<PAGE>
PURSUANT TO RULE 424B2
FILE REGISTRATION 333-45537
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 9, 1998)
$600,000,000
SOUTHERN CALIFORNIA GAS COMPANY
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
------------------
Southern California Gas Company (the "Company") may offer from time to time
up to $600,000,000 aggregate initial public offering price of its Medium-Term
Notes (the "Notes"). Such aggregate initial public offering price is subject to
reduction as a result of the sale by the Company of other Debt Securities
described in the accompanying Prospectus. The Notes will have maturities of nine
months or more from the date of issue, as selected by the purchaser and agreed
to by the Company, and may be subject to redemption by the Company and to
repayment at the option of the Holder, in whole or in part, prior to Stated
Maturity, as set forth on the face thereof and specified in a Pricing Supplement
hereto (each, a "Pricing Supplement").
The Notes will bear interest at fixed or variable rates ("Fixed Rate Notes"
and "Floating Rate Notes", respectively). The interest rate on each Note will be
established by the Company at the time of issuance of such Note. Interest rates,
the method of determining interest rates and the interest rate formulas on which
the interest rates may be based are subject to change by the Company, but no
such change will affect any Notes already issued or as to which an offer to
purchase has been accepted by the Company. Each Note will be issued in fully
registered book-entry form (a "Book-Entry Note") or definitive form (a
"Definitive Note"), as set forth in the applicable Pricing Supplement, in
denominations of $1,000 and integral multiples thereof, unless otherwise
specified in the applicable Pricing Supplement. Each Book-Entry Note will be
represented by one or more global Notes deposited with or on behalf of The
Depository Trust Company (or such other depositary as is identified in an
applicable Pricing Supplement)(the "Depositary") and registered in the name of
the Depositary's nominee. Interests in Book-Entry Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary (with respect to its participants) and the Depositary's participants
(with respect to beneficial owners). See "Description of the Notes--Book-Entry
Notes."
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note will accrue from its date of issue and will be payable
semiannually on each March 1 and September 1 and at Stated Maturity and, if
applicable, upon redemption or optional repayment.
The interest rate on Floating Rate Notes may be determined by reference to
the "CD Rate," the "CMT Rate," the "Commercial Paper Rate," the "Eleventh
District Cost of Funds Rate," the "Federal Funds Rate," the "J.J. Kenny Rate,"
"LIBOR," the "Prime Rate" or the "Treasury Rate," the lower of two or more of
the foregoing base rates, or any other interest rate formula and may be adjusted
by a "Spread" and/or "Spread Multiplier" applicable to such Notes. See
"Description of the Notes" herein and "Description of the Debt Securities" in
the accompanying Prospectus. Interest on each Floating Rate Note will accrue
from its date of issue and will be payable monthly, quarterly, semiannually or
annually as set forth in the applicable Pricing Supplement, and at Stated
Maturity and, if applicable, upon redemption or optional repayment.
Notes may also be issued at original issue discount and such Notes may or
may not bear interest.
------------------------------
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, THE
PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO AGENTS' DISCOUNTS AND PROCEEDS
PUBLIC(1) COMMISSIONS(1)(2) TO COMPANY(3)
<S> <C> <C> <C>
Per Note...................... 100% .125%-.750% 99.875%-99.250%
Total......................... $600,000,000 $750,000-$4,500,000 $599,250,000-$595,500,000
</TABLE>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancAmerica Robertson Stephens, Credit Suisse First Boston Corporation and
Lehman Brothers Inc. (the "Agents"), individually or in a syndicate, may
purchase Notes, as principal, from the Company for resale to investors and
other purchasers at varying prices relating to prevailing market prices at
the time of resale as determined by the applicable Agent or, if so specified
in the applicable Pricing Supplement, for resale at a fixed offering price.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price
equal to 100% of the principal amount thereof less a percentage of the
principal amount equal to the commission applicable to an agency sale (as
described below) of a Note of identical maturity. If agreed to by the
Company and an Agent, such Agent may utilize its reasonable efforts on an
agency basis to solicit offers to purchase the Notes at 100% of the
principal amount thereof, unless otherwise specified in the applicable
Pricing Supplement. The Company will pay a commission to an Agent, ranging
from .125% to .750% of the principal amount of a Note, depending upon its
stated maturity, sold through an Agent. Commissions with respect to Notes
with stated maturities in excess of 30 years that are sold through an Agent
will be negotiated between the Company and such Agent at the time of such
sale. See "Plan of Distribution."
(2) The Company has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated to be $320,000.
------------------------------
The Notes are being offered on a continuing basis by the Company to or
through the Agents. Unless otherwise specified in the applicable Pricing
Supplement, the Notes will not be listed on any securities exchange. There is no
assurance that the Notes offered hereby will be sold or, if sold, that there
will be a secondary market for the Notes or liquidity in the secondary market if
one develops. The Company reserves the right to cancel or modify the offer made
hereby without notice. The Company or an Agent, if it solicits the offer on an
agency basis, may reject any offer to purchase Notes in whole or in part. See
"Plan of Distribution."
------------------------------
MERRILL LYNCH & CO.
BANCAMERICA ROBERTSON STEPHENS
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
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------------------------------
The date of this Prospectus Supplement is February 9, 1998.
<PAGE>
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY ONE OR MORE AGENTS AS
PRINCIPAL ON A FIXED OFFERING PRICE BASIS, SUCH AGENT OR AGENTS, AS THE CASE MAY
BE, MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF NOTES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF
NOTES TO COVER SHORT POSITIONS OF SUCH AGENT OR AGENTS, AS THE CASE MAY BE. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE HEREIN AND IN THE
ACCOMPANYING PROSPECTUS CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), AND ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS ARE IDENTIFIED BY THE WORDS
"ESTIMATES," "EXPECTS," "ANTICIPATES," "PLANS," "BELIEVES" AND SIMILAR
EXPRESSIONS. THE ANALYSES EMPLOYED TO DEVELOP THESE FORWARD-LOOKING STATEMENTS
ARE OF NECESSITY BASED UPON VARIOUS ASSUMPTIONS INVOLVING JUDGMENTS WITH RESPECT
TO THE FUTURE INCLUDING, AMONG OTHER FACTORS, NATIONAL, REGIONAL, AND LOCAL
ECONOMIC, COMPETITIVE AND REGULATORY CONDITIONS, LEGISLATIVE DEVELOPMENTS,
TECHNOLOGICAL DEVELOPMENTS, INFLATION RATES, WEATHER CONDITIONS, FINANCIAL
MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND OTHER UNCERTAINTIES, ALL OF
WHICH ARE DIFFICULT TO PREDICT, AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE
COMPANY. ACCORDINGLY, WHILE THE COMPANY BELIEVES THAT THE ASSUMPTIONS UPON WHICH
THE FORWARD-LOOKING STATEMENTS ARE BASED ARE REASONABLE FOR PURPOSES OF MAKING
THESE STATEMENTS, THERE CAN BE NO ASSURANCE THAT THESE ASSUMPTIONS WILL
APPROXIMATE ACTUAL EXPERIENCE, OR THAT THE EXPECTATIONS SET FORTH IN THE
FORWARD-LOOKING STATEMENTS DERIVED FROM THESE ASSUMPTIONS WILL BE REALIZED.
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DESCRIPTION OF THE NOTES
The following summaries of certain provisions of the Indenture (as defined
below) and the Notes do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the Indenture and
the Notes (forms of which have been filed as exhibits to the Registration
Statement of which this Prospectus Supplement is a part and are available as
described in the accompanying Prospectus), including, in each case, the
definition therein of certain terms. The following summaries supplement and, to
the extent inconsistent therewith, replace the summary set forth in the
accompanying Prospectus under the caption "Description of the Debt Securities."
Whenever particular provisions or defined terms of the Indenture and the Notes
are referred to, such provisions or defined terms are incorporated herein by
such reference. Certain capitalized terms used herein and not defined have the
respective meanings given to such terms in the accompanying Prospectus, the
Indenture or the forms of the Notes, as the case may be.
GENERAL
The Notes are to be issued as part of an existing series of Debt Securities
(as defined in the accompanying Prospectus) designated as Medium-Term Notes,
unlimited as to aggregate principal amount, under an Indenture between the
Company and Citibank, N.A., as trustee (the "Trustee"), dated as of May 1, 1989,
as supplemented by a First Supplemental Indenture dated as of October 1, 1992
(the "Indenture"). As of the date of this Prospectus Supplement, $300,000,000
aggregate principal amount of such Medium-Term Notes were outstanding. The
following description will apply to each Note unless otherwise described in the
applicable Pricing Supplement.
The Notes will be unsecured obligations of the Company and will rank PARI
PASSU in priority of payment with all other unsecured and unsubordinated
indebtedness of the Company. The Notes are not, by their terms, subordinate in
right of payment to any other indebtedness of the Company. However,
substantially all of the Company's properties are subject to liens securing the
Company's First Mortgage Bonds, of which $850,000,000 in aggregate principal
amount were outstanding as of the date of this Prospectus Supplement. The
Company may from time to time issue additional First Mortgage Bonds which also
will be secured by such properties. Accordingly, the Notes will be effectively
subordinated to all existing and future First Mortgage Bonds to the extent of
the collateral pledged to secure such First Mortgage Bonds. The Company is the
principal subsidiary of Pacific Enterprises (the "Parent"). The Notes are not
obligations of the Parent and are not guaranteed by the Parent or any other
entity.
The Indenture does not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provides that the Debt Securities
may be issued in one or more series up to the aggregate principal amount which
may be authorized from time to time by the Company. The Company may, from time
to time, without the consent of the Holders of the Notes, provide for the
issuance of Notes or other Debt Securities under the Indenture in addition to
the $600,000,000 aggregate initial public offering price of Notes authorized as
of the date of this Prospectus Supplement.
The Notes will be offered on a continuing basis and will have maturities no
less than 9 months from the date of issue, as selected by the purchaser and
agreed to by the Company. Each interest-bearing Note will bear interest at
either (i) a fixed rate of interest (the "Fixed Rate Notes") or (ii) a rate
determined by reference to one or more Base Rates, which may be adjusted by a
Spread and/or Spread Multiplier (as defined herein) (the "Floating Rate Notes").
Notes may be issued at significant discounts from their principal amount payable
at maturity ("Original Issue Discount Notes") and such Notes may or may not bear
interest.
As used herein, a "Business Day" means any day that is not a Saturday or
Sunday and that, in New York, New York, is not a day on which banking
institutions are authorized or obligated by law, regulation or executive order
to close (and, with respect to LIBOR Notes and Floating Rate Notes for which
LIBOR is a Base Rate, is also a London Business Day). "London Business Day"
means any day on which dealings in the Designated LIBOR Currency (as hereinafter
defined) are transacted in the London interbank market.
