<PAGE> 1
This filing is made pursuant
to Rule 424(b)(2) under
the Securities Act of
1933 in connection with
Registration No. 33-69746
Pricing Supplement No. 12 dated March 26, 1998
(To Prospectus dated March 4, 1994 and
Prospectus Supplement dated March 4, 1994)
ALLERGAN, INC.
Medium-Term Notes
Due Nine Months or More from Date of Issue
<TABLE>
<S> <C>
TRADE DATE: March 26, 1998 INTEREST RATE: Prior to April 3, 2003, 6.22%.
ORIGINAL ISSUE DATE: March 31, 1998 On and after April 3, 2003, as described on the
Attachment, under "General".
PRINCIPAL AMOUNT: $30,000,000
ISSUE PRICE: 100.00% FORM: |X| Book-Entry |_| Certificated
AGENT'S COMMISSION: 0.50%
NET PROCEEDS TO ISSUER: 102.11(1) INTEREST PAYMENT DATES: April 3 and October 3 of
MATURITY DATE: April 3, 2013, subject to each year, commencing October 3, 1998
mandatory tender to the Remarketing Dealer or
mandatory repurchase by the Company, in each CUSIP NO.: 01849QAL9
case on April 3, 2003, and in each case as
described in the Additional Terms Attachment to
this Pricing Supplement (the "Attachment")
</TABLE>
- ------------------
(1) Includes the consideration for the Drs. and a payment of 2.61% of the
principal amount of the Drs. by the Remarketing Dealer to the Issuer in
connection with the Remarketing Dealer's option to require the mandatory
tender of the Drs. on the Remarketing Date at 100% of the principal amount
thereof. See "Underwriting" in the Attachment.
MANDATORY TENDER/REPURCHASE:
If J.P. Morgan Securities Inc., as Remarketing Dealer (the "Remarketing
Dealer"), has elected to remarket the Drs. as described in the Attachment,
the Drs. will be subject to mandatory tender to the Remarketing Dealer at
100% of the principal amount thereof for remarketing on the Remarketing
Date. See "Description of the Drs. -- Mandatory Tender of Drs.; Remarketing"
in the Attachment. If the Remarketing Dealer elects not to remarket the
Drs., or for any reason does not purchase all of the outstanding Drs. on the
Remarketing Date, holders will be required to tender, and the Company will
be required to purchase, on the Remarketing Date any outstanding Drs. that
have not been purchased by the Remarketing Dealer at 100% of the principal
amount thereof plus accrued interest, if any. See "Description of the Drs.
-- Repurchase" in the Attachment.
REDEMPTION:
The Drs. will be redeemable on the Remarketing Date on the terms described
in "Description of the Drs.--Redemption" in the Attachment
ORIGINAL ISSUE DISCOUNT NOTE: |_| Yes |X| No
<PAGE> 2
AGENT: J.P. Morgan Securities Inc.
AGENT ACTING IN THE CAPACITY AS INDICATED BELOW:
|_| Agent |X| Principal
IF AS PRINCIPAL:
|X| The Notes are being offered at varying prices related to prevailing
market prices at the time of resale.
|_| The Notes are being offered at a fixed initial public offering price
of % of principal amount. See "Underwriting" on the Attachment.
OTHER PROVISIONS: See the Attachment
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DRS. SUCH TRANSACTIONS MAY
INCLUDE THE PURCHASE OF DRS. TO COVER SYNDICATE SHORT POSITIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING" IN THIS PRICING SUPPLEMENT AND "PLAN OF DISTRIBUTION" IN THE
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
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<PAGE> 3
ADDITIONAL TERMS ATTACHMENT
This Additional Terms Attachment constitutes a part of the Pricing
Supplement, dated March 26, 1998, of Allergan, Inc. (the "Company") and contains
a description of additional terms and provisions applicable to the Dealer
remarketable securities(sm) ("Drs.(sm)") due April 3, 2013 of the Company, which
represent a series of Medium-Term Notes Due Nine Months or More from Date of
Issue of the Company. The Drs. are Fixed Rate Notes as described in the
Prospectus Supplement, subject to such further terms as are described below. The
following description of the terms of the Drs. supplements and, to the extent
inconsistent therewith, replaces, the description of the general terms of the
Securities set forth in the Prospectus Supplement and the accompanying
Prospectus, to which description reference is made. Capitalized terms used but
not defined herein shall have the meanings given such terms in such Prospectus
and Prospectus Supplement.
