<PAGE>
Filed Pursuant to Rule 424(b)(2)
Reg. No. 333-46527
and 333-46527-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 26, 1998)
[LOGO]
U.S. $500,000,000
TEXACO CAPITAL INC.
SERIES 1998 MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
PAYMENT OF PRINCIPAL, PREMIUM AND
INTEREST, IF ANY, ON THE MEDIUM-TERM NOTES IS GUARANTEED BY
TEXACO INC.
Texaco Capital Inc. (the "Company") may from time to time offer its Series
1998 Medium-Term Notes (the "Notes"), in an aggregate principal amount of up to
U.S. $500,000,000 or the equivalent thereof in other currencies or currency
units, subject to reduction as a result of the sale of other debt securities by
the Company. The Notes will be guaranteed by Texaco Inc. The Notes will be
offered at varying maturities of nine months or more from date of issue (the
"Stated Maturity," which maturity date may be subject to extension at the option
of the Company) and may be subject to redemption at the option of the Company or
repayment at the option of the holder prior to maturity. Each Note may be
denominated in U.S. dollars, other currencies, European Currency Units ("ECU")
or such other composite currencies (the "Specified Currency") as may be
described in a pricing supplement (the "Pricing Supplement") to this Prospectus
Supplement. See "Important Currency Information" and "Currency Risks". The
principal amount of a Note payable at maturity may be determined by either the
relationship between a denominated currency and another currency (a "Currency
Indexed Note") as set forth in a Pricing Supplement or the relationship between
the difference in the price of a specified commodity on certain specified dates
(a "Commodity Indexed Note") as set forth in a Pricing Supplement or by
reference to any other index set forth in a Pricing Supplement. Each Note may be
issued as an amortizing note (an "Amortizing Note") on which a portion or all
the principal amount is payable prior to Stated Maturity in accordance with a
schedule by application of a formula, or by reference to an index. Each Note
will bear interest at a fixed rate (a "Fixed Rate Note"), which may be zero in
the case of certain Notes issued at a price representing a discount from the
principal amount payable at maturity or at a floating rate (a "Floating Rate
Note") determined by reference to the CD Rate, the Commercial Paper Rate, the
Federal Funds Rate, LIBOR, the Treasury Rate, the Prime Rate, the CMT Rate, the
Eleventh District Cost of Funds Rate, or any other Base Rate set forth in the
Pricing Supplement, as adjusted by the Spread or Spread Multiplier, if any,
applicable to such Note. See "Description of Medium-Term Notes."
Each Note will be represented by either a global security registered in the
name of a nominee of The Depository Trust Company, as Depositary, or other
depositary (the "Depositary") (a "Book-Entry Note"), or a certificate issued in
definitive form (a "Certificated Note"), as set forth in the applicable Pricing
Supplement. Beneficial interests in Book-Entry Notes will be shown on, and
transfers thereof will be affected only through records maintained by the
Depositary's participants.
The Notes will be issued in denominations of U.S. $100,000 or any larger
amount that is an integral multiple of U.S. $1,000 or, in the case of Notes
denominated in a Specified Currency other than U.S. dollars, in the
denominations set forth in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, interest on
each Fixed Rate Note will accrue from its date of issue and will be payable
semi-annually and at maturity, and interest on each Floating Rate Note will
accrue from its date of issue and will be payable monthly, quarterly,
semi-annually or annually, as set forth in the applicable Pricing Supplement,
and at maturity.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT
HERETO OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
AGENTS
PRICE TO PUBLIC(1) COMMISSION(2)
------------------------ ------------------------
<S> <C> <C>
Per Note.................................................. 100.00% .125%-1.125%
Total(4).................................................. U.S. $500,000,000 U.S. $625,000-$5,625,000
<CAPTION>
PROCEEDS TO
THE COMPANY(2)(3)
-----------------------------
<S> <C>
Per Note.................................................. 99.875%-98.875%
U.S.
Total(4).................................................. $499,375,000-$494,375,000
</TABLE>
- ------------------------------
(1) The Notes will be sold at 100% of their principal amount except as may be
provided in the Pricing Supplement hereto.
(2) The Company will pay a commission to Bear, Stearns & Co. Inc., Blaylock &
Partners, L.P., Credit Suisse First Boston Corporation, Goldman, Sachs &
Co., Morgan Stanley & Co. Incorporated and Salomon Brothers Inc each as
Agent (collectively, the "Agents"), in the form of a discount of the
principal amount of any Note sold through such Agent, ranging from .125% to
1.125%, depending upon the maturity of the Note. The Company may also sell
Notes to any Agent at a discount for resale to investors and other
purchasers at varying prices related to prevailing market prices at the time
of resale, to be determined by such Agent.
(3) Before deducting other expenses payable by the Company estimated to be U.S.
$200,000 including reimbursement of certain of the Agents' expenses. The
Company has agreed to indemnify each Agent against certain liabilities
including liabilities under the Securities Act of 1933, as amended.
(4) Or the equivalent thereof in other currencies or composite currencies.
------------------------------
The Notes are being offered on a continuous basis by the Company through the
Agents, each of whom has agreed to use its best efforts to solicit purchases of
such Notes. In addition, the Notes may also be sold to the Agents, as
principals, for resale to investors and other purchasers. The Company also may
sell the Notes directly to investors on its own behalf. The Notes will not be
listed on any securities exchange and there can be no assurance that the Notes
offered by this Prospectus Supplement will be sold or that there will be a
secondary market for any of the Notes. The Company reserves the right to
withdraw, cancel or modify the offer made hereby without notice. The Company or
the Agent who solicits any offer may reject such offer in whole or in part. See
"Plan of Distribution".
------------------------------
BEAR, STEARNS & CO. INC. BLAYLOCK & PARTNERS, L.P.
<PAGE>
CREDIT SUISSE FIRST BOSTON GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY
The date of this Prospectus Supplement is March 4, 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY
BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
No dealer, salesman or any other person has been authorized to give
information or to make any representations, other than those contained in this
Prospectus Supplement, any Pricing Supplement and the accompanying Prospectus,
in connection with the offer contained in this Prospectus Supplement, any
Pricing Supplement and the accompanying Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company, Texaco Inc. or the Agents. Neither the delivery of this
Prospectus Supplement, any Pricing Supplement and the accompanying Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company or
Texaco Inc. since the dates as of which information is given in this Prospectus
Supplement, and in the accompanying Prospectus hereof. This Prospectus
Supplement, any Pricing Supplement and the accompanying Prospectus do not
constitute an offer or solicitation by anyone in any jurisdiction for which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to any person to whom it is
unlawful to make such offer or solicitation.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------
1997 1996 1995(A) 1994(B) 1993(B)
----------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges of Texaco on a
total enterprise basis (unaudited)............... 5.90 5.75 2.55 2.86 2.91
<CAPTION>
1992(A)(B)
-------------
<S> <C>
Ratio of earnings to fixed charges of Texaco on a
total enterprise basis (unaudited)............... 3.10
</TABLE>
- ------------------------
(a) Excludes cumulative effect of accounting changes.
(b) Excludes discontinued operations.
DESCRIPTION OF MEDIUM-TERM NOTES
The information herein concerning the Notes should be read in conjunction
with the statements under "Description of the Debt Securities" in the
Prospectus. The following description will apply to the Notes unless otherwise
specified in the applicable Pricing Supplement.
GENERAL
The Notes are limited to an aggregate principal amount of U.S. $500,000,000
(or the equivalent thereof in other currencies or currency units), subject to
reduction as a result of the sale of other debt securities by the Company. The
Notes will rank equally and ratably with all other unsecured and unsubordinated
indebtedness of the Company. The Guaranties will rank equally and ratably with
all other unsecured and unsubordinated indebtedness of Texaco Inc. Unless
otherwise specified in the applicable Pricing Supplement, the Notes will not
contain event risk provisions designed to require the Company to redeem the
Notes, reset the interest rate or take other actions in response to highly
leveraged transactions, changes in credit rating or other similar occurrences.
The Notes will be offered on a continuous basis and will mature at par on
any Business Day (as defined below) nine months or more from date of issue (the
"Stated Maturity"), which maturity date may be subject to extension by the
Company with the consent of the purchaser, and may be subject to redemption or
repayment prior to maturity at the price or prices specified in the applicable
Pricing
S-2
<PAGE>
Supplement. Each Note will be either (i) a Fixed Rate Note, in which case the
fixed interest rate may be zero in the case of certain Notes issued at an Issue
Price (as defined below) representing a discount from the principal amount
payable at maturity (a "Zero-Coupon Note"), or (ii) a Floating Rate Note, in
which case the interest rate is determined by reference to the interest rate
basis or combination of interest rate bases (the "Base Rate") specified in the
applicable Pricing Supplement that may be adjusted by a Spread or Spread
Multiplier (each as defined below).
The Notes may be issued as Currency Indexed Notes, the principal amount of
which payable at maturity will be determined by the difference between the
currency in which such Notes are denominated and another currency or composite
currency set forth in the applicable Pricing Supplement. See "Currency Indexed
Notes" below. The Notes may also be issued as Commodity Indexed Notes the
principal amount of which payable at maturity will be determined by the
difference in the price of a specified commodity on certain specified dates set
forth in the applicable Pricing Supplement. See "Commodity Indexed Notes" below.
The principal amount of a Note payable at maturity may also be determined by
reference to any other index specified in the applicable Pricing Supplement.
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note in fully registered form without coupons. Except as set forth
in the Prospectus under "Description of the Debt Securities-- Global
Securities". Book-Entry Notes will not be issuable in certificated form. See
"Book-Entry System" below. It is currently contemplated that only Notes that are
denominated and payable in U.S. dollars will be issued as Book-Entry Notes.
The authorized denominations of the Notes denominated in U.S. dollars will
be U.S. $100,000 or any larger amount that is an integral multiple of U.S.
$1,000. Unless otherwise specified in the applicable Pricing Supplement, Notes
denominated in a Specified Currency other than U.S. dollars will be issued in
denominations of the equivalent of U.S. $100,000 (rounded down to an integral
multiple of 1,000 units of such Specified Currency), or any amount in excess
thereof which is an integral multiple of 1,000 units of such Specified Currency,
as determined by reference to the noon dollar buying rate in New York City for
cable transfers of such Specified Currency published by the Federal Reserve Bank
of New York (the "Market Exchange Rate") on the Business Day (as defined below)
immediately preceding the date of issuance; provided, however, in the case of
ECUs, the Market Exchange Rate shall be the rate of exchange determined by the
Commission of the European Communities (or any successor thereto) as published
in the Official Journal of the European Communities, or any successor
publication, on the Business Day immediately preceding the date of Issuance.
"Business Day" means any day, other than a Saturday or Sunday, that meets
each of the following applicable requirements: the day is (a) not a day on which
banking institutions are authorized or required by law or regulation to be
closed in The City of New York; (b) if the Note is denominated in a Specified
Currency other than U.S. dollars, (i) not a day on which banking institutions
are authorized or required by law or regulation to close in the financial center
of the country issuing the Specified Currency (which in the case of ECU shall be
London and Luxembourg City, Luxembourg) and (ii) a day on which banking
institutions in such financial center are carrying out transactions in such
Specified Currency; and (c) with respect to LIBOR Notes, a London Banking Day.
"London Banking Day" means any day on which dealings in deposits in U.S. dollars
are transacted in the London interbank market.
The Pricing Supplement relating to each Note will describe the following
terms: (1) the Specified Currency with respect to such Note (and, if such
Specified Currency is other than U.S. dollars, certain other terms relating to
such Note, including the authorized denominations); (2) whether such Note is a
Fixed Rate Note, a Floating Rate Note, an Amortizing Note or a Zero-Coupon Note;
(3) the price (expressed as a percentage of the principal amount thereof) at
which such Note will be issued (the "Issue Price"); (4) the date on which such
Note will be issued (the "Original Issue Date"); (5) the date on which such Note
will mature (the "Maturity Date") and whether the Maturity Date may be extended
by the Company, and if so, the Final Maturity Date (as defined below); (6) if
such Note is a Fixed Rate Note, the
S-3
<PAGE>
rate per annum at which such Note will bear interest, if any, and whether such
rate may be changed by the Company prior to the Maturity Date; (7) if such Note
is a Floating Rate Note, the Base Rate and the Initial Interest Rate, the
Interest Reset Period, the Interest Reset Dates, the Interest Determination
Dates, the Interest Payment Period, the Interest Payment Dates, the Index
Maturity, the Maximum Interest Rate and the Minimum Interest Rate, if any, and
the Spread or Spread Multiplier, if any, (all as defined below) and any other
terms relating to the particular method of calculating the interest rate for
such Note, and whether such Spread or Spread Multiplier may be changed by the
Company prior to the Maturity Date; (8) if such Note is an Amortizing Note, the
terms of repayment prior to stated Maturity; (9) whether such Note may be
redeemed or repaid prior to the Maturity Date and, if so, the provisions
relating to such redemption or repayment; (10) whether such Note will be issued
initially as a Book-Entry Note or a Certificated Note; (11) if such Note is a
Currency Indexed Note, the Denominated Currency, the Indexed Currency, the Face
Amount, the Base Exchange Rate, the Calculation Agent and the Reference Dealers
(all as defined below) relating to such Currency Indexed Notes and certain other
information relating to Currency Indexed Notes; (12) if such Note is a Commodity
Indexed Note, the method by which the amount of principal payable at the
Maturity Date shall be determined and other information relating to Commodity
Indexed Notes; and (13) any other terms of such Note not inconsistent with the
provisions of the Indenture.
GUARANTIES
Texaco Inc. will unconditionally guarantee the due and punctual payment of
the principal of (and premium, if any) and interest, if any, on the Notes, when
and as the same shall become due and payable, whether at maturity or upon
redemption, declaration or otherwise.
PAYMENT OF PRINCIPAL AND INTEREST
The principal of and any premium and interest on the Notes are payable by
the Company in the Specified Currency.
Unless otherwise specified in the applicable Pricing Supplement, payments of
interest on Notes denominated in a Specified Currency other than U.S. dollars
will be made by wire transfer of immediately available funds to an account
maintained by the payee at a bank located outside the United States and the
holder of such Notes shall provide the Paying Agent (as defined below) with the
appropriate wire transfer instructions. If the applicable Pricing Supplement
provides for payments of interest and principal on non-U.S. dollar denominated
Notes to be made, at the option of the holders of the Notes, in U.S. dollars,
conversion of payments in respect of such Notes from the Specified Currency into
U.S. dollars will be determined by the "Exchange Rate Agent", initially The
Chase Manhattan Bank, in the manner described in the following paragraph.
If the applicable Pricing Supplement so provides, in the case of a Note
denominated in a Specified Currency other than U.S. dollars, payment in respect
of such Note at the election of the holder of such Note shall be made in U.S.
dollars based upon the exchange rate as determined by the Exchange Rate Agent
based on the highest firm bid quotation for U.S. dollars received by such
Exchange Rate Agent at approximately 11:00 a.m., New York City time, on the
second Business Day preceding the applicable payment date (or, if no such rate
is quoted on such date, the last date on which such rate was quoted), from three
recognized foreign exchange dealers in The City of New York selected by the
Exchange Rate Agent and approved by the Company (one of which may be the
Exchange Rate Agent) for the purchase by the quoting dealer, for settlement on
such payment date, of the aggregate amount of the Specified Currency payable on
such payment date in respect of all Notes denominated in such Specified
Currency. All currency exchange costs will be borne by the holders of such Notes
by deductions from such payments. If no such bid quotations are available,
payments will be made in the Specified Currency, unless such Specified Currency
is unavailable due to the imposition of exchange controls or to other
circumstances
S-4
<PAGE>
beyond the Company's control, in which case payment will be made as described
under "Currency Risks-- Payment Currency" below.
Until the Notes are paid or payment thereof is provided for, the Company
will, at all times, maintain a paying agent (the "Paying Agent") in The City of
New York capable of performing the duties described herein to be performed by
the Paying Agent. The Company has initially appointed The Chase Manhattan Bank,
450 West 33rd Street, New York, New York 10001 as Paying Agent. The Company will
notify the holders of the Notes in accordance with the Indenture of any change
in the Paying Agent or its address.