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Each Note will be issued in fully registered form without coupons as a
book-entry Note (a "Book-Entry Note") or as a definitive Note (a "Definitive
Note"), as set forth in the applicable Pricing Supplement, in denominations of
$1,000 and integral multiples thereof, unless otherwise specified in the
applicable Pricing Supplement. Book-Entry Notes may be transferred or exchanged
only through a participating member of The Depository Trust Company (or such
other depositary as is identified in the applicable Pricing Supplement) (the
"Depositary"). See "--Book-Entry Notes." Registration of transfer or exchange of
Definitive Notes may be made at the office or agency maintained by the Company
for that purpose in New York, New York (initially the Corporate Trust Office of
the Trustee). No service charge will be made by the Company or the Trustee for
any such registration of transfer or exchange of Definitive Notes, but the
Company may require payment of a sum sufficient to cover any tax or governmental
charge payable in connection therewith.
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other factors, the aggregate amount of Notes purchased in
any single transaction. Notes with different variable terms other than interest
rates may also be offered concurrently to different investors. Interest rates or
formulas and other terms of Notes are subject to change by the Company from time
to time, but no such change will affect any Note previously issued or as to
which an offer to purchase has been accepted by the Company.
Principal of, and premium, if any, and interest, if any, on, Book-Entry
Notes will be paid by the Company through the Trustee to the Depositary or its
nominee. In the case of Definitive Notes, principal, and premium, if any, and
interest, if any, will be payable at the office or agency maintained by the
Company for that purpose in New York, New York (initially the Corporate Trust
Office of the Trustee) and at such other places as the Company may designate;
provided, however, that payment of interest, other than interest payable at
Stated Maturity of a Note (or on the date of redemption or repayment, if a Note
is redeemed or repaid prior to its Stated Maturity, or on a date fixed for
payment following a declaration of acceleration) (each such date being
hereinafter referred to as a "Maturity" with respect to the principal payable on
such date), may be made at the option of the Company by check mailed to the
address of the person entitled thereto as shown on the security register
maintained by the Trustee. Notwithstanding the foregoing, a Holder of
$10,000,000 or more in aggregate principal amount of Definitive Notes (whether
having identical or different terms and provisions) will be entitled to receive
payments of interest (other than at Maturity) by wire transfer of immediately
available funds to a depository institution in the United States if appropriate
wire transfer instructions have been received by the Trustee on or before the
Regular Record Date (as hereinafter defined) immediately preceding such Interest
Payment Date (as hereinafter defined). In addition, the principal of, and
premium, if any, and interest, if any, on, Definitive Notes due at any Maturity
will be paid against presentation and surrender of such Notes at the office or
agency maintained by the Company for that purpose in the Borough of Manhattan,
The City of New York (with interest, if any, due at Maturity being paid to the
person to whom principal is paid), and will be paid by wire transfer of
immediately available funds to a depository institution in the United States if
the Trustee shall have received appropriate wire transfer instructions not later
than the close of business at least two Business Days prior to the related
Maturity.
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 liquidity of the
secondary market if one develops. See "Plan of Distribution."
REDEMPTION AND REPAYMENT
REDEMPTION AT THE OPTION OF THE COMPANY
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. If so specified, the
Notes will
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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 in principal amount or any other integral multiple of
$1,000 in principal amount (provided that any remaining principal amount thereof
shall be at least $1,000), at the applicable Redemption Price (as hereinafter
defined), together with unpaid interest accrued thereon to the date of
redemption, on written notice given to the Holders thereof not more than 60 nor
less than 30 calendar 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 Initial Redemption Percentage specified in
the applicable Pricing Supplement (as adjusted by the Annual Redemption
Percentage Reduction, if applicable) multiplied by the unpaid principal amount
to be redeemed. 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 applicable Annual Redemption Percentage Reduction, if any, until
the Redemption Price is equal to 100% of the unpaid principal amount to be
redeemed.
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by the Company at the option of the Holders
thereof prior to Stated Maturity only if one or more Optional Repayment Dates
are specified in the applicable Pricing Supplement. If so specified, the Notes
will be subject to repayment at the option of the Holders thereof on any
Optional Repayment Date in whole or from time to time in part in increments of
$1,000 in principal amount or any other integral multiple of $1,000 in principal
amount (provided that any remaining principal amount thereof shall be at least
$1,000), at a repayment price equal to 100% of the principal amount to be
repaid, together with unpaid interest accrued thereon to the date of repayment.
For any Note to be repaid, such Note must be received, together with the form
thereon entitled "Option to Elect Repayment" duly completed, by the Trustee at
its office maintained for such purpose in the Borough of Manhattan, The City of
New York, currently the Corporate Trust Office of the Trustee, not more than 60
nor less than 30 calendar days prior to the date of repayment. Exercise of such
repayment option by the Holder will be irrevocable.
Only the Depositary may exercise the repayment option in respect of Global
Securities (as hereinafter defined) representing Book-Entry Notes. Accordingly,
Beneficial Owners (as hereinafter defined) of Global Securities that desire to
have all or any portion of the Book-Entry Notes represented by such Global
Securities repaid must instruct the Participant (as hereinafter defined) through
which they own their interests to direct the Depositary to exercise the
repayment option on their behalf by delivering the related Global Security and
duly completed election form to the Trustee as aforesaid. In order to ensure
that such Global Security and election form are received by the Trustee on a
particular day, the applicable Beneficial Owner must so instruct the Participant
through which it owns its interest 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 should consult the Participants through which they own their
interests for the respective deadlines for such Participants. All instructions
given to Participants from Beneficial Owners of Global Securities relating to
the option to elect repayment shall be irrevocable. In addition, at the time
such instructions are given, each such Beneficial Owner shall cause the
Participant through which it owns its interest to transfer such Beneficial
Owner's interest in the Global Security or Securities representing the related
Book-Entry Notes, on the Depositary's records, to the Trustee. See "--Book-Entry
Notes."
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 repayment.
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.
S-5
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INTEREST
GENERAL
Each interest-bearing Note will bear interest from the date of issue at the
rate per annum or, in the case of a Floating Rate Note, pursuant to the interest
rate formula stated therein until the principal thereof is paid or made
available for payment. Interest payments shall be the amount of interest accrued
from and including the next preceding Interest Payment Date in respect of which
interest has been paid or duly provided for (or from and including the date of
issue if no interest has been paid or duly provided for with respect to such
Note), to but excluding the relevant Interest Payment Date or date of Maturity,
as the case may be.
Interest will be payable on each date specified in the Note on which an
installment of interest is due and payable (an "Interest Payment Date") and at
Maturity. Interest (other than interest payable at Maturity) will be payable to
the person in whose name a Note is registered at the close of business on the
Regular Record Date next preceding such Interest Payment Date; provided,
however, that interest payable at Maturity will be payable to the person to whom
principal will be payable. If the original issue date of a Note is between a
Regular Record Date and the related Interest Payment Date, the initial interest
payment will be made on the Interest Payment Date following the next succeeding
Regular Record Date to the registered Holder at the close of business on such
next succeeding Regular Record Date. Unless otherwise specified in the
applicable Pricing Supplement, the "Regular Record Dates" for Fixed Rate Notes
shall be February 15 and August 15 next preceding each March 1 or September 1
Interest Payment Date, respectively, and the "Regular Record Dates" for Floating
Rate Notes shall be the fifteenth day (whether or not a Business Day)
immediately preceding the related Interest Payment Date.
All percentages resulting from any calculation on Floating Rate 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) will be rounded upward to 9.87655% (or .0987655)), and
all dollar amounts used in or resulting from such calculation on Floating Rate
Notes will be rounded to the nearest cent (with one-half cent being rounded
upward).
Interest rates and interest rate formulae and any and all other 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 purchase has been
accepted by the Company.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issue at the rate
per annum stated on the face thereof until the principal amount thereof is paid
or made available for payment. Unless otherwise specified in the applicable
Pricing Supplement, interest on Fixed Rate Notes will be payable semiannually on
each March 1 and September 1 Interest Payment Date and at Maturity. If any
Interest Payment Date or Maturity of a Fixed Rate Note falls on a day that is
not a Business Day, the related payment of principal, and premium, if any, and
interest will be made on the next succeeding Business Day as if it were made on
the date such payment was due and no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date or Maturity, as
the case may be. Unless otherwise specified in the applicable Pricing
Supplement, interest on each Fixed Rate Note will be calculated on the basis of
a 360-day year of twelve 30-day months.
FLOATING RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, interest on
Floating Rate Notes will be determined as described below. Interest on Floating
Rate Notes will be determined by reference to a "Base Rate," which may be (i)
the CD Rate, in which case such Note will be a "CD Rate Note"; (ii) the CMT
Rate, in which case such Note will be a "CMT Rate Note"; (iii) the Commercial
Paper Rate, in which case such Note will be a "Commercial Paper Rate Note"; (iv)
the Eleventh District Cost of Funds Rate, in which case such Note will be an
"Eleventh District Cost of Funds Rate Note"; (v) the Federal Funds Rate, in
which case such Note will be a "Federal Funds Rate Note"; (vi) the J.J. Kenny
Rate, in which case such Note will be a
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"J.J. Kenny Rate Note"; (vii) LIBOR, in which case such Note will be a "LIBOR
Note"; (viii) the Prime Rate, in which case such Note will be a "Prime Rate
Note"; (ix) the Treasury Rate, in which case such Note will be a "Treasury Rate
Note"; and (x) such other interest rate formula as may be set forth in the
applicable Pricing Supplement. In addition, a Floating Rate Note may bear
interest at the lowest of two or more Base Rates determined in the same manner
as the Base Rates are determined for the types of Notes described above.
The applicable Pricing Supplement and the related Note will specify the Base
Rate or Rates and the Spread and/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 and the applicable Note will define
or particularize for each Floating Rate Note the following terms, if applicable:
Initial Interest Rate, Index Maturity, Interest Payment Dates, Interest Rate
Reset Period, Interest Reset Dates, Calculation Agent (if other than the
Trustee) and Initial Interest Reset Date. If one or more of the applicable
Interest Rate Bases is LIBOR or the CMT Rate, the applicable Pricing Supplement
will also specify the Designated LIBOR Currency and Designated LIBOR Page or the
Designated CMT Maturity Index and Designated CMT Telerate Page, respectively, as
such terms are defined below.
The interest rate on each Floating Rate Note will be calculated by reference
to the specified Base Rate or the lowest of two or more specified Base Rates, in
either case plus or minus the Spread, if any, or multiplied by the Spread
Multiplier, if any. Commencing on the Initial Interest Reset Date, the rate at
which interest on such Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in effect
for the period, if any, from the date of issue to the Initial Interest Reset
Date will be the Initial Interest Rate (as defined below).
The "Spread" is the number of basis points specified in the applicable
Pricing Supplement to be added to or subtracted from the related Base Rate or
Rates applicable to a Floating Rate Note. The "Spread Multiplier" is the
percentage of the related Base Rate or Rates as specified in the applicable
Pricing Supplement by which such Base Rate or Rates will be multiplied to
determine the applicable interest rate on such Floating Rate Note. "Index
Maturity" means, if applicable with respect to a Floating Rate Note, the period
to maturity of the instrument or obligation with respect to which the related
Base Rate is calculated, as specified in the applicable Pricing Supplement.