SUPPLEMENTAL DESCRIPTION OF THE DRS.
GENERAL
The Drs., which are a series of Notes as described in the Prospectus Supplement,
are to be issued as a series of debt securities under the Indenture, dated as of
March 1, 1994, as supplemented (the "Indenture"), between the Company and First
Trust of New York, National Association (formerly BankAmerica National Trust
Company), as trustee (the "Trustee"), which is more fully described in the
accompanying Prospectus Supplement and Prospectus.
The Drs. will be limited to $30,000,000 aggregate principal amount.
The Drs. will bear interest at an annual rate of 6.22% to April 3, 2003 (the
"Remarketing Date"). If the Remarketing Dealer elects to remarket the Drs., then
after the Remarketing Date, the interest rate on the Drs. will be reset at a
fixed rate until April 3, 2013 (the "Stated Maturity Date"), as determined by
the Remarketing Dealer based on bids requested from dealers in the Company's
publicly-traded debt securities. See "--Mandatory Tender of Drs.; Remarketing."
The Drs. will bear interest from March 31, 1998, payable semi-annually on April
3 and October 3 of each year (each, an "Interest Payment Date"), commencing
October 3, 1998 to the persons in whose name the Drs. are registered on the
fifteenth calendar day (whether or not a Business Day) immediately preceding the
related Interest Payment Date (each, a "Record Date"). "Business Day" means any
day other than a Saturday, a Sunday or a day on which banking institutions in
The City of New York are authorized or obligated by law, executive order or
governmental decree to be closed.
The Drs. will mature on the Stated Maturity Date. If the Remarketing Dealer
elects to remarket the Drs., then the Drs. will be subject to mandatory tender
to the Remarketing Dealer, for
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<PAGE> 4
purchase at 100% of the principal amount thereof on the Remarketing Date on the
terms and subject to the conditions described herein. See "--Mandatory Tender of
Drs.; Remarketing", below. If the Remarketing Dealer does not elect to exercise
its right to a mandatory tender of the Drs., or for any reason does not purchase
all of the Drs. on the Remarketing Date, then holders are required to tender,
and the Company is required to repurchase, any Drs. that have not been purchased
by the Remarketing Date from the holders thereof at 100% of the principal amount
thereof plus accrued interest, if any. See "--Repurchase" below. The Drs. will
be redeemable on the terms described under "--Redemption".
The Drs. will be issued in the form of one or more registered global securities
and will be deposited with, or on behalf of, DTC and registered in the name of
DTC or its nominee. See "--Book-Entry System".
Although the United States federal income tax treatment of the Drs. is not
certain, the terms of the Drs. provide that the Company and all holders of the
Drs. agree to treat the Drs. as fixed rate debt instruments that mature on the
Remarketing Date for United States federal income tax purposes. See "Certain
United States Federal Income Tax Considerations".
MANDATORY TENDER OF DRS.; REMARKETING
The following description sets forth the terms and conditions of the remarketing
of the Drs., if the Remarketing Dealer elects to purchase the Drs. on the
Remarketing Date for remarketing.
Mandatory Tender
If the Remarketing Dealer gives notice to the Company and the Trustee on a
Business Day not later than five Business Days prior to the Remarketing Date
(the "Notification Date") of its intention to purchase all of the Drs. for
remarketing, all outstanding Drs. will be automatically tendered to the
Remarketing Dealer for purchase on the Remarketing Date, except in the
circumstances described under "--Repurchase" or "--Redemption" below. The
purchase price of the Drs. will be equal to 100% of the principal amount
thereof. When the Drs. are tendered for remarketing, the Remarketing Dealer may
remarket the Drs. for its own account at varying prices to be determined by the
Remarketing Dealer at the time of each sale or may sell such Drs. to the
Reference Corporate Dealer (defined below) submitting the lowest firm, committed
bid on the Determination Date, as described below.
If the Remarketing Dealer elects to remarket the Drs., then from and including
the Remarketing Date to but excluding the Stated Maturity Date, the Drs. will
bear interest at the Interest Rate to Maturity (defined below). The obligation
of the Remarketing Dealer to purchase the Drs. on the Remarketing Date is
subject to several conditions set forth in a Remarketing Agreement between the
Company and the Remarketing Dealer (the "Remarketing Agreement"). In addition,
the Remarketing Dealer may terminate the Remarketing Agreement upon the
occurrence of certain events set forth therein. See "--The Remarketing Dealer".
