any of which
subsequent to the date of this Prospectus Supplement may affect the tax
consequences described herein. Accordingly, it is possible that the federal
income tax treatment of a Note issued with original issue discount ("OID") may
differ from that described below.
For United States federal income tax purposes, a Note may be issued with OID
if the excess of its "stated redemption price at maturity" over its "issue
price" equals or exceeds 0.25% of such Note's stated redemption price at
maturity multiplied by the number of complete years from the issue date to the
Stated Maturity of the Note. (Notes issued with OID are referred to herein as
"OID Notes.") For purposes of the OID rules, the "stated redemption price at
maturity" of a debt instrument is equal to its principal amount as of the date
of original issuance plus all amounts (other than "qualified stated interest")
payable prior to or at maturity. The "issue price" of a debt instrument issued
for cash is generally the first price at which a substantial amount of debt
instruments is sold (other than to an underwriter, placement agent or
wholesaler). The term "qualified stated interest" generally means stated
interest that is unconditionally payable in cash or in property (other than
debt instruments of the issuer), or that will be constructively received under
Section 451 of the Code, at least annually in an amount equal to the product of
the outstanding principal amount of the Note and a single fixed rate of
interest (adjusted to reflect differing lengths of time between payments, as
appropriate), certain variable rates of interest, or certain combinations
thereof. Stated interest that exceeds qualified stated interest is included in
the Note's stated redemption price at maturity. Notice will be given in the
applicable Pricing Supplement when the Company determines that a particular
Note will bear interest that is not qualified stated interest.
When the Company determines that a particular Note will be an OID Note,
notice will be given in the applicable Pricing Supplement. A U.S. Holder of an
OID Note may be required to include OID in income in advance of the receipt of
some of all of the related cash payments. Thus, the effect of holding an OID
Note generally will be to accelerate the inclusion of interest income for cash
method taxpayers.
In the case of a Note issued with de minimis OID (i.e., discount that is not
OID because it is less than 0.25% of the stated redemption price at maturity
multiplied by the number of complete years to maturity), a U.S. Holder
generally must include such de minimis OID in income as principal payments on
the Notes are made in proportion to the ratio of such principal payment to the
stated principal amount of the Note. Any amount of de minimis OID that is
included in income shall be treated as capital gain recognized on retirement of
the Note.
For any taxable year, a U.S. Holder of an OID Note that is not de minimis and
that has a term in excess of one year must include in gross income the sum of
the daily portions of OID for each day during such taxable year or portion of
the taxable year in which such Holder held the OID Note. The daily portion
generally is determined by allocating to each day in any "accrual period" a
ratable portion of the OID allocable to that accrual period. The "accrual
period" for an OID Note may be of any length and may vary in length over the
S-28
<PAGE>
term of the Note, provided that each accrual period is no longer than one year
and each scheduled payment of principal or interest occurs on the first day or
the final day of an accrual period. The amount of OID allocable to an accrual
period is generally an amount equal to the excess, if any, of (i) the product
of the Note's adjusted issue price at the beginning of such accrual period and
its yield to maturity (determined on the basis of compounding at the close of
each accrual period), over (ii) the sum of any qualified stated interest
payments allocable to the accrual period. OID allocable to a final accrual
period is the difference between the amount payable at maturity (other than a
payment of qualified stated interest) and the adjusted issue price at the
beginning of the final accrual period. Special rules apply for calculating OID
for an initial short accrual period and for an accrual period where the
interval between payments of qualified stated interest contains more than one
accrual period. The "adjusted issue price" of a Note at the beginning of an
accrual period is equal to its issue price increased by the amount of accrued
OID for each prior accrual period (determined without regard to the
amortization of any acquisition premium, as described below) and reduced by any
payments made on such Note (other than qualified stated interest) on or before
the first day of the accrual period. Under these rules, a U.S. Holder will have
to include in income increasingly greater amounts of OID in successive accrual
periods. The Company is required to provide information returns stating the
amount of OID accrued on Notes held of record by persons other than
corporations and other exempt holders.
If so specified in the applicable Pricing Supplement, the Company may have an
option to redeem a Note prior to its Stated Maturity. For purposes of
calculating the yield to maturity on a Note, the Company's option to redeem a
Note will be presumed to be exercised if, by utilizing the optional redemption
date as the Stated Maturity date and the amount payable upon redemption in
accordance with the terms of the Note (the "redemption price") as the stated
redemption price at maturity, the yield on the Note would be lower than its
yield to Stated Maturity. If the Company is presumed to exercise its option to
redeem a Note and does not do so, the Note will be treated (for purposes of
measuring OID) as if it were redeemed and a new Note were issued on the
presumed redemption date for an amount equal to the redemption price.
Purchasers of Notes with such features should carefully review the applicable
Pricing Supplement and should consult their own tax advisors with respect to
the consequences of a Note having such an option.
Floating Rate Notes. Special considerations apply to the calculation of
interest income and OID with respect to Floating Rate Notes. Such Notes
generally will bear interest at a "qualified floating rate" and will be treated
as "variable rate debt instruments" as described in the following paragraph.
Floating Rate Notes that are not treated as "variable rate debt instruments" or
that have an issue price that exceeds the total noncontingent principal
payments by more than a specified minimum amount will be treated as contingent
payment debt instruments. Currently effective Treasury Regulations do not
address the treatment of Notes that provide for contingent payments and do not
qualify as variable rate debt instruments ("contingent payment debt
instruments"). Although proposed Treasury Regulations were published on
December 16, 1994 which provide rules for contingent payment debt instruments,
these regulations are applicable only to debt instruments issued 60 days after
such regulations are finalized. Unless otherwise specified in the applicable
Pricing Supplement, each Floating Rate Note will qualify as a variable rate
debt instrument, and all stated interest on each Floating Rate Note will
qualify as stated interest. Purchasers of Notes should carefully examine the
Pricing Supplement and should consult their tax advisors regarding the
purchase, ownership, and disposition of Floating Rate Notes.
If a Note qualifies as a variable rate debt instrument, special rules apply
to determine the amount of qualified stated interest and the amount and accrual
of any OID. If the Note bears interest that is unconditionally payable in cash
or in property (other than debt instruments of the issuer), or that will be
constructively received under Section 451 of the Code, at least annually at a
single qualified floating rate or objective rate, all stated interest is
treated as qualified stated interest. The accrual of any OID is determined by
assuming the Note bears interest at a fixed interest rate equal to the issue
date value of the qualified floating rate or qualified inverse floating rate,
or equal to the reasonably expected yield for the Note in the case of any other
objective rate. The proposed Treasury Regulations clarify that the qualified
stated interest allocable to an accrual period is increased (or decreased) if
the interest actually paid during an accrual period exceeds (or is less than)
the interest assumed to be paid during the accrual period; such clarification
is proposed to be effective for debt instruments issued after April 3, 1994.
S-29
<PAGE>
If the Note bears interest at a rate that is not a single qualified floating
rate or objective rate, the amount of interest and accruals of OID generally
are determined by (i) determining a fixed rate substitute for each variable
rate as described above, (ii) determining the amount of qualified stated
interest and OID by assuming the Note bears interest at such substitute fixed
rate, and (iii) making appropriate adjustments to the qualified stated interest
and OID so determined for actual interest paid under the Note. However, if such
qualifying variable rate includes a fixed rate, the Note first is treated for
purposes of applying clause (i) of the preceding sentence as if it provided for
an assumed qualified floating rate (or qualified inverse floating rate if the
actual variable rate is such) in lieu of the fixed rate; the assumed variable
rate would be a rate that would cause the Note to have approximately the same
fair market value.
Short-Term Notes. In general, an individual or other cash method U.S. Holder
of an OID Note that has a term of one year or less from the date of its
issuance (a "Short-Term OID Note") is not required to accrue OID unless such
Holder elects to do so. Accrual method U.S. Holders and certain other U.S.
Holders, including banks and dealers in securities, are required to accrue OID
on Short-Term OID Notes on a straight-line basis unless an election is made to
accrue OID according to a constant yield method based on daily compounding. In
the case of a U.S. Holder who is not required and does not elect to include OID
in income currently, any gain recognized by such Holder upon the sale or
exchange (including by reason of redemption or retirement) of the Short-Term
OID Note will be treated as ordinary income to the extent of the OID that has
accrued on a straight-line basis (or, if elected, according to a constant yield
method based on daily compounding) through the date of such sale or maturity.