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually or on such other specified basis
(each, an "Interest Rate Reset Period"), as specified in the applicable Pricing
Supplement. The "Interest Reset Date" will be, in the case of Floating Rate
Notes which reset (i) daily, each Business Day; (ii) weekly, the Wednesday of
each week (with the exception of weekly reset Treasury Rate Notes and weekly
reset Floating Rate Notes for which the Treasury Rate is an applicable Base
Rate, which reset the Tuesday of each week, except as specified below); (iii)
monthly, the third Wednesday of each month (with the exception of monthly reset
Eleventh District Cost of Funds Rate Notes and monthly reset Floating Rate Notes
as to which Eleventh District Cost of Funds Rate is an applicable Base Rate,
which reset on the first calendar day of the month); (iv) quarterly, the third
Wednesday of March, June, September and December of each year; (v) semiannually,
the third Wednesday of each of the two months specified in such Pricing
Supplement; and (vi) annually, the third Wednesday of the month specified in
such Pricing Supplement. If any Interest Reset Date for any Floating Rate Note
would otherwise be a day that is not a Business Day, such Interest Reset Date
will be postponed to the next succeeding day that is a Business Day, except that
in the case of a LIBOR Note (or a Floating Rate Note for which LIBOR is a Base
Rate), if such Business Day is in the next succeeding calendar month, such
Interest Reset Date shall be the immediately preceding day that is a Business
Day. In addition, if the Treasury Rate is an applicable Base Rate and the
Interest Determination Date would otherwise fall on an Interest Reset Date, then
such Interest Reset Date will be postponed to the next succeeding Business Day.
The interest rate applicable to each Interest Rate Reset Period commencing
on the related Interest Reset Date will be the rate determined by the
Calculation Agent (as hereinafter defined) as of the applicable Interest
Determination Date (as hereinafter defined) and calculated on or prior to the
Calculation Date (as
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hereinafter defined), except with respect to LIBOR and the Eleventh District
Cost of Funds Rate, which will be calculated on such Interest Determination
Date. The "Interest Determination Date" with respect to the CD Rate, the CMT
Rate, Commercial Paper Rate, Federal Funds Rate, the J.J. Kenny Rate and the
Prime Rate will be the second Business Day preceding each Interest Reset Date.
The "Interest Determination Date" with respect to the Eleventh District Cost of
Funds Rate will be the last working day of the month immediately preceding the
applicable Interest Reset Date in which the Federal Home Loan Bank of San
Francisco (the "FHLB of San Francisco") publishes the Index (as hereinafter
defined). The "Interest Determination Date" with respect to LIBOR will be the
second London Business Day preceding the applicable Interest Reset Date unless
the Designated LIBOR Currency is British pounds sterling, in which case the
"Interest Determination Date" will be the applicable Interest Reset Date. With
respect to the Treasury Rate, the Interest Determination Date will be the day of
the week in which the Interest Reset Date falls on which Treasury bills normally
would be auctioned (Treasury bills normally are sold at auction on Monday of
each week, unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may be held on
the preceding Friday); provided, however, that if an auction is held on the
Friday of the week preceding an Interest Reset Date, the related Interest
Determination Date shall be such preceding Friday; and provided, further, that
if the Interest Determination Date would otherwise fall on an Interest Reset
Date, then such Interest Reset Date will be postponed to the next succeeding
Business Day. The Interest Determination Date pertaining to a Floating Rate Note
for which the interest rate is determined with reference to the lowest of two or
more Base Rates will be the first Business Day which is at least two Business
Days prior to the Interest Reset Date for such Note on which each such Base Rate
shall be determinable. Each such Base Rate shall be determined and compared on
such date, and the applicable interest rate shall take effect on the related
Interest Reset Date.
A Floating Rate Note also may have either or both of the following: (i) a
maximum limit, or ceiling, on the per annum interest rate in effect with respect
to such Floating Rate Note from time to time and (ii) a minimum limit, or floor,
on the per annum interest rate in effect with respect to such Floating Rate Note
from time to time. Notwithstanding the foregoing, the interest rate on Floating
Rate Notes will in no event be higher than the maximum rate permitted by New
York law, as the same may be modified by United States law of general
application.
Each Floating Rate Note will bear interest from its date of issue at the
rate determined as described below until the principal thereof and premium, if
any, thereon is paid or otherwise made available for payment. Except as provided
below, interest will be payable, in the case of Floating Rate Notes which reset
(i) 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 in the applicable Pricing Supplement; (ii) quarterly, on the third
Wednesday of March, June, September and December of each year, (iii)
semiannually, on the third Wednesday of each of the two months of each year
specified in the applicable Pricing Supplement; and (iv) annually, on the third
Wednesday of the month specified in the applicable Pricing Supplement and, in
each case, at Maturity.
If any Interest Payment Date for a Floating Rate Note would fall on a day
that is not a Business Day with respect to such Note, such Interest Payment Date
will be the following day that is a Business Day with respect to such Note,
except that, in the case of a LIBOR Note (or a Floating Rate Note for which
LIBOR is a Base Rate), if such Business Day is in the next succeeding calendar
month, such Interest Payment Date shall be the immediately preceding day that is
a Business Day with respect to such Note. If the Maturity of a Floating Rate
Note falls on a day that is not a Business Day, the payment of principal, and
premium, if any, and interest may be made on the next succeeding Business Day,
and no interest on such payment shall accrue for the period from and after the
Maturity.
The interest rate in effect with respect to a Floating Rate Note on each day
that is not an Interest Reset Date will be the interest rate determined as of
the Interest Determination Date pertaining to the immediately preceding Interest
Reset Date and the interest rate in effect on any day that is an Interest Reset
Date will be the interest rate determined as of the Interest Determination Date
pertaining to such Interest Reset
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Date (provided, however, that the interest rate in effect for the period, if
any, from the date of original issue to the Initial Interest Reset Date will be
the Initial Interest Rate), subject in either case to any maximum or minimum
interest rate limitation referred to above and subject to adjustment by any
applicable Spread or Spread Multiplier.
Accrued interest on the Floating Rate Notes will be an amount calculated by
multiplying the principal amount thereof by an accrued interest factor. Such
accrued interest factor shall be computed by adding the interest factor for each
day in the applicable period for which interest is being calculated. Unless
otherwise specified in the applicable Pricing Supplement, the interest factor
for each such day will be computed by dividing the interest rate applicable to
such day by 360 in the case of Floating Rate Notes for which an applicable
Interest Rate Basis is the CD Rate, the Commercial Paper Rate, the Eleventh
District Cost of Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or
by the actual number of days in the year in the case of Floating Rate Notes for
which an applicable Interest Rate Basis is the CMT Rate or the Treasury Rate or
by 365 in the case of Floating Rate Notes for which an applicable Interest Rate
Basis is the J.J. Kenney Rate. Unless otherwise specified in the applicable
Pricing Supplement, the interest factor for Floating Rate Notes for which the
interest rate is calculated with reference to two or more Base Rates will be
calculated in each period in the same manner as if only the applicable Base
Rates specified in the applicable Pricing Supplement applied.
Unless otherwise specified in the applicable Pricing Supplement, the Trustee
will be the "Calculation Agent." Upon the request of the Holder of any Floating
Rate Note, the Calculation Agent will provide the interest rate then in effect
and, if determined, the interest rate that will become effective as a result of
a determination made for the next Interest Reset Date with respect to such
Floating Rate Note. The "Calculation Date," where applicable, pertaining to any
Interest Determination Date will be the earlier of (i) the tenth calendar day
after such Interest Determination Date, or, if such day is not a Business Day,
the next succeeding Business Day and (ii) the Business Day preceding the
applicable Interest Payment Date or Maturity, as the case may be.
The interest rate in effect with respect to a Floating Rate Note from the
date of issue to the Initial Interest Reset Date (the "Initial Interest Rate")
will be specified in the applicable Pricing Supplement. The interest rate for
each subsequent Interest Reset Date will be determined by the Calculation Agent
as follows:
CD RATE. CD Rate Notes will bear interest at the interest rates (calculated
with reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in such CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date relating to a CD Rate
Note or any Interest Determination Date for a Note for which the interest rate
is determined with reference to the CD Rate (a "CD Interest Determination
Date"), the rate on such date for negotiable United States dollar certificates
of deposit 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 ("H.15(519)") under the heading "CDs (Secondary Market)", or, if not
so published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such CD Interest Determination Date, the CD Rate will be the rate
on such CD Interest Determination Date for negotiable United States dollar
certificates of deposit of 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 "Certificates of Deposit." If such rate is not published in either
H.15(519) or the Composite Quotations by 3:00 P.M., New York City time, on the
Calculation Date, then the CD Rate on such CD Interest Determination Date will
be calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such CD
Interest Determination Date, of three leading nonbank dealers in negotiable
United States dollar certificates of deposit in New York, New York (which may
include
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the Agents or their affiliates) selected by the Calculation Agent (after
consultation with the Company) for negotiable United States dollar certificates
of deposit of major United States money center banks for negotiable certificates
of deposit with a remaining maturity closest to the Index Maturity specified in
the applicable Pricing Supplement in an amount that is representative for a
single transaction in that market at that time; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting as
described above, the CD Rate determined as of such CD Interest Determination
Date will be the CD Rate in effect on such CD Interest Determination Date.
CMT RATE. CMT Rate Notes will bear interest at the rates (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in such CMT Rate Notes and any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date relating to a CMT Rate
Note or any Floating Rate Note for which the interest rate is determined with
reference to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate
displayed on the Designated CMT Telerate Page 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 for (i) if
the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
weekly or monthly average, as specified in the applicable Pricing Supplement,
for the week or the month, as applicable, ended immediately preceding the week
or the month, as applicable, in which the related CMT Rate Interest
Determination Date falls. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as published in H.15(519). If such rate is no longer published or
is not published by 3:00 P.M., New York City time, on the related Calculation
Date, then the CMT Rate on such CMT Rate 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 Rate 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 (after consultation with the Company) determines to be comparable to the
rate formerly displayed on the Designated CMT Telerate Page and published in
H.15(519). If such information is not provided by 3:00 P.M., New York City time,
on the related Calculation Date, then the CMT Rate on the CMT Rate 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 offered
rates as of approximately 3:30 P.M., New York City time, on such CMT Rate
Interest Determination Date reported, according to their written records, by
three leading primary United States government securities dealers in The City of
New York (which may include the Agents or their affiliates) (each, a "Reference
Dealer") selected by the Calculation Agent (from five such Reference Dealers
selected by the Calculation Agent (after consultation with the Company) and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for the most recently issued direct noncallable fixed rate obligations
of the United States ("Treasury Notes") with an original maturity of
approximately the Designated CMT Maturity Index and a remaining term to maturity
of not less than such Designated CMT Maturity Index minus one year. If the
Calculation Agent is unable to obtain three such Treasury Note quotations, the
CMT Rate on such CMT Rate 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 offered rates as of approximately 3:30 P.M., New York
City time, on such CMT Rate Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent (after consultation with the Company) and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
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
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Designated CMT Maturity Index and in an amount of at least $100 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 offered
rates obtained and neither the highest nor the lowest of such quotes will be
eliminated; provided, however, that if fewer than three Reference Dealers so
selected by the Calculation Agent are quoting as mentioned herein, the CMT Rate
determined as of such CMT Rate Interest Determination Date will be the CMT Rate
in effect on such CMT Rate 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 Calculation Agent will obtain quotations for the Treasury Note with the
shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Markets
Limited (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on such service)
for the purpose of displaying Treasury Constant Maturities as reported in
H.15(519) or, if no such page is specified in the applicable Pricing Supplement,
page 7052.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified in
the applicable Pricing Supplement with respect to which the CMT Rate will be
calculated or, if no such maturity is specified in the applicable Pricing
Supplement, 2 years.