Unless otherwise specified in the applicable Pricing Supplement, payments in
U.S. dollars of interest on Notes (other than interest payable at maturity or
upon earlier redemption or repayment) will be made by mailing a check to the
holder at the address of such holder appearing on the Register on the applicable
Record Date (which in the case of Global Securities representing Book-Entry
Notes, will be a nominee of the Depositary). Notwithstanding the foregoing: (a)
the Depositary, as holder of the Book-Entry Note shall be entitled to receive
payments of interest by wire transfer of immediately available funds; and (b) a
holder of U.S. $10,000,000 or more in aggregate principal amount of Certificated
Notes of like tenor and terms (or a holder of the equivalent thereof in a
Specified Currency other than U.S. dollars) shall be entitled to receive such
payments in U.S. dollars by wire transfer of immediately available funds, but
only if appropriate payment instructions have been received in writing by the
Paying Agent not less than fifteen days prior to the applicable Interest Payment
Date. Unless otherwise specified in the applicable Pricing Supplement, principal
and any premium and interest payable at maturity or upon earlier redemption or
repayment in respect of a Note will be paid in immediately available funds upon
surrender of such Note at the office of the Paying Agent.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Original Issue Discount Note (as defined under "Certain United
States Federal Income Tax Consequences--Original Issue Discount Notes") is
declared to be due and payable immediately as described in the accompanying
Prospectus under "Default," the amount of principal due and payable with respect
to such Note shall be limited to the sum of the aggregate principal amount of
such Note multiplied by the Issue Price (expressed as a percentage of the
aggregate principal amount) plus the original issue discount accrued from the
Original Issue Date to the date of declaration, which accrual shall be
calculated using the "interest method" (computed in accordance with generally
accepted accounting principles) in effect on the date of declaration.
The "Record Date" with respect to any Interest Payment Date shall be the
date fifteen calendar days (unless otherwise specified in the applicable Pricing
Supplement) immediately preceding such Interest Payment Date whether or not such
date shall be a Business Day. Interest payable and punctually paid or duly
provided for on any Interest Payment Date will be paid to the person in whose
name a Note is registered at the close of business on the Record Date next
preceding such Interest Payment Date; provided, however, that the first payment
of interest on any Note with an Original Issue Date between a Record Date and an
Interest Payment Date or on an Interest Payment Date, will be made on the
Interest Payment Date following the next succeeding Record Date to the person in
whose name a Note is registered on such next succeeding Record Date; provided,
further, that interest payable at maturity or upon earlier redemption or
repayment will be payable to the person to whom principal shall be payable.
All percentages resulting from any calculations will be rounded, if
necessary, to the nearest one hundred-thousandth of a percentage, with five
one-millionths of a percentage being rounded upwards, and all currency or
currency unit amounts used and resulting from such calculations on the Notes
will be rounded to the nearest one-hundredth of a unit (with .005 of a unit
being rounded upwards).
S-5
<PAGE>
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its Original Issue Date at the
rate per annum stated on the face thereof until the principal amount thereof is
paid or made available for payment except as described below under "Subsequent
Interest Periods" and "Extension of Maturity". Unless otherwise set forth in an
applicable Pricing Supplement, interest on each Fixed Rate Note will be payable
semiannually (each such payment date an "Interest Payment Date") (provided,
however, that in the case of a Fixed Rate Note issued between a Record Date and
an Interest Payment Date, the first interest payment will be made on the
Interest Payment Date following the next succeeding Record Date) and at maturity
or upon earlier redemption or repayment. Each payment of interest shall include
interest accrued to but excluding an Interest Payment Date or the Maturity Date
or a date of earlier redemption or repayment as the case may be. Interest on
Fixed Rate Notes will be computed on the basis of a 360-day year of twelve
30-day months.
Any payment required to be made in respect of a Fixed Rate Note on a date
that is not a Business Day for such Note need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as if
made on such date, and no additional interest shall accrue as a result of such
delayed payment.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from its Original Issue Date at a
rate determined by reference to the Base Rate plus or minus the Spread, if any,
or multiplied by the Spread Multiplier, if any (each as specified in the
applicable Pricing Supplement) until the principal amount thereof is paid or
made available for payment. The "Spread" is the number of basis points (one
basis point equals one-hundredth of one percent) specified in the applicable
Pricing Supplement as being applicable to such Floating Rate Note, and the
"Spread Multiplier" is the percentage specified in the applicable Pricing
Supplement as being applicable to such Note. Any Floating Rate Note may also
have either or both of the following: (i) a maximum numerical interest rate
limitation, or ceiling, on the rate of interest which may apply during any
interest period (the "Maximum Interest Rate"); and (ii) a minimum numerical
interest rate limitation, or floor, on the rate of interest which may apply
during any interest period (the "Minimum Interest Rate"). The applicable Pricing
Supplement will designate one of the following Base Rates as applicable to each
Floating Rate Note: (a) the CD Rate (a "CD Rate Note"), (b) the Commercial Paper
Rate (a "Commercial Paper Rate Note"), (c) the Federal Funds Rate (a "Federal
Funds Rate Note"), (d) LIBOR (a "LIBOR Note"), (e) the Treasury Rate (a
"Treasury Rate Note"), or (f) the Prime Rate (a "Prime Rate Note"), (g) CMT Rate
(a "CMT Note"), (h) the Eleventh District Cost of Funds Rate (an "Eleventh
District Cost of Funds Rate Note"), or (i) such other Base Rate as is set forth
in the Pricing Supplement. The "Index Maturity" for any Floating Rate Note is
the period of maturity of the instrument or obligation from which the Base Rate
is calculated and will be specified in the applicable Pricing Supplement.
The rate of interest on each Floating Rate Note may be reset daily, weekly,
monthly, quarterly, semi-annually or annually (the "Interest Reset Period"), as
specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, the date or dates on which interest will be
reset (each an "Interest Reset Date") will be, in the case of Floating Rate
Notes which reset daily, each Business Day; in the case of Floating Rate Notes
(other than Treasury Rate Notes) that reset weekly, Wednesday of each week; in
the case of Treasury Rate Notes that reset weekly, Tuesday of each week; in the
case of Floating Rate Notes that reset monthly, the third Wednesday of each
month; in the case of Floating Rate Notes that reset quarterly, the third
Wednesday of January, April, July and October; in the case of Floating Rate
Notes that reset semi-annually, the third Wednesday of the two months specified
in the applicable Pricing Supplement; and in the case of Floating Rate Notes
that reset annually, the third Wednesday of the month specified in the
applicable Pricing Supplement. If any Interest Reset Date for any Floating Rate
Note is not a Business Day, such Interest Reset Date shall be postponed to the
next day that is a Business Day, except, in the case of a LIBOR Note, if such
Business Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Business Day. If an auction
S-6
<PAGE>
of Treasury Bills (as defined below) falls on a day that is an Interest Reset
Date for Treasury Rate Notes, the Interest Reset Date shall be the next
succeeding Business Day.
Interest on each Floating Rate Note will be payable monthly, quarterly,
semi-annually, or annually (the "Interest Payment Period"). Except as provided
below or in the applicable Pricing Supplement, the date or dates on which
interest will be payable (each an "Interest Payment Date") will be, in the case
of Floating Rate Notes with a daily, weekly or monthly Interest Payment Period,
the third Wednesday of each month; in the case of Floating Rate Notes with a
quarterly Interest Payment Period, on the third Wednesday of January, April,
July and October; in the case of Floating Rate Notes with a semi-annual Interest
Payment Period, on the third Wednesday of the two months specified in the
applicable Pricing Supplement; and in the case of Floating Rate Notes with an
annual Interest Payment Period, on the third Wednesday of the month specified in
the applicable Pricing Supplement. Notwithstanding the foregoing, in the case of
a Floating Rate Note issued between a Record Date and an Interest Payment Date,
the first interest payment will be made on the Interest Payment Date following
the next succeeding Record Date.
If any Interest Payment Date for any Floating Rate Note would otherwise be a
day that is not a Business Day, such Interest Payment Date shall be postponed to
the next day that is a Business Day, except that in the case of a LIBOR Note, if
such Business Day is in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding Business Day.
The interest payable on a Floating Rate Note on each Interest Payment Date
will include accrued interest from and including the Original Issue Date or from
and including the last date to which interest has been paid, as the case may be,
to, but excluding, such Interest Payment Date; provided, however, that if the
Interest Reset Period is daily, weekly or monthly, the interest payable on each
Interest Payment Date, other than at maturity or earlier redemption or repayment
will include accrued interest from and including the Original Issue Date or from
and including the last date to which interest has been paid, as the case may be,
to, but excluding, the Record Date immediately preceding such Interest Payment
Date, and the interest payable at maturity on earlier redemption or repayment
will include accrued interest from and including the Original Issue Date or from
and including the last date to which interest has been paid, as the case may be,
to, but excluding, the Maturity Date or the date of redemption or repayment as
the case may be. Such accrued interest will be calculated by multiplying the
principal amount thereof by an accrued interest factor. This accrued interest
factor shall be computed by adding the interest factors calculated for each day
in the period for which accrued interest is being calculated. The interest
factor (expressed as a decimal) for each such day shall be computed by dividing
the interest rate applicable to such day by 360. If the Base Rate is the CD
Rate, Commercial Paper Rate, Federal Funds Rate, Eleventh District Cost of Funds
Rate, Prime Rate or LIBOR, as indicated in the applicable Pricing Supplement, or
by the actual number of days in the year if the Base Rate is Treasury Rate or
CMT Rate, as indicated in the applicable Pricing Supplement.
The interest rate in effect on each day will be (a) if such day is an
Interest Reset Date, the interest rate with respect to the Interest
Determination Date (as defined below) pertaining to such Interest Reset Date or
(b) if such day is not an Interest Reset Date, the interest rate with respect to
the Interest Determination Date pertaining to the next preceding Interest Reset
Date; provided, however, that (i) the interest rate in effect from the Original
Issue Date to the first Interest Reset Date will be the "Initial Interest Rate"
specified in the applicable Pricing Supplement; (ii) the interest rate in effect
for the ten calendar days immediately prior to maturity or redemption or
repayment will be that in effect on the tenth calendar day preceding such
maturity or redemption or repayment and (iii) if any Floating Rate Note is
issued between a Record Date and the related Interest Payment Date, and such
Note has daily or weekly Interest Reset Dates, then notwithstanding the fact
that an Interest Reset Date may occur prior to such Interest Payment Date, the
Initial Interest Rate shall remain in effect through the first Interest Reset
Date occurring on or subsequent to such Interest Payment Date. Notwithstanding
the foregoing, the interest rate for any Note shall not be greater than the
Maximum Interest Rate, if any, or less than the Minimum Interest Rate, if any,
shown in the applicable Pricing Supplement. In addition, the interest rate on
any Note shall in no
S-7
<PAGE>
event be higher than the maximum rate, if any, permitted by New York law. Under
present New York law, the maximum interest rate is 25% per annum on a simple
interest basis. This limit may not apply to Notes in which U.S. $2,500,000 or
more has been invested.
The "Interest Determination Date" pertaining to an Interest Reset Date will
be, if the Base Rate is the CD Rate, Commercial Paper Rate, CMT Rate or Federal
Funds Rate, the second Business Day preceding such Interest Reset Date. The
Interest Determination Date pertaining to an Interest Reset Date will be, if the
Base Rate is LIBOR, the second London Banking Day preceding such Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for
an Eleventh District Cost of Funds Rate Note or any Floating Rate Note for which
the interest rate is determined with reference to the Eleventh District Cost of
Funds Rate (the "Eleventh District Cost of Funds Rate Interest Determination
Date") will be the last working day of the month immediately preceding the
applicable Interest Reset Date on which the Federal Home Loan Bank of San
Francisco (the "FHLB of San Francisco") publishes the Index (as defined below).
The Interest Determination Date pertaining to an Interest Reset Date will be, if
the Base Rate is the Treasury Rate, the day of the week in which such Interest
Reset Date falls on which Treasury Bills of the Index Maturity specified in the
applicable Pricing Supplement are auctioned. Treasury bills are normally
auctioned 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. If an auction is so held on the
preceding Friday, such Friday will be the Interest Determination Date pertaining
to the Interest Reset Date occurring in the next succeeding week. If an auction
falls on a day that is not an Interest Reset Date, such Interest Reset Date will
be the next following Business Day.
The "Calculation Date", where applicable, pertaining to an Interest
Determination Date will be the earlier of the tenth calendar day after such
Interest Determination Date, or if such day is not a Business Day, the next
succeeding Business Day or the Business Day preceding the Applicable Interest
Payment Date or Maturity Date, as the case may be.
Subject to applicable provisions of law and except as specified in the
applicable Pricing Supplement, on each Interest Reset Date the rate of interest
shall be the rate determined in accordance with the provisions of the applicable
heading below.
DETERMINATION OF CD RATE. If the Base Rate is the CD Rate, the interest
rate shall equal: (a) the rate on the Interest Determination Date specified in
the applicable Pricing Supplement for negotiable 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 of the Board of
Governors of the Federal Reserve System (the "H.15(519)"), under the heading
"CDs (Secondary Market)"; (b) if such rate is not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, then as such rate 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" (the "Composite Quotations") under the heading
"Certificates of Deposit"; or (c) if neither of such rates is published by 3:00
P.M., New York City time, on such Calculation Date, the arithmetic mean as
calculated by the Calculation Agent of the secondary market offered rates as of
10:00 A.M., New York City time, on such Interest Determination Date of three
leading nonbank dealers in negotiable U.S. Dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable certificates
of deposit of major Unites States money center banks of the highest credit
standing in the market for negotiable certificates of deposit with a remaining
maturity closest to the Index Maturity (as specified in the applicable Pricing
Supplement) in a denomination of $5,000,000, in each of the above cases adjusted
by the addition or subtraction of the Spread, if any, specified in the
applicable Pricing Supplement, or by multiplication by the Spread Multiplier, if
any, specified in the applicable Pricing Supplement; provided, however, that if
such dealers are not quoting as mentioned above, the interest rate in effect
until the Interest Reset Date next succeeding the Interest Reset Date to which
such Interest Determination Date relates shall be the rate in effect on such
Interest Determination Date.
S-8
<PAGE>
DETERMINATION OF COMMERCIAL PAPER RATE. If the Base Rate is the Commercial
Paper Rate, as indicated in the applicable Pricing Supplement, the interest rate
shall equal (a) the Money Market Yield (as defined herein) on the Interest
Determination Date for commercial paper having the Index Maturity specified in
the applicable Pricing Supplement as the rate for such commercial paper
published in the H.15 (519), or any successor publication, under the heading
"Commercial Paper Non-Financial"; (b) if such commercial paper rate is not so
published by 9:00 A.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, then the Money Market Yield using the rate
for commercial paper of such Index Maturity as published for such Interest
Determination Date in the Composite Quotations under the heading "Commercial
Paper"; or (c) if neither of such rates is published by 3:00 P.M., New York City
time, on such Calculation Date, the Money Market Yield of the arithmetic mean of
the offered rates, as of 11:00 A.M., New York City time on such Interest
Determination Date, of three leading dealers of commercial paper in The City of
New York, selected by the Calculation Agent for commercial paper of the Index
Maturity specified in the applicable Pricing Supplement placed for an industrial
issuer whose bond rating is "AA" or the equivalent, from a nationally recognized
rating agency, in each of the above cases adjusted by the addition or
subtraction of the Spread, if any, specified in the applicable Pricing
Supplement, or by multiplication by the Spread Multiplier, if any, specified in
the applicable Pricing Supplement, provided, however, that if such dealers are
not quoting as mentioned above, the interest rate in effect thereon until the
Interest Reset Date next succeeding the Interest Reset Date to which such
Interest Determination Date relates shall be the rate in effect thereon on such
Interest Determination Date.
"Money Market Yield" shall be the yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = ------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
DETERMINATION OF FEDERAL FUNDS RATE. If the Base Rate is the Federal Funds
Rate, as indicated in the applicable Pricing Supplement, the interest rate shall
equal (a) the rate on the Interest Determination Date specified in the
applicable Pricing Supplement for Federal Funds as published in the H15(519),
under the heading "Federal Funds (Effective)"; (b) if such rate is not so
published by 9:00 A.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, then the rate as published in the Composite
Quotations under the heading "Federal Funds/Effective Rate"; or (c) if neither
of such rates is published by 3:00 P.M., New York City time, on such Calculation
Date, the arithmetic mean (as calculated by the Calculation Agent) of the rates
for the last transaction in overnight Federal Funds arranged by three leading
brokers selected by the Calculation Agent of Federal Funds transactions in The
City of New York as of 11:00 A.M., New York City time on such Interest
Determination Date, in each of the above cases adjusted by the addition or
subtraction of the Spread, if any, specified in the applicable Pricing
Supplement or by multiplication by the Spread Multiplier, if any specified in
the applicable Pricing Supplement; provided, however, that if such brokers are
not quoting as mentioned above, the interest rate in effect thereon until the
Interest Reset Date next succeeding the Interest Reset Date to which such
Interest Determination Date relates shall be the rate in effect on such Interest
Determination Date.