Furthermore, such a Holder of a Short-Term OID Note may be required to defer
deductions for a portion of the U.S. Holder's interest expense with respect to
any indebtedness incurred or maintained to purchase or carry a Short-Term OID
Note. In the case of U.S. Holders that include OID on Short-Term OID Notes in
income currently, the amount of accrued OID that is included in income will be
added to such Holder's tax basis in the Note.
Sale or Exchange of Notes. If a Note is sold or exchanged (including by
reason of redemption or retirement), the disposing U.S. Holder will recognize
gain or loss in an amount equal to the difference between the amount realized
on the sale or exchange (less any amount received in payment of accrued but
unpaid interest if the interest constitutes qualified stated interest, which
will be taxable as such) and the U.S. Holder's tax basis in the Note. A U.S.
Holder's initial tax basis in a Note will generally be equal to such Holder's
cost of the Note. At any time, a U.S. Holder's tax basis in a Note will
generally be equal to his initial tax basis, plus any OID (and accruals of
market discount and discount with respect to Short-Term OID Notes, if any)
previously included in such Holder's gross income with respect to the Note,
minus any principal payments received by such Holder, any allowable accruals of
amortizable bond premium, and in the case of OID Notes or Short-Term OID Notes,
any other payments on the Note not constituting qualified stated interest, as
defined above.
Except as otherwise noted in this discussion, any gain or loss on the sale or
exchange of a Note will be capital gain or loss. Any capital gain or loss
recognized on the sale or exchange of a Note will be long-term capital gain or
loss if the Note was held for more than one year as of the time of its
disposition. Under current law, net capital gains of certain non-corporate
taxpayers are, under certain circumstances, taxed at lower rates than items of
ordinary income. The deductibility of capital losses is subject to limitations.
Treatment of Acquisition Premium; Amortizable Bond Premium. If a U.S. Holder
purchases an OID Note for an amount that is greater than its adjusted issue
price at the time of purchase but equal to or less than the sum of all amounts
payable on the Note after the purchase date other than payments of qualified
stated interest ("acquisition premium"), the amount includable in income as OID
will be reduced by the portion of such acquisition premium properly allocated
to such year. If a U.S. Holder purchases any Note for an amount in excess of
the sum of all amounts payable on the Note after the purchase date other than
qualified stated interest such Holder will not be required to accrue OID with
respect to the Note and may generally elect to amortize the amount of such
excess purchase price as "amortizable bond premium" under a constant interest
rate method over the remaining term of the Note. U.S. Holders who elect to
amortize bond premium must reduce their tax bases in the related obligations by
the amount of the aggregate allowable accruals of amortizable bond premium. Any
such election applies to all taxable debt instruments held by such Holder at
the beginning of the first taxable
S-30
<PAGE>
year to which the election applies and to all taxable debt instruments
thereafter acquired. The election may not be revoked without the consent of the
IRS. Amortizable bond premium is treated for United States federal income tax
purposes as an offset to interest income on the Note, rather than as interest
expense.
Market Discount. A U.S. Holder of a Note will be subject to the "market
discount" rules of the Code if such Holder acquires a Note that has a term of
more than one year from its issue date at a market discount that is greater
than the de minimis amount described below. Market discount is defined as the
excess of (i) the debt instrument's stated redemption price at maturity, or, in
the case of an OID Note, its adjusted issue price (as that term is defined
above), over (ii) the U.S. Holder's basis for the debt instrument immediately
after its acquisition by such Holder. However, under a de minimis rule, if such
excess is less than 0.25% of the stated redemption price at maturity of the
Note multiplied by the number of complete years to maturity remaining after the
U.S. Holder acquired the Note, market discount is deemed to be zero.
A U.S. Holder of a Note containing market discount generally will be required
to treat any principal payments (or, in the case of an OID Note, any payment
that does not constitute qualified stated interest) on, or any gain realized on
the sale or exchange (including by reason of redemption or retirement) of a
Note as ordinary interest income to the extent of the market discount that has
accrued during the time the Holder held the Note and that has not previously
been included in income. If such Note is disposed of in a nontaxable
transaction (other than specified nonrecognition transactions), accrued market
discount will be includable as ordinary income to the Holder as if such Holder
has sold the Note at its then fair market value.
The accrual of market discount is generally calculated on a straight-line
basis. However, a U.S. Holder may elect to calculate the accrual of market
discount on a constant interest rate basis. The market discount rules may
require the deferral of all or a portion of the interest deduction on debt
incurred or continued to purchase or carry a Note containing market discount.
Neither the rule requiring characterization of gain as ordinary income nor the
rule requiring the deferral of interest deductions will apply to a U.S. Holder
who elects to include market discount in income as it accrues either on a
ratable basis or a constant interest rate basis. This current inclusion
election, once made, applies to all market discount obligations acquired by the
U.S. Holder on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the IRS. U.S.
Holders should consult their own tax advisors regarding the application of the
de minimis market discount rule to a Note and regarding the advisability of
making any of the elections allowed under the market discount rules.
Election to Treat All Interest as OID. A U.S. Holder may elect to treat all
interest on any Note as OID and calculate the amount includable in gross income
under the constant yield method. For the purposes of this election, interest
includes stated interest, acquisition discount, OID, de minimis OID, market
discount, de minimis market discount, and unstated interest, as adjusted by any
amortizable bond premium or acquisition premium. If a U.S. Holder makes this
election for a Note with market discount or amortizable bond premium, the
election is treated as an election under the market discount or amortizable
bond premium provisions, described above, and the electing U.S. Holder will be
required to amortize bond premium or include market discount in income
currently for all of such Holder's other debt instruments with market discount
or amortizable bond premium. The election is to be made for the taxable year in
which the U.S. Holder acquires the Note and may not be revoked without the
consent of the IRS. U.S. Holders should consult their own tax advisors
regarding the advisability of making this election.
Multi-Currency Notes. The United States federal income tax consequences to a
U.S. Holder of the ownership and disposition of Notes that provide for payments
determined by reference to, a currency or currency unit other than the United
States dollar ("Multi-Currency Notes") will be summarized in the applicable
Pricing Supplement.
Indexed Notes. The United States federal income tax consequences to a U.S.
Holder of the ownership and disposition of Commodity Indexed Notes and Currency
Indexed Notes will be summarized in the applicable Pricing Supplement.
S-31
<PAGE>
Extendible Notes. If so specified in an applicable Pricing Supplement, the
Company may have the option to extend the maturity of a Note beyond its
Original Stated Maturity Date. See "Description of Notes--Extension of
Maturity." A description of the federal income tax consequences to a U.S.
Holder of the Company's option to extend the maturity of a Note will be
contained in the applicable Pricing Supplement.
Renewable Notes. A Note may be issued wherein the initial maturity of the
Note may be extended beyond its Original Stated Maturity Date at the Holder's
option. See "Description of Notes --Renewable Notes." A description of the
federal income tax consequences to a U.S. Holder of such Holder's option to
renew a Note will be contained in the applicable Pricing Supplement.
Reset Notes. Reset Notes may be subject to special rules for determining
interest income or gain or loss. See "Description of Notes--Reset Notes." The
United States federal income tax consequences to a U.S. Holder of the ownership
and disposition of Reset Notes will be summarized in the applicable Pricing
Supplement.
Amortizing Notes. The United States federal income tax consequences to a U.S.
Holder of the ownership and disposition of Amortizing Notes will be summarized
in the applicable Pricing Supplement.
NON-U.S. HOLDERS
Notwithstanding the foregoing discussion, a Non-U.S. Holder will, subject to
the discussion of backup withholding below, generally not be subject to United
States federal withholding taxes on payments of principal, premium, if any, and
interest (including any OID) on any Notes provided that (i) the Non-U.S. Holder
does not own, actually or constructively, 10% or more of the total combined
voting power of all classes of voting stock of the Company, (ii) the Non-U.S.