COMMERCIAL PAPER RATE. Commercial Paper Rate Notes will bear interest at
the interest rates (calculated with reference to the Commercial Paper Rate and
the Spread and/or Spread Multiplier, if any) specified in such Commercial Paper
Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Interest Determination Date relating to a
Commercial Paper Rate Note or any Interest Determination Date for a Note for
which the interest rate is determined with reference to the Commercial Paper
Rate (a "Commercial Paper Interest Determination Date"), the Money Market Yield
(as defined below) on such date of the rate for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement, as such rate
shall be published in H.15(519) under the heading "Commercial Paper--
Nonfinancial." In the event that such rate is not published by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Commercial Paper
Interest Determination Date, then the Commercial Paper Rate on such Commercial
Paper Interest Determination Date will be the Money Market Yield of the rate for
commercial paper of the Index Maturity specified in the applicable Pricing
Supplement as published in Composite Quotations under the heading "Commercial
Paper" (with an Index Maturity of one month or three months being deemed to be
equivalent to an Index Maturity of 30 days or 90 days, respectively). 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 Commercial Paper Rate on such
Commercial Paper Interest Determination Date will be calculated by the
Calculation Agent and will be the Money Market Yield of the arithmetic mean of
the offered rates, at approximately 11:00 A.M., New York City time, on such
Commercial Paper Interest Determination Date, of three leading dealers of
commercial paper in New York, New York (which may include the Agents or their
affiliates) selected by the Calculation Agent (after consultation with the
Company) for commercial paper of the specified Index Maturity placed for a
nonfinancial entity whose bond rating is "Aa", or the equivalent, from a
nationally recognized statistical rating organization; 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 determined as of such
Commercial Paper Interest Determination Date will be the Commercial Paper Rate
in effect on such Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage) calculated
in accordance with the following formula:
D X 360
Money Market Yield = --------------- X 100
360 - (D X M)
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where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal and "M" refers to the actual
number of days in the applicable Interest Rate Reset Period.
ELEVENTH DISTRICT COST OF FUNDS RATE. Eleventh District Cost of Funds Rate
Notes will bear interest at the interest rates (calculated with reference to the
Eleventh District Cost of Funds Rate and the Spread and/ or Spread Multiplier,
if any) specified in such Eleventh District Cost of Funds Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Eleventh
District Cost of Funds Rate" means, with respect to any Interest Determination
Date relating to an Eleventh District Cost of Funds Rate Note or any Interest
Determination Date for a Note for which the interest rate is determined with
reference to the Eleventh District Cost of Funds Rate (an "Eleventh District
Cost of Funds Rate Interest Determination Date"), the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which such Eleventh District Cost of Funds Rate Interest Determination
Date falls, as set forth under the caption "11th District" on Telerate Page 7058
as of 11:00 A.M., San Francisco time, on such Eleventh District Cost of Funds
Rate Interest Determination Date. If such rate does not appear on Telerate Page
7058 on such Eleventh District Cost of Funds Rate Interest Determination Date,
then the Eleventh District Cost of Funds Rate on such Eleventh District Cost of
Funds Rate 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 immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the Index on or prior to such Eleventh
District Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate determined as of
such Eleventh District Cost of Funds Rate Interest Determination Date will be
the Eleventh District Cost of Funds Rate in effect on such Eleventh District
Cost of Funds Rate Interest Determination Date.
FEDERAL FUNDS RATE. Federal Funds Rate Notes will bear interest at the
interest rates (calculated with reference to the Federal Funds Rate and the
Spread and/or Spread Multiplier, if any) specified in such Federal Funds Rate
Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Determination Date relating to a
Federal Funds Rate Note or any Interest Determination Date for a Note for which
the interest rate is determined with reference to the Federal Funds Rate (a
"Federal Funds Rate Interest Determination Date"), the rate on that date for
United States dollar federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)" or, if not so published by 3:00 P.M., New York City
time, on the Calculation Date pertaining to such Federal Funds Rate Interest
Determination Date, the Federal Funds Rate will be the rate on such Federal
Funds Rate Interest Determination Date as published in Composite Quotations
under the heading "Federal Funds/Effective Rate." If such rate is not published
in either H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on
such Calculation Date, the Federal Funds Rate for such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the rates for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of federal funds
transactions in New York, New York (which may include the Agents or their
affiliates) selected by the Calculation Agent (after consultation with the
Company) prior to 9:00 A.M., New York City time, on such Federal Funds Rate
Interest Determination Date; provided, however, that if the brokers selected as
aforesaid by the Calculation Agent are not quoting as described above, the
Federal Funds Rate determined as of such Federal Funds Rate Interest
Determination Date will be the Federal Funds Rate in effect on such Federal
Funds Rate Interest Determination Date.
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J.J. KENNY RATE. J.J. Kenny Rate Notes will bear interest at the rates
(calculated with reference to J.J. Kenny Rate and the Spread and/or Spread
Multiplier, if any) specified in such J.J. Kenny Rate Notes and any applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "J.J. Kenny
Rate" means, with respect to any Interest Determination Date relating to a J.J.
Kenny Rate Note or any Interest Determination Date for a Note for which the
interest rate is determined with reference to the J.J. Kenny Rate (a "J.J. Kenny
Rate Interest Determination Date"), the rate in the high grade weekly index (the
"Weekly Index") on such date made available by Kenny Information Systems
("Kenny") to the Calculation Agent. The Weekly Index is, and shall be, based
upon 30-day yield evaluations at par of bonds, the interest of which is exempt
from federal income taxation under the Internal Revenue Code of 1986, as amended
(the "Code"), of not less than five high grade component issuers selected by
Kenny which shall include, without limitation, issuers of general obligation
bonds. The specific issuers included among the component issuers may be changed
from time to time by Kenny in its discretion. The bonds on which the Weekly
Index is based shall not include any bonds on which the interest is subject to a
minimum tax or similar tax under the Code, unless all tax-exempt bonds are
subject to such tax. In the event Kenny ceases to make available such Weekly
Index, a successor indexing agent will be selected by the Calculation Agent,
such index to reflect the prevailing rate for bonds rated in the highest
short-term rating category by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group (or their respective successors) in respect of issuers most
closely resembling the high grade component issuers selected by Kenny for its
Weekly Index, the interest on which is (A) variable on a weekly basis, (B)
exempt from federal income taxation under the Code, and (C) not subject to a
minimum tax or similar tax under the Code, unless all tax-exempt bonds are
subject to such tax. If such successor indexing agent is not available, the rate
for any J.J. Kenny Rate Interest Determination Date shall be 67% of the rate
determined as if the Treasury Rate option had been originally selected.
LIBOR. LIBOR Notes will bear interest at the interest rates (calculated
with reference to LIBOR and the Spread and/or Spread Multiplier, if any)
specified in such LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
means the rate determined by the Calculation Agent in accordance with the
following provisions:
(i) With respect to an Interest Determination Date relating to a LIBOR
Note or any Floating Rate Note for which the interest rate is determined
with reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be either: (a) if "LIBOR Reuters" is specified in the applicable Pricing
Supplement, the arithmetic mean of the offered rates (unless the specified
Designated LIBOR Page (as defined below) by its terms provides only for a
single rate, in which case such single rate shall be used) for deposits in
the Designated LIBOR Currency (as defined below) having the Index Maturity
designated in the applicable Pricing Supplement, commencing on the
applicable Interest Reset Date, that appear (or, if only a single rate is
required as aforesaid, appears) on the Designated LIBOR Page specified in
the applicable Pricing Supplement as of 11:00 A.M. London time, on that
LIBOR Interest Determination Date, or (b) if "LIBOR Telerate" is specified
in the applicable Pricing Supplement, or if neither "LIBOR Reuters" nor
"LIBOR Telerate" is specified in the applicable Pricing Supplement as the
method for calculating LIBOR, the rate for deposits in the Designated LIBOR
Currency having the Index Maturity designated in the applicable Pricing
Supplement commencing on such Interest Reset Date that appears on the
Designated LIBOR Page specified in the applicable Pricing Supplement as of
11:00 A.M. London time, on that LIBOR Interest Determination Date. If fewer
than two offered rates appear, or no rate appears, as 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 a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the Designated LIBOR Page as specified in clause (i) above, the Calculation
Agent will request the principal London offices of each of four major
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reference banks (which may include affiliates of the Agents) in the London
interbank market, as selected by the Calculation Agent (after consultation
with the Company), to provide the Calculation Agent with its offered
quotation for deposits in the Designated LIBOR Currency for the period of
the Index Maturity designated in the applicable Pricing Supplement,
commencing on the applicable Interest Reset Date, to prime banks in the
London interbank market at approximately 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 at approximately 11:00 A.M. in the
applicable Principal Financial Center (as defined below), on such LIBOR
Interest Determination Date by three major banks (which may include
affiliates of the Agents) in such Principal Financial Center selected by the
Calculation Agent (after consultation with the Company) for loans in the
Designated LIBOR Currency to leading European banks, having the Index
Maturity designated in the applicable Pricing Supplement and 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 as of such LIBOR Interest Determination Date
will be LIBOR in effect on such LIBOR Interest Determination Date.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Pricing Supplement as to which LIBOR shall be
calculated or, if no such currency or composite currency is specified in the
applicable Pricing Supplement, United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in such Pricing
Supplement (or any other page as may replace such page on such service) for the
purpose of displaying the London interbank rates of major banks for the
Designated LIBOR Currency, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable Pricing Supplement as the method for calculating
LIBOR, the display on the Dow Jones Markets Limited (or any successor service)
on the page specified in such Pricing Supplement (or any other page as may
replace such page on such service) for the purpose of displaying the London
interbank rates of major banks for the Designated LIBOR Currency.
"Principal Financial Center" means the capital city of the country to which
the Designated LIBOR Currency relates (or, in the case of ECU, Luxembourg),
except that with respect to United States dollars, Australian dollars, Canadian
dollars, Deutsche marks, Dutch guilders and Swiss francs, the "Principal
Financial Center" shall be The City of New York, Sydney, Toronto, Frankfurt,
Amsterdam and Zurich, respectively.
PRIME RATE. Prime Rate Notes will bear interest at the rates (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any) specified in such Prime Rate Notes and any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date relating to a Prime
Rate Note or any Interest Determination Date for a Note for which the interest
rate is determined with reference to the Prime Rate (a "Prime Rate Interest
Determination Date"), the rate on such date as such rate is published in
H.15(519) under the heading "Bank Prime Loan." In the event that such rate is
not published prior to 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Prime Rate Interest Determination Date, then the Prime Rate
will be determined by the Calculation Agent and will be the arithmetic mean of
the rates of interest publicly announced by each bank that appears on the
Reuters Screen USPRIME1 Page (as defined below) as such bank's prime rate or
base lending rate as in effect for that Prime Rate Interest Determination Date.