If for any reason the Remarketing Dealer does not purchase all outstanding Drs.
on the Remarketing Date, the Company will be required on the Remarketing Date to
repurchase any Drs. that have not been purchased by the
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<PAGE> 5
Remarketing Dealer from the holders thereof at a price equal to the principal
amount thereof plus all accrued interest, if any. See "--Repurchase" below.
The Remarketing Dealer shall determine the interest rate the Drs. will bear from
the Remarketing Date to the Stated Maturity Date (the "Interest Rate to
Maturity") on the third Business Day immediately preceding the Remarketing Date
(the "Determination Date") by soliciting by 3:30 p.m., New York City time, the
Reference Corporate Dealers (defined below) for firm, committed bids to purchase
all outstanding Drs. at the Dollar Price (defined below), and by selecting the
lowest such firm, committed bid (regardless of whether each of the Reference
Corporate Dealers actually submits a bid). Each bid shall be expressed in terms
of the Interest Rate to Maturity that the Drs. would bear (quoted as a spread
over 5.655% per annum (the "Base Rate")) based on the following assumptions:
(i) the Drs. would be issued on the Remarketing Date for
settlement on the same day;
(ii) the Drs. would mature on the Stated Maturity Date; and
(iii) the Drs. would bear interest from the Remarketing Date at
the Interest Rate to Maturity bid by such Reference Corporate Dealer,
payable semiannually on the Interest Payment Dates for the Drs.
The Interest Rate to Maturity announced by the Remarketing Dealer as a result of
such process will be quoted to the nearest one hundred-thousandth (0.00001) of
one percent per annum and, absent manifest error, will be binding and conclusive
upon the holders of the Drs., the Company and the Trustee. The Remarketing
Dealer shall have the discretion to select the time at which the Interest Rate
to maturity is determined on the Determination Date.
"Dollar Price" means the discounted present value to the Remarketing Date of the
cash flows on a bond (x) with a principal amount equal to the aggregate
principal amount of the Drs., (y) maturing on the Stated Maturity Date and (z)
bearing interest from the Remarketing Date, payable semi-annually (assuming a
360-day year consisting of twelve 30-day months) on the interest payment dates
of the Drs. at a rate equal to the Base Rate, using a discount rate equal to the
Treasury Rate (defined below).
"Reference Corporate Dealer" means J.P. Morgan Securities Inc. and four other
leading dealers of publicly-traded debt securities of the Company to be chosen
by the Remarketing Dealer.
"Treasury Rate" means the annual rate equal to the semi-annual equivalent yield
to maturity or interpolated (on a 30/360 day count basis) yield to maturity on
the Determination Date of the Comparable Treasury Issue (defined below) for
value on the Remarketing Date, assuming a price
5
<PAGE> 6
for the Comparable Treasury Issues (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price (defined below).
"Comparable Treasury Issue" means the United States Treasury security selected
by the Remarketing Dealer as having an actual maturity on the Determination Date
(or the United States Treasury securities selected by the Remarketing Dealer to
derive an interpolated maturity on such Determination Date) comparable to the
remaining term of the Drs.
"Comparable Treasury Price" means (a) the offer price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) on the
Determination Date, as set forth on Telerate Page 500 (defined below), adjusted
to reflect settlement on the Remarketing Date if prices quoted on Telerate Page
500 are for settlement on any date other than the Remarketing Date, or (b) if
such page (or any successor page) is not displayed or does not contain such
offer prices on such Business Day, (i) if the Remarketing Dealer obtains four or
five Reference Treasury Dealer Quotations, the average of such Reference
Treasury Dealer Quotations for such Remarketing Date, after excluding the
highest and lowest of such Reference Treasury Dealer Quotations (unless there is
more than one highest or lowest quotation, in which case only one such highest
and/or lowest quotation shall be excluded), or (ii) if the Remarketing Dealer
obtains fewer than four such Reference Treasury Dealer Quotations, the average
of all such Reference Treasury Dealer Quotations. The Remarketing Dealer shall
have the discretion to select the time at which the Comparable Treasury Price is
determined on the Determination Date.
"Telerate Page 500" means the display designated as "Telerate Page 500" on Dow
Jones Markets Limited (or such other page as may replace Telerate Page 500 on
such service) or such other service displaying the offer price specified in
clause (a) of the definition of Comparable Treasury Price as may replace Dow
Jones Markets Limited.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer, the offer price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) for settlement on the Remarketing Date
quoted in writing to the Remarketing Dealer by such Reference Treasury Dealer by
3:30 p.m., New York City time, on the Determination Date.