Holder is not a controlled foreign corporation related to the Company through
stock ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on a Note is described in section 881(c)(3)(A) of the Code, and (iv)
the Company or its agent receives certification, under penalties of perjury,
either (a) from the beneficial owner of the Note certifying that the beneficial
owner is not a United States person and the owner's name and address, and
United States taxpayer identification number, if any, are provided, or (b) in
the case of a Note held by a securities clearing organization, a bank, or other
financial institution that holds customers' securities in the ordinary course
of its trade or business (a "financial institution"), from the financial
institution certifying that it or a financial institution between it and the
beneficial owner has received a certificate from the beneficial owner and a
copy of such certificate is furnished to the Company or its agent.
Certification by the beneficial owner may be made on an IRS Form W-8 or a
substantially similar form. A certificate described in this paragraph is
effective only with respect to payments (including original issue discount)
made to the certifying Non-U.S. Holder after issuance of the certificate in the
calendar year of its issuance and the two immediately succeeding calendar
years.
Payments to Non-U.S. Holders not meeting the requirements of the prior
paragraph and thus subject to withholding of United States federal income tax
may nevertheless be exempt from such withholding if the beneficial owner of the
Note provides the Company with a properly executed (i) Internal Revenue Service
Form 1001 (or successor form) claiming an exemption from withholding under the
benefit of a tax treaty or (ii) Internal Revenue Service Form 4224 (or
successor form) stating that interest paid on the Note is not subject to
withholding tax because it is effectively connected with the owner's conduct of
a trade or business in the United States.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and premium, if any, interest, and OID on the Note are effectively connected
with the conduct of such trade or business, the Non-U.S. Holder may be subject
to United States federal income tax on such premium, interest, and OID in the
same manner as if such Holder were a U.S. Holder. In addition, if such holder
is a foreign corporation, it may be subject to a branch profits tax equal to
30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For purposes of the branch profits tax, interest
(including OID) on a Note will be included in such foreign corporation's
earnings and profits.
S-32
<PAGE>
Any gain or income realized by a Non-U.S. Holder upon the sale or disposition
(including by reason of redemption or retirement) of a Note (other than amounts
representing stated interest or accrued OID, the treatment of which is
described above) will not be subject to United States federal income tax if (i)
such gain or income is not effectively connected with a trade or business in
the United States of such Holder, and (ii) in the case of an individual Holder,
the Holder is not present in the United States for a period or periods
aggregating 183 days in the taxable year of the sale or disposition.
A Non-U.S. Holder's receipt of interest described in Section 871(h)(4) of the
Code will subject the Non-U.S. Holder to United States withholding tax at a 30
percent rate (or such lower rate provided by an applicable treaty). In general,
interest described in Section 871(h)(4) of the Code includes (subject to
certain exceptions) any interest the amount of which is determined by reference
to receipts, sales or other cash flow of the Company or a related person, any
income or profits of the Company or a related person, any change in the value
of any property of the Company or a related person or any dividend, partnership
distributions or similar payments made by the Company or a related person.
Interest described in Section 871(h)(4) of the Code may include other types of
contingent interest identified by the IRS in future Treasury Regulations. The
Company does not currently expect to issue Notes the interest on which is
described in Section 871(h)(4) of the Code, and, if it does, the United States
withholding tax consequences of any such Notes issued by the Company will be
described in the applicable Pricing Supplement.
An individual Holder of a Note who is not a citizen or resident of the United
States at the time of his or her death will not be subject to United States
federal estate tax as a result of such individual's death, if (i) (a) such
Holder does not own, actually or constructively, on the date of death 10% or
more of the total combined voting power of all classes of the voting stock of
the Company, (b) the Note does not provide for interest described in Section
871(h)(4) of the Code (as described above), and (c) any interest received on
the Note, if received by such Holder at the time of his or her death, would not
be effectively connected with the conduct of a trade or business in the United
States or (ii) an exemption is otherwise available.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of principal, interest, OID, and premium made within the United
States by the Company or any paying agent are generally subject to information
reporting and possibly to "backup" withholding at a rate of 31%. The amount
required to be reported by the Company may not be the same as the amounts of
OID required to be included in the gross income of a U.S. Holder who is not an
original purchaser. A U.S. Holder will be subject to 31% backup withholding in
respect of a payment, unless such Holder provides its taxpayer identification
number (e.g., social security number in the case of an individual) in the
manner prescribed in applicable United States Treasury Regulations and certain
other conditions are met. Such certification may be made on an IRS Form W-9 or
substantially similar form. Backup withholding, however, does not generally
apply to payments to certain "exempt recipients" such as corporations. Non-U.S.
Holders generally may establish an exemption from backup withholding with
respect to payments by the Company or any paying agency thereof by providing
the certification described in clause (iv) in the first paragraph under "Non-
U.S. Holders" above. Such certification may be made on an IRS Form W-8 or
substantially similar form.
Payments of principal, interest, OID, or premium to the beneficial owner of a
Note by the United States office of a custodian, nominee, or agent, or payment
of the proceeds of a sale of a Note to the seller thereof by the United States
office of a "broker" (as that term is defined in applicable United States
Treasury regulations), will be subject to information reporting and backup
withholding unless such owner (i) certifies that he is a Non-U.S. Holder
(provided the payor does not have actual knowledge that such beneficial holder
is a United States person), (ii) provides his taxpayer identification number,
or (iii) otherwise establishes an exemption. Payment of principal, interest,
OID, or premium to the beneficial owner of a Note by the non-United States
office of a foreign custodian, foreign nominee, or other foreign agent of such
beneficial owner, or payment of the proceeds of a sale of a Note to the seller
thereof by the non-United States office of a foreign broker, generally, will
not be subject to backup withholding or information reporting. If, however,
such nominee, custodian, agent, or broker is, for United States federal income
tax purposes, a controlled foreign corporation, a foreign person that derives
50% or
S-33
<PAGE>
more of its gross income for certain specified periods from the conduct of a
trade or business in the United States, or, in the case of a nominee,
custodian, or agent, a United States person, such payment will be subject to
information reporting, unless the custodian, nominee, agent, or broker has
documentary evidence in its records that the beneficial owner or seller is not
or was not, as the case may be, a United States person and certain conditions
are met or the beneficial owner or seller otherwise establishes an exemption.
Payment of the proceeds of a sale of a Note to the seller thereof by the
foreign office of a United States broker will generally not be subject to
backup withholding, but will be subject to information reporting unless the
broker has documentary evidence in its records that the seller is not or was
not, as the case may be, a United States person and certain conditions are met
or the seller otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Holder will be allowed as a refund or credit against such Holder's United
States federal income tax, provided that the required information is furnished
to the IRS.
The backup withholding rules are currently under review by the United States
Treasury Department, and their application to the Notes is subject to change.
Non-U.S. Holders should consult their tax advisors regarding the application
of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if available.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are offered on a continuing basis by the Company through the
Agents, each of which has agreed to use its reasonable efforts to solicit
purchases of the Notes. The Company will pay each Agent a commission of from
0.125% to 0.750% of the principal amount of each Note, depending upon its
Stated Maturity, sold through such Agent. The Company will have the sole right
to accept offers to purchase Notes and may reject any such offer in whole or
in part. Each Agent will have the right, in its discretion reasonably
exercised, to reject in whole or in part any offer to purchase Notes received
by such Agent. The Company also may sell Notes to any Agent, acting as
principal, at a discount to be agreed upon at the time of sale, for resale to
one or more investors or to one or more broker-dealers (acting as principal
for purposes of resale) at varying prices related to prevailing market prices
at the time of resale, as determined by such Agent, or, if so agreed, at a
fixed public offering price. Unless otherwise indicated in the applicable
Pricing Supplement, if any Note is resold by an Agent to any broker-dealer at
a discount, such discount will not be in excess of the discount or commission
received by such Agent from the Company. In addition, unless otherwise
indicated in the applicable Pricing Supplement, any Note purchased by an Agent
as principal will be purchased at 100% of the principal amount thereof less a
percentage equal to the commission applicable to an agency sale of a Note
having an identical Stated Maturity. After the initial public offering of the
Notes, the public offering price (in the case of Notes to be resold on a fixed
public offering price basis), the concession and the discount may be changed.
The Company also reserves the right to sell the Notes directly to investors on
its own behalf in those jurisdictions where it is authorized to do so or as
otherwise provided in the applicable Pricing Supplement. In such
circumstances, the Company will have the sole right to accept offers to
purchase Notes and may reject any proposed purchase of Notes in whole or in
part. In the case of sales made directly by the Company, no commission will be
payable.