If fewer
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than four such rates appear on the Reuters Screen USPRIME1 Page for such Prime
Rate Interest Determination Date, the Prime Rate will be determined by the
Calculation Agent and will be the arithmetic mean of the prime or base lending
rates quoted on the basis of the actual number of days in the year divided by a
360-day year as of the close of business on such Prime Rate Interest
Determination Date by four major money center banks (which may include
affiliates of the Agents) in The City of New York as selected by the Calculation
Agent (after consultation with the Company). If fewer than four quotations are
provided by such major money center banks, the Prime Rate shall be calculated by
the Calculation Agent and shall be the arithmetic mean of four prime rates
quoted on the basis of the actual number of days in the year divided by a
360-day year as of the close of business on such Prime Rate Interest
Determination Date as furnished in The City of New York by the major money
center banks, if any, that have provided such quotations and by a reasonable
number of substitute banks or trust companies (which may include affiliates of
the Agents) to obtain four such prime rate quotations, provided such substitute
banks or trust companies are organized and doing business under the laws of the
United States, or any State thereof, each having total equity capital of at
least $500,000,000 and being subject to supervision or examination by a Federal
or State authority, selected by the Calculation Agent (after consultation with
the Company) to provide such rates; PROVIDED, HOWEVER, that if the banks or
trust companies selected as aforesaid by the Calculation Agent are not quoting
rates as set forth in this sentence, the Prime Rate determined as of such Prime
Rate Interest Determination Date will be the Prime Rate in effect on such Prime
Rate Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuter Monitor Money
Rates Service (or any successor service) on the "USPRIME1" page (or such other
page as may replace the USPRIME1 page on such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
TREASURY RATE. Treasury Rate Notes will bear interest at the interest rates
(calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any) specified in such Treasury Rate Notes and in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Interest Determination Date relating to a
Treasury Rate Note or any Interest Determination Date for a Note for which the
interest rate is determined with reference to the Treasury Rate (a "Treasury
Rate Interest Determination Date"), the rate from the auction held on such
Treasury Rate Interest Determination Date (the "Auction") of direct obligations
of the United States ("Treasury bills") having the Index Maturity specified in
the applicable Pricing Supplement, as such rate is 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 Rate Interest Determination Date, the auction average rate of
such Treasury bills (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the Auction of Treasury bills having the specified Index Maturity are
not reported as provided by 3:00 P.M., New York City time, on the related
Calculation Date, or if no such Auction is held, then the Treasury Rate shall be
calculated by the Calculation Agent and shall be a yield to maturity (expressed
as a bond equivalent on the basis of a year of 365 or 366 days, as applicable,
and applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 P.M., New York City time, on such Treasury Rate
Interest Determination Date, of three leading primary United States government
securities dealers (which may include the Agents or their affiliates) selected
by the Calculation Agent (after consultation with the Company) for the issue of
Treasury bills with a remaining maturity closest to the applicable Index
Maturity; provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting as described above, the Treasury Rate
determined as of such Treasury Rate Interest Determination Date will be the
Treasury Rate in effect on such Treasury Rate Interest Determination Date.
ORIGINAL ISSUE DISCOUNT NOTES
Notes may be issued as discounted securities (bearing no interest or
interest at a rate which at the time of issuance is below market rates) to be
sold at an issue price below their stated principal amount and which
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provide that upon redemption or repurchase at the option of the Holders prior to
maturity or acceleration of the maturity thereof an amount less than the
principal amount thereof shall become due and payable, or which for federal
income tax purposes would be considered original issue discount notes
(collectively, "Original Issue Discount Notes"). See "Certain United States
Federal Income Tax Considerations."
Notwithstanding anything to the contrary contained herein or in the
Prospectus or any Pricing Supplement, for purposes of determining the rights of
a Holder of an Original Issue Discount Note in respect of voting for or against
amendments to or waivers under the Indenture or any other matters requiring the
vote, consent or other action of Holders of the Notes, the principal amount of
such Original Issue Discount Note that shall be deemed to be outstanding shall
be the amount of the principal thereof that would be due and payable, as of the
date of such determination, upon acceleration of the maturity of such Note.
INDEXED NOTES
Notes also may be issued with the principal amount and premium, if any,
payable at Maturity and/or interest, if any, to be paid thereon to be determined
with reference to the price or prices of specified commodities or stocks,
interest rate indices, the exchange rate of one or more specified currencies
(including a composite currency such as the European Currency Unit) relative to
an indexed currency, or such other prices, exchange rates or other items or
indices as may be specified in such Note ("Indexed Notes"), as set forth in the
applicable Pricing Supplement. In certain cases, Holders of such Notes may
receive a principal amount at Maturity that is greater than or less than the
face amount of the Notes depending upon the relative value at Maturity of the
specified indexed item. Information as to the method for determining the
principal, premium, if any, and interest, if any, payable in respect of Indexed
Notes and, where applicable, certain historical information with respect to the
specified indexed item and, if applicable, certain risk factors and tax
considerations associated with investment in Indexed Notes, will be set forth in
the applicable Pricing Supplement.
Notwithstanding anything to the contrary contained herein or in the
Prospectus or any Pricing Supplement, for purposes of determining the rights of
a Holder of an Indexed Note in respect of voting for or against amendments to or
waivers under the Indenture or any other matters requiring the vote, consent or
other action of Holders of the Notes, the principal amount of such Indexed Note
that shall be deemed to be outstanding shall be equal to the face amount thereof
upon issuance.
FOREIGN CURRENCY NOTES
Notes may be issued which are denominated in, or with the principal thereof
or premium, if any, or interest, if any, thereon payable in, currencies other
than U.S. dollars or in composite currencies or currency units ("Foreign
Currency Notes"). Information with respect to the currencies, currency units or
composite currencies in which Foreign Currency Notes are denominated or payable
and, where applicable, certain historical exchange rate information with respect
to such specified currencies, currency units or composite currencies and, if
applicable, certain risk factors and tax considerations associated with an
investment in such Foreign Currency Notes, will be set forth in the applicable
Pricing Supplement.
Notwithstanding anything to the contrary contained herein or in the
Prospectus or any Pricing Supplement, for purposes of determining the rights of
a Holder of a Foreign Currency Note in respect of voting for or against
amendments to or waivers under the Indenture or any other matters requiring the
vote, consent or other action of Holders of the Notes, the principal amount of
such Foreign Currency Note that shall be deemed outstanding shall be the U.S.
dollar equivalent, determined as of the date of original issuance of such
Foreign Currency Note, of the principal amount thereof.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to the determination of Base Rates, the
specification of Base Rates, calculation of the interest rate applicable to a
Floating Rate Note, Interest Payment Dates or any other
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provisions of, or matters relating to, the Notes may be modified by such terms
as may be specified under "Other/Additional Provisions" on the face of such Note
or in an Addendum thereto, if so specified in the applicable Pricing Supplement.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes of like tenor and terms will be
represented by one or more global Notes (each, a "Global Security"). Each Global
Security representing Book-Entry Notes will be deposited with, or on behalf of,
the Depositary and will be registered in the name of the Depositary or its
nominee. Except as set forth below, a Global Security may not be transferred
except as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any nominee of the Depositary or a nominee of such
successor.
So long as the Depositary or its nominee is the registered owner of a Global
Security, the Depositary or its nominee, as the case may be, will be the sole
Holder of the Book-Entry Notes represented thereby for all purposes under the
Indenture. Except as otherwise provided below, the Beneficial Owners (as defined
below) of the Global Security or Securities representing Book-Entry Notes will
not be entitled to receive physical delivery of Definitive Notes and will not be
considered the Holders thereof for any purpose under the Indenture, and no
Global Security representing Book-Entry Notes shall be exchangeable or
transferrable. Accordingly, each person owning a beneficial interest in a Global
Security must rely on the procedures of the Depositary and, if such person is
not a Participant (as defined below), on the procedures of the Participant
through which such person owns its interest in order to exercise any rights of a
Holder under the Indenture. The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security representing Book-Entry Notes.
The Depository Trust Company ("DTC"), New York, New York will be the initial
Depositary with respect to the Notes. The following is based on information
furnished by DTC as Depositary:
The Depositary will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's nominee). One fully
registered Global Security will be issued for each issue of Book-Entry
Notes, each in the aggregate principal amount of such issue, and will be
deposited with, or on behalf of, the Depositary. If, however, the aggregate
principal amount of any issue exceeds $200,000,000, one Global Security will
be issued with respect to each $200,000,000 of principal amount and an
additional Global Security will be issued with respect to any remaining
principal amount of such issue.
The Depositary 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
Securities Exchange Act of 1934, as amended. The Depositary holds securities
that its participants ("Participants") deposit with the Depositary. The
Depositary 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 of the Depositary ("Direct Participants")
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. The Depositary 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 Depositary'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 the Depositary and its Participants are on file with the
Securities and Exchange Commission.
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Purchases of Book-Entry Notes under the Depositary's system must be made
by or through Direct Participants, which will receive a credit for such
Book-Entry Notes on the Depositary's records. The ownership interest of each
actual purchaser of each Book-Entry Note represented by a Global Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which such Beneficial Owners entered
into the transaction. Transfers of ownership interests in a Global Security
representing Book-Entry Notes are to be accomplished by entries made on the
books of Direct or Indirect Participants acting on behalf of Beneficial
Owners. Beneficial Owners of a Global Security representing Book-Entry Notes
will not receive Definitive Notes representing their ownership interests
therein, except in the limited circumstances described below.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depositary
are registered in the name of the Depositary's nominee, Cede & Co. The
deposit of Global Securities with, or on behalf of, the Depositary and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners
of the Global Securities representing the Book-Entry Notes; the Depositary's
records reflect only the identity of the Direct 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 the Depositary 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.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes of like tenor and terms are being redeemed,
the Depositary's practice is to determine by lot the amount of the interest
of each Direct Participant in such issue to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect
to the Global Securities representing the Book-Entry Notes. Under its usual
procedures, the Depositary mails an Omnibus Proxy to the Company as soon as
possible after the applicable 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 applicable record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and interest, if any, payments on the Global
Securities representing the Book-Entry Notes will be made to the Depositary.
The Depositary's practice is to credit Direct Participants' accounts on the
applicable payment date in accordance with their respective holdings shown
on the Depositary's records unless the Depositary has reason to believe that
it will not receive payment on such date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and 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 the Depositary, the Trustee or
the Company, subject to any statutory or regulatory requirements as may be
in effect from time to time. Payment of principal, premium, if any, and
interest, if any, to the Depositary is the responsibility of the Company or
the Trustee, disbursement of such payments to Direct Participants shall be
the responsibility of the Depositary, and disbursement of such payments to
the Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
If applicable, a Beneficial Owner shall give notice to elect to have its
Book-Entry Notes repaid by the Company, through its Participant, to the
Trustee, and shall effect delivery of such Book-Entry Notes by causing the
Direct Participant to transfer the Participant's interest in the Global
Security or Securities representing such Book-Entry Notes, on the
Depositary's records, to the Trustee. The requirement
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for physical delivery of Book-Entry Notes in connection with a demand for
repayment will be deemed satisfied when the ownership rights in the Global
Security or Securities representing such Book-Entry Notes are transferred by
Direct Participants on the Depositary's records.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but neither the Company nor any Agent takes any responsibility for
the accuracy thereof.