"Reference Treasury Dealer" means a primary U.S. Government securities dealer in
The City of New York (which may include the Remarketing Dealer) selected by the
Remarketing Dealer.
Notification of Results; Settlement
If the Remarketing Dealer has elected to remarket the Drs. as provided herein,
then the Remarketing Dealer will notify the Company, the Trustee and DTC by
telephone, confirmed in writing, by 5:00 p.m., New York City time, on the
Determination Date, of the Interest Rate to Maturity.
All of the Drs. will be automatically delivered to the account of the Trustee by
book-entry through DTC, pending payment of the purchase price therefor, on the
Remarketing Date.
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<PAGE> 7
The Remarketing Dealer will make, or cause the Trustee to make, payment to DTC
by the close of business on the Remarketing Date against delivery through DTC of
the Drs., of the purchase price for all of the Drs. tendered. The purchase price
of the Drs. will be equal to 100% of the principal amount thereof. If the
Remarketing Dealer does not purchase all of the Drs. on the Remarketing Date,
then the Company is obliged to make or cause to be made such payment for all of
the Drs. not purchased by the Remarketing Dealer, as described below under
"--Repurchase." In any case, the Company will make, or cause the Trustee to
make, payment of interest due on the Remarketing Date to holders of Drs. by book
entry through DTC by the close of business on the Remarketing Date.
The tender and settlement procedures described above may be modified without the
consent of the holders of the Drs. to the extent required by DTC or, if the
book-entry system is no longer available for the Drs. at the time of the
remarketing, to the extent required to facilitate the tendering and remarketing
of Drs. in certificated form. In addition, the Remarketing Dealer may modify
without the consent of the holders of the Drs. the settlement procedures set
forth above in order to facilitate the settlement process.
As long as DTC's nominee holds the certificates representing any Drs. in the
book entry system of DTC, no certificates for such Drs. will be delivered by any
selling beneficial owner to reflect any transfer of such Drs. effected in the
remarketing. In addition, under the terms of the Drs. and the Remarketing
Agreement (as defined below), the Company has agreed that (i) it will use its
best efforts to maintain the Drs. in book-entry form with DTC or any successor
thereto and to appoint a successor depository to the extent necessary to
maintain the Drs. in book-entry form and (ii) it will waive any discretionary
right it otherwise has under the Indenture to cause the Drs.
to be issued in certificated form.
For further information with respect to transfers and settlement through DTC,
see "--Book-Entry System" below, and "Description of Notes--Book-Entry Notes" in
the accompanying Prospectus Supplement and "Description of the Debt
Securities--Global Securities" in the accompanying Prospectus.
The Remarketing Dealer
On or prior to the date of issuance of the Drs., the Company and the Remarketing
Dealer will enter into the Remarketing Agreement which will provide for the Drs.
to be remarketed substantially on the terms described below and in "--Mandatory
Tender of Drs.; Remarketing." The Remarketing Dealer will not receive any fees
or reimbursement of expenses from the Company in connection with the
remarketing, except that it will receive reimbursement of reasonable
out-of-pocket expenses under certain circumstances.
The Company will agree to indemnify the Remarketing Dealer against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), arising out of or in connection with its duties under
the Remarketing Agreement.
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<PAGE> 8
If the Remarketing Dealer elects to remarket the Drs. as described herein, the
obligation of the Remarketing Dealer to purchase Drs. from holders thereof will
be subject to several conditions set forth in the Remarketing Agreement. In
addition, the Remarketing Agreement will provide for its termination by the
Remarketing Dealer on or before the Remarketing Date, upon the occurrence of
certain events that would customarily give underwriters the right to terminate
an underwriting agreement or would give rise to a failure to satisfy a closing
condition to an underwriting agreement in the Company's public debt offerings.
The Remarketing Agreement will also provide that the Remarketing Dealer may
resign as Remarketing Dealer at any time prior to the Notification Date, such
resignation to be effective ten Business Days after the delivery to the Company
and the Trustee of notice of such resignation. In such case, the Company shall
have the right, but not the obligation, to appoint a successor Remarketing
Dealer.
As a result of these conditions and termination rights and the Remarketing
Dealer's right to resign, holders of Drs. cannot be assured that their Drs. will
be purchased by the Remarketing Dealer in connection with a mandatory tender. No
holder of any Drs. shall have any rights or claims under the Remarketing
Agreement or against the Company or the Remarketing Dealer as a result of the
Remarketing Dealer not purchasing such Drs. If the Remarketing Dealer does not
purchase all of the Drs. on the Remarketing Date, the Company will be required
to purchase on the Remarketing Date any Drs. that have not been purchased by the
Remarketing Dealer at a price equal to 100% of the principal amount thereof plus
accrued interest, if any. See "Description of the Drs. -- Repurchase."