NatWest Capital Markets Limited ("NatWest"), a United Kingdom broker-dealer,
has agreed that, as part of the distribution of the Notes and subject to
certain exceptions, it will not offer or sell any Notes within the United
States, its territories or possessions, or to persons who are citizens thereof
or residents therein, provided that NatWest Securities Corporation, an
affiliate of NatWest and a United States broker-dealer, will be a selling
broker with respect to the Notes, acting as agent for purchasers within the
United States.
NatWest has further represented and agreed that (i) it has not offered or
sold and will not offer or sell prior to the date six months after their date
of issue any Notes having an original maturity of one year or greater to
persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing, or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
S-34
<PAGE>
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Notes in, from, or otherwise involving
the United Kingdom, and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Notes to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Chemical Securities Inc. is an affiliate of Chemical Bank, which is agent
bank and a lender to the Company under its revolving credit facility, and of
Texas Commerce Bank National Association ("TCB"), which is also a lender to
the Company under such facility. Chemical Bank and TCB will each receive its
proportionate share of any repayment by the Company of amounts outstanding
under such facility from the proceeds of the offering of the Notes.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to indemnity each Agent against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments each Agent
may be required to make in respect thereof. The Company has agreed to
reimburse the Agents for certain of the Agents' expenses, including, but not
limited to, the fees and expenses of counsel to the Agents.
The Company has been advised by each Agent that it may from time to time
purchase and sell Notes in the secondary market, but that it is not obligated
to do so. There can be no assurance that there will be a secondary market for
the Notes or liquidity in the secondary market if one develops. From time to
time, each Agent may make a market in the Notes.
The Agents and their affiliates may engage in transactions with and perform
services for the Company in the ordinary course of business.
S-35
<PAGE>
PROSPECTUS
[LOGO OF $150,000,000
DIAMOND SHAMROCK, INC. DIAMOND SHAMROCK, INC.
APPEARS HERE]
DEBT SECURITIES PREFERRED STOCK
COMMON STOCK WARRANTS
Diamond Shamrock, Inc. (the "Company") may, from time to time, offer or
solicit offers to purchase its (i) unsecured senior debt securities ("Debt
Securities"); (ii) warrants to purchase the Debt Securities (the "Debt
Warrants"); (iii) shares of preferred stock, par value $0.01 per share
("Preferred Stock"); (iv) warrants to purchase shares of Preferred Stock
("Preferred Stock Warrants"); (v) shares of common stock, par value $0.01 per
share ("Common Stock"); and (vi) warrants to purchase shares of Common Stock
("Common Stock Warrants"), having an aggregate initial public offering price
not to exceed $150,000,000 or the equivalent thereof in one or more foreign
currencies or composite currencies, including European Currency Units, on
terms to be determined at the time of sale (the Debt Warrants, Preferred Stock
Warrants and Common Stock Warrants being referred to herein collectively as
the "Securities Warrants"). The Debt Securities, Preferred Stock, Common Stock
and Securities Warrants offered hereby (collectively, the "Offered
Securities") may be offered separately or as units with other Offered
Securities, in separate series, in amounts, at prices, and on terms, to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered, including, where applicable (i) in the case of
Debt Securities, the specific designation, aggregate principal amount,
denominations, maturity, interest rate (which may be fixed or variable) and
time of payment of interest, if any, coin or currency in which principal,
premium, if any, and interest, if any, will be payable, any terms for
redemption, exchange, or conversion, and any terms for sinking fund payments;
(ii) in the case of Preferred Stock, the specific title and stated value,
number of shares, the dividend, liquidation, exchange, redemption, conversion,
voting and other rights, and the initial public offering price; (iii) in the
case of Common Stock, the initial public offering price; (iv) in the case of
Securities Warrants, the duration, offering price, exercise price, and
detachability thereof; and (v) in the case of all Offered Securities, whether
such Offered Securities will be offered separately or as a unit with other
Offered Securities, will be set forth in the accompanying Prospectus
Supplement. The Prospectus Supplement will also contain information, where
applicable, concerning certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by the Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Offered Securities may be sold directly to purchasers or through
underwriters, dealers, or agents. If any underwriters, dealers, or agents are
involved in the sale of any Offered Securities, their names and any applicable
fee, commission, or discount arrangements will be set forth in the Prospectus
Supplement. The principal amount or number of shares of Offered Securities,
the purchase price thereof, and the net proceeds to the Company from sales of
Offered Securities will be set forth in the Prospectus Supplement. The net
proceeds to the Company of the sale of Offered Securities will be the purchase
price of such Offered Securities less attributable issuance expenses,
including underwriters', dealers', or agents' compensation arrangements. See
"Plan of Distribution" for indemnification arrangements for underwriters,
dealers, and agents.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
OFFERED SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS JUNE 28, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information filed by the Company can be inspected and
copied at the Public Reference Room of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the public reference
facilities maintained by the Commission at Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Documents filed
by the Company can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, on which exchange certain
of the Company's securities are listed.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the securities offered hereby. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
securities offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates into this Prospectus by reference the
Company's (i) Annual Report on Form 10-K for the year ended December 31, 1994
(the "1994 Form 10-K"), filed pursuant to the Exchange Act, which contains the
consolidated financial statements of the Company and the report thereon of
Price Waterhouse LLP, (ii) Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and (iii) Current Reports on Form 8-K, dated January 25, 1995,
February 6, 1995, and June 1, 1995.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14, or 15(d) of the Exchange Act, prior to the termination of the
offering made hereby, shall be deemed incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such reports.
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 subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
exhibits expressly incorporated in such documents by reference). Requests
should be directed to: Investor Relations, Diamond Shamrock, Inc., P.O. Box
696000, San Antonio, Texas 78269-6000 (telephone 210-641-6800).
2
<PAGE>
THE COMPANY
Diamond Shamrock, Inc. is the leading independent refiner and marketer of
petroleum products in the southwestern United States. Its principal activities
consist of crude oil refining, wholesale marketing of petroleum products, and
retail marketing of petroleum products and other merchandise through Company-
operated retail outlets. In addition, the Company processes petrochemicals and
is engaged in the marketing, distribution, and storage of natural gas liquids.
The Company's principal executive offices are located at 9830 Colonnade
Boulevard, San Antonio, Texas 78230 (in person); P.O. Box 696000, San Antonio,
Texas 78269-6000 (by mail). Its telephone number is210-641-6800.
EARNINGS RATIOS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for the three-month periods ended March 31, 1995 and 1994 and for each of the
years in the five-year period ended December 31, 1994. For purposes of
computing such ratios, earnings consist of income before income taxes and
fixed charges, and fixed charges consist of interest on outstanding debt,
amortization of debt issuance expense, and one-third of rental payments on
operating leases (such amount having been deemed by the Company to represent
the interest portion of such payments).
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEAR ENDED DECEMBER 31,
-------------- ------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges...... 1.5 2.4 3.2 2.0 1.7 2.1 3.5
Ratio of Earnings to Combined Fixed
Charges
and Preferred Stock Dividends.......... 1.4 2.2 2.9 1.8 1.7 2.1 3.3
</TABLE>
USE OF PROCEEDS
The Offered Securities may be offered by the Company from time to time when
market conditions are determined by the Company to be favorable. Unless
otherwise indicated in the applicable Prospectus Supplement, the net proceeds
from the sale of the Offered Securities will be added to the Company's funds
and used for general corporate purposes.
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities offered by any
Prospectus Supplement (the "Offered Debt Securities") and the extent, if any,
to which such general provisions do not apply to the Offered Debt Securities
will be described in the Prospectus Supplement relating to such Offered Debt
Securities.
The Debt Securities to which this Prospectus relates will be issued under an
Indenture dated as of December 15, 1989 (the "Indenture"), between the Company
and The First National Bank of Chicago, as trustee (the "Trustee"), which is
filed as an exhibit to the Registration Statement. The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions therein of certain
terms. Numerical references in parentheses below are to sections in the
Indenture. Whenever particular sections or defined terms of the Indenture are
referred to, such sections or defined terms are incorporated herein by
reference.