The Depositary may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving reasonable
notice to the Company or the Trustee. If the Depositary is at any time
unwilling, unable or no longer eligible to serve as Depositary and a successor
Depositary is not appointed by the Company within 90 days, the Company will
issue Definitive Notes in exchange for the Notes represented by such Global
Security or Securities. In addition, the Company may at any time and in its sole
discretion determine to discontinue use of the Global Security or Securities
and, in such event, will issue Definitive Notes in exchange for the Notes
represented by such Global Security or Securities. Definitive Notes so issued
will be issued in denominations of $1,000 and integral multiples thereof and
will be issued in registered form only, without coupons.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets 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 Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the Notes should consult their own
tax advisors concerning the application of United States Federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the Notes arising under the laws of any other
taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), (iii) an estate whose
income is subject to United States federal income tax regardless of its source,
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust, or
(v) any other person whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business. Notwithstanding
the preceding clause (iv), to the extent provided in regulations, certain trusts
in existence on August 20, 1996 and treated as United States persons prior to
such date that elect to continue to be so treated also shall be considered U.S.
Holders. As used herein, the term "non-U.S. Holder" means a beneficial owner of
a Note that is not a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST. Payments of interest on a Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular method
of tax accounting).
ORIGINAL ISSUE DISCOUNT. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Notes issued with original issue discount
("Original Issue Discount Notes"). The following summary is based upon final
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Treasury regulations (the "OID Regulations") released by the Internal Revenue
Service ("IRS") on January 27, 1994, as amended on June 11, 1996, under the
original issue discount provisions of the Internal Revenue Code of 1986, as
amended (the "Code").
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a DE MINIMIS amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
defined below) prior to maturity, multiplied by the weighted average maturity of
such Note). The issue price of each Note in an issue of Notes equals the first
price at which a substantial amount of such Notes has been sold (ignoring sales
to bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers). The stated
redemption price at maturity of a Note is the sum of all payments provided by
the Note other than "qualified stated interest" payments. The term "qualified
stated interest" generally means stated interest that is unconditionally payable
in cash or property (other than debt instruments of the issuer) at least
annually at a single fixed rate. In addition, under the OID Regulations, if a
Note bears interest for one or more accrual periods at a rate below the rate
applicable for the remaining term of such Note (e.g., Notes with teaser rates or
interest holidays), and if the greater of either the resulting foregone interest
on such Note or any "true" discount on such Note (i.e., the excess of the Note's
stated principal amount over its issue price) equals or exceeds a specified DE
MINIMIS amount, then the stated interest on the Note would be treated as
original issue discount rather than qualified stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an Original Issue Discount Note must include
original issue discount in income as ordinary interest for United States Federal
income tax purposes as it accrues under a constant yield method in advance of
receipt of the cash payments attributable to such income, regardless of such
U.S. Holder's regular method of tax accounting. In general, the amount of
original issue discount included in income by the initial U.S. Holder of an
Original Issue Discount Note is the sum of the daily portions of original issue
discount with respect to such Original Issue Discount Note for each day during
the taxable year (or portion of the taxable year) on which such U.S. Holder held
such Original Issue Discount Note. The "daily portion" of original issue
discount on any Original Issue Discount Note is determined by allocating to each
day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Original Issue
Discount Note, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs either on the final day
of an accrual period or on the first day of an accrual period. The amount of
original issue discount allocable to each accrual period is generally equal to
the difference between (i) the product of the Original Issue Discount Note's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and appropriately adjusted to take into account the length of the
particular accrual period) and (ii) the amount of any qualified stated interest
payments allocable to such accrual period. The "adjusted issue price" of an
Original Issue Discount Note at the beginning of any accrual period is the sum
of the issue price of the Original Issue Discount Note plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the Original Issue Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases an Original Issue Discount Note for an amount
that is greater than its adjusted issue price as of the purchase date and less
than or equal to the sum of all amounts payable on the Original Issue Discount
Note after the purchase date other than payments of qualified stated interest,
will be considered to have purchased the Original Issue Discount Note at an
"acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its
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gross income with respect to such Original Issue Discount Note for any taxable
year (or portion thereof in which the U.S. Holder holds the Original Issue
Discount Note) will be reduced (but not below zero) by the portion of the
acquisition premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the total
noncontingent principal payments due under the Variable Note by more than a
specified DE MINIMIS amount and (b) it provides for stated interest, paid or
compounded at least annually, at current values of (i) one or more qualified
floating rates, (ii) a single fixed rate and one or more qualified floating
rates, (iii) a single objective rate, or (iv) a single fixed rate and a single
objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than .65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable Note's
issue date) will be treated as a single qualified floating rate. Notwithstanding
the foregoing, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a maximum
numerical limitation (i.e., a cap) or a minimum numerical limitation (i.e., a
floor) may, under certain circumstances, fail to be treated as a qualified
floating rate under the OID Regulations unless such cap or floor is fixed
throughout the term of the Note. An "objective rate" is a rate that is not
itself a qualified floating rate but which is determined using a single fixed
formula and that is based on objective financial or economic information. A rate
will not qualify as an objective rate if it is based on information that is
within the control of the issuer (or a related party) or that is unique to the
circumstances of the issuer (or a related party), such as dividends, profits, or
the value of the issuer's stock (although a rate does not fail to be an
objective rate merely because it is based on the credit quality of the issuer).
A "qualified inverse floating rate" is any objective rate where such rate is
equal to a fixed rate minus a qualified floating rate, as long as variations in
the rate can reasonably be expected to inversely reflect contemporaneous
variations in the qualified floating rate. The OID Regulations also provide that
if a Variable Note provides for stated interest at a fixed rate for an initial
period of one year or less followed by a variable rate that is either a
qualified floating rate or an objective rate and if the variable rate on the
Variable Note's issue date is intended to approximate the fixed rate (e.g., the
value of the variable rate on the issue date does not differ from the value of
the fixed rate by more than 25 basis points), then the fixed rate and the
variable rate together will constitute either a single qualified floating rate
or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations and if
the interest on such Note is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually, then all stated interest
on the Note will constitute qualified stated interest and will be taxed
accordingly. Thus, a Variable Note that provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Variable Note is issued at a "true" discount (i.e., at
a price below the Note's stated principal amount) in excess of a specified DE
MINIMIS amount. The amount of qualified stated interest and the amount of
original issue discount, if any, that accrues during an accrual period on such a
Variable Note is determined under the rules applicable to fixed rate debt
instruments by assuming that the variable rate is a fixed rate equal to (i) in
the case of a qualified floating rate or qualified
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inverse floating rate, the value, as of the issue date, of the qualified
floating rate or qualified inverse floating rate, or (ii) in the case of an
objective rate (other than a qualified inverse floating rate), a fixed rate that
reflects the yield that is reasonably expected for the Variable Note. 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 pursuant to
the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. U.S. Holders should be aware that on June
11, 1996, the Treasury Department issued final regulations (the "CPDI
Regulations") concerning the proper United States Federal income tax treatment
of contingent payment debt instruments. In general, the CPDI Regulations would
cause the timing and character of income, gain or loss reported on a contingent
payment debt instrument to substantially differ from the timing and character of
income, gain or loss reported on a contingent payment debt instrument under
general principles of current United States Federal income tax law.
Specifically, the CPDI Regulations generally require a U.S. Holder of such an
instrument to include future contingent and noncontingent interest payments in
income as such interest accrues based upon a projected payment schedule.
Moreover, in general, under the CPDI Regulations, any gain recognized by a U.S.
Holder on the sale, exchange, or retirement of a contingent payment debt
instrument will be treated as ordinary income and all or a portion of any loss
realized could be treated as ordinary loss as opposed to capital loss (depending
upon the circumstances). The CPDI Regulations apply to debt instruments issued
on or after August 13, 1996. The proper United States Federal income tax
treatment of Variable Notes that are treated as contingent payment debt
obligations will be more fully described in the applicable Pricing Supplement.
Furthermore, any other special United States Federal income tax considerations,
not otherwise discussed herein, which are applicable to any particular issue of
Notes will be discussed in the applicable Pricing Supplement.
S-22
<PAGE>
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, DE
MINIMIS original issue discount, market discount, DE MINIMIS market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
SHORT-TERM NOTES. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects to
do so. If such an election is not made, any gain recognized by the U.S. Holder
on the sale, exchange or maturity of the Short-Term Note will be ordinary income
to the extent of the original issue discount accrued on a straight-line basis,
or upon election under the constant yield method (based on daily compounding),
through the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
MARKET DISCOUNT. If a U.S. Holder purchases a Note, other than an Original
Issue Discount Note, for an amount that is less than its issue price (or, in the
case of a subsequent purchaser, its stated redemption price at maturity) or, in
the case of an Original Issue Discount Note, for an amount that is less than its
adjusted issue price as of the purchase date, such U.S. Holder will be treated
as having purchased such Note at a "market discount," unless such market
discount is less than a specified DE MINIMIS amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of an Original Issue Discount Note,
any payment that does not constitute qualified stated interest) on, or any gain
realized on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the lesser of (i) the amount of such payment or
realized gain or (ii) the market discount which has not previously been included
in income and is treated as having accrued on such Note at the time of such
payment or disposition. Market discount will be considered to accrue ratably
during the period from the date of acquisition to the maturity date of the Note,
unless the U.S. Holder elects to accrue market discount on the basis of
semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to the
extent the interest expense exceeds an allocable portion of market discount. A
U.S. Holder may elect to include market discount in income currently as it
accrues (on either a ratable or semiannual compounding basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest for United
States Federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
PREMIUM. If a U.S. Holder purchases a Note for an amount that is greater
than the sum of all amounts payable on the Note after the purchase date other
than payments of qualified stated interest, such U.S.
S-23
<PAGE>
Holder will be considered to have purchased the Note with "amortizable bond
premium" equal in amount to such excess. A U.S. Holder may elect to amortize
such premium using a constant yield method over the remaining term of the Note
and may offset interest otherwise required to be included in respect of the Note
during any taxable year by the amortized amount of such excess for the taxable
year. However, if the Note may be optionally redeemed after the U.S. Holder
acquires it at a price in excess of its stated redemption price at maturity,
special rules would apply which could result in a deferral of the amortization
of some bond premium until later in the term of the Note. Any election to
amortize bond premium applies to all taxable debt instruments acquired by the
U.S. Holder on or after the first day of the first taxable year to which such
election applies and may be revoked only with the consent of the IRS.
DISPOSITION OF A NOTE. Except as discussed above, upon the sale, exchange
or retirement of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Note. Such gain or loss generally will be long-term capital
gain or loss if the Note were held for more than the applicable holding period.