DETERMINATION OF LIBOR. If the Base Rate indicated in the applicable
Pricing Supplement is LIBOR and the LIBOR so specified is indexed to the offered
rates for deposits in U.S. dollars, LIBOR for each Interest Reset Date will be
determined by the Calculation Agent as follows:
(i) As of the Interest Determination Date, the Calculation Agent will
determine the arithmetic mean of the offered rates for deposits in U.S.
dollars for the period of the Index Maturity designated
S-9
<PAGE>
in the applicable Pricing Supplement which appear on the Reuters Screen LIBO
Page at approximately 11:00 A.M., London time, on such Interest
Determination Date adjusted by the addition or subtraction of the Spread, if
any, specified in the applicable Pricing Supplement, or by multiplication by
the Spread multiplier, if any. "Reuters Screen LIBO Page" means the display
designated as Page "LIBO" on the Reuters Monitor Money Rate Service (or such
other page as may replace the LIBO page on the service for the purpose of
displaying London interbank offered rates of major banks);
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO
Page, the Calculation Agent will request the principal London offices of
each of four major banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotations for deposits of U.S. dollars for the period of the specified
Index Maturity to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such Interest Determination Date
and in a principal amount equal to an amount of not less than U.S. $1
million that is representative of a single transaction in such market at
such time. If at least two such quotations are provided, LIBOR will be the
arithmetic mean of such quotations adjusted by the addition or subtraction
of the Spread, if any, specified in the applicable Pricing Supplement, or by
multiplication by the Spread multiplier, if any. If fewer than two
quotations are provided, LIBOR in respect of such Interest Determination
Date will be the arithmetic mean of rates quoted by three major banks in The
City of New York selected by the Calculation Agent at approximately 11:00
A.M., New York City time, on such Interest Determination Date for loans in
U.S. dollars to leading European banks, for the period of the specified
Index Maturity and in a principal amount of not less than U.S. $1 million
that is representative of a single transaction in such market at such time;
provided, however, that if fewer than three banks selected as aforesaid by
the Calculation Agent are quoting rates as mentioned in this sentence, LIBOR
for such Interest Reset Period will be the same as LIBOR for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the rate of interest payable on the LIBOR Notes for which LIBOR is
being determined shall be the Initial Interest Rate) adjusted by the
addition or subtraction of the Spread, if any, specified in the applicable
Pricing Supplement, or by multiplication by the Spread multiplier, if any.
If LIBOR with respect to any LIBOR Note is indexed to the offered rates for
deposits in a Specified Currency other than U.S. dollars, the applicable Pricing
Supplement will set forth the method for determining such rate.
DETERMINATION OF TREASURY RATE. If the Base Rate is the Treasury Rate, as
indicated in the applicable Pricing Supplement, the interest rate shall equal
the rate for the auction held on the Interest Determination Date of direct
obligations of the United States ("Treasury Bills") having the Index Maturity
shown on the face as published in the H.15(519), under the heading "Treasury
bills--auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(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 either case, adjusted by the addition or
subtraction of the Spread, if any, specified in the applicable Pricing
Supplement, or, by multiplication by the Spread Multiplier, if any, specified in
the applicable Pricing Supplement. In the event that the results of the auction
of Treasury Bills having the Index Maturity shown on the face hereof are not
published or reported as provided above by 3:00 P.M., New York City time, on
such Calculation Date or if no such auction is held in a particular week, then
the rate of interest 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 Interest Determination Date, of three leading primary United
States government securities dealers selected by the Calculation Agent for the
issue of Treasury Bills with a remaining maturity closest to the Index Maturity
shown in the applicable Pricing Supplement, adjusted by the addition or
subtraction of the Spread, if any, specified in the applicable
S-10
<PAGE>
Pricing Supplement, or by multiplication by the Spread Multiplier, if any,
specified in the applicable Pricing Supplement; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the interest rate in effect until the Interest Reset
Date next succeeding the Interest Reset Date to which such Interest
Determination Date relates shall be the rate in effect on such Interest
Determination Date.
DETERMINATION OF PRIME RATE. If the Base Rate is the Prime Rate, as
indicated in the applicable Pricing Supplement, the interest rate shall equal
the rate calculated with reference to the Prime Rate and the Spread or Spread
multiplier, if any specified in such Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the "Prime
Rate" means, with respect to any Prime Rate Interest Determination Date, the
rate on such date as published in H.15(519) under the heading "Bank Prime Loan."
In the event that such rate is not published by 9:00 a.m., New York City time,
on the Calculation Date pertaining to such 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 Interest Determination
Date. "Reuters Screen USPRIME1" means the display designated as page "USPRIME1"
on the Reuters Monitor Money Rates Service (or such other page as may replace
the USPRIME1 page on that service for the purpose of displaying prime rates or
base lending rates of major United States banks). If fewer than four such rates
but more than one such rate appear on the Reuters Screen USPRIME1 Page for such
Interest Determination Date, the Prime Rate shall be determined by the
Calculation Agent and will be the arithmetic mean of the prime rates quoted on
the basis of actual number of days in the year divided by 360 as of the close of
business on such Interest Determination Date by at least two major money center
banks in new York City selected by the Calculation Agent (after consulting with
the Company). If fewer than two such rates appear on the Reuters Screen USPRIME1
Page, the Prime Rate will be determined by the Calculation Agent and will be the
arithmetic mean of the prime rates furnished in New York City by three
substitute banks or trust companies organized and doing business under the laws
of the United States, or any State thereof, in each case having total equity
capital of at least U.S. $500,000,000 and being subject to supervision or
examination by Federal or State authority, selected by the Calculation Agent
(after consulting with the Company) to provide such rate or rates; provided,
however, that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, the Prime Rate will remain the Prime Rate in effect on such
Interest Determination Date.
DETERMINATION OF CMT RATE. If the Base Rate is the CMT Rate, as indicated
in the applicable Pricing Supplement, the interest rate shall equal the rate
(calculated with reference to the CMT Rate and the Spread and/or Spread
Multiplier, if any) specified in such CMT Rate Note and in any applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any 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 (as defined
below) for (i) if the Designated Telerate Page is 7055, the rate on such
Interest Determination Date and (ii) if the Designated CMT Telerate Page is
7052, the week, or the month, as applicable, ended immediately preceding the
week in which the related Interest Determination Date occurs. If such rate is no
longer displayed on the relevant page, or if not displayed by 3:00 P.M., New
York City time, on the related Calculation Date, then the CMT Rate for such
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 if not published by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate for such 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 Interest Determination Date with respect to such Interest Reset
Date as may then be
S-11
<PAGE>
published by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the Designated CMT Telerate
Page and published in the relevant H.15(519). If such information is not
provided by 3:00 P.M., New York City time, on the related Calculation Date, then
the CMT Rate for such Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing side offer prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date reported, according to
their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in the City of New York selected
by the Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an original
maturity of approximately the Designated CMT Maturity Index and a remaining term
to maturity of not less than such Designated CMT Maturity Index minus one year.
If the Calculation Agent cannot obtain three such Treasury Note quotations, the
CMT Rate for such Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offer side prices as of approximately 3:30 P.M., New
York City time, on the Interest Determination Date of three Reference Dealers in
the City of New York (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for such Treasury Notes with an original maturity
of the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index in an amount of at least U.S. $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 offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided
however, that if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as described herein, the CMT Rate will be the CMT Rate in
effect on such Interest Determination Date. If two Treasury Notes with an
original maturity as described in the third preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the quotes
for the CMT Rate Note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service designated in the applicable Pricing Supplement for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519) (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)). If no such page is
specified in the applicable Pricing Supplement, the Designated CMT Telerate Page
shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
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. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be 2 years.
DETERMINATION OF ELEVENTH DISTRICT COST OF FUNDS RATE. If the Base Rate is
the Eleventh District Cost of Funds Rate, as indicated in the applicable Pricing
Supplements, the interest rate shall equal the interest rates calculated with
reference to the Eleventh District Cost of Funds Rate and the Spread or Spread
Multiplier, if any specified in such Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement. "Eleventh
District Cost of Funds Rate" means, with respect to an Eleventh District Cost of
Funds 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 Interest Determination Date falls, as set forth under the caption "11th
district" on
S-12
<PAGE>
Telerate Page 7058 (as defined below) as of 11:00 A.M., San Francisco time, on
such Interest Determination Date. If such rate does not appear on Telerate Page
7058 on such Interest Determination Date, then the Eleventh District Cost of
Funds Rate on such Interest Determination Date will 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
the date of such announcement. If the FHLB of San Francisco fails to announce
such rate for the calendar month immediately preceding such Interest
Determination Date, then the Eleventh District Cost of Funds Rate determined as
of such Interest Determination Date will be the Eleventh District Cost of Funds
Rate in effect on such Interest Determination Date.
"Telerate Page 7058" means the display designated as page "7058" on the Dow
Jones Telerate Service (or such other page as may replace the 7058 page on that
service for the purpose of displaying the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank District).
CALCULATION AGENT
Initially, The Chase Manhattan Bank shall be the "Calculation Agent." The
Calculation Agent shall calculate the interest rate hereon in accordance with
the foregoing and will confirm in writing such calculation to the Trustee, the
Company, and any Paying Agent immediately after each determination. Neither the
Trustee nor any Paying Agent shall be responsible for any such calculation. At
the request of the holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate thereon then in effect and, if determined, the
interest rate which will become effective at of the next Interest Reset Date
with respect to such Floating Rate Note.
CURRENCY INDEXED NOTES
GENERAL
The Company may, from time to time, offer Currency Indexed Notes. The
principal amount of such Notes payable at the Maturity Date will be determined
by the rate of exchange between the currency or composite currency in which such
Notes are denominated (the "Denominated Currency") and the other currency or
composite currency specified as the indexed currency (the "Indexed Currency") in
the applicable Pricing Supplement. Unless otherwise specified in the applicable
Pricing Supplement, holders of Currency Indexed Notes will be entitled to
receive a principal amount exceeding the amount designated as the face amount of
such Currency Indexed Notes in the applicable Pricing Supplement (the "Face
Amount") if, at the Maturity Date, the rate at which the Denominated Currency
can be exchanged for the Indexed Currency is greater than the rate of such
exchange designated as the Base Exchange Rate, expressed in units of the Indexed
Currency per one unit of the Denominated Currency, in the applicable Pricing
Supplement (the "Base Exchange Rate"), and will be entitled to receive a
principal amount of such Currency Indexed Notes less than the Face Amount, if,
at the Maturity Date, the rate at which the Denominated Currency can be
exchanged for the Indexed Currency is less than such Base Exchange Rate, in each
case determined as described below under "Payment of Principal and Interest."
Information as to the relative historical value of the applicable Denominated
Currency against the applicable Indexed Currency, any exchange controls
applicable to such Denominated Currency or Indexed Currency, and the tax
consequences to holders will be set forth in the applicable Pricing Supplement.
See "Currency Risks."
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<PAGE>
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, interest
will be payable by the Company in the Denominated Currency based on the Face
Amount of the Currency Indexed Notes and at the rate and times and in the manner
set forth herein and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, subject to
the limitations in the next paragraph, principal of a Currency Indexed Note will
be payable by the Company in the Denominated Currency at the Maturity Date in an
amount equal to the Face Amount, plus or minus an amount determined by the
determination agent specified in the applicable Pricing Supplement (the
"Determination Agent") by reference to the difference between the Base Exchange
Rate and the rate at which the Denominated Currency can be exchanged for the
Indexed Currency as determined on the second Business Day (the "Determination
Date") prior to the Maturity Date of such Currency Indexed Note. The
Determination Agent shall calculate such amount, if any, based upon the
arithmetic mean of the open market spot offer quotations for the Indexed
Currency (spot bid quotations for the Denominated Currency) obtained by the
Determination Agent from the Reference Dealers (as defined below) in The City of
New York at 11:00 A.M., New York City time, on the Determination Date, for an
amount of Indexed Currency equal to the Face Amount of such Currency Indexed
Note multiplied by the Base Exchange Rate, with the Denominated Currency for
settlement on the Maturity Date (such rate of exchange, as so determined and
expressed in units of the Indexed Currency per one unit of the Denominated
Currency, is hereafter referred to as the "Spot Rate"). If such quotations from
the Reference Dealers are not available on the Determination Date due to
circumstances beyond the control of the Company or the Determination Agent, the
Spot Rate will be determined on the basis of the most recently available
quotations from the Reference Dealers. The principal amount of the Currency
Indexed Notes determined by the Determination Agent to be payable at the
Maturity Date will be payable to the holders thereof in the manner set forth
herein and in the applicable Pricing Supplement. As used herein, the terms
"Reference Dealers" shall mean the three banks or firms specified as such in the
applicable Pricing Supplement or, if any of them shall be unwilling or unable to
provide the requested quotations, such other major center bank or banks in The
City of New York selected by the Calculation Agent, in consultation with the
Determination Agent, to act as Reference Dealer or Dealers in replacement
therefor.
Unless otherwise specified in the applicable Pricing Supplement, the
principal amount of a Currency Indexed Note payable at Maturity or earlier
redemption or repayment shall be calculated on the basis of the aforesaid
determination by the Determination Agent and as follows (a) if the Base Exchange
Rate equals the Spot Rate for any Currency Indexed Note, then the principal
amount of such Currency Indexed Note payable at the Maturity Date would be equal
to the Face Amount of such Currency Indexed Note; (b) if the Spot Rate exceeds
the Base Exchange Rate (i.e., the Denominated Currency has appreciated against
the Indexed Currency during the term of the Currency Indexed Note), then the
principal amount so payable would be greater than the Face Amount of such
Currency Indexed Note but only up to an amount equal to twice the Face Amount of
such Currency Indexed Note; (c) if the Spot Rate is less than the Base Exchange
Rate (i.e., the Denominated Currency has depreciated against the Indexed
Currency during the term of the Currency Indexed Note) but is greater than
one-half of the Base Exchange Rate, then the principal amount so payable would
be less than the Face Amount of such Currency Indexed Note, and (iv) if the Spot
Rate is less than or equal to one-half of the Base Exchange Rate, then the Spot
Rate will be deemed to be one-half of the Base Exchange Rate and no principal
amount of the Currency Indexed Note would be payable at the Maturity Date.
Unless otherwise specified in the applicable Pricing Supplement, the
formulae to be used by the Determination Agent to determine the principal amount
of a Currency Indexed Note payable at the Maturity Date will be as follows:
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<PAGE>
If the Spot Rate exceeds or equals the Base Exchange Rate, the principal
amount of a Currency Indexed Note payable at the Maturity Date shall equal
<TABLE>
<S> <C> <C>
Face Amount + (Face Amount XSpot Rate - Base Exchange Rate
Spot Rate).
</TABLE>
If the Base Exchange Rate exceeds the Spot Rate, the principal amount of a
Currency Indexed Note Payable at the Maturity Date (which shall, in no event, be
less than zero) shall equal
<TABLE>
<S> <C> <C>
Face Amount - (Face Amount XBase Exchange Rate - Spot Rate
Spot Rate).
</TABLE>
If the formulae set forth above are applicable to a Currency Indexed Note,
the maximum principal amount payable at the Maturity Date in respect of such a
Currency Indexed Note would be an amount equal to twice the Face Amount and the
minimum principal amount payable would be zero.
Unless otherwise specified in the applicable Pricing Supplement, in the
event of any redemption or repayment of a Currency Indexed Note prior to its
Maturity Date, the term "Maturity Date" used above would refer to the redemption
or repayment date of such Currency Indexed Note.
COMMODITY INDEXED NOTES
The Pricing Supplement relating to a Commodity Indexed Note will set forth
the method by which the amount of interest payable and the amount of principal
payable at the Maturity Date in respect of such Commodity Indexed Note will be
determined, the tax consequences to holders of Commodity Indexed Notes, a
description of certain risks associated with investments in Commodity Indexed
Notes and other information relating to such Commodity Indexed Notes.
OTHER INDEXED NOTES
With respect to a Note which is not a Currency Indexed Note or a Commodity
Indexed Note but whose principal amount payable at maturity is determined by
reference to an index of the value of property (other than foreign currency or
commodities) or similar formula specified in the Pricing Supplement relating to
such Note, such Pricing Supplement shall also set forth the method by which the
amount of interest payable and the amount of principal payable at the Maturity
Date in respect of the Note will be determined, the tax consequences to holders
of such Notes, a description of any risks associated with investments in such
Notes and other information relating to such Notes.