GENERAL
The Indenture does not limit the amount of Debt Securities which may be
issued thereunder and provides that Debt Securities may be issued thereunder
from time to time in one or more series up to the aggregate principal amount
which may be authorized from time to time by the Company. All Debt Securities
will be unsecured and will rank pari passu with all other unsecured
unsubordinated indebtedness of the Company. The Company is primarily a holding
company and the Debt Securities will not be guaranteed by any of the Company's
Subsidiaries. As a result, the right of creditors of the Company upon its
liquidation, reorganization, or otherwise is necessarily subject to the claims
of creditors of the Company's Subsidiaries, except to the extent that claims
of the Company itself as a creditor of any of its Subsidiaries may be
recognized. Except as described below, the Indenture does not limit the amount
of other indebtedness or securities which may be issued by the Company.
Reference is made to the Prospectus Supplement relating to the particular
series of Offered Debt Securities offered thereby for the following terms of
such series of Offered Debt Securities: (i) the designation, aggregate
principal amount, and authorized denominations of such Offered Debt
Securities; (ii) the purchase price of such Offered Debt Securities (expressed
as a percentage of the principal amount thereof); (iii) the date or dates on
which such Offered Debt Securities will mature; (iv) the rate or rates per
annum, if any (which may be fixed or variable), at which such Offered Debt
Securities will bear interest or the method by which such rate or rates will
be determined; (v) the dates on which such interest will be payable and the
record dates for payment of interest, if any; (vi) the coin or currency in
which payment of the principal of (and premium, if any) or interest, if any,
on such Offered Debt Securities will be payable; (vii) the terms of any
mandatory or optional redemption (including any sinking fund) or any
obligation of the Company to repurchase Offered Debt Securities; (viii)
whether such Offered Debt Securities are to be issued in whole or in part in
the form of one or more temporary or permanent global Debt Securities ("Global
Securities") and, if so, the identity of the depositary, if any, for such
Global Security or Securities; and (ix) any other additional provisions or
specific terms which may be applicable to that series of Offered Debt
Securities.
Principal, premium, if any, and interest, if any, will be payable, and the
Debt Securities will be transferable or exchangeable, at the office or agency
of the Company maintained for such purposes in the Borough of Manhattan, The
City of New York, provided that payment of interest on any Debt Securities
may, at the option of the Company, be made by check mailed to the registered
holders. Interest, if any, will be payable on any Interest Payment Date to the
persons in whose names the Debt Securities are registered at the close of
business on the record date with respect to such Interest Payment Date
(Sections 305, 307 and 1202).
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Debt Securities will be issued only in fully registered form, without
coupons, in denominations of $1,000 or any integral multiple thereof. No
4
<PAGE>
service charge will be made for any registration of transfer or exchange of
the Debt Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith
(Sections 302 and 305).
Some or all of the Debt Securities may be issued as discounted Debt
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 such discounted Debt Securities will
be described in the Prospectus Supplement relating thereto.
The Indenture does not contain provisions permitting the holders of the Debt
Securities to require prepayment in the event of a change in the management or
control of the Company, or in the event the Company enters into one or more
highly leveraged transactions, nor are any such events deemed to be events of
default under the terms of the Indenture. Should the terms of any note
representing any Offered Debt Securities contain such provisions, such
provisions will be described in the applicable Prospectus Supplement.
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 located in the United States (a "Depositary") identified in
the Prospectus Supplement relating to such series.
The specific terms of the depositary arrangements with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will
apply to all depositary arrangements.
Unless otherwise specified in an applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited
with or on behalf of a Depositary will be represented by a Global Security
registered in the name of such depositary or its nominee. Upon the issuance of
a Global Security in registered form, the Depositary for such Global Security
will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of institutions that have accounts with such
Depositary or its nominee ("participants"). The accounts to be credited shall
be designated by the underwriters or agents of such Debt Securities or by the
Company, if such Debt Securities are offered and sold directly by the Company.
Ownership of beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Securities
will be shown on, and the transfer of that ownership interest will be effected
only through, records maintained by the Depositary or its nominee for such
Global Security. Ownership of beneficial interests in Global Securities by
persons that hold through participants will be shown on, and the transfer of
that ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions 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.
So long as the Depositary for a Global Security in registered form, 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 set forth below,
owners of beneficial interests in such 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.
Payment of principal of, premium, if any, and any interest on Debt
Securities registered in the name of or held by a Depositary or its nominee
will be made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security representing such Debt
Securities. None of the Company,
5
<PAGE>
the Trustee, any Paying Agent, or 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 in a Global Security for such Debt Securities or for maintaining,
supervising, or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for Debt Securities of a series,
upon receipt of any payment of principal, premium, or interest in respect of a
permanent Global Security, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of the
Depositary. 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. However, the Company has no control over the practices of the
Depositary and/or the participants and there can be no assurance that these
practices will not be changed.
A Global Security 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 304). If a Depositary for Debt Securities
of a series 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 in definitive registered form in exchange
for the Global Security or Securities representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion determine not
to have any Debt Securities in registered form represented by one or more
Global Securities and, in such event, will issue Debt Securities in definitive
form in exchange for the Global Security or Securities representing such Debt
Securities. 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.
LIMITATIONS ON THE COMPANY AND CERTAIN SUBSIDIARIES
Limitations on Mortgages. The Indenture provides that neither the Company
nor any Subsidiary of the Company will issue, assume, or guarantee any notes,
bonds, debentures, or other similar evidences of indebtedness for money
borrowed ("Debt") secured by any mortgages, liens, pledges, or other
encumbrances ("Mortgages") upon any asset or any interest it may have therein
or of or upon any stock or indebtedness of any Subsidiary, whether now owned
or hereafter acquired, without effectively providing that all Debt Securities
issued under the Indenture (together with, if the Company so determines, any
other indebtedness or obligation then existing or thereafter created ranking
equally with the Debt Securities) will be secured equally and ratably with (or
prior to) such Debt so long as such Debt will be so secured, except that this
restriction will not apply to: (i) Mortgages securing the purchase price or
cost of construction of property (or additions, substantial repairs,
alterations, or substantial improvements thereto if the amount of such Debt
does not exceed the cost thereof), provided such Debt and the Mortgages are
incurred within 18 months of the acquisition or completion of construction and
full operation, or the completion of such repairs, alterations, or
improvements, as the case may be; (ii) Mortgages existing on property at the
time of its acquisition by the Company or a Subsidiary or on the property of a
corporation at the time of the acquisition of such corporation by the Company
or a Subsidiary (including acquisitions through merger or consolidation);
(iii) Mortgages to secure Debt on which the interest payments are exempt from
federal income tax under Section 103 of the Internal Revenue Code of 1986, as
amended (the "Code"); (iv) in the case of a Subsidiary, Mortgages in favor of
the Company or a Subsidiary; (v) Mortgages existing on the date of the
Indenture; (vi) certain Mortgages incurred in the ordinary course of business
and Mortgages to governmental entities; (vii) Mortgages incurred in connection
with the borrowing of funds if within 120 days such funds are used to repay
Debt in the same principal amount secured by other Mortgages on assets or
receivables having a fair market value (as determined by the chief financial
officer of the Company) at least equal to the fair market value of the assets
or receivables which secure the new Mortgage;
6
<PAGE>
(viii) Mortgages incurred within 90 days (or any longer period, not in excess
of one year, as permitted by law) after acquisition of the property or
equipment subject to such Mortgage arising solely in connection with the
transfer of tax benefits in accordance with Section 168(f)(8) of the Code (or
any similar provision adopted hereafter); (ix) Mortgages on accounts
receivable of the Company or its Subsidiaries which secure obligations not
exceeding at any time the lesser of 90% of Consolidated Receivables (as
defined below) or $100,000,000, provided that the dollar limitation of
$100,000,000 will increase at a compounded rate of 10% each April 1, with the
first such increase effective on April 1, 1990 and subsequent increases to be
effective on and as of each succeeding April 1, provided further, however,
that in no event will such dollar limitation exceed $300,000,000; and (x) any
extension, renewal, or replacement of any Mortgage referred to in the
foregoing clauses (i) through (ix), provided the dollar amount secured is not
increased (Section 1205).