The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term capital
gains recognized on capital assets held by individual taxpapers for more than
eighteen months as of the date of disposition (and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions). Prospective investors
should consult their own tax advisors concerning these tax law changes.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of the Company, a controlled foreign corporation
related to the Company or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. The Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding, and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The New
Withholding Regulations will generally be effective for payments made after
December 31, 1998, subject to certain transition rules. Prospective Non-U.S.
Holders are strongly urged to consult their own tax advisors with respect to the
New Withholding Regulations.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, 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
advisor in this regard.
S-24
<PAGE>
The Notes will not be includible 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 Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence. In addition, prospective investors are strongly urged to
consult their own tax advisors with respect to the New Withholding Regulations.
See "--Non-U.S. Holders."
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the Company to
or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, BancAmerica Robertson Stephens, Credit Suisse First Boston
Corporation and Lehman Brothers Inc. (the "Agents"). The Agents, individually or
in a syndicate, may purchase Notes, as principal, from the Company from time to
time for resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the applicable
Agent or, if so specified in the applicable Pricing Supplement, for resale at a
fixed offering price. If agreed to by the Company and an Agent, such Agent may
also utilize its reasonable efforts on an agency basis to solicit offers to
purchase the Notes at 100% of the principal amount thereof, unless otherwise
specified in the applicable Pricing Supplement. The Company will pay a
commission to an Agent, ranging from .125% to .750% of the principal amount of
each Note, depending upon its stated maturity, sold through such Agent as an
agent of the Company. Commissions with respect to Notes with stated maturities
in excess of 30 years that are sold through an Agent as an agent of the Company
will be negotiated between the Company and such Agent at the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from the Company as
principal to certain dealers less a concession equal to all or any portion of
the discount received in connection with such purchase. Such Agent may allow,
S-25
<PAGE>
and such dealers may reallow, a discount to certain other dealers. After the
initial offering of Notes, the offering price (in the case of Notes to be resold
on a fixed offering price basis), the concession and the reallowance may be
changed.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject offers in whole or in part (whether placed
directly with the Company or through an Agent). 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 it on an agency basis.
Unless otherwise specified in an applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in New York City on the date of settlement.
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
In connection with an offering of Notes purchased by one or more Agents as
principal on a fixed offering price basis, such Agent or Agents, as the case may
be, will be permitted to engage in certain transactions that stabilize the price
of Notes. Such transactions may consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of Notes. If the Agent creates or the
Agents create, as the case may be, a short position in Notes, i.e., if it sells
or they sell Notes in an aggregate principal amount exceeding that set forth in
the applicable Pricing Supplement, such Agent or Agents, as the case may be, may
reduce that short position by purchasing Notes in the open market. In general,
purchases of Notes for the purpose of stabilization or to reduce a short
position could cause the price of Notes to be higher than it might be in the
absence of such purchases.
Neither the Company nor any of the Agents makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described in the immediately preceding paragraph may have on the price of Notes.
In addition, neither the Company nor any of the Agents makes any representation
that the Agents will engage in any such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to indemnify the Agents against certain liabilities under the Securities
Act, or to contribute to payments the Agents may be required to make in respect
thereof.
In the ordinary course of its business, the Agents and their affiliates have
engaged and may in the future engage in investment banking and other
transactions with the Company and certain of its affiliates.
From time to time, the Company may issue and sell other Debt Securities
described in the accompanying Prospectus, and the amount of Notes offered hereby
is subject to reduction as a result of such sales.
S-26
<PAGE>
PROSPECTUS
SOUTHERN CALIFORNIA GAS COMPANY
DEBT SECURITIES
------------------
Southern California Gas Company (the "Company") may offer from time to time
its unsecured debt securities (the "Debt Securities") for an aggregate initial
public offering price of up to $600,000,000 (or the equivalent in foreign
currencies, currency units or composite currencies). The Debt Securities will be
offered on terms to be determined in light of market conditions at the time of
offering. The specific aggregate principal amount, denominations, maturity,
interest rate (or manner in which interest is to be determined) and time of
payment of interest, if any, terms for redemption or repayment, if any, at the
option of the Company or the Holder, terms for sinking fund payments, if any,
purchase price, any other special terms and the names of the underwriters or
agents, if any, the compensation of such underwriters or agents and other terms
in connection with the sale of Debt Securities in respect of which this
Prospectus is being delivered (the "Offered Debt Securities") will be set forth
in an accompanying Prospectus Supplement (the "Prospectus Supplement") and/or a
related Pricing Supplement (the "Pricing Supplement").
No Debt Securities may be sold without delivery of a Prospectus Supplement
describing such issue of Debt Securities and the method and terms of offering
thereof.
------------------------
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 date of this Prospectus is February 9, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, information statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, information
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661 and New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York, 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a site on the World Wide Web at http:\\www.sec.gov.,
which contains reports, proxy statements and other information for registrants
that file electronically with the Commission and certain of the Company's
filings are available at such web site. Certain securities of the Company are
listed on the New York Stock Exchange, 20 Broad Street, New York, New York 10005
and the Pacific Exchange, 301 Pine Street, San Francisco, CA 94104 and reports,
information statements and other information concerning the Company can be
inspected at such exchanges.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"). This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement, including the
exhibits filed as a part thereof and incorporated by reference therein, which
may be examined without charge at the public reference facilities maintained by
the Commission at the Public Reference Room of the Commission, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. Copies thereof may be obtained from
the Commission upon payment of prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997,
June 30, 1997, and September 30, 1997, and Current Report on Form 8-K dated
January 2, 1998, as filed with the Commission, are hereby incorporated by
reference into this Prospectus and made a part hereof.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein, or contained in
this Prospectus or in a supplement hereto, shall be deemed to be modified or
superseded for purposes of this Prospectus and/or any supplement hereto to the
extent that a statement contained herein or in a supplement hereto or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus or any supplement hereto.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any documents incorporated by reference in this Prospectus (other than exhibits
to such documents, unless such exhibits are specifically incorporated by
reference in such documents). Requests for such copies should be directed to
Office of the Secretary, Southern California Gas Company, 555 West Fifth Street,
Los Angeles, California 90013; telephone number (213) 244-2160.
2
<PAGE>
SOUTHERN CALIFORNIA GAS COMPANY
The Company is a public utility owning and operating a natural gas
distribution, transmission and storage system that, as of February 3, 1998,
supplied natural gas in 535 cities and communities throughout a 23,000 square
mile service territory with a population of approximately 17.4 million people,
comprising most of southern California and parts of central California. The
Company is subject to regulation by the California Public Utilities Commission
which, among other things, establishes the rates the Company may charge for gas
service, including an authorized rate of return on investment. The Company is
the principal subsidiary of Pacific Enterprises (the "Parent"). The Debt
Securities are not obligations of, and are not guaranteed by, the Parent or any
other entity.
The Company was incorporated in California in 1910. Its principal executive
offices are located at 555 West Fifth Street, Los Angeles, California 90013
where its telephone number is (213) 244-1200.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's consolidated ratios of earnings to fixed charges for each of
the periods indicated are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratios of Earnings to Fixed Charges
(1):
Actual............................... 4.08 3.76 3.79 4.37 4.49 5.36
--------- --------- --------- --------- --------- -------------
--------- --------- --------- --------- --------- -------------
Actual Adjusted for Supplier Refunds
and Regulatory Accounts.............. 4.16 3.82 4.04 4.50 4.66 5.50
--------- --------- --------- --------- --------- -------------
--------- --------- --------- --------- --------- -------------
</TABLE>
- ------------------------
(1) Earnings represent income before income taxes plus fixed charges, and fixed
charges represent interest charges (including amortization of bond premium,
discount and expense) plus a portion of rental expense approximating
interest charges.
The ratios of earnings to fixed charges are influenced by the accrual of
interest expense relating to supplier refunds payable to customer and
regulatory accounts. Ratios which exclude interest related to supplier
refunds and regulatory accounts are calculated as described above but
exclude from fixed charges related interest expense during the relevant
period to the extent of related interest income.
USE OF PROCEEDS
Except as may otherwise be set forth in the applicable Prospectus Supplement
or Pricing Supplement, as the case may be, the net proceeds to be received by
the Company from the sale of the Debt Securities will become a part of the
general treasury funds of the Company and will be used for general corporate
purposes, which may include the expansion and betterment of utility plant, the
refunding and retirement of indebtedness and/or equity securities and the
replenishment of funds previously expended for such purposes.
3
<PAGE>
DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities are to be issued under an indenture dated as of May 1,
1989 between the Company and Citibank, N.A., as trustee (the "Trustee"), as
supplemented by a First Supplemental Indenture dated as of October 1, 1992 (the
"Indenture"). 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 of the provisions of the Indenture, including the
definitions therein of certain terms. Whenever particular sections or defined
terms of the Indenture are referred to, it is intended that such sections or
defined terms shall be incorporated herein by reference. Certain capitalized
terms used herein and not defined have the meanings set forth in the Indenture.
The form of Indenture is incorporated by reference as an exhibit to the
Registration Statement and copies thereof may be obtained as described above
under "Available Information."
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. Further terms of the Offered Debt Securities are set
forth in the Prospectus Supplement and/or an applicable Pricing Supplement. If
so indicated in the applicable Prospectus Supplement and/or Pricing Supplement,
the terms of the Offered Debt Securities may differ from the terms set forth
below.
GENERAL
The Indenture does not limit the aggregate principal amount of the Debt
Securities which may be issued thereunder and provides that the Debt Securities
may be issued from time to time in series. All debt securities issued under the
Indenture will rank PARI PASSU in priority of payment with all other debt
securities issued under such Indenture.
The Debt Securities will be unsecured obligations of the Company and will
rank PARI PASSU in priority of payment with all other unsecured and
unsubordinated indebtedness of the Company. The Debt Securities are not, by
their terms, subordinate in right of payment to any other indebtedness of the
Company. However, substantially all of the Company's properties are subject to
liens securing the Company's First Mortgage Bonds of which $850,000,000 in
aggregate principal amount were outstanding as of the date of this Prospectus.
The Company may from time to time issue additional First Mortgage Bonds which
also will be secured by such properties. Accordingly, the Notes will be
effectively subordinated to all existing and future First Mortgage Bonds to the
extent of the collateral securing the First Mortgage Bonds. The Debt Securities
are not obligations of the Parent and are not guaranteed by the Parent or any
other entity.
The Prospectus Supplement and any related Pricing Supplement will describe
certain terms of the Offered Debt Securities, including (i) the title of the
Offered Debt Securities; (ii) any limit on the aggregate principal amount of the
Offered Debt Securities; (iii) the date or dates on which the Offered Debt
Securities will mature; (iv) the rate or rates per annum (or manner in which
such rates are to be determined) at which the Offered Debt Securities will bear
interest, if any, and the date from which such interest, if any, will accrue;
(v) the dates on which such interest, if any, on the Offered Debt Securities
will be payable and the Regular Record Dates for such Interest Payment Dates;
(vi) any mandatory or optional sinking fund or analogous provisions; (vii)
additional provisions, if any, for the defeasance of the Offered Debt
Securities; (viii) the date, if any, after which and the price or prices at
which the Offered Debt Securities may, pursuant to any optional or mandatory
redemption or repayment provisions, be redeemed or repaid and the other terms of
any such optional or mandatory redemption or repayment provisions; and (ix) any
additional events of default or other terms with respect to the Offered Debt
Securities.