AMORTIZING NOTES
The Company may from time to time offer Notes ("Amortizing Notes") on which
a portion or all the principal amount is payable prior to Stated Maturity in
accordance with a schedule, by application of a formula, or by reference to an
index. Further information concerning additional terms and conditions of any
Amortizing Notes, including terms for repayment thereof, will be set forth in
the applicable Pricing Supplement.
REDEMPTION
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be redeemed prior to maturity or that such Note will be redeemable
at the option of the Company on a date or dates specified prior to maturity at a
price or prices set forth in the applicable Pricing Supplement, together with
accrued interest to the date of redemption. Unless otherwise specified in the
applicable Pricing Supplement, the Notes will not be subject to any sinking fund
requirements. The Company may redeem any of the Notes which are redeemable and
remain outstanding either in whole or from time to time in part, upon not more
than 60 days notice. If less than all of the Notes with like tenor and terms are
to be redeemed, the Notes to be redeemed shall be selected by the Trustee by
such method as the Trustee shall deem fair and appropriate.
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REPAYMENT
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be repaid prior to maturity or that the Note will be repayable at
the option of the holder on a date or dates specified prior to maturity at a
price or prices set forth in the applicable Pricing Supplement, together with
accrued interest to the date of repayment.
In order for a Note to be repaid, the Paying Agent must receive at least 30
days but not more than 45 days prior to the repayment date (a) the Note with the
form entitled "Option to Elect Repayment" on the reverse of the Note duly
completed or (b) a telegram, telex, facsimile transmission or a letter from a
member of a national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the United
States setting forth the name of the holder of the Note, the principal amount of
the Note, the principal amount of the Note to be repaid, the certificate number
or a description of the tenor and terms of the Note, a statement that the option
to elect repayment is being exercised thereby and a guarantee that the Note to
be repaid with the form entitled "Option to Elect Repayment" on the reverse of
the Note duly completed will be received by the Paying Agent not later than five
Business Days after the date of such telegram, telex, facsimile transmission or
letter and such Note and form duly completed are received by the Paying Agent by
such fifth Business Day. Exercise of the repayment option by the holder of a
Note shall be irrevocable. If specified in the applicable Pricing Supplement,
the repayment option may be exercised by the holder of a Note for less than the
entire principal amount of the Note, provided that the principal amount of the
Note remaining outstanding after repayment is an authorized determination.
If a Note is represented by a Global Security, the Depositary's nominee will
be the holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a Note in
order to ascertain the cut-off time by which such an instruction must be given
in order for timely notice to be delivered to the Depositary.
Notwithstanding anything in this Prospectus Supplement to the contrary,
unless otherwise specified in the applicable Pricing Supplement, if a Note is an
Original Issue Discount Note, the amount payable on such Note in the event of
redemption or repayment prior to its Maturity Date shall be the Amortized Face
Amount of such Note as of the date of redemption or the date of repayment, as
the case may be. The "Amortized Face Amount" of an Original Issue Discount Note
shall be the amount equal to (i) the Issue Price set forth in the applicable
Pricing Supplement plus (ii) the portion of the difference between the Issue
Price and the principal amount of such Note that has accrued at the yield to
maturity set forth in the applicable Pricing Supplement (computed in accordance
with generally accepted United States bond yield computation principles) to such
date of redemption or repayment, but in no event shall the Amortized Face Amount
of an Original Issue Discount Note exceed its principal amount.
REPURCHASE
The Company may at any time purchase Notes at any price 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 applicable Trustee for
cancellation.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note will indicate whether the Company
has the option to extend the Maturity Date of such Note for one or more periods
of one or more whole years (each an "Extension Period") up to but not beyond the
date (the "Final Maturity Date") set forth in such Pricing Supplement.
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The Company may exercise such option with respect to a Note by notifying the
Trustee of such exercise at least 45 but not more than 60 days prior to the
Maturity Date of such Note in effect prior to the exercise of such option (the
"Original Maturity Date"). No later than 40 days prior to the Original Maturity
Date, the Trustee will mail to the holder of such Note a notice (the "Extension
Notice") relating to such Extension Period, first class, postage prepaid,
setting forth: (a) the election of the Company to extend the Maturity Date of
such Note; (b) the new Maturity Date; (c) in the case of a Fixed Rate Note, the
interest rate applicable to the Extension Period or, in the case of a Floating
Rate Note, the Spread or Spread Multiplier applicable to the Extension Period;
and (d) the provisions, if any, for redemption during the Extension Period,
including the date or dates on which or the period or periods during which and
the price or prices at which such redemption may occur during the Extension
Period. Upon the mailing by the Trustee of an Extension Notice to the holder of
a Note, the Maturity Date of such Note shall be extended automatically, and,
except as modified by the Extension Notice and as described in the next
paragraph, such Note will have the same terms as prior to the mailing of such
Extension Notice.
Notwithstanding the foregoing, not later than 20 days prior to the Original
Maturity Date for a Note, the Company may, at its option, revoke the interest
rate, in the case of a Fixed Rate Note, or the Spread or Spread Multiplier, in
the case of a Floating Rate Note, provided for in the Extension Notice and
establish a higher interest rate, in the case of a Fixed Rate Note, or a higher
Spread or Spread Multiplier, in the case of a Floating Rate Note, for the
Extension Period by causing the Trustee to mail notice of such higher interest
rate or higher Spread or Spread Multiplier, as the case may be, first class,
postage prepaid, to the holder of such Note. Such notice shall be irrevocable.
All Notes with respect to which the Maturity Date is extended will bear such
higher interest rate, in the case of a Fixed Rate Note, or higher Spread or
Spread Multiplier, in the case of a Floating Rate Note, for the Extension
Period, whether or not tendered for repayment.
If the Company elects to extend the Maturity Date of a Note, the holder of
such Note will have the option to elect repayment of such Note by the Company on
the Original Maturity Date at a price equal to the principal amount thereof plus
any accrued interest to such date. In order for a Note to be so repaid on the
Original Maturity Date, the holder thereof must follow the procedures set forth
above under "Repayment" for optional repayment, except that the period for
delivery of such Note or notification to the Trustee shall be at least 25 but
not more than 35 days prior to the Original Maturity Date and except that a
holder who has tendered a Note for repayment pursuant to an Extension Notice
may, by written notice to the Trustee revoke any such tender for repayment until
the close of business on the tenth calendar day prior to the Original Maturity
Date.
SUBSEQUENT INTEREST PERIODS
The Pricing Supplement relating to each Note will indicate whether the
Company has the option with respect to such Note to reset the interest rate, in
the case of a Fixed Rate Note, or to reset the Spread or Spread Multiplier, in
the case of a Floating Rate Note, and, if so, the date or dates on which such
interest rate or such Spread or Spread Multiplier, as the case may be, may be
reset (each an "Optional Reset Date").
The Company may exercise such option with respect to a Note by notifying the
Trustee of such exercise at least 45 but not more than 60 days prior to an
Optional Reset Date for such Note. Not later than 40 days prior to such Optional
Reset Date, the Trustee will mail to the holder of such Note a notice (the
"Reset Notice"), first class, postage prepaid, setting forth: (a) the election
of the Company to reset the interest rate, in the case of a Fixed Rate Note, or
the Spread or Spread Multiplier, in the case of a Floating Rate Note; (b) such
new interest rate or such new Spread or Spread Multiplier, as the case may be;
and (c) the provisions, if any, for redemption during the period from such
Optional Reset Date to the next Optional Reset Date or, if there is no such next
Optional Reset Date, to the Maturity Date of such Note (each such period a
"Subsequent Interest Period"), including the date or dates on which or the
period or periods during which and the price or prices at which such redemption
may occur during such Subsequent Interest Period.
S-17
<PAGE>
Notwithstanding the foregoing, not later than 20 days prior to an Optional
Reset Date for a Note, the Company may, at its option, revoke the interest rate,
in the case of a Fixed Rate Note, or the Spread or Spread Multiplier, in the
case of a Floating Rate Note, provided for in the Reset Notice and establish a
higher interest rate, in the case of a Fixed Rate Note, or a higher Spread or
Spread Multiplier, in the case of a Floating Rate Note, for the Subsequent
Interest Period commencing on such Optional Reset Date by causing the Trustee to
mail notice of such higher interest rate or higher Spread or Spread Multiplier,
as the case may be, first class, postage prepaid, to the holder of such Note.
Such notice shall be irrevocable. All Notes with respect to which the interest
rate or Spread or Spread Multiplier is reset on an Optional Reset Date will bear
such higher interest rate after such date, in the case of a Fixed Rate Note, or
higher Spread or Spread Multiplier, in the case of a Floating Rate Note, whether
or not tendered for repayment.
If the Company elects to reset the interest rate or the Spread or Spread
Multiplier of a Note, the holder of such Note will have the option to elect
repayment of such Note by the Company on any Optional Reset Date at a price
equal to the principal amount thereof plus any accrued interest to such Optional
Reset Date. In order for a Note to be so repaid on an Optional Reset Date, the
holder thereof must follow the procedures set forth above under "Repayment" for
optional repayment, except that the period for delivery of such Note or
notification to the Trustee shall be at least 25 but not more than 35 days prior
to such Optional Reset Date and except that a holder who has tendered a Note for
the repayment pursuant to a Reset Notice may, by written notice to the Trustee,
revoke any such tender for repayment until the close of business on the tenth
calendar day prior to such Optional Reset Date.
BOOK-ENTRY SYSTEM
Upon issuance, all Book-Entry Notes having the same Specified Currency,
Original Issue Date, Maturity Date, reset, extension, redemption, and repayment
provisions, Interest Payment Period and Dates and, in the case of Fixed Rate
Notes, interest rate or, in the case of Floating Rate Notes, Base Rate, Initial
Interest Rate, Index Maturity, Interest Reset Period and Dates, Spread or Spread
Multiplier, if any, Minimum Interest Rate, if any, and Maximum Interest Rate, if
any, in the case of Currency Indexed Notes, Denominated Currency, Indexed
Currency, Face Amount and Base Exchange Rate, and, in the case of Commodity
Indexed Notes or other indexed notes, the same terms will be represented by a
single Global Security. Each Global Security representing Book-Entry Notes will
be deposited with, or on behalf of, the Depositary as is specified in the
Pricing Supplement, and registered in the name of a nominee of the Depositary.
Certificated Notes will not be exchangeable for Book-Entry Notes and, except
under the circumstances described in the Prospectus under "Description of the
Debt Securities--Global Securities", Book-Entry Notes will not be exchangeable
for Certificated Notes and will not otherwise be issuable as Certificated Notes.
The Depositary currently only accepts Notes which have a Specified Currency of
U.S. dollars.
The Depositary has advised the Company and the Agents as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. The Depositary was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (including the
Agents), banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
A further description of the Depositary's procedures with respect to Global
Securities representing Book-Entry Notes is set forth in the Prospectus under
"Description of the Debt Securities--Global Securities". The Depositary has
confirmed to the Company, the Agents and the Trustees that it intends to follow
such procedures.
S-18
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IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for the Notes in the Specified Currency.
Currently, there are limited facilities in the United States for conversion of
U.S. dollars into foreign currencies and vice versa and most banks do not offer
non-U.S. dollar checking or savings account facilities in the United States.
However, if requested by a prospective purchaser of Notes denominated in a
Specified Currency other than U.S. dollars, the Agent soliciting the offer to
purchase will arrange for the conversion of U.S. dollars into such Specified
Currency to enable the purchaser to pay for such Notes. Such requests must be
made on or before the fifth Business Day preceding the date of delivery of the
Notes, or by such other date as determined by the Agent that presents the offer
to the Company. Each such conversion will be made by the relevant Agent on such
terms and subject to such conditions, limitations and charges as such Agent may
from time to time establish in accordance with its regular foreign exchange
practice. All costs of exchange will be borne by the purchaser of the Notes.
CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in a Specified Currency other
than the currency of the country in which a purchaser is resident or the
currency (including any composite currency) in which a purchaser conducts its
business (the "home currency") entails significant risks that are not associated
with a similar investment in a security denominated in the home currency. Such
risks include, without limitation, the possibility of significant changes in
rates of exchange between the home currency and the Specified Currency and the
possibility of the imposition or modification of foreign exchange controls with
respect to the Specified Currency. Such risks generally depend on factors over
which the Company has no control, such as economic and political events and the
supply of and demand for the relevant currencies. In recent years, rates of
exchange for certain currencies have been highly volatile, and such volatility
may be expected in the future. Fluctuations in any particular exchange rate that
have occurred in the past are not necessarily indicative, however, of
fluctuations in the rate that may occur during the term of any Note.
Depreciation of the Specified Currency in which a Note is denominated against
the relevant home currency would result in a decrease in the effective yield of
such Note below its coupon rate, and in certain circumstances could result in a
loss to the investor on a home currency basis.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a Specified Currency with respect to a Note. There can be no assurances that
exchange controls will not restrict or prohibit payments of principal or
interest in any such currency or currency unit. Even if there are no actual
exchange controls, it is possible that on an Interest Payment Date or Maturity
Date with respect to any particular Note, a Specified Currency other than U.S.
dollars for such Note would not be available to the Company to make payments of
interest and principal then due.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT DESCRIBE
ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN A CURRENCY (INCLUDING ANY
COMPOSITE CURRENCY) OTHER THAN A PROSPECTIVE PURCHASER'S HOME CURRENCY, AND THE
COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS OF SUCH
RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS SUCH RISKS
MAY CHANGE FROM TIME TO TIME. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN
FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES
DENOMINATED IN CURRENCIES (INCLUDING COMPOSITE CURRENCIES) OTHER THAN THE
PARTICULAR HOME CURRENCY. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR
PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
S-19
<PAGE>
Pricing Supplements relating to Notes denominated in a Specified Currency
other than the U.S. dollar will contain information concerning historical
exchange rates for such Specified Currency against the U.S. dollar, a
description of the currency and any exchange controls affecting such currency.
PAYMENT CURRENCY
Except as set forth below, if payment on a Note is required to be made in a
foreign currency and such currency is unavailable due to the imposition of
exchange controls or other circumstances beyond the Company's control, or is no
longer used by the government of the country issuing such currency or for the
settlement of transactions by public institutions of or within the international
banking community, then all payments due on that due date with respect to such
Note shall be made in U.S. dollars. The amount so payable on any date in such
foreign currency shall be converted into U.S. dollars at a rate determined by
the Exchange Rate Agent on the basis of the most recently available Market
Exchange Rate or as otherwise indicated in the applicable Pricing Supplement.
If payment on a Note is required to be made in ECU and ECU is unavailable
due to the imposition of exchange controls or other circumstances beyond the
Company's control, or is no longer used in the European Monetary System, all
payments due on that due date with respect to the Notes shall be made in U.S.
dollars. The amount so payable on any date in ECU shall be converted into U.S.
dollars, at a rate determined by the Exchange Rate Agent as of the second
Business Day prior to the date on which such payment is due on the following
basis. The component currencies of the ECU for this purpose (the "Components")
shall be the currency amounts which were components of the ECU as of the last
date on which the ECU was used in the European Monetary System. The equivalent
of the ECU in U.S. dollars shall be calculated by aggregating the U.S. dollar
equivalents of the Components. The U.S. dollar equivalent of each of the
Components shall be determined by the Exchange Rate Agent on the basis of the
most recently available Market Exchange Rate, or as otherwise indicated in the
applicable Pricing Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as Components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any Component is divided into two or more
currencies, the amount of the original currency as a Component shall be replaced
by amounts of such two or more currencies, each of which shall have a value on
the date of division equal to the amount of the Component divided by the number
of currencies into which such original currency was divided.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion (except to the extent expressly provided herein that
any determination is subject to approval by the Company) and, in the absence of
manifest error, shall be conclusive for all purposes and binding on holders of
the Notes and the Exchange Rate Agent shall have no liability therefor.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. A judgment for money damages by courts in the United
States, including a money judgment based on an obligation expressed in a foreign
currency, will ordinarily be rendered only in U.S. dollars. New York statutory
law provides that a court shall render a judgment or decree in the foreign
currency of the underlying obligation and that the judgment or decree shall be
converted into U.S. dollars at the exchange rate prevailing on the date of entry
of the judgment or decree.
S-20
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Ivins, Phillips & Barker, Chartered, special tax counsel
to the Company, the following summary correctly describes certain United States
Federal income tax consequences resulting from the purchase, ownership or
disposition of the Notes by an initial holder (unless otherwise indicated) of
Notes (the "Holder").
The following summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the final, temporary and proposed regulations thereunder
and judicial and administrative interpretations thereof, all as in effect on the
date hereof. It does not take into account possible changes in the Code, the
regulations or such interpretations. Nor does it include any description of
state, local or foreign tax laws that may apply to the Notes or Holders.