Limitations on Sale and Lease-Back Transactions. The Indenture provides that
neither the Company nor any Subsidiary will enter into any Sale and Lease-Back
Transaction with respect to any asset owned by it with any person (other than
the Company or a Subsidiary) unless either (i) the Company or such Subsidiary
would be entitled, pursuant to the provisions described in clauses (i) through
(x) under "Limitations on Mortgages" above, to incur Debt secured by a
Mortgage on the asset to be leased without equally and ratably securing the
Debt Securities, or (ii) the Company during or immediately after the
expiration of 120 days after the effective date of such transaction applies to
the voluntary retirement of its Funded Debt an amount equal to the greater of
the net proceeds of the sale of the property leased in such transaction or the
fair market value (as determined by the chief financial officer of the
Company) of the leased property at the time such transaction was entered into,
in each case net of the principal amount of all Debt Securities delivered
under the Indenture (Section 1206).
Exempted Transactions. Notwithstanding the foregoing, the Company and any
one or more Subsidiaries may, without securing the Debt Securities, issue,
assume, or guarantee Debt secured by Mortgages and enter into Sale and Lease-
Back Transactions which would otherwise be subject to the foregoing
restrictions in an aggregate principal amount which, together with all other
such Debt of the Company and its Subsidiaries secured by Mortgages (not
including Debt permitted to be secured pursuant to clauses (i) through (x)
under "Limitations on Mortgages" above) and the aggregate Attributable Debt
(as defined below) in respect of Sale and Lease-Back Transactions (not
including those permitted as described under "Limitations on Sale and Lease-
Back Transactions" above), does not exceed 15% of Consolidated Net Tangible
Assets (as defined below) of the Company and its consolidated Subsidiaries
(Section 1207).
Certain Definitions. The term "Consolidated Net Tangible Assets" at any date
means the total assets shown on a consolidated balance sheet of the Company
and its Subsidiaries, prepared in accordance with generally accepted
accounting principles, less (i) all current liabilities, and (ii) goodwill and
like intangibles included on such balance sheet. The term "Attributable Debt"
means (a) as to any capitalized lease obligations, the Debt carried on the
balance sheet in accordance with generally accepted accounting principles, and
(b) as to any operating leases, the total net amount of rent required to be
paid under such leases during the remaining term thereof discounted at the
rate of 1% per annum over the weighted average yield to maturity of all Debt
Securities issued and outstanding under the Indenture, including any
outstanding Debt Securities, compounded semi-annually. The term "Consolidated
Receivables" at any date means the aggregate amount of all accounts receivable
of the Company and its Subsidiaries at the end of the most recent fiscal
quarter, as shown on the consolidated balance sheet of the Company and its
Subsidiaries in respect of such quarter, or in respect of the fiscal year in
the case of the fourth quarter (Section 101).
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture with respect to
Debt Securities of any series: (i) failure to pay principal of or any premium
on any Debt Security of that series when due; (ii) failure to pay any interest
on any Debt Security of that series when due, and the continuation of such
failure for 30 days; (iii) failure to deposit any sinking fund payment in
respect of any Debt Security of that series when due; (iv) failure to perform
any other covenant of the Company in the Indenture (other than a covenant
included in the Indenture solely for the benefit of a series of Debt
Securities other than the series), continued for 60 days after written
7
<PAGE>
notice as provided in the Indenture; (v) certain events in bankruptcy,
insolvency, or reorganization; (vi) indebtedness for borrowed money of the
Company or any Subsidiary in excess of $10,000,000 (whether such indebtedness
now exists or is hereafter created) is not paid at final maturity or becomes
or is declared due and payable prior to the date or dates on which such
indebtedness would otherwise have become due and payable as a result of the
occurrence of one or more events of default as defined in any mortgages,
indentures, or instruments under which such indebtedness may have been issued
or by which such indebtedness may have been secured, and such failure to pay
shall not be cured or such acceleration or accelerations, as the case may be,
shall not be rescinded, annulled, or cured, in any case prior to the
expiration of 30 days after the date such failure to pay or acceleration or
accelerations occurred; and (vii) any other Event of Default provided with
respect to Debt Securities of that series (Section 501). If any Event of
Default with respect to Debt Securities of any series at any time outstanding
occurs and is continuing, either the Trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding Debt Securities of that series
may declare the principal amount (or, if the Debt Securities of that series
are Discount Securities, such portion of the principal amount as may be
specified in the terms of that series) of all the Debt Securities of that
series to be due and payable immediately. At any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on acceleration has been obtained, the
Holders of a majority in aggregate principal amount of outstanding Debt
Securities of that series may, under certain circumstances, rescind and annul
such acceleration (Section 502).
The Indenture provides that, subject to the duty of the Trustee during the
continuance of an Event of Default to act with the required standard of care,
the Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the Holders,
unless such Holders have offered to the Trustee reasonable indemnity (Section
603). Subject to such provisions for the indemnification of the Trustee, the
Holders of a majority in aggregate principal amount of the outstanding Debt
Securities of any series will have the right to direct the time, method, and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Debt Securities of that series (Section 512).
The Company is required to furnish the Trustee annually with a statement as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance (Section 1208).
MODIFICATION AND WAIVER
Modifications of and amendments to the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than two-thirds in
aggregate principal amount of the outstanding Debt Securities of each series
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, (i) change the Stated Maturity of
the principal of, or any installment of interest, if any, on, any Debt
Security, (ii) reduce the principal amount of, or any premium or interest on,
any Debt Security, (iii) reduce the amount of principal of Discount Securities
payable upon acceleration of the stated maturity thereof, (iv) change the
currency of payment of principal of, or any premium or interest on, any Debt
Security, (v) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security, or (vi) reduce the percentage
in principal amount of outstanding Debt Securities of any series, the consent
of whose Holders is required for modification or amendment of the Indenture or
for waiver of compliance with certain provisions of the Indenture or for
waiver of certain defaults (Section 1102).
The Holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all Holders of Debt
Securities of that series, waive any past default under the Indenture with
respect to Debt Securities of that series, except a default in the payment of
principal or any premium or interest or a covenant or provision that cannot be
modified or amended without the consent of the Holders of each outstanding
Debt Security affected thereby (Section 513).
8
<PAGE>
CONSOLIDATION, MERGER, SALE, OR LEASE OF ASSETS
The Company, without the consent of the Holders of any of the outstanding
Debt Securities under the Indenture, may consolidate with or merge into, or
transfer or lease its assets substantially as an entirety to, any corporation
organized under laws of any domestic jurisdiction, provided that the successor
corporation assumes the Company's obligations on the Debt Securities and that
under the Indenture, after giving effect to the transactions, no Event of
Default, and no event which, after notice or lapse of time, would become an
Event of Default, shall have occurred and be continuing, and that certain
other conditions are met (Section 1001).
DEFEASANCE
The Indenture provides that the Company, at its option, (i) will be
discharged from any and all obligations in respect of any series of Debt
Securities (except for certain obligations to register the transfer or
exchange of the Debt Securities; replace stolen, lost, or mutilated Debt
Securities; maintain paying agencies; and hold money for payment in trust), or
(ii) will not be subject to provisions of the Indenture concerning limitations
upon Mortgages; Sale and Lease-Back Transactions; and consolidation, merger,
and sale of assets, in each case if the Company deposits with the Trustee, in
trust, money or U.S. Government Obligations which through the payment of
interest thereon and principal thereof in accordance with their terms will
provide money in an amount sufficient to pay all principal, premium, if any,
and interest on the Debt Securities of such series on the dates such payments
are due in accordance with the terms of such Debt Securities. To exercise any
such option, the Company is required, among other things, to deliver an
opinion of counsel to the Trustee to the effect that (a) the Company has
received from or there has been published by the Internal Revenue Service a
ruling to the effect that the deposit and related defeasance would not cause
the Holders of such series of Debt Securities to recognize income, gain, or
loss for United States federal income tax purposes and (b) if such series of
Debt Securities are then listed on any national securities exchange, such Debt
Securities would not be delisted from such exchange as a result of the
exercise of such option (Article Fifteen).
NOTICES
Notices to Holders will be given by mail to the addresses of such Holders as
they appear in the Security Register (Sections 101, 105).
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York (Section 111).
CONCERNING THE TRUSTEE
The Trustee has normal banking relationships with the Company.