Unless otherwise provided in the Prospectus Supplement or a Pricing
Supplement, principal of and premium and interest, if any, on the Debt
Securities will be payable, and the transfer of the Debt Securities will be
registrable, at the office of the Trustee designated for such purpose; provided,
however, that except as otherwise provided in the Prospectus Supplement or a
Pricing Supplement, at the option of the
4
<PAGE>
Company, interest, if any, may be paid by mailing a check to the address of the
person entitled thereto as it appears in the Security Register.
Unless otherwise provided in the Prospectus Supplement or a Pricing
Supplement, the Debt Securities will be issued only in fully registered form
without coupons, and in denominations of $1,000 and integral multiples thereof.
No 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.
One or more series of Debt Securities may be issued as discounted Debt
Securities which bear no interest or which bear interest at a rate which at the
time of issuance is below market rates ("Original Issue Discount Debt
Securities") to be sold at a substantial discount below their stated principal
amount. Special federal income tax and other considerations applicable thereto
will be described in the Prospectus Supplement or Pricing Supplement relating
thereto.
The Indenture provides that all Debt Securities of any one series need not
be issued at the same time and that the Company may, from time to time, issue
additional Debt Securities of a previously issued series. In addition, the
Indenture permits the Company to issue series Debt Securities with terms
different from those of any other series of Debt Securities and, within a series
of Debt Securities, any terms (including, without limitation, interest rate,
manner in which interest is calculated, original issue date, maturity date, and
provisions, if any, for redemption and repayment) may differ. Provisions of the
Indenture do not afford Holders of the Debt Securities protection in the event
of a highly leveraged transaction, reorganization, restructuring, change of
control, merger or similar transaction involving the Company that may adversely
effect the Holders of the Debt Securities.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in global
form. A Debt Security in global form will be deposited with, or on behalf of, a
Depositary, which will be identified in an applicable Prospectus Supplement or a
Pricing Supplement. A global Debt Security may be issued in either registered or
bearer form and in either temporary or permanent form. A Debt Security in global
form may not be transferred except as a whole by the Depositary for such Debt
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. If any Debt Securities of a series are issuable in global form, the
applicable Prospectus Supplement will describe the circumstances, if any, under
which beneficial owners of interests in any such global Debt Security may
exchange such interests for definitive Debt Securities of such series and of
like tenor and principal amount in any authorized form and denomination and the
manner of payment of principal of, and premium and interest, if any, on any such
Global Debt Security.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to Debt
Securities of any series: (a) failure to pay principal of or any premium on any
Debt Security of that series when due; (b) failure to pay any interest on any
Debt Security of that series when due, continued for 30 days; (c) failure to
deposit any sinking fund payment, when due, in respect of any Debt Security of
that series; (d) failure to perform any other covenant or warranty of the
Company in the Indenture (other than a covenant or warranty included in the
Indenture solely for the benefit of one or more series of Debt Securities other
than that series), continued for 60 days after written notice by the Trustee to
the Company or by the Holders of at least 25% in principal amount of the
Outstanding Debt Securities of that series to the Company and the Trustee as
provided in the Indenture; (e) certain events in bankruptcy, insolvency or
receivership with respect to the Company; (f) a default under any mortgage,
indenture or instrument evidencing any indebtedness for money borrowed by the
Company resulting in an aggregate principal amount exceeding $10,000,000
becoming due and payable prior to its maturity date or constituting a failure to
pay when due
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<PAGE>
(after expiration of any applicable grace period) an aggregate principal amount
exceeding $10,000,000, unless such acceleration has been rescinded or annulled
or such indebtedness has been discharged within 60 days after written notice to
the Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Debt Securities of such
series, provided, however, that any such default shall not be deemed to have
occurred so long as the Company shall contest the validity thereof in good faith
by appropriate proceedings; and (g) any other Event of Default provided with
respect to the Debt Securities of that series.
If an Event of Default with respect to the Outstanding Debt Securities of
any series 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 of all the Outstanding Debt
Securities of that series (or, in the case of Original Issue Discount
Securities, such lesser amounts as may be provided by the terms thereof) to be
due and payable immediately. At any time after the declaration of acceleration
with respect to the 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 the Outstanding Debt Securities of
that series may, under certain circumstances, rescind and annul such
acceleration.
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 of Debt
Securities of any series, unless such Holders shall have offered to the Trustee
reasonable indemnity. Subject to such provisions for the indemnification of the
Trustee and subject to certain other limitations, 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
proceedings 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, provided that such direction is not in conflict with any rule of law or
with the Indenture and is not unduly prejudicial to the rights of other Holders
of Debt Securities of such series.
The Company is required to furnish to the Trustee annually a statement as to
the performance by the Company of its obligations under the Indenture and as to
any default in such performance.
MODIFICATION, WAIVER AND AMENDMENT
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than 66 2/3% 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, (a) change the Stated Maturity of
the principal of, or any installment of interest, if any, on, any Debt Security;
(b) reduce the principal amount of, or premium, if any, payable upon redemption
of, or interest, if any, on, any Debt Security; (c) reduce the amount of
principal of an Original Issue Discount Debt Security payable upon acceleration
of the Maturity thereof; (d) change the place or currency of payment of the
principal of, or premium or interest, if any, on, any Debt Security; (e) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Debt Security on or after the Stated Maturity thereof; or (f)
reduce the percentage in principal amount of the 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.
The Holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of any series may, on behalf of all Holders of the Debt
Securities of that series, waive any past default under the Indenture with
respect to the Debt Securities of that series, except a default in the payment
of principal or premium or interest, if any, or in respect of a provision of the
Indenture which cannot be amended or modified without the consent of the Holder
of each Outstanding Debt Security of the series affected.
6
<PAGE>
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the Outstanding
Debt Securities under the Indenture, may merge into, consolidate with, or sell,
lease or convey all or substantially all of its assets to any other Person,
provided that either the Company shall be the continuing corporation or such
successor Person shall be organized under the laws of the United States or any
state thereof and shall expressly assume the Company's obligations under the
Debt Securities and under the Indenture and immediately after giving effect to
the transaction the Company or such successor Person, as the case may be, shall
not be in default in performance of any such obligation.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture, with respect to all series of Debt Securities (except for
certain specified surviving obligations), will be discharged and cancelled upon
the satisfaction of certain conditions, including all the Outstanding Debt
Securities (subject to certain exceptions) having been delivered to the Trustee
for cancellation or having been defeased or, if all outstanding Debt Securities
not theretofore delivered to the Trustee for cancellation or defeased have
become due or payable or will become due or payable within one year or are to be
called for redemption within one year, the deposit with the Trustee of an amount
in cash sufficient for such payment or redemption, in accordance with the
Indenture.
DEFEASANCE
The Company shall be deemed to have paid and discharged all Debt Securities
of any series and shall be discharged from its obligations under the Indenture
(except for certain specified surviving obligations) with respect to Debt
Securities of such series on the terms and subject to the conditions contained
in the Indenture, by depositing in trust with the Trustee cash or U.S.
Government Obligations (or a combination thereof) sufficient to pay the
principal of, and premium and interest, if any, on, the Debt Securities of such
series to their maturity, redemption or repayment dates in accordance with the
terms of the Indenture and such Debt Securities. Such a trust may be established
only if, among other things, the Company has delivered to the Trustee an Opinion
of Counsel (which shall be based upon an Internal Revenue Service ruling or a
change subsequent to the date of the Indenture in applicable federal income tax
law) to the effect that the Holders of such Debt Securities will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such defeasance and will be subject to United States federal income tax in
the same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
GOVERNING LAW
The Debt Securities and the Indenture will be governed by and construed in
accordance with the laws of the State of New York.
CONCERNING THE TRUSTEE
The Trustee is a national banking association. The Indenture does not limit
the right of the Trustee and its affiliates to make loans to, engage in other
transactions with, or perform other services for, the Company from time to time.
However, under the provisions of the Trust Indenture Act of 1939, as amended,
upon the occurrence and continuance of a default under an indenture, if a
trustee has a conflicting interest (as defined in the Trust Indenture Act) the
trustee must, within 90 days, either eliminate such conflicting interest or
resign. Under the provisions of the Trust Indenture Act, an indenture trustee
shall be deemed to have a conflicting interest if (among other things), upon the
occurrence of a default under the indenture, the trustee is a creditor of the
obligor.
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<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities through underwriters or agents or
directly to purchasers. A Prospectus Supplement and/or Pricing Supplement will
set forth the names of such underwriters or agents, if any, and the specific
designation, aggregate principal amount, maturity date, rate of interest, if
any, and time of redemption and/or repayment, if any, and other terms, and any
listing on a securities exchange of the Debt Securities in respect of which this
Prospectus is delivered.
The Debt Securities may be sold to underwriters for their own account and
may be resold to the public from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. A Prospectus Supplement and/or
Pricing Supplement will set forth any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers.
The Debt Securities may be sold directly by the Company, or through agents
designated by the Company from time to time. A Prospectus Supplement and/or
Pricing Supplement will set forth any commission payable by the Company to any
such agent. Unless otherwise indicated in the Prospectus Supplement, any such
agent will be acting on a reasonable efforts basis for the period of its
appointment.
The net proceeds to the Company from the sale of the Debt Securities will be
the purchase price of the Debt Securities less any such discounts or commissions
and the other attributable expenses of issuance and distribution.
The Company will agree to indemnify underwriters and agents against certain
civil liabilities, including liabilities under the Securities Act, or to
contribute to payments underwriters or agents may be required to make in respect
thereof.
LEGAL MATTERS
Certain matters with respect to the validity of the Offered Debt Securities
will be passed upon for the Company by Gary W. Kyle, Chief Financial Counsel to
Pacific Enterprises and counsel to the Company. Brown & Wood LLP, Los Angeles,
California, will act as counsel for any underwriters or agents.
EXPERTS
The consolidated financial statements and related consolidated financial
statement schedules incorporated herein by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports also
incorporated herein by reference and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING
SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE AGENTS. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THEREOF. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE
PRICING SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Special Note Regarding Forward-Looking
Statements................................... S-2
Description of the Notes....................... S-3
Certain United States Federal
Income Tax Considerations.................... S-19
Plan of Distribution........................... S-25
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Southern California Gas Company................ 3
Ratios of Earnings to Fixed Charges............ 3
Use of Proceeds................................ 3
Description of the Debt Securities............. 4
Plan of Distribution........................... 8
Legal Matters.................................. 8
Experts........................................ 8
</TABLE>
$600,000,000
SOUTHERN CALIFORNIA
GAS COMPANY
MEDIUM-TERM NOTES
DUE NINE MONTHS OR
MORE FROM DATE OF ISSUE
--------------------
PROSPECTUS SUPPLEMENT
--------------------
MERRILL LYNCH & CO.
BANCAMERICA ROBERTSON STEPHENS
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
FEBRUARY 9, 1998
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