The following summary applies only to Notes under which all payments are
denominated in, or determined with reference to, either the United States dollar
or a single currency other than the United States dollar ("Foreign Currency").
If Notes are issued under which payments are denominated in, or determined with
reference to, more than one currency, their tax treatment will be discussed in
the Pricing Supplement relating to the issuance of such Notes.
The following summary does not purport to consider all the possible tax
consequences of the purchase, ownership or disposition of the Notes, and it is
not intended to reflect the specific tax position of any Holder. It deals only
with situations in which Notes, and any Foreign Currency used to purchase Notes
or received as interest, principal or disposition proceeds thereon, are held as
capital assets. It does not address tax consequences that may be relevant to
special taxpayers, such as life insurance companies, certain financial
institutions or dealers in securities or currencies. Nor does it address the tax
consequences of special situations, such as the holding of Notes or Foreign
Currency as a hedge against currency risks, the holding of Notes or Foreign
Currency as part of a straddle with other investments or as part of a "synthetic
security" or other integrated investment (including a "conversion transaction")
comprised of a Note and other investments, constructive sales of appreciated
financial positions with respect to Notes or Foreign Currency, stripped bonds,
stripped coupons, or, except for the discussion of "Holders Who Are Not United
States Persons" below, situations in which the "functional currency" (as defined
in Section 985(b) of the Code) of the Holder is not the United States dollar.
Persons considering the purchase of Notes should consult their own tax
advisers concerning the application of the United States Federal tax laws to
their particular situations, as well as any consequences arising under the laws
of any other taxing jurisdiction.
On March 17, 1992, the Internal Revenue Service (the "IRS") issued final
regulations and proposed additional regulations dealing with the taxation of
gain and loss from certain nonfunctional currency transactions (collectively,
the "Foreign Currency Regulations"). The Foreign Currency Regulations that were
proposed in 1992 have not been finalized. Under these proposed regulations, for
taxable years ending on or after the date on which they become final, certain
Holders may elect to mark-to-market Foreign Currency transactions based on
changes in exchange rates between the date a Holder's financial accounting
period begins and the date such financial accounting period closes. The
following summary reflects the Foreign Currency Regulations. The Foreign
Currency Regulations do not cover all issues, however, and subsequent versions
of such regulations (including the final form of the proposed Foreign Currency
Regulations) may adopt positions that would apply to the Notes and that may be
contrary to the positions discussed below.
UNITED STATES PERSONS
The following summary addresses the principal United States Federal income
tax consequences resulting from the ownership of a Note by a Holder who is a
United States person.
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For purposes of the following summary, (i) the term "United States" means
the United States of America (including the States and the District of
Columbia), and (ii) the term "United States person" means (A) an individual who
is a citizen or resident of the United States, (B) a corporation, partnership or
other business entity created or organized under the laws of the United States,
unless, in the case of a partnership, the IRS provides otherwise by regulation,
(C) an estate the income of which is subject to United States Federal income tax
regardless of its source, and (D) a trust as to which a court within the United
States is able to exercise primary supervision over the administration of the
trust, and United States persons have the authority to control all substantial
decisions of the trust.
A Holder who is a nonresident alien individual as to the United States and a
BONA FIDE resident of Puerto Rico, Guam, American Samoa or the Northern Mariana
Islands during the entire taxable year also generally is subject to the rules
described in this section as if such Holder were a United States person. Such a
Holder also may be subject to United States Federal withholding tax under the
rules described in the first paragraph under "Holders Who Are Not United States
Persons" below.
United States persons who are partners in foreign partnerships (as
determined under United States tax rules) will be subject to United States
Federal income tax on their distributive shares of income from such foreign
partnerships.
Certain persons may be subject to United States Federal income tax on
certain income of foreign trusts (I.E., trusts other than those described in
clause (D) of the second paragraph under "United States Persons" above). Such
persons may include, in certain circumstances, (i) a United States person who
transfers property to (A) a foreign trust with a United States beneficiary or
(B) a trust that subsequently becomes a foreign trust while such individual is
alive, (ii) persons who are not United States persons who transfer property to
foreign trusts and subsequently become United States persons, and (iii) certain
United States persons who are beneficiaries of foreign trusts. Accordingly, in
certain circumstances the United States Federal income tax treatment set forth
below, regarding Notes owned by United States persons, may apply to Notes owned
by foreign trusts.
If an individual who is a United States person loses United States
citizenship or ceases to be a long-term resident of the United States, with a
principal purpose of avoiding United States Federal income, estate or gift tax,
such individual may be subject to United States Federal income, estate or gift
tax for 10 years thereafter (or longer in some circumstances), as set forth
below regarding Notes owned by United States persons. In addition, such an
individual may be subject to United States Federal income tax upon a transfer of
a Note to certain foreign corporations.
PURCHASE OF NOTES USING FOREIGN CURRENCY
A purchaser of a Note using Foreign Currency as the consideration for such
Note generally will be treated for Federal income tax purposes as though (i) the
Foreign Currency used to purchase the Note were exchanged for United States
dollars, and (ii) the United States dollars received in exchange for such
Foreign Currency were used to purchase the Note. Thus, such a purchaser
generally will recognize ordinary income or loss equal to the difference, if
any, between the United States dollar spot rate of the Foreign Currency used to
purchase the Note on the date of purchase, and the purchaser's United States
dollar tax basis in the Foreign Currency.
ACCRUAL AND RECEIPT OF INTEREST
Except as described under "Original Issue Discount" below, interest on a
Note (whether payable in a Foreign Currency or in United States dollars) will be
taxable to a Holder as ordinary income at the time it accrues or is received, in
accordance with the Holder's method of accounting for tax purposes.
If interest is denominated in or determined by reference to the value of a
Foreign Currency, then, in the case of a cash method Holder who is not required
to accrue such interest prior to its receipt, the
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amount of interest income is determined by translating the Foreign Currency into
United States dollars at the "spot rate" on the date of receipt. In the case of
an accrual method Holder, or, in the case of interest that must be accrued prior
to receipt (such as original issue discount), the amount of interest income that
is taken into income for any interest accrual period is determined by
translating the Foreign Currency into United States dollars at the "average
rate" for the interest accrual period, or, with respect to an interest accrual
period that spans two taxable years, at the average rate for the partial period
within the taxable year. At the time the interest so accrued in a prior accrual
period is received, the Holder will realize gain or loss ("currency exchange
gain or loss") equal to the difference, if any, between the spot rate of the
Foreign Currency received by the Holder with respect to such accrual period on
the date the interest is received and the amount of interest income previously
accrued for such period. This currency exchange gain or loss is ordinary income
or loss and generally is not considered additional interest income or expense. A
Holder may elect to use, instead of such average rate, the spot rate on the last
day of the accrual period (or, if the accrual period spans two of the Holder's
taxable years, the last day of the first taxable year). In addition, if the
interest is received within five Business Days of the end of such accrual period
or taxable year, an accrual method Holder making the election instead may use
the spot rate on the date the interest is received for purposes of translating
accrued interest income into United States dollars (in which case no currency
exchange gain or loss will be taken into account upon receipt). The election
applies to all debt instruments held by the Holder and may not be revoked
without the consent of the IRS.
For purposes of this summary, the term "spot rate" generally means a rate
that, as demonstrated to the satisfaction of the District Director or the
Assistant Commissioner (International) of the IRS, reflects a fair market rate
of exchange available to the public for currency under a "spot contract" in a
free market and involving representative amounts. A "spot contract" is a
contract to buy or sell a currency on or before two Business Days following the
date of the execution of the contract. If such a spot rate cannot be
demonstrated, the District Director or the Assistant Commissioner
(International) of the IRS has the authority to determine the spot rate from a
source of exchange rate information reflecting actual transactions conducted in
a free market. The "average rate" for an accrual period (or partial period) is
the simple average of the spot exchange rates for each Business Day of such
period, or other average exchange rate for the period reasonably derived and
consistently applied by the Holder.
The IRS has the authority to issue regulations recharacterizing interest as
principal, or principal as interest, for obligations denominated in a
hyperinflationary currency. Under the proposed Foreign Currency Regulations,
which would become effective for transactions entered into after such
regulations are finalized, if a Holder acquires a Note denominated in a Foreign
Currency that is a hyperinflationary currency at the time of such acquisition,
the Holder would realize gain or loss on the Note each year that the Holder
holds the Note based (in general) on the change in exchange rates between the
such Foreign Currency and the United States dollar from the beginning to the end
of the year. Such exchange gain or loss would generally be treated,
respectively, as additional interest income or as an offset to interest income.
If Notes are to be issued in hyperinflationary currency, the Pricing Supplement
relating to such Notes will so indicate.
ORIGINAL ISSUE DISCOUNT
The following summary is a general discussion of the United States Federal
income tax consequences to United States persons who are Holders of Notes issued
with original issue discount ("Original Issue Discount Notes"). A Holder of an
Original Issue Discount Note may be required to include interest in taxable
income before such interest is received.
This summary is based in part upon income tax regulations issued on April 4,
1994 (the "OID Regulations"), and additional regulations issued on June 14,
1996, relating primarily to contingent payment debt instruments with original
issue discount (the "Contingent Payment Debt Regulations"). This summary assumes
that the Notes will not be "applicable high-yield discount obligations" under
section 163(i) of the Code (generally, debt instruments with, among other
features, yield to maturity more than
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five percentage points higher than the "applicable federal rate", defined in
section 1274(d) of the Code as an average of market yields on certain
outstanding, marketable United States government obligations).
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of an Original Issue
Discount Note over its "issue price" (defined as the first price at which a
substantial amount of the Notes are sold) unless, in most circumstances, such
excess is DE MINIMIS, I.E., is less than 0.25% of the Original Issue Discount
Note's stated redemption price at maturity multiplied by the number of complete
years to its maturity. The stated redemption price at maturity of an Original
Issue Discount Note is the total of all payments to be made under the Original
Issue Discount Note other than "qualified stated interest." "Qualified stated
interest" is, in general, stated interest that is unconditionally payable in
cash or property (other than debt instruments of the Company) at least annually,
either at a single fixed rate or at certain floating rates, that in either case
appropriately take into account the length of the interval between stated
interest payments.
In certain cases, Notes that bear stated interest and are issued at par may
be Original Issue Discount Notes, with the result that the inclusion of interest
in income for Federal income tax purposes may vary from the receipt of interest
on such Notes, generally accelerating income for cash method Holders. Under the
OlD Regulations, a Note may be an Original Issue Discount Note where, among
other things, (i) a Floating Rate Note provides for a maximum or minimum
interest rate that is reasonably expected as of the issue date to cause the
yield on the debt instrument to be less (in the case of a maximum rate), or more
(in the case of a minimum rate) than the expected yield without the maximum or
minimum rate; (ii) a Floating Rate Note provides for a significant front-loading
or back-loading of interest; or (iii) in some situations, a Note bears interest
at a floating rate in combination with one or more other floating or fixed
rates. Notes will not, however, be treated as Original Issue Discount Notes
solely by virtue of the contingent United States dollar value of payments on
Notes denominated in Foreign Currency.
Notice will be given in the applicable Pricing Supplement if the Company
determines that a particular Note will be an Original Issue Discount Note.
Unless specified in the applicable Pricing Supplement, Floating Rate Notes will
not be Original Issue Discount Notes.
Holders of Original Issue Discount Notes having maturities in excess of one
year are required to include original issue discount in income before the
receipt of cash attributable to such income. The amount of original issue
discount includable in income by the initial Holder of Original Issue Discount
Notes and, subject to an adjustment, by any subsequent Holder, is the sum of the
daily portions of the original issue discount with respect to the Original Issue
Discount Note for each day during the taxable year in which such Holder held the
Original Issue Discount Note ("accrued original issue discount"). The daily
portion of the 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" generally is the period between payment dates (or the shorter period, if
any, from the date of issue to the first interest payment date or from the last
interest payment date prior to maturity to the date of maturity), but an accrual
period may not be longer than one year.
For any accrual period, the original issue discount allocable to the accrual
period is an amount equal to the excess, if any, of (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 under a constant yield
method, on the basis of compounding at the close of each accrual period and
adjusted for the length of the accrual period) over (ii) the sum of the
qualified stated interest, if any, allocable to such accrual period. At the
beginning of the first accrual period, the "adjusted issue price" of an Original
Issue Discount Note is the issue price of the Note (as defined above). At the
beginning of each accrual period thereafter, the "adjusted issue price" is the
excess of (i) the sum of (A) the issue price of such Original Issue Discount
Note, (B) the accrued original issue discount for each prior accrual period
(determined without regard to the amortization of any acquisition premium or
bond premium, discussed below), and (C) the amount of any qualified stated
interest on the Note that has accrued prior to the beginning of the accrual
period but is
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not payable until a later date, over (ii) any prior payments on the Original
Issue Discount Note, other than qualified stated interest and certain
prepayments. If a payment (other than a payment of qualified stated interest) is
made on the first day of an accrual period, then the adjusted issue price at the
beginning of such accrual period is reduced by the amount of the payment.
Under the above rules, Holders of Original Issue Discount Notes will be
required to include in income increasingly greater amounts of original issue
discount in successive accrual periods, assuming that no payments, other than
payments of qualified stated interest, are made prior to the maturity of the
Note.
If the Company has an option to call a Note, or if the Holder has an option
to put a Note to the Company, in either case prior to the Note's stated
maturity, such option will be presumed to be exercised if, by utilizing the
exercise date as the maturity date and the amount payable on such date as the
stated redemption price at maturity, the yield on the Note would be (i) in the
case of a call option of the Company, lower than its yield to stated maturity,
or (ii) in the case of a put option of the Holder, higher than its yield to
stated maturity. In such case, original issue discount is computed in accordance
with such presumption. If such option is not in fact exercised when presumed to
be exercised, the Note will be treated, solely for original issue discount
purposes, as if, on the presumed exercise date, the Note were retired and
reissued for an amount equal to the Note's adjusted issue price on that date.
The effect of the deemed retirement and reissuance will be to cause remaining
original issue discount to be amortized over the remaining term of the Note,
without regard to the unexercised option. In some circumstances, a call or put
option that applies to a part of an issue of Notes may result in partial deemed
exercise of the option, or partial deemed retirement and reissuance of a Note.
If a Note involves options that may affect original issue discount computations,
the Pricing Supplement relating to such Notes will discuss such matters.
Original issue discount on an Original Issue Discount Note denominated in,
or under which all payments are determined with reference to, a single Foreign
Currency will be determined for any accrual period in that Foreign Currency and
then translated into United States dollars in the same manner as other interest
income accrued by an accrual method Holder before receipt, as described above
under "Accrual and Receipt of Interest". Likewise, as described therein,
currency exchange gain or loss will be recognized when the original issue
discount is paid. For this purpose, all payments (other than qualified stated
interest) on a Note first will be viewed as payments of previously accrued
original issue discount (to the extent thereof), with payments considered made
for the earliest accrual periods first.
Different rules apply to Original Issue Discount Notes having maturities of
not more than one year ("Short-Term Discount Notes"). A Holder of a Short-Term
Discount Note who uses the cash method of tax accounting generally will not be
required to include original issue discount in income on a current basis (but
may be required to defer a deduction for a portion or all of the interest paid
or accrued on any indebtedness incurred to purchase or carry such Short-Term
Discount Note). Rather, such a Holder will be required to treat any gain
realized on a sale, exchange or retirement of the Short-Term Discount Note as
ordinary income to the extent such gain does not exceed the original issue
discount accrued with respect to the Short-Term Discount Note during the period
the Holder held the Short-Term Discount Note. Holders using the accrual method
of tax accounting and certain cash method Holders (including banks, securities
dealers and regulated investment companies) generally will be required to
include original issue discount on the Short-Term Discount Note in income on a
current basis.
A cash method Holder of a Short-Term Discount Note may elect to accrue
original issue discount as income on a current basis (in which case the
limitation on the deductibility of interest described above will not apply).
Original issue discount will be treated as accruing for these purposes on a
ratable basis or, at the election of the Holder, using a constant yield method.
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Furthermore, any Holder (whether on the cash or accrual method) of a
Short-Term Discount Note may elect to accrue the "acquisition discount", if any,
with respect to the Short-Term Discount Note on a current basis in lieu of
original issue discount. "Acquisition discount" is the excess of the stated
redemption price at maturity of the Short-Term Discount Note over the Holder's
tax basis in the Note at the time of acquisition. Acquisition discount will be
treated as accruing on a ratable basis or, at the election of the Holder, using
a constant yield method. The market discount rules (discussed in "Sale and
Retirement of Notes", below) do not apply with respect to Short-Term Discount
Notes. For purposes of determining the amount of original issue discount subject
to these rules, the OlD Regulations provide that no interest payments on Notes
with maturities of one year or less are qualified stated interest, but instead
such interest payments are included in such Note's stated redemption price at
maturity.