The Remarketing Dealer, in its individual or any other capacity, may buy, sell,
hold and deal in any of the Drs. The Remarketing Dealer may exercise any vote or
join in any action which any holder of Drs. may be entitled to exercise or take
with like effect as if it did not act in any capacity under the Remarketing
Agreement. The Remarketing Dealer, in its individual capacity, either as
principal or agent, may also engage in or have an interest in any financial or
other transaction with the Company as freely as if it did not act in any
capacity under the Remarketing Agreement.
REPURCHASE
If the Remarketing Dealer for any reason does not purchase all of the Drs. on
the Remarketing Date, the holders shall be required to tender and the Company
shall repurchase on the Remarketing Date any Drs. that have not been purchased
by the Remarketing Dealer, at a price equal to 100% of the principal amount of
the Drs. plus all accrued and unpaid interest, if any, on such Drs. to (but
excluding) the Remarketing Date.
REDEMPTION
If the Remarketing Dealer has elected to remarket the Drs. on the Remarketing
Date, the Company shall have the right to redeem the Drs., in whole but not in
part, from the Remarketing Dealer on the Remarketing Date at a redemption price
equal to the greater of (i) 100% of the
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<PAGE> 9
aggregate principal amount of the Drs. and (ii) the Dollar Price, by giving
notice of such redemption to the Remarketing Dealer
(x) no later than the Business Day immediately prior to the
Determination Date or
(y) if fewer than three Reference Corporate Dealers timely submit firm,
committed bids for all outstanding Drs. to the Remarketing Dealer on the
Determination Date, immediately after the deadline set by the Remarketing Dealer
for receiving such bids has passed.
In either such case, it shall pay such redemption price for the Drs. in same-day
funds by wire transfer on the Remarketing Date to an account designated by the
Remarketing Dealer.
The Drs. are not otherwise subject to redemption.
BOOK-ENTRY SYSTEM
The Drs. will be issued in the form of one or more fully registered global
securities that will be deposited with, or on behalf of, DTC and registered in
the name of DTC's nominee.
DTC is a limited-purpose trust company organized under the New York Banking Law,
a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). 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. DTC Participants include securities brokers
and dealers, banks, trust companies, clearing corporations, and certain other
organizations ("Direct Participants"). 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 the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Securities and Exchange Commission (the "Commission").
Payments of principal of, premium, if any, and interest on the Drs. will be made
to Cede & Co., as nominee of DTC. DTC's practice is to credit Direct
Participants' accounts on the related payment date in accordance with their
respective holdings shown on DTC's records. Payments by Participants to
beneficial owners of the Drs. will be governed by standing instructions and
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<PAGE> 10
customary practices, as is 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 Participant and not of DTC, the Trustee or any Paying
Agent under the Indenture, 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 Cede & Co. is the responsibility of the Company or the
Trustee or any Paying Agent; disbursement of such payments to Direct
Participants shall be the responsibility of DTC; and disbursement of such
payments to the beneficial owners of the Drs. shall be the responsibility of
Direct and Indirect Participants.
DTC may decide to discontinue providing its services as securities depository
with respect to the Drs. at any time by giving notice to the Company or the
Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, Drs. certificates are required to be printed and
delivered.
Neither the Company, the Trustee, any Paying Agent nor any Registrar for the
Drs. will have any responsibility or liability for any aspect of the records
maintained by DTC relating to, or payments made on account of beneficial
ownership interests in, Drs. represented in global form, or for maintaining,
supervising or receiving any records relating to such beneficial ownership
interests maintained by DTC.
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<PAGE> 11
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following is a general discussion of the principal U.S. federal income tax
consequences of the purchase, ownership and disposition of the Drs. to initial
holders purchasing Drs. at the "issue price." The "issue price" of a Drs. will
equal the first price to the public (not including bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers) at which a substantial amount of the Drs. is
sold for money. This summary is based upon laws, regulations, rulings and
decisions currently in effect, all of which are subject to change, which change
may be retroactive. Moreover, it deals only with purchasers who hold Drs. as
"capital assets" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"), and does not purport to deal with persons in
special tax situations, such as financial institutions, insurance companies,
regulated investment companies, dealers in securities or currencies, persons
holding Drs. as a hedge against currency risk or as a position in a "straddle,"
"conversion" or another integrated transaction for tax purposes, or U.S. Holders
(as defined below) whose functional currency is not the U.S. dollar. In
addition, this discussion only addresses the U.S. federal income tax
consequences of the Drs.
until the Remarketing Date.