9
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock is subject to the
detailed provisions of the Company's Certificate of Incorporation (the
"Certificate"). These statements do not purport to be complete and are
qualified in their entity by reference to the terms of the Certificate, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Under the Certificate, the Company has the authority to issue 25,000,000
shares of Preferred Stock, $.01 par value, and 75,000,000 shares of Common
Stock, $.01 par value. As of May 31, 1995, 1,725,000 shares of the Company's
5% Cumulative Convertible Preferred Stock and 29,028,534 shares of Common
Stock were issued, of which 8,472 shares of Common Stock were held in
treasury. The outstanding shares of Common Stock and Preferred Stock are fully
paid and nonassessable. As of such date, 1,887,102 shares of Common Stock were
reserved for issuance pursuant to the Company's 1987 and 1990 Long-Term
Incentive Plans, and 750,000 shares of the Company's Series A Junior
Participating Preferred Stock, $.01 par value, were reserved for issuance
pursuant to the Rights Agreement (the "Rights Agreement"), dated March 6,
1990, between the Company and Society National Bank, as Rights Agent. See "--
Preferred Stock--Preferred Stock Purchase Rights." An additional 3,254,716
shares of Common Stock are reserved for issuance upon conversion of the
Company's outstanding 5% Cumulative Convertible Preferred Stock. See "5%
Cumulative Convertible Preferred Stock."
PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in the Prospectus
Supplement relating to such series of Preferred Stock. The description set
forth below is subject to and qualified in its entirety by reference to the
Certificate and the form of Certificate of Designations (the "Designation")
establishing a particular series of Preferred Stock which will be filed with
the Commission in connection with the offering of such series of Preferred
Stock.
General. Under the Certificate, the Board of Directors of the Company (the
"Board of Directors") is authorized, without further shareholder action, to
provide for the issuance of up to 25,000,000 shares of Preferred Stock, in one
or more series, and to fix the designations, terms, and relative rights and
preferences, including the dividend rate, voting rights, conversion rights,
redemption and sinking fund provisions, and liquidation values of each such
series. The Company may amend the Certificate from time to time to increase
the number of authorized shares of Preferred Stock. Any such amendment would
require the approval of the holders of a majority of the outstanding shares of
all series of Preferred Stock voting together as a single class without regard
to series. As of the date of this Prospectus, the Company has one series of
Preferred Stock outstanding.
The Preferred Stock will have the dividend, liquidation, redemption,
conversion, and voting rights set forth below unless otherwise provided in the
Prospectus Supplement relating to a particular series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the particular
series of the Preferred Stock offered thereby for specific terms, including,
(i) the title and liquidation preference per share of such Preferred Stock and
the number of shares offered; (ii) the price at which such Preferred Stock
will be issued; (iii) the dividend rate (or method of calculation), the dates
on which dividends shall be payable and the dates from which dividends shall
commence to accumulate; (iv) any redemption or sinking fund provisions of such
Preferred Stock; (v) any conversion or exchange provisions of such Preferred
Stock; (vi) the voting rights, if any, of such Preferred Stock; and (vii) any
additional dividend, liquidation, redemption, sinking fund and other rights,
preferences, privileges, limitations, and restrictions of such Preferred
Stock. The Preferred Stock will, when issued, be fully paid and nonassessable.
Dividend Rights. The Preferred Stock will be preferred over the Common Stock
as to payment of dividends. Before any dividends or distributions on the
Common Stock shall be declared and set apart for payment or paid, the holders
or shares of each series of Preferred Stock shall be entitled to receive
dividends
10
<PAGE>
(either in cash, shares of Common Stock or Preferred Stock, or otherwise)
when, as, and if declared by the Board of Directors, at the rate and on the
date or dates as set forth in the Prospectus Supplement. With respect to each
series of Preferred Stock, the dividends on each share of such series with
respect to which dividends are cumulative shall be cumulative from the date of
issue of such share unless some other date is set forth in the Prospectus
Supplement relating to any such series. Accruals of dividends shall not bear
interest.
Rights Upon Liquidation. The Preferred Stock shall be preferred over the
Common Stock as to assets so that the holders of each series of Preferred
Stock shall be entitled to be paid, upon the voluntary or involuntary
liquidation, dissolution, or winding up of the Company, and before any
distribution is made to the holders of Common Stock, the amount set forth in
the Prospectus Supplement relating to any such series, but in such case the
holders of such series of Preferred Stock shall not be entitled to any other
or further payment. If upon any such liquidation, dissolution, or winding up
of the Company its net assets shall be insufficient to permit the payment in
full of the respective amounts to which the holders of all outstanding
Preferred Stock are entitled, the entire remaining net assets of the Company
shall be distributed among the holders of each series of Preferred Stock in
amounts proportionate to the full amounts to which the holders of each such
series are respectively so entitled.
Redemption and Conversion. All shares of any series of Preferred Stock
shall be redeemable to the extent set forth in the Prospectus Supplement
relating to any such series. All shares of any series of Preferred Stock shall
be convertible into shares of Common Stock or into shares of any other series
of Preferred Stock to the extent set forth in the Prospectus Supplement
relating to any such series.
Voting Rights. All shares of any series of Preferred Stock shall have the
voting rights set forth in the prospectus supplement relating to any such
series.
5% Cumulative Convertible Preferred Stock. In June 1993, the Company issued
1,725,000 shares of 5% Cumulative Convertible Preferred Stock, $.01 par value
per share (the "5% Preferred Stock"). Each share of 5% Preferred Stock has a
liquidation preference of $50.00 per share, plus accrued and unpaid dividends
thereon. Cash dividends on the 5% Preferred Stock are cumulative from the date
of original issue at an annual rate of $2.50 per share and are payable
quarterly in arrears. Shares of 5% Preferred Stock are convertible at any time
commencing 90 days after the date of original issue at the option of the
holder into shares of Common Stock of the Company at a conversion price of
$26.50 per share of Common Stock, which is equivalent to a conversion rate of
approximately 1.8868 shares of Common Stock for each share of 5% Preferred
Stock, subject to adjustment in certain circumstances.
The shares of 5% Preferred Stock are not redeemable prior to June 15, 1996.
On and after such date and from time to time until June 14, 2000, the 5%
Preferred Stock will be redeemable, in whole or in part, at the option of the
Company, for such number of shares of Common Stock as are issuable at the
conversion price for each share of 5% Preferred Stock. The Company may
exercise this option only if, for 20 trading days within any period of 30
consecutive trading days, including the last trading day of such 30 trading-
day period, the closing price of the Company's Common Stock on the New York
Stock Exchange exceeds $34.45, subject to adjustment in certain circumstances.
On and after June 15, 2000, the 5% Preferred Stock will be redeemable for cash
at a redemption price equivalent to $50 per share, plus accrued and unpaid
dividends. Shares of 5% Preferred Stock are not be entitled to the benefit of
any sinking fund.
Preferred Stock Purchase Rights. 750,000 shares of Series A Junior
Participating Preferred Stock, $.01 par value ("Junior Preferred Stock"), are
reserved for issuance pursuant to the Rights Agreement. Pursuant to the Rights
Agreement, one right (a "Right") to purchase 1/100th of a share of Junior
Preferred Stock (structured so as to be substantially the equivalent of Common
Stock) is attached to each issued and outstanding share of Common Stock. The
Rights are not exercisable and are attached to, and may not trade separately
from, the Common Stock unless certain change of control events occur.
11
<PAGE>
COMMON STOCK
The holders of the Company's Common Stock are entitled to one vote per share
on all matters voted on by the stockholders, including elections of directors,
and, except as otherwise required by law or provided in any resolution adopted
by the Board of Directors of the Company with respect to any series of
Preferred Stock, the holders of such shares will exclusively possess all
voting power. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors from funds
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. No holder of
Common Stock has any preemptive right to subscribe to any securities of the
Company of any kind or class. The Company's Common Stock is listed on the New
York Stock Exchange and prices are reported by the New York Stock Exchange
Composite Tape under the symbol DRM. The Transfer Agent and Registrar of the
Company's Common Stock is KeyCorp Shareholder Services, Inc., Cleveland, Ohio.
CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
The Certificate and By-laws of the Company contain certain provisions which
may have the effect of delaying, deferring, or preventing a change of control
of the Company. The Certificate provides that the Board shall be divided into
three classes, with directors serving three-year terms, and limits the ability
of stockholders to change the number of directors. Special meetings of the
Company's stockholders may only be called by the Board of Directors or the
Chairman of the Board, and any action required or permitted to be taken by the
stockholders of the Company must be effected at an annual or special meeting
of stockholders of the Company and may not be effected by any consent in
writing of such stockholders. In addition, the Board has generally the
authority, without further action by stockholders, to fix the relative powers,
preferences, and rights of the unissued shares of Preferred Stock. Provisions
which could discourage an unsolicited tender offer or takeover proposal, such
as extraordinary voting, dividend, redemption, or conversion rights, could be
included in such Preferred Stock. See "--Preferred Stock."
Under the Certificate, holders of Common Stock are entitled to cumulative
voting rights in certain limited circumstances in which the Company becomes
aware that a stockholder of the Company (other than the Company or a
subsidiary of the Company) has become the beneficial owner, directly or
indirectly, of 30% or more of the outstanding capital stock of the Company
entitled to vote generally in the election of Company directors. Holders of
Common Stock are not otherwise entitled to cumulative voting rights. Under
cumulative voting, a stockholder may multiply the number of shares owned by
the number of directors to be elected, and cast that total number of votes in
any proportion among as many nominees as the stockholder desires.
The By-laws of the Company contain certain requirements concerning advance
notice of (i) nominations by stockholders of persons for election to the
Board, and (ii) other matters introduced by stockholders at annual meetings.
12
<PAGE>
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Debt
Securities, Preferred Stock, or Common Stock. Securities Warrants may be
issued independently or together with Debt Securities, Preferred Stock, or
Common Stock offered by any Prospectus Supplement and may be attached to or
separate from any such Offered Securities. Each series of Securities Warrants
will be issued under a separate warrant agreement (a "Securities Warrant
Agreement") to be entered into between the Company and a bank or trust
company, as warrant agent (the "Securities Warrant Agent"), all as set forth
in the Prospectus Supplement relating to the particular issue of Securities
Warrants. The Securities Warrant Agent will act solely as an agent of the
Company in connection with the Securities Warrants and will not assume any
obligation or relationship of agency or trust for or with any holders of
Securities Warrants or beneficial owners of Securities Warrants. The following
summary of certain provisions of the Securities Warrants does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, all provisions of the Securities Warrant Agreements.
Reference is made to the Prospectus Supplement relating to the particular
issue of Securities Warrants offered thereby for the terms of such Securities
Warrants, including, where applicable: (i) the designation, aggregate
principal amount, currencies, denominations, and terms of the series of Debt
Securities purchasable upon exercise of Debt Warrants and the price at which
such Debt Securities may be purchased upon such exercise; (ii) the
designation, number of shares, stated value, and terms (including, without
limitation, liquidation, dividend, conversion, and voting rights) of the
series of Preferred Stock purchasable upon exercise of Preferred Stock
Warrants and the price at which such number of shares of Preferred Stock of
such series may be purchased upon such exercise; (iii) the number of shares of
Common Stock purchasable upon the exercise of Common Stock Warrants and the
price at which such number of shares of Common Stock may be purchased upon
such exercise; (iv) the date on which the right to exercise such Securities
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"); (v) United States federal income tax consequences
applicable to such Securities Warrants; and (vi) any other terms of such
Securities Warrants. Preferred Stock Warrants and Common Stock Warrants will
be offered and exercisable for U.S. dollars only. Securities Warrants will be
issued in registered form only. The exercise price for Securities Warrants
will be subject to adjustment in accordance with the applicable Prospectus
Supplement.
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or such number of shares of Preferred
Stock or Common Stock at such exercise price as shall in each case be set
forth in, or calculable from, the Prospectus Supplement relating to the
Securities Warrants, which exercise price may be subject to adjustment upon
the occurrence of certain events as set forth in such Prospectus Supplement.
After the close of business on the Expiration Date (or such later date to
which such Expiration Date may be extended by the Company), unexercised
Securities Warrants will become void. The place or places where, and the
manner in which, Securities Warrants may be exercised shall be specified in
the Prospectus Supplement relating to such Securities Warrants.
Prior to the exercise of any Securities Warrants to purchase Debt
Securities, Preferred Stock, or Common Stock, holders of such Securities
Warrants will not have any of the rights of holders of the Debt Securities,
Preferred Stock, or Common Stock, as the case may be, purchasable upon such
exercise, including the right to receive payments of principal of, premium, if
any, or interest, if any, on the Debt Securities purchasable upon such
exercise or to enforce covenants in the applicable Indenture, or to receive
payments of dividends, if any, on the Preferred Stock or Common Stock
purchasable upon such exercise, or to exercise any applicable right to vote.
13
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to which this Prospectus relates
to or for resale to the public through one or more underwriters, acting alone
or in underwriting syndicates led by one or more managing underwriters, and
also may sell such Offered Securities directly to other purchasers or dealers
or through agents.
The distribution of Offered Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed from
time to time, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at negotiated prices. Each
Prospectus Supplement will describe the method of distribution of the Offered
Securities.
In connection with the sale of Offered Securities, such underwriters,
dealers, and agents may receive compensation from the Company, or from
purchasers of Offered Securities for whom they may act as agents, in the form
of discounts, concessions, or commissions. Underwriters, dealers, and agents
that participate in the distribution of Offered Securities and, in certain
cases, direct purchasers from the Company, may be deemed to be "underwriters"
and any discounts or commissions received by them and any profit on the resale
of Offered Securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriters, dealers, or
agents will be identified and any such compensation will be described in the
applicable Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters,
dealers, and agents who participate in the distribution of Offered Securities
may be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act. The place and time of delivery
for Offered Debt Securities in respect of which this Prospectus is delivered
will be set forth in the applicable Prospectus Supplement.
14
<PAGE>
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Timothy J. Fretthold, Esq., Senior Vice President/Group Executive and
General Counsel of the Company, and for the underwriters, dealers, or other
agents by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York. As of June 1, 1995, Mr.
Fretthold beneficially owned 49,963 shares of Common Stock of the Company,
including 23,180 shares which he had the right to acquire within 60 days
through the exercise of employee stock options.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
1994 Form 10-K have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
With respect to the unaudited consolidated financial information of the
Company for the three-month periods ended March 31, 1995 and 1994,
incorporated by reference in this Prospectus, Price Waterhouse LLP reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
dated May 11, 1995, incorporated by reference herein, states that they do not
express an opinion on that unaudited consolidated financial information. Price
Waterhouse LLP has not carried out any significant or additional audit tests
beyond those which would have been necessary if their report had not been
included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. Price Waterhouse LLP is not subject to the liability
provisions of Section 11 of the Securities Act for their report on the
unaudited consolidated financial information because that report is not a
"report" or a "part" of the Registration Statement prepared or certified by
Price Waterhouse LLP within the meaning of Sections 7 and 11 of the Securities
Act.
15
<PAGE>
================================================================================
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT (INCLUDING THE ACCOMPANYING
PRICING SUPPLEMENT) OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLE-
MENT (INCLUDING THE PRICING SUPPLEMENT) AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS SUPPLEMENT (INCLUDING THE PRICING SUPPLEMENT) AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JU-
RISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Risk Factors............................................................... S-3
Description of Notes....................................................... S-6
Special Provisions Relating To Multi-Currency Notes........................ S-25
United States Federal Income Taxation...................................... S-27
Supplemental Plan of Distribution.......................................... S-34
<CAPTION>
Prospectus
<S> <C>
Available Information....................................................... 2
Incorporation of Certain Documents by Reference............................. 2
The Company................................................................. 3
Earnings Ratios............................................................. 3
Use of Proceeds............................................................. 3
Description of Debt Securities.............................................. 4
Description of Capital Stock................................................ 10
Description of Securities Warrants.......................................... 13
Plan of Distribution........................................................ 14
Legal Matters............................................................... 15
Experts..................................................................... 15
</TABLE>
================================================================================
================================================================================
$150,000,000
[LOGO OF DIAMOND SHAMROCK, INC. APPEARS HERE]
DIAMOND SHAMROCK, INC.
MEDIUM-TERM NOTES, SERIES B
------------------
PROSPECTUS SUPPLEMENT
JULY 19, 1995
------------------
LEHMAN BROTHERS
CS FIRST BOSTON
MERRILL LYNCH & CO.
CHEMICAL SECURITIES INC.
NATWEST MARKETS
================================================================================