If a Holder purchases an Original Issue Discount Note, including a
Short-Term Discount Note, at an "acquisition premium", I.E., at a price in
excess of the Note's "adjusted issue price", the amount includable in income in
each taxable year as original issue discount will be reduced by that portion of
the acquisition premium properly allocable to such year. Alternatively, a Holder
may elect to treat its purchase price as the issue price of the Note.
The market discount and bond premium rules, discussed in "Sale and
Retirement of Notes" below, may apply to an Original Issue Discount Note
purchased at a price that is less than such Note's adjusted issue price (in the
case of market discount) or that is greater than such Note's stated redemption
price at maturity (in the case of bond premium). In such case, the amount of
market discount generally will equal the excess of the Original Issue Discount
Note's adjusted issue price over the Holder's purchase price for the Note, and
the amount of bond premium will equal the excess of the Holder's purchase price
over the Original Issue Discount Note's remaining stated redemption price at
maturity. A Holder of an Original Issue Discount Note with bond premium will not
be subject to the original issue discount rules.
A Holder's tax basis in an Original Issue Discount Note generally will be
the Holder's cost increased by any original issue discount included in income
(and market discount, if any, if the Holder has elected to include accrued
market discount in income on an annual basis) and decreased by the amount of any
payment (other than qualified stated interest and certain prepayments) received
with respect to the Original Issue Discount Note. Except to the extent that gain
represents market discount not previously included in the Holder's income, gain
or loss on the sale, exchange or redemption of an Original Issue Discount Note
generally will be capital gain or loss. Such gain or loss will be mid-term gain
or loss if the Original Issue Discount Note has been held for more than one year
but not more than 18 months, or long-term gain or loss if the Original Issue
Discount Note has been held for more than 18 months.
A Holder may elect to treat all interest that accrues on a Note as original
issue discount and apply the constant yield method described above to accrue
such interest, with the modifications described below. For purposes of this
election, interest includes stated interest, original issue discount, DE MINIMIS
original issue discount, market discount (described in "Sale and Retirement of
Notes" below), acquisition discount, DE MINIMIS market discount and unstated
interest, as adjusted by any acquisition premium (discussed above) or
amortizable bond premium (described below).
In applying the constant yield method to a Note with respect to which this
election has been made, (i) the issue price of the Note will equal the electing
Holder's adjusted basis in the Note immediately after its acquisition; (ii) the
issue date of the Note will be the date of its acquisition by the electing
Holder; and (iii) no payments on the Note will be treated as payments of
qualified stated interest. This election generally will apply only to the Note
with respect to which it is made and may not be revoked without the consent of
the IRS. If this election is made with respect to a Note with amortizable bond
premium (discussed below), then the electing Holder will be deemed to have
elected to apply amortizable bond premium against interest with respect to all
debt instruments with amortizable bond premium (other than debt instruments the
interest on which is excludable from gross income) held by such electing Holder
as of the beginning of the taxable year in which the Note with respect to which
the election is made is acquired or thereafter acquired. The deemed election
with respect to amortizable bond premium may not be
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revoked without the consent of the IRS. If the election to apply the constant
yield method to all interest on a Note is made with respect to a Note that has
market discount (discussed below), then the electing Holder will be treated as
having made the election discussed in "Sale, and Retirement of Notes", below, to
include market discount in income currently over the life of all debt
instruments held or thereafter acquired by such Holder.
SUBSEQUENT CHANGES IN TERMS OF THE NOTES
Certain changes in the terms of a Note (E.G., a reset of the interest rate,
Spread and/or Spread Multiplier of a Note or an extension of the maturity of a
Note), either alone or in conjunction with one another, may be treated as an
exchange of such Note (the "Old Note") for a deemed issuance of a "New Note".
In such event, a Holder of the Old Note may recognize taxable gain or loss
equal to the difference between the fair market value of the New Note and the
Holder's adjusted tax basis in the Old Note at the time of the deemed exchange.
Such gain or loss will be subject to characterization as capital gain or loss or
ordinary income or loss, depending on the effect of the original issue discount,
foreign currency and other rules described herein. In such case, the Holder's
tax basis in the New Note will be equal to such fair market value.
A Note may qualify as a "security" for Federal income tax purposes
(generally a debt instrument with a term of five years or more). If the Old Note
and the New Note each is a "security", the deemed exchange may qualify as a
"recapitalization", under Section 368(a)(1)(E) of the Code. In this event, (i)
no gain or loss will be recognized to the Holder; (ii) the Holder's basis in the
New Note will be equal to the Holder's basis in the Old Note; and (iii) the
Holder's holding period in the New Note (for purposes of determining whether any
capital gain or loss on a disposition of the New Note will be short-term,
mid-term or long-term gain or loss) will include the Holder's holding period in
the Old Note.
If there is a deemed exchange, regardless of whether the Holder's gain or
loss is recognized, the issue price of the New Note, for purposes of computing
original issue discount thereon, generally will be equal to the fair market
value of the New Note on the date of the deemed exchange.
If a modification in the terms of a Note is not treated as an exchange, then
a Holder will not recognize gain or loss, but the modification may affect the
timing, character, and amount of income, gain or loss with respect to the
subsequent holding period of the Note.
On June 26, 1996, the IRS adopted final regulations governing the
circumstances in which a change in the terms of a Note will result in an
exchange of a Note for a New Note. Under these regulations, certain types of
changes in the terms of a Note are not treated as exchanges.
With certain exceptions, a change in the terms of a Note occurring by
operation of the terms of the Note (whether automatically or as a result of the
exercise of an option provided to the Company or the Holder) is not treated as
an exchange. If the terms of a Note are such that changes by operation of such
terms are likely to be treated as exchanges, such matters will be discussed in
the Pricing Supplement relating to the issuance of such Notes.
In addition, a change in the terms of a Note will be treated as an exchange
only if it is a "significant modification", as defined in the regulations. A
change in yield will be treated as an exchange only if the yield on the Note as
modified varies from the yield on the unmodified Note by more than the greater
of (i) 25 basis points or (ii) 5% of the annual yield on the Note. A change in
the timing of payments under a Note will be treated as an exchange only if it
results in a material deferral of scheduled payments. As a safe harbor, a
deferral of the lesser of 5 years or 50% of the original term is not treated as
an exchange. With certain exceptions, a substitution of a new obligor on a Note
that is a recourse obligation is treated as an exchange. Certain other changes
also are treated as exchanges, if they result in a change in payment
expectations. These include an addition or deletion of a co-obligor on a Note
which is a recourse
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obligation, a release, substitution, addition or other alteration in collateral
or other form of credit enhancement, and a change in the priority of a Note.
SALE AND RETIREMENT OF NOTES
Upon the sale, exchange or retirement of a Note, a Holder will recognize
gain or loss equal to the difference between the amount realized (less any
accrued but unpaid qualified stated interest which will be taxable as such) and
the Holder's tax basis in the Note. If the amount received on the sale, exchange
or retirement is not in United States dollars, the amount realized will be based
on the spot rate of the Foreign Currency on the date of disposition. In the case
of a Note denominated in Foreign Currency, to the extent such recognized gain or
loss is attributable to changes in Foreign Currency exchange rates between the
date of acquisition and disposition of the Note, such currency exchange gain or
loss will be treated as ordinary income or loss but generally will not be
treated as interest income or expense. However, currency exchange gain or loss
is taken into account only to the extent of total gain or loss realized on the
transaction. Except as discussed below, any gain or loss in excess of currency
exchange gain or loss will be capital gain or loss, and will be mid-term gain or
loss if the Note had been held for more than one year but not more than 18
months, or long-term gain if the Note had been held for more than 18 months.
If a Holder's tax basis in a Note (other than (i) a Note with a fixed
Maturity Date of one year or less from the date of issue and (ii) generally a
Note acquired at its original issue) is less than its principal amount (or, in
the case of an Original Issue Discount Note, less than its issue price plus
original issue discount includable, without regard to adjustments for
acquisition premium discussed above, under "Original Issue Discount", in gross
income by the prior Holder or Holders), the Note may be considered to have
"market discount". Market discount will be treated as accruing on a ratable
basis or, at the election of the Holder, based on a constant yield method. As a
general matter, gain on a Note is treated as ordinary income rather than capital
gain, to the extent of market discount that accrues while the Holder holds the
Note. Furthermore, the Holder of a Note having market discount may be required
to defer the deduction of all or a portion of the interest expense on any
indebtedness incurred or maintained to purchase or carry such Note until the
Maturity Date of the Note or its earlier disposition in a taxable transaction.
Instead, Holders may elect to accrue market discount as income on a current
basis. Such an election applies to all debt instruments with market discount
acquired by the electing Holder on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the IRS.
In the case of a Note payable in a Foreign Currency, (i) market discount is
determined in units of the Foreign Currency; (ii) accrued market discount
required to be taken into account on the Maturity or earlier disposition of a
Note is translated into United States dollars at the spot rate on the Maturity
Date or disposition date (and no part thereof is treated as currency exchange
gain or loss); and (iii) accrued market discount currently includable in income
by a Holder is translated into United States dollars at the average exchange
rate for the accrual period, and currency exchange gain or loss is determined in
the manner described in "Accrual and Receipt of Interest", above, with respect
to computation of currency exchange gain or loss on the receipt of accrued
interest.
If a Holder's tax basis in a Note is greater than the amount payable at
maturity, the Note may have "bond premium". The Holder may elect to amortize
bond premium as offsets to interest income over the remaining life of the Note
under a constant yield method. (The treatment of Original Issue Discount Notes
purchased at a premium is discussed in "Original Issue Discount", above.) Such
an election generally applies to all Notes held by the Holder at the beginning
of the taxable year to which the election applies and those thereafter acquired
by the Holder, and it may not be revoked without the consent of the IRS.
However, if such Note may be redeemed at the Company's option after the Holder
acquires the Note at a price in excess of its principal amount, special rules
could result in a deferral of the amortization of some bond premium until later
in the term of the Note.
In the case of a Note denominated in Foreign Currency, bond premium is
computed in units of Foreign Currency, and amortizable bond premium reduces
interest income in units of the Foreign
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Currency. At the time amortized bond premium offsets interest income, currency
exchange gain or loss (taxable as ordinary income or loss but not generally as
interest income or expense) is realized based on the difference between spot
rates at that time and at the time of the acquisition of the Note. With respect
to a Holder that does not elect to amortize bond premium, the amount of bond
premium constitutes a capital loss when the bond matures. In the case of a Note
denominated in Foreign Currency, currency exchange gain or loss with respect to
the premium is realized based on the difference between the spot rates on the
Maturity Date and at the time of the acquisition of the Note. In such case, the
amount of capital loss relating to the premium may be offset or eliminated by
currency exchange gain.
RECEIPT OF FOREIGN CURRENCY
The tax basis of Foreign Currency received by a Holder generally will equal
the United States dollar equivalent of such Foreign Currency at the spot rate on
the date it is received. Upon the subsequent exchange of such Foreign Currency
for United States dollars, another currency, or other property, a Holder
generally will recognize currency exchange gain or loss equal to the difference
between the Holder's tax basis for the Foreign Currency and, as the case may be,
the number of United States dollars received, the United States dollar value of
Foreign Currency received, at the spot rate on the date of the exchange, or, if
other property is received, the United States dollar value of the Foreign
Currency based on the spot rate on the date of purchase. Such gain or loss will
be ordinary in character.
INDEXED NOTES
The specific treatment of any Indexed Notes, including Commodity Indexed
Notes and Currency Indexed Notes, will be discussed in applicable Pricing
Supplement relating to the issuance of such Notes and would generally be subject
to different rules from those set forth in this discussion.
CONTINGENT PAYMENTS
The Contingent Payment Debt Regulations address, among other things, the
accrual of original issue discount on, and the character of gain or loss
recognized on the sale, exchange, or retirement of, debt instruments providing
for contingent payments. Prospective Holders of Notes with contingent payments
should refer to the discussion regarding taxation in the applicable Pricing
Supplement.
HOLDERS WHO ARE NOT UNITED STATES PERSONS
For purposes of the following summary, the term "Holder who is not a United
States person" refers to a Holder who is not a United States person as that term
is defined in "United States Persons" above. Special United States Federal
withholding tax rules apply to payments made to foreign partnerships.
Subject to the discussion of "Backup Withholding and Information Reporting"
below, payments of principal (and premium, if any) and interest, including
original issue discount, by the Company or any agent of the Company (acting in
its capacity as such) to any Holder who is not a United States person will not
be subject to United States Federal withholding tax, PROVIDED, in the case of
interest, including original issue discount, that (i) such Holder does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote; (ii) such Holder is not a
controlled foreign corporation, as that term is defined for United States tax
purposes, that is related to the Company through stock ownership; (iii) the
Holder is not receiving interest ineligible for exemption from withholding by
reason of the application of Section 881(c)(3)(A) of the Code; (iv) the Holder
is not a foreign private foundation; and (v) either (A) the beneficial owner of
the Note certifies, under penalties of perjury, to the last United States person
(the "Withholding Agent") in the chain of payment, that he is not a United
States person and provides his name and address, or (B) a securities clearing
organization, a bank, or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds such Note certifies to the Withholding Agent, under
penalties of perjury, that such statement has been received from the beneficial
owner by it or by another financial institution and furnishes the Withholding
Agent with a copy thereof. Applicable regulations contain certain
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other requirements regarding the timing, form, and maintenance by the
Withholding Agent of the certification described in the preceding sentence.
Recently finalized regulations would modify the certification requirements for
payments of interest made after December 31, 1998. However, compliance with the
certification procedures described above (E.G., providing a properly completed
and timely filed Form W-8) generally would continue the current exemption from
United States Federal withholding tax for most Holders who are not United States
persons.
Payments of certain types of contingent interest to a Holder who is not a
United States person may be subject to United States Federal withholding tax
equal to 30% of each such payment (or such lower amount as provided by treaty).
The applicable Pricing Supplement will state if Notes having contingent payments
will be subject to United States Federal withholding tax.
If a Holder who is not a United States person is engaged in a trade or
business in the United States, and if interest, including original issue
discount, on the Note is effectively connected with the conduct of such trade or
business, such Holder, although exempt from the withholding tax, as discussed
above, may be subject to United States Federal income tax on such interest,
generally in the same manner as if the Holder were a United States person. In
addition, if such a Holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments, as well as to
branch-level interest taxes.
Such a Holder also may be subject to United States Federal withholding tax.
To claim an exemption from such tax, such a Holder must provide the Withholding
Agent with a properly completed and timely filed Form 4224 for payments prior to
January 1, 1999, and with a properly completed and timely filed Form W-8 for
payments on or after January 1, 1999. In addition, such a Holder may be required
to provide a properly completed and timely filed Form W-8 in order to obtain an
exemption from "backup" withholding, discussed below.
Any capital gain or market discount realized upon retirement or disposition
of a Note by a Holder who is not a United States person will not be subject to
United States Federal income or withholding taxes if (i) such gain is not
effectively connected with a United States trade or business of the Holder, and
(ii) in the case of an individual, either (A) such Holder is not present in the
United States for 183 days or more in the taxable year of the retirement or
disposition, or (B) such Holder does not have a "tax home" (as defined in the
Code) in the United States, and the gain is not attributable to an office or
other fixed place of business maintained by such Holder in the United States.
Notes held by an individual who is neither a citizen nor a resident of the
United States for United States Federal income tax purposes at the time of death
will not be subject to United States Federal estate tax, provided (i) that the
income from such Notes was not or would not have been effectively connected with
a United States trade or business of such individual; (ii) that such individual
qualified for the exemption from United States Federal withholding tax (without
regard to the certification requirements), described above; and (iii) that such
individual did not, within the 10-year period ending with the date of death,
lose United States citizenship or cease to be a long-term resident of the United
States with a principal purpose of avoiding United States Federal estate tax.