As used herein, the term "U.S. Holder" means a beneficial owner of Drs. that is,
for U.S. federal income tax purposes, (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or of any political subdivision thereof
(other than a partnership that is not treated as a U.S. person under any
applicable Treasury regulations and certain partnerships that have one or more
partners who are not U.S. persons), or (iii) an estate or trust whose income is
subject to U.S. federal income tax regardless of its source. As used herein, the
term "non-U.S. Holder" means a beneficial owner of a Drs. that is, for U.S.
federal income tax purposes, (i) a nonresident alien individual, (ii) a foreign
corporation, (iii) a nonresident alien fiduciary of a foreign estate or trust or
(iv) a foreign partnership one or more of the members of which is, for U.S.
federal income tax purposes, a nonresident alien individual, a foreign
corporation or a nonresident alien fiduciary of a foreign estate or trust.
Because the Drs. are subject to mandatory tender for purchase by the Remarketing
Dealer or repurchase by the Company if not purchased by the Remarketing Dealer
on the Remarketing Date, the Company intends to treat the Drs. as maturing on
the Remarketing Date for U.S. federal income tax purposes and as being reissued
on the Remarketing Date should the Remarketing Dealer remarket the Drs. By
purchasing the Drs., a holder agrees to follow such treatment for U.S. federal
income tax purposes. Because no debt instrument closely comparable to the Drs.
has been the subject of any Treasury regulation, revenue ruling or judicial
decision, the U.S. federal income tax treatment of the Drs. is not certain. NO
RULINGS HAVE BEEN OR ARE
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<PAGE> 12
EXPECTED TO BE SOUGHT FROM THE INTERNAL REVENUE SERVICE ("IRS") WITH RESPECT TO
ANY OF THE ISSUES DISCUSS HEREIN, AND NO ASSURANCE CAN BE GIVEN THAT THE IRS
WILL NOT TAKE A CONTRARY POSITION. ACCORDINGLY, SIGNIFICANT ASPECTS OF THE U.S.
FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE DRS. ARE UNCERTAIN, AND
NO ASSURANCE CAN BE GIVEN THAT THE IRS OR THE COURTS WILL AGREE THAT THE DRS.
SHOULD BE TREATED AS MATURING ON THE REMARKETING DATE. FURTHERMORE, NO ADVICE
HAS BEEN RECEIVED OR IS EXPECTED TO BE SOUGHT FROM ANY STATE, LOCAL OR FOREIGN
TAXING AUTHORITY AS TO THE INCOME, FRANCHISE, PERSONAL PROPERTY OR OTHER
TAXATION OF THE DRS. PROSPECTIVE PURCHASERS ARE STRONGLY URGED TO CONSULT THEIR
TAX ADVISERS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT
IN THE DRS. (INCLUDING ALTERNATIVE CHARACTERIZATIONS OF THE DRS.). EXCEPT WHERE
INDICATED TO THE CONTRARY, THE FOLLOWING DISCUSSION ASSUMES THAT THE COMPANY'S
TREATMENT OF THE DRS. WILL BE RESPECTED FOR U.S. FEDERAL INCOME TAX PURPOSES.
PROSPECTIVE PURCHASERS SHOULD ALSO CONSULT THEIR TAX ADVISERS WITH RESPECT TO
ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION.
TAX TREATMENT OF THE DRS.
Assuming the characterization of the Drs. set forth above, the following tax
consequences would result with respect to U.S. Holders.
Interest Income
Interest on the Drs. would be taxable as ordinary income for U.S. federal income
tax purposes when received or accrued by a U.S. Holder in accordance with its
method of accounting. The Company does not anticipate that the initial issuance
of the Drs. would result in original issue discount ("OID"), generally defined
as the excess of the stated redemption price at the maturity of the Drs. over
its issue price. However, if a Drs. is issued with OID and such OID is greater
than the statutory de minimis amount (generally, 1/4 of one percent of the Drs.'
stated redemption price at the Remarketing Date multiplied by the number of
complete years to the Remarketing Date from the issue date), the holder of such
debt instrument issued with OID generally will be required to recognize as
ordinary income the amount of OID on the debt instrument as such discount
accrues, in accordance with a constant yield method.