A Holder who is not a United States person and is a qualified resident of a
jurisdiction that has entered into a bilateral income, estate or gift tax treaty
with the United States also may be able to obtain benefits under the applicable
treaty in connection with the United States Federal taxation relating to the
Notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
For each calendar year in which the Notes are outstanding, the payor of
interest (including original issue discount, if any), principal, premium, or the
proceeds of disposition to a Holder is required to provide the IRS with certain
information, including the Holder's name, address and taxpayer identification
number ("TIN") (either the Holder's Social Security number or its employer
identification number, as the case may be), the aggregate amount of principal,
interest (including original issue discount, if any), premium, or
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<PAGE>
the proceeds of disposition paid to that Holder during the calendar year and the
amount of tax withheld, if any. This information reporting requirement, however,
does not apply with respect to certain United States persons, including
corporations, tax-exempt organizations, qualified pension and profit sharing
trusts and individual retirement accounts, but such entities may be required to
establish their status as such.
A "backup withholding" tax equal to 31% of each payment on the Notes will
apply to a United States person subject to the reporting requirements described
above, if such person (i) fails to furnish his TIN or (ii) under certain
circumstances fails to certify, under penalty of perjury, that he has both
furnished a correct TIN and not been notified by the IRS that he is subject to
backup withholding for failure to report interest and dividend payments. Backup
withholding also will apply if the payor is notified by the IRS that the payee
has failed to report properly a correct TIN or interest and dividends earned by
the such payee. This backup withholding tax is not an additional tax and may be
credited against the payee's United States Federal income tax liability.
With regard to registered obligations, under current Treasury regulations,
neither backup withholding nor information reporting requirements will apply to
payments made by the Company or any agent of the Company (in its capacity as
such) to a Holder who is not a United States person, if the Holder has provided
required certification that it is not a United States person, as set forth in
clause (v)(A) in the second paragraph under "Holders Who Are Not United States
Persons", or has otherwise established an exemption (provided that neither the
Company nor such agent has actual knowledge that the Holder is a United States
person or that the conditions of any exemption are not in fact satisfied).
With regard to bearer obligations, if principal or interest on a Note is
collected outside the United States by a non-United States office of a foreign
custodian, foreign nominee or other foreign agent of the beneficial owner of a
Note and is paid by such office outside the United States to such owner, or if a
non-United States office of a foreign "broker" (as defined in the Treasury
regulations) pays the proceeds of the sale or exchange of a Note outside the
United States to the seller thereof (for these purposes, payment made to an
address in the United States or by transfer to an account maintained by the
Holder in the United States will not be considered made outside the United
States), then neither backup withholding nor information reporting requirements
(except as provided in the following sentence) will apply to such payment
(provided that such nominee, custodian, agent or broker derives less than 50% of
its gross income for certain specified periods from the conduct of a trade or
business in the United States and is not a controlled foreign corporation for
United States tax purposes). Such a payment of principal or interest by a
non-United States office of other custodians, nominees or agents, or the payment
by a non-United States office of other brokers of the proceeds of the sale or
exchange of a Note will not be subject to backup withholding, but will be
subject to information reporting requirements, unless (i) the custodian,
nominee, agent or broker has documentary evidence in its records that the
beneficial owner or seller is not or was not, as the case may be, a United
States person, and has no actual knowledge to the contrary, and certain
conditions are met, or (ii) the beneficial owner or seller otherwise establishes
an exemption. A payment of principal or interest on a Note by a United States
office of a custodian, nominee or agent, or the payment by a United States
office of a broker of the proceeds of a sale or exchange of a Note is subject to
both backup withholding and information reporting requirements, unless the
beneficial owner or seller certifies its status as not a United States person
under penalties of perjury or otherwise establishes an exemption.
Recently finalized regulations, which generally are effective for payments
of interest made after December 31, 1998, would modify the application of backup
withholding and information reporting requirements to Holders who are not United
States persons. Compliance with the certification procedures described above,
however, generally would continue the exemption (from both backup withholding
and information reporting requirements) for Holders who are not United States
persons and are exempt recipients.
S-31
<PAGE>
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the Company through
Bear, Stearns & Co. Inc., Blaylock & Partners, L.P., Credit Suisse First Boston
Corporation, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, and
Salomon Brothers Inc (the "Agents"), each of whom has agreed to use its
reasonable best efforts to solicit purchases of the Notes. The Company will pay
each Agent a commission based on the principal amount of each Note sold through
such Agent, depending upon maturity of the Note. The Company may sell Notes to
any of the Agents at a discount for resale to Investors at varying prices
related to prevailing market prices at the time of resale, to be determined by
such Agent. The Company may also sell the Notes directly to investors on its
behalf. In the case of sales made directly by the Company no commission will be
payable. The Company has agreed to reimburse the Agents for certain expenses.
The Company may also sell Notes to an Agent as principal for its own account
at a discount to be agreed upon at the time of sale. Such Notes may be resold to
investors and other purchasers at prevailing market prices, or prices related
thereto at the time of such resale or otherwise, as determined by the Agent. In
addition, the Agents may offer the Notes they have purchased as principal to
other dealers. The Agents may sell Notes to any dealer at a discount. After the
initial public offering of Notes to be resold to investors and other purchasers
on a fixed public offering price basis, the public offering price, concession
and discount may be changed.
The Company will have the sole right to accept offers to purchase Notes and
may reject any proposed purchase of Notes in whole or in part. Each Agent will
have the right, in its discretion reasonably exercised, to reject any offer to
purchase Notes received by it in whole or in part.
No Note will have an established trading market when issued. The Notes will
not be listed on any securities exchange. Each Agent may make a market in the
Notes, but such Agent is not obligated to do so and may discontinue any
market-making at any time without notice. There can be no assurance of a
secondary market for any Notes, or that the Notes will be sold.
The Company has agreed to indemnify each Agent against certain liabilities,
including liabilities under the Securities Act of 1933 (the "Act") or to
contribute to payments such Agent may be required to make in respect thereof.
Each Agent may be deemed to be an "Underwriter" within the meaning of the Act.
In order to facilitate the offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Agents may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may bid
for, and purchase, the Notes in the open market. Finally, the underwriting
syndicates may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the Notes in the offering, if the syndicate repurchases
previously distributed Notes in transactions to cover syndicate short positions,
in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the Notes above independent market
levels. The Agents are not required to engage in these activities, and may end
any of these activities at any time.
EXPERTS
The audited consolidated financial statements incorporated by reference in
the Annual Report of Texaco Inc. for the fiscal year ended December 31, 1996
filed on Form 10-K, incorporated herein by reference, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
S-32
<PAGE>
LEGAL OPINIONS
The validity of the Notes being offered hereby will be passed upon for the
Company and Texaco Inc. by Paul R. Lovejoy, Esq., Assistant General Counsel of
Texaco Inc., and for the Agents by Davis Polk & Wardwell, 450 Lexington Avenue,
New York, New York 10017. The tax matters under the heading "Certain United
States Federal Income Tax Consequences" will be passed upon by Ivins, Phillips &
Barker, Chartered, 1700 Pennsylvania Avenue, N.W., Washington, D.C., 20006, as
special tax counsel to the Company and Texaco Inc.
S-33
<PAGE>
PROSPECTUS
TEXACO INC.
AND
TEXACO CAPITAL INC.
GUARANTEED DEBT SECURITIES
DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
COMMON STOCK
WARRANTS
This Prospectus relates to the following securities:
(i) debt securities ("Debt Securities") to be issued by Texaco Capital
Inc. ("Texaco Capital"), which will be guaranteed by Texaco Inc. ("Texaco
Inc.");
(ii) debt securities to be issued by Texaco Inc. ("Texaco Inc. Debt
Securities");
(iii) common stock to be issued by Texaco Inc. ("Common Stock");
(iv) preferred stock to be issued by Texaco Inc. ("Preferred Stock");
(v) warrants to purchase Debt Securities, Texaco Inc. Debt Securities,
Common Stock or Preferred Stock ("Warrants") and
(vi) depositary shares relating to Preferred Stock ("Depositary Shares"
and together with Debt Securities, Texaco Inc. Debt Securities, Common Stock
and Preferred Stock, "Securities").
The specific terms of any such offering will be described in a supplement to
this Prospectus. The net proceeds from such offerings will not exceed
$1,250,000,000.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Securities may be offered directly to investors, through dealers, through
underwriters, or through agents designated from time to time, as set forth in
the Prospectus Supplement. Net proceeds to Texaco Capital or Texaco Inc. will be
the purchase price in the case of a dealer, the public offering price less
discount in the case of an underwriter or the bid purchase price less commission
in the case of an agent--in each case less other expenses attributable to
issuance and distribution. See "Plan of Distribution" for possible
indemnification arrangements for dealers, underwriters and agents.
This Prospectus and the Prospectus Supplement do not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful to make such offer in
such jurisdiction.
February 26, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Where You Can Find More Information........................................................................ 2
Documents Incorporated by Reference........................................................................ 3
Texaco Inc. ............................................................................................... 3
Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends... 4
Texaco Capital Inc. ....................................................................................... 4
Use of Proceeds............................................................................................ 4
Plan of Distribution....................................................................................... 4
Description of the Debt Securities......................................................................... 5
Description of Texaco Inc. Common Stock.................................................................... 11
Description of Texaco Inc. Preferred Stock................................................................. 11
Description of the Depositary Shares....................................................................... 14
Description of the Warrants................................................................................ 17
Experts.................................................................................................... 18
Legal Opinions............................................................................................. 18
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
Texaco Inc. is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC"). You may
read and copy any reports, statements or other information filed by Texaco at
the public reference rooms maintained by the SEC at its principal offices at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, in Washington, D.C. 20549
and its regional offices at Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300,
New York, New York 10048. Texaco's SEC filings are also available to the public
from commercial document retrieval services, from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates
and at the web site maintained by the SEC at "http://www.sec.gov". Such material
should also be available for inspection at the library of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
SEPARATE FINANCIAL INFORMATION FOR TEXACO CAPITAL IS NOT INCLUDED HEREIN AND
WILL NOT BE INCLUDED IN ANY REPORTS FILED PURSUANT TO THE EXCHANGE ACT, AS
TEXACO CAPITAL IS WHOLLY OWNED BY TEXACO INC., IT ESSENTIALLY HAS NO INDEPENDENT
OPERATIONS, AND ANY DEBT SECURITIES ISSUED BY TEXACO CAPITAL WILL BE FULLY AND
UNCONDITIONALLY GUARANTEED BY TEXACO INC.
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS. NEITHER TEXACO CAPITAL NOR TEXACO INC. HAS AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS IS DATED FEBRUARY 18, 1998. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN SUCH DATE AND NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
ISSUANCE OF ANY SECURITIES UNDER IT SHALL CREATE ANY IMPLICATION TO THE
CONTRARY.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The SEC rules allow Texaco to "incorporate by reference" information into
this Prospectus, which means important information may be disclosed to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this Prospectus, except for
any information superseded by information in (or incorporated by reference in)
this Prospectus. This Prospectus incorporates by reference the documents set
forth below that have been previously filed with the SEC. These documents
contain important information about Texaco and its finances.
<TABLE>
<CAPTION>
TEXACO SEC FILINGS (FILE NO. I-27) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K.............................. Year ended December 31, 1996.
Quarterly Reports on Form 10-Q.......................... Quarters ended September 30, 1997, June 30, 1997 and
March 31, 1997.
Current Reports on Form 8-K............................. Filed January 30, 1998; January 23, 1998; November 6,
1997; October 21, 1997; August 19, 1997; July 25,
1997; July 22, 1997; July 17, 1997; June 19, 1997;
April 22, 1997; March 19, 1997; January 29, 1997;
January 23, 1997; January 7, 1997.
</TABLE>
Texaco is also incorporating by reference additional documents that it may
file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act between the date of this Prospectus and the termination of the offering
described in this Prospectus.
You can obtain copies of any of the documents described above through Texaco
or the SEC. Documents incorporated by reference are available from Texaco
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this Prospectus. You may obtain documents
incorporated by reference in this Prospectus by requesting them in writing or by
telephone from Texaco at the following address:
Texaco Inc.
2000 Westchester Avenue
White Plains, New York 10650
Tel: (914) 253-4000
Attention: Secretary
TEXACO INC.
Texaco Inc. was incorporated in Delaware on August 26, 1926 as The Texas
Corporation. Its name was changed in 1941 to The Texas Company and in 1959 to
Texaco Inc. It is the successor of a corporation incorporated in Texas in 1902.
Its principal executive offices are located at 2000 Westchester Avenue, White
Plains, New York 10650; telephone: (914) 253-4000. As used herein, Texaco
(unless the context otherwise indicates) refers to Texaco Inc. and all of its
consolidated subsidiary companies.
Texaco and its affiliates owned 50% or less, represent a vertically
integrated enterprise principally engaged in the worldwide exploration for and
production, transportation, refining and marketing of crude oil, natural gas and
petroleum products.
3
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------------------------------------------------------
1997 1996 1995(A) 1994(B) 1993(B) 1992(A)(B)
----------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges of
Texaco Inc. on a total enterprise
basis (unaudited)................... 5.90 5.75 2.55 2.86 2.91 3.10
Ratio of earnings to combined fixed
charges and preferred stock
dividends of Texaco Inc. on a total
enterprise basis (unaudited) (c).... 5.57 5.36 2.40 2.58 2.61 2.75
</TABLE>
- ------------------------
(a) Excludes cumulative effect of accounting changes.
(b) Excludes discontinued operations.
(c) Preferred stock dividend requirements have been adjusted to reflect the
pre-tax earnings which would be required to cover the Series C Variable Rate
Cumulative Preferred Stock (redeemed on September 30, 1994), Series E
Variable Rate Cumulative Preferred Stock (exchanged for Common Stock on
November 8, 1994) and Market Auction Preferred Shares dividends and to
exclude the interest portion of the Series B and Series F ESOP Convertible
Preferred Stock dividends.
TEXACO CAPITAL INC.
Texaco Capital Inc., a wholly owned subsidiary of Texaco Inc., is a Delaware
corporation which was incorporated on June 24, 1983. Its principal executive
offices are located at 1013 Centre Road, Wilmington, Delaware 19801; telephone:
(800) 927-9800. The Company is engaged principally in the business of lending
funds borrowed from unrelated persons to Texaco Inc. and its subsidiaries for
general corporate purposes.
USE OF PROCEEDS
The net proceeds from the sale of the Securities by Texaco Inc. will be used
for working capital, for retirement of debt and for other general corporate
purposes. The net proceeds from the sale of any Debt Securities by Texaco
Capital will be lent to Texaco Inc. or its subsidiaries to be used for similar
purposes.
PLAN OF DISTRIBUTION
The Securities may be sold in any one or more of the following ways: (1)
directly to investors, (2) to investors through agents, (3) to dealers, (4)
through underwriting syndicates led by one or more managing underwriters as
Texaco Capital or Texaco Inc. may select from time to time, or (5) through one
or more underwriters acting alone.
If underwriters are utilized in the sale, the obligations of the
underwriters will be subject to certain conditions precedent and the
underwriters will be obligated to purchase all Securities, if any are purchased.
The specific managing underwriter or underwriters, if any, with respect to the
offer and sale of the Securities are set forth on the cover of the Prospectus
Supplement relating to such Securities and the members of the underwriting
syndicate, if any, are named in such Prospectus Supplement. Only underwriters so
named in the Prospectus Supplement are deemed to be underwriters in connection
with the Securities offered thereby and any firms not named in the Prospectus
Supplement are not parties to the Underwriting Agreement in respect of such
Securities, will not be purchasing any of the Securities from Texaco Capital or
Texaco Inc. and will have no direct or indirect participation in the
underwriting of such
4
<PAGE>
Securities, although they may participate in the distribution of such Securities
under circumstances where they may be entitled to a dealer's commission. The
Prospectus Supplement also describes the discounts and commissions to be allowed
or paid to the underwriters, all other items constituting underwriting
compensation, the discounts and commissions to be allowed or paid to dealers, if
any, and the exchanges, if any, on which the Securities will be listed.
If offers to purchase are to be solicited by agents designated by Texaco
Capital or Texaco Inc., any such agent may be deemed to be an underwriter as
that term is defined in the Securities Act of 1933, as amended (the "Securities
Act"). Agents involved in the offer or sale of the Securities in respect of
which this Prospectus is delivered will be named, and any commissions payable by
Texaco Capital or Texaco Inc. to such agents set forth, in the Prospectus
Supplement. Unless otherwise indicated in the Prospectus Supplement, any such
agent will be acting on a best efforts basis for the period of its appointment.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, Texaco Capital or Texaco Inc. will sell such
Securities to the dealer as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale.
Securities may also be offered and sold, if so indicated in the Prospectus
Supplement, in connection with a remarketing upon their purchase, in accordance
with a redemption or repayment pursuant to their terms, or otherwise, by one or
more firms ("remarketing firms"), acting as principals for their own accounts or
as agents for Texaco Capital or Texaco Inc.. Any remarketing firm will be
identified and the terms of its agreement, if any, with Texaco Capital or Texaco
Inc. and its compensation will be described in the Prospectus Supplement.
Remarketing firms may be deemed to be underwriters in connection with the
Securities remarketed thereby.
If so indicated in the Prospectus Supplement, Texaco Capital or Texaco Inc.
will authorize underwriters, dealers or agents to solicit offers by certain
institutions to purchase the Securities from Texaco Capital or Texaco Inc. at
the price set forth in the Prospectus Supplement pursuant to Delayed Delivery
Contracts providing for payment and delivery at a future date.
Underwriters, agents, dealers and remarketing firms may be entitled under
agreements which may be entered into with Texaco Capital and Texaco Inc. to
indemnification by Texaco Capital and Texaco Inc. against certain civil
liabilities, including liabilities under the Securities Act and may be customers
of, engage in transactions with or perform services for Texaco Capital or Texaco
Inc. in the ordinary course of business.
DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities will be offered by Texaco Capital and will be fully and
unconditionally guaranteed by Texaco Inc. The Debt Securities are to be issued
under an indenture dated as of August 24, 1984 as supplemented and restated by
(1) the First Supplemental Indenture dated as of January 31, 1990 (a copy of
which is filed as Exhibit 4.1 to Registration Statement Nos. 33-33303 and
33-33303-01, filed on February 1, 1990), (2) the First Supplement to the First
Supplemental Indenture dated as of October 11, 1990 (a copy of which is filed as
Exhibit 4.1(a) to Texaco Inc.'s Current Report on Form 8-K, dated October 12,
1990 and filed on October 15, 1990), and (3) the Second Supplement to the First
Supplemental Indenture, dated as of August 5, 1997, (a copy of which is filed as
Exhibit 4.1(b) to Texaco Inc.'s Form 10-Q for the quarterly period ended June
30, 1997, and filed on August 13, 1997) (as so supplemented and amended, the
"Indenture") among Texaco Capital, Texaco Inc. and The Chase Manhattan Bank, as
Trustee (the "Trustee"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of the Indenture. Unless otherwise
defined herein, all capitalized terms shall have the definitions set forth in
the Indenture.
The following description of the Indenture is subject to the detailed
provisions of such Indenture; whenever particular provisions of the Indenture
are referred to, such provisions are incorporated by
5
<PAGE>
reference as a part of the statement made, and the statement is qualified in its
entirety by such reference. Whenever a defined term is referred to and not
defined under "Description of the Debt Securities", the definition thereof is
contained in the Indenture.
The Indenture provides that, in addition to the Debt Securities offered
hereby, additional Debt Securities may be issued thereunder without limitation
as to aggregate principal amount, but subject to limitations from time to time
established by Texaco Capital's Board of Directors.
Unless specified in the Prospectus Supplement, Debt Securities offered by
Texaco Capital hereby will rank equally and ratably with all other unsecured and
unsubordinated indebtedness of Texaco Capital. The Guaranties will rank equally
with all other unsecured and unsubordinated indebtedness of Texaco Inc.
Reference is made to the Prospectus Supplement for the following terms of
the Debt Securities being offered hereby: (1) the designation of such Debt
Securities; (2) the aggregate principal amount and currency or currency unit of
such Debt Securities; (3) the denominations in which such Debt Securities are
authorized to be issued; (4) the percentage of their principal amount at which
such Debt Securities will be issued; (5) the date on which such Debt Securities
will mature; (6) if the Debt Securities are to bear interest, the rate per annum
at which such Debt Securities will bear interest (or the method by which such
rate will be determined); (7) the times at which such interest, if any, will be
payable or the manner of determining the same; (8) the date, if any, after which
such Debt Securities may be redeemed or purchased and the redemption or purchase
price; (9) the sinking fund requirements, if any; (10) special United States
federal income tax considerations, if any; (11) whether such Debt Securities are
to be issued in the form of one or more temporary or permanent Global Securities
and, if so, the identity of the Depositary for such Global Securities; (12)
information with respect to book-entry procedures, if any; (13) the manner in
which the amount of any payments of principal and interest on the Debt
Securities determined by reference to an index are determined; and (14) any
other terms of the Debt Securities not inconsistent with the Indenture.
The Indenture does not contain any provisions which may afford holders of
the Securities protection in the event of a highly leveraged transaction,
although such a provision could be added to the Indenture in the future with
respect to the Securities or any series thereof, in which event a description
thereof will be included in the applicable Prospectus Supplement.
DENOMINATIONS, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise indicated in the Prospectus Supplement, the Debt Securities
of a series will be issuable in registered form without coupons ("Registered
Securities") or in the form of one or more global securities ("Global
Securities"), as described below under "Global Securities". Unless otherwise
provided in an applicable Prospectus Supplement with respect to a series of Debt
Securities, Registered Securities denominated in U.S. dollars will be issued
only in denominations of $1,000 or any integral multiple thereof. One or more
Global Securities will be issued in a denomination or aggregate denominations
equal to the aggregate principal amount of outstanding Debt Securities of the
series represented by such Global Security. The Prospectus Supplement relating
to a series of Debt Securities denominated in a foreign or composite currency
will specify the denominations thereof.
Unless otherwise indicated in the Prospectus Supplement, Registered
Securities (other than a Global Security) may be presented for registration of
transfer (with the form of transfer duly executed), at the office of the
Registrar or at the office of any transfer agent designated by Texaco Capital
for such purpose with respect to any series of Debt Securities and referred to
in an applicable Prospectus Supplement, without service charge and upon payment
of any taxes and other governmental charges as described in the Indenture. Such
transfer or exchange will be effected upon the Registrar or such transfer agent,
as the case may be, being satisfied with the documents of title and identity of
the person making the request. Texaco Capital has initially appointed the
Trustee as Registrar under the Indenture. If a Prospectus Supplement refers to
any transfer agents (in addition to the Registrar) initially designated by
Texaco Capital with
6
<PAGE>
respect to any series of Registered Securities, Texaco Capital may at any time
rescind the designation of any such transfer agent or approve a change in the
location through which any such transfer agent acts, except that Texaco Capital
will maintain a transfer agent in the City of New York. Texaco Capital may at
any time designate additional transfer agents with respect to any series of Debt
Securities.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and interest, if any, on Registered
Securities (other than a Global Security) will be made at the office of such
Paying Agent or Paying Agents as Texaco Capital may designate from time to time,
except that at the option of Texaco Capital, payment of any interest may be made
(i) by check mailed to the address of the person entitled thereto as such
address shall appear in the register or (ii) by wire transfer to an account
maintained by the person entitled thereto as specified in the register. Unless
otherwise indicated in an applicable Prospectus Supplement, payment of any
installment of interest on Registered Securities will be made to the person in
whose name such Debt Security is registered at the close of business on the
regular Record Date for such interest payment.
Unless otherwise indicated in an applicable Prospectus Supplement, the
principal office of the Trustee in the City of New York will be designated as
Texaco Capital's sole Paying Agent for payments with respect to Registered
Securities.
All moneys paid by Texaco Capital to a Paying Agent for the payment of
principal of (and premium, if any) and interest, if any, on any Debt Security
which remains unclaimed at the end of two years after such principal, premium or
interest shall have become due and payable will be repaid to Texaco Capital and
the Holder of such Debt Security will thereafter look only to Texaco Capital for
payment thereof.
GUARANTIES
Texaco Inc. will unconditionally guarantee the due and punctual payment of
the principal of, (and premium, if any) and interest, if any, on the Debt
Securities issued by Texaco Capital, when and as the same shall become due and
payable, whether at maturity or upon redemption, declaration or otherwise.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
fully registered global Debt Securities (a "Global Security") that will be
deposited with a depositary (the "Depositary"), or with a nominee for a
Depositary identified in the Prospectus Supplement relating to such series. In
such case, one or more Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding Debt Securities of such series. Unless and until it is exchanged
in whole or in part for Debt Securities in definitive registered form, a Global
Security may not be transferred except as a whole by the Depositary for such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee of
such successor.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security will be
described in the Prospectus Supplement relating to such series. Texaco Capital
anticipates that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of persons that have accounts with such Depositary
("participants"). The accounts to be credited shall be designated by any
underwriters or agents participating in the distribution of such Debt
Securities. Ownership of beneficial interests in a Global Security will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial
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interests in such Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depositary
for such Global Security (with respect to interests of participants) or by
participants or persons that hold through participants (with respect to
interests of persons other than participants).
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in a Global
Security will not be entitled to have the Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of such Debt Securities in definitive form and will
not be considered the owners or holders thereof under the Indenture.
Payments of principal of (and premium, if any) and interest, if any, on Debt
Securities represented by a Global Security registered in the name of a
Depositary or its nominee will be made to such Depositary or its nominee, as the
case may be, as the registered owner of such Global Security. None of Texaco
Capital, Texaco Inc., the Trustee or any Paying Agent for such Debt Securities
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in such Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Texaco Capital expects that the Depositary for any Debt Securities
represented by a Global Security, upon receipt of any payment of principal,
premium or interest, will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of such
Depositary. Texaco Capital also expects that payments by participants to owners
of beneficial interest in such Global Security held through such participants
will be governed by standing instructions and customary practices, as is now the
case with the securities held for the accounts of customers registered in
"street names" and will be the responsibility of such participants.
If the Depositary for any Debt Securities represented by a Global Security
is at any time unwilling or unable to continue as Depositary and a successor
Depositary is not appointed by Texaco Capital within ninety days, Texaco Capital
will issue such Debt Securities in definitive form in exchange for such Global
Security. In addition, Texaco Capital may at any time and in its sole discretion
determine not to have any of the Debt Securities of a series represented by one
or more Global Securities and, in such event, will issue Debt Securities of such
series in definitive form in exchange therefor.
CERTAIN LIMITATIONS ON LIENS
The Indenture provides that Texaco Inc. shall not, and it shall not permit
any Principal Subsidiary (defined as a Subsidiary (i) substantially all of the
assets of which are located, and substantially all of the operations of which
are conducted, in the United States, (ii) which owns a Principal Property,
defined as an important oil and gas producing property onshore or offshore the
United States or any important refinery or manufacturing plant located in the
United States and (iii) in which Texaco Inc.'s direct or indirect net investment
exceeds $100,000,000) to, incur a Lien to secure a Long-Term Debt on a Principal
Property, any Capital Stock or a Long-Term Debt ("Debt") of a Principal
Subsidiary unless: (1) the Lien equally and ratably secures the Debt Securities
and the secured Debt; (2) the Lien is in existence at the time a corporation
merges into or consolidates with Texaco Inc. or a Principal Subsidiary or
becomes a Principal Subsidiary; (3) the Lien is on a Principal Property at the
time Texaco Inc. or a Principal Subsidiary acquires the Principal Property; (4)
the Lien secures Debt incurred to finance all or some of the purchase price of a
Principal Property or a Principal Subsidiary; (5) the Lien secures Debt incurred
to finance all or some of the costs of Improvements on a Principal Property; (6)
the Lien secures Debt of a Principal Subsidiary owing to Texaco Inc. or another
Principal Subsidiary; (7) the Lien extends, renews or replaces in whole or
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in part a Lien permitted by any of clauses (1) through (6); or (8) the secured
Debt plus all other Debt secured by Liens on Principal Properties, Capital Stock
or Debt of a Principal Subsidiary at the time does not exceed 10% of Texaco's
Consolidated Net Tangible Assets. However, Debt secured by a Lien permitted by
any of clauses (1) through (7) shall be excluded from all other Debt in the
determination.
LIMITATIONS ON SALE AND LEASEBACK
The Indenture provides that Texaco Inc. shall not, and it shall not permit
any Principal Subsidiary to, enter into a Sale-Leaseback Transaction unless: (1)
the lease has a term of three years or less; (2) the lease is between Texaco
Inc. and a Principal Subsidiary or between Principal Subsidiaries; (3) Texaco
Inc. or a Principal Subsidiary under the terms of the Indenture could create a
Lien on the Principal Property to secure a Debt at least equal in amount to the
Attributable Debt for the lease; or (4) Texaco Inc. or a Principal Subsidiary
within 120 days of the effective date of the Sale-Leaseback Transaction (i)
retires Debt of Texaco Inc. or of a Principal Subsidiary at least equal in
amount to the fair value (as determined by Texaco Inc.'s Board of Directors) of
the Principal Property at the time the Principal Property is leased or (ii) if
the net proceeds of the Sale-Leaseback Transaction equal or exceed the fair
value of the Principal Property (as determined by Texaco Inc.'s Board of
Directors), applies the net proceeds to fund investment in other Principal
Properties which investments were made within twelve months prior to or
subsequent to the transaction.
CONSOLIDATION AND MERGER
The Indenture provides that either Texaco Capital or Texaco Inc. may
consolidate or merge into, or transfer its properties and assets substantially
as an entirety to, another person without the consent of the Holders of any of
the Debt Securities outstanding under the Indenture, provided the person assumes
by supplemental indenture all the obligations of Texaco Capital or Texaco Inc.,
as the case may be, under the Debt Securities and the Indenture and immediately
after the transaction no Default exists. Thereafter, all such obligations of
Texaco Capital or Texaco Inc., as the case may be, shall terminate.
DEFAULT
The Indenture defines an "Event of Default" with respect to any series of
the Debt Securities as being any one of the following events: (1) default for 30
days in the payment of interest on any Debt Security of that series; (2) default
in the payment of the principal of, or premium, if any, on, or in the making of
any sinking fund payments on any Debt Security of that series when due; (3)
failure to comply with any other agreements in the Debt Securities of that
series, the Indenture or any supplemental indenture under which the Debt
Securities may have been issued and continuation of the default for the period
and after the
notice specified below; and (4) certain events in bankruptcy, insolvency, or
reorganization.
A default under clause (3) is not an Event of Default until the Trustee or
the Holders of at least 25% in principal amount of all of the Debt Securities of
that series outstanding notify Texaco Capital of the default and the default is
not cured within 90 days after receipt of the notice.
If an Event of Default occurs with respect to the Debt Securities of any
series and is continuing, the Trustee by notice to Texaco Capital, or the
Holders of at least 25% in principal amount of all of the Debt Securities of
that series outstanding by notice to Texaco Capital and the Trustee, may declare
the principal of and premium and accrued interest, if any, on all the Debt
Securities of that series to be due and payable immediately. The Holders of a
majority in principal amount of all of the Debt Securities of that series by
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree by a court of
competent jurisdiction and if all existing Events of Default have been cured or
waived except nonpayment of principal or premium or interest, if any, that has
become due solely because of the acceleration.
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If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal or premium or interest, if any, on the Debt Securities of the series
that is in default or to enforce the performance of any provision of the Debt
Securities or the Indenture.
Subject to certain exceptions, the Holders of a majority in principal amount
of the Debt Securities by notice to the Trustee may waive an existing default
and its consequences.
MODIFICATION OF THE INDENTURE
The Indenture provides that Texaco Capital, Texaco Inc. and the Trustee may
enter into a supplemental indenture to amend the Indenture or the Debt
Securities without the consent of any Securityholder: (1) to cure any ambiguity,
defect or inconsistency; (2) to comply with Article 5 of the Indenture to permit
a successor to assume Texaco Capital's or Texaco Inc.'s obligations under the
Indenture; (3) to make any change that does not adversely affect the rights of
any Securityholder; or (4) to provide for the issuance of and establish the
terms and conditions of Debt Securities of any series.
Texaco Capital, Texaco Inc. and the Trustee may enter into a supplemental
indenture to amend the Indenture or the Debt Securities of a series with the
written consent of the Holders of at least 50.1% in principal amount of the Debt
Securities of the series affected. The Holders of at least 50.1% in principal
amount of the Debt Securities by notice to the Trustee may waive compliance by
Texaco Capital or Texaco Inc. with any provision of the Indenture or the Debt
Securities.
Notwithstanding the foregoing, without the consent of each Securityholder
affected, an amendment or waiver may not: (1) reduce the amount of Debt
Securities whose Holders must consent to an amendment or waiver; (2) reduce the
rate of or extend the time for payment of interest on any Debt Security; (3)
reduce the principal of or extend the fixed maturity of any Debt Security; (4)
waive a default in the payment of the principal, premium or interest, if any, on
any Debt Security; or (5) make any Debt Security payable in money other than
that stated in the Debt Security.
DEFEASANCE AND DISCHARGE
The Indenture provides that Texaco Capital may terminate its obligations
with respect to any series of Debt Securities, on the terms and subject to the
conditions contained in the Indenture, by depositing in trust with the Trustee
money or U.S. Government Obligations sufficient