Gain or Loss on Sale or Redemption
When a Drs. is sold or redeemed, the U.S. Holder would recognize gain or loss
equal to the difference between the amount realized on the sale or redemption
(excluding any amount attributable to accrued interest not previously included
in income) and the adjusted basis in its Drs. The adjusted basis of the Drs.
generally would equal the U.S. Holder's cost, increased by any OID previously
includable in the U.S. Holder's income with respect to the Drs., and reduced
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by the principal payments previously received with respect to the Drs. Gain or
loss on sale or redemption of a Drs. would generally be capital gain or loss.
Capital gains of individuals derived with respect to capital assets held for
more than one year are eligible for reduced rates of taxation depending upon the
holding period of such capital assets. The deductibility of capital losses is
subject to certain limitations.
ALTERNATIVE U.S. FEDERAL INCOME TAX TREATMENT
There can be no assurance that the IRS will agree with, or that a court will
uphold, the Company's treatment of the Drs. as maturing on the Remarketing Date
and as thereafter being reissued should the Drs. be remarketed, and it is
possible that the IRS could assert another characterization. In particular, the
IRS could seek to treat the Drs. as maturing on the Stated Maturity Date and
possibly also to treat the issue price of the Drs. as including the value of the
mandatory tender right. Because of the possible remarketing and reset, if the
Drs. were treated as maturing on the Stated Maturity Date, Treasury regulations
relating to contingent payment debt obligations (the "Contingent Payment Debt
Regulations") would apply. In such case, the timing and character of income on
the Drs. would be significantly affected. Among other things, U.S. Holders,
regardless of their usual method of tax accounting, would be required to accrue
income annually as OID, subject to the adjustments described below, at a
"comparable yield" on the adjusted issue price, which could be higher than the
actual cash payments received on the Drs. in a taxable year. In addition, the
Contingent Payment Debt Regulations require that a projected payment schedule be
determined, and that adjustments to income accruals be made to account for
differences between actual payments and projected payments. Furthermore, any
gain realized with respect to the Drs. would generally be treated as ordinary
income, and any loss realized would generally be treated as ordinary loss to the
extent of the U.S. Holder's ordinary income inclusions with respect to the Drs.
Any remaining loss generally would be treated as capital loss. In particular,
upon the sale of a Drs. (other than through the mandatory tender), the IRS could
take the position that the gain or loss with respect to the mandatory tender
right and the gain or loss with respect to the debt obligation must be
separately determined, in which case any deemed loss with respect to the
mandatory tender right would be treated as capital loss, and a corresponding
amount of additional ordinary income would need to be recognized by the U.S.
Holder with respect to the sale. The ability to use capital losses to offset
ordinary income in determining taxable income is generally limited.
Prospective purchasers are strongly urged to consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the Drs.
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TREATMENT OF NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to U.S. federal income or withholding tax
on payments of principal, premium (if any) or interest (including original issue
discount and accruals under the Contingent Payment Debt Regulations, if any) on
a Drs., unless such non-U.S. Holder owns actually or constructively 10% or more
of the total combined voting power of the Company, is a controlled foreign
corporation related to the Company through stock ownership or is a bank
receiving interest described in section 881(c)(3)(A) of the Code. Sections
871(h) and 881(c) of the Code, and applicable Treasury regulations, require
that, in order to obtain the exemption from withholding tax described above,
either the beneficial owner of the Drs., or a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution") and that is
holding the Drs. on behalf of such beneficial owner, file a statement with the
withholding agent to the effect that the beneficial owner of the Drs. is not a
U.S. person. In general, such requirement will be fulfilled if the beneficial
owner of a Drs. certifies on IRS Form W-8, under penalties of perjury, that it
is not a U.S. person and provides its name and address, and any Financial
Institution holding the Drs. on behalf of the beneficial owner files a statement
with the withholding agent to the effect that it has received such statement
from the Holder (and furnishes the withholding agent with a copy thereof).
Generally, a non-U.S. Holder will not be subject to U.S. federal income tax on
any amount which constitutes gain upon retirement or disposition of a Drs.,
provided the gain is not effectively connected with the conduct of a trade or
business in the United States by the non-U.S. Holder. Certain other exceptions
may be applicable, and a non-U.S. Holder should consult its tax adviser in this
regard.
If a non-U.S. Holder of a Drs. is engaged in a trade or business in the United
States, and if interest (including OID, if any) or gain on the Drs. is
effectively connected with the conduct of such trade or business, the non-U.S.
Holder, although exempt from the withholding tax discussed above, will generally
be subject to regular U.S. income tax on interest and on any gain realized on
the sale, exchange or other disposition of a Drs. in the same manner as if it
were a U.S. Holder. In lieu of the statement described above, such Holder will
be required to provide to the Company a properly executed Form 4224 (or
successor form) in order to claim an exemption from withholding tax. In
addition, if such non-U.S. Holder is a foreign corporation, it may be subject to
a branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments. For purposes of the branch profits tax, interest
on and any gain recognized on the sale, exchange or other disposition of a Drs.
will be included in the effectively connected earnings and profits of such
non-U.S. Holder if such interest or gain, as the case may be, is effectively
connected with the conduct by the non-U.S. Holder of a trade or business in the
United States.
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The Drs. will not be includable in the estate of a non-U.S. Holder unless the
individual is a direct or indirect 10% or greater shareholder of the Company or,
at the time of such individual's death, payments in respect of the Drs. would
have been effectively connected with the conduct by such individual of a trade
or business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A holder may be subject to backup withholding at the rate of 31% of the interest
and other "reportable payments" (including, under certain circumstances,
principal payments and sales proceeds) paid with respect to the Drs. if, in
general, the holder fails to comply with certain certification procedures and is
not an exempt recipient under applicable provisions of the Code.
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make modifications to the withholding, backup withholding
and information reporting rules described above. The New Regulations will
generally be effective for payments made after December 31, 1998, subject to
certain transition rules. Prospective investors are urged to consult their own
tax advisers regarding the New Regulations.
SUMMARY
This discussion is intended to be a general summary. Due to the complexity of
the rules described above, the current uncertainty as to the manner of their
application to holders and possible changes in law, it is particularly important
that each holder consult with its own tax adviser regarding the tax treatment of
its acquisition, ownership and disposition of its Drs. under the laws of the
United States and those of any state, local or foreign taxing jurisdiction.
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UNDERWRITING
Under the terms and subject to the conditions contained in a Terms Agreement
(such agreement, including the Distribution Agreement to which it corresponds,
the "Terms Agreement") relating to the Drs. offered hereby, the Company has
agreed to sell all of the Drs. offered hereby to J.P. Morgan Securities Inc.
("JPMSI"). Under the terms and conditions of the Terms Agreement, JPMSI is
committed to purchase all of the Drs. offered hereby if any are purchased.
JPMSI initially proposes to offer the Drs. in part directly to the public at
varying prices based on prevailing market rates at the time of resale. JPMSI
will purchase the Drs. at 99.5% of the principal amount thereof. In addition, in
consideration for the right to require the mandatory tender of all outstanding
Drs. as described above, it will pay to the Company, on the same date it pays
the purchase price for the Drs., an amount equal to 2.61% of the principal
amount of the Drs. Consequently, the net proceeds to the Company will be
$30,633,000, or 102.11% of the principal amount of the Drs.
In connection with the offering, JPMSI may engage in transactions that maintain
or otherwise affect the price of the Drs. Specifically, JPMSI may overallot in
connection with the offering, creating a syndicate short position. In addition,
JPMSI may bid for, and purchase, shares of Drs. in the open market to cover
syndicate short positions. Finally, the underwriting syndicate may reclaim
selling concessions allowed for distributing the Drs. in the offering if the
syndicate repurchases previously distributed Drs. in syndicate covering
transactions or otherwise. Any of these activities may maintain the market price
of the Drs. above independent market levels. JPMSI is not required to engage in
these activities, and may end any of these activities at any time.
The Company has agreed to indemnify JPMSI against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments JPSMI may be
required to make in respect thereof. See also "Plan of Distribution" in the
accompanying Prospectus Supplement.
From time to time in the ordinary course of their respective businesses, JPMSI
and certain of its affiliates have engaged in and may in the future engage in
commercial and/or investment banking transactions with the Company and its
affiliates.
The Drs. are a new issue of securities with no established trading market. The
Company has been advised by JPMSI that JPSMI intends to make a market in the
Drs. but is not obligated to do so and may discontinue market making at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the Drs.
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LEGAL MATTERS
The legality of the Drs. and certain other matters will be passed upon by
Francis R. Tunney, Jr., General Counsel of the Company, and the legality of the
Drs. will be passed upon by Davis Polk & Wardwell, New York, New York, on behalf
of JPSMI.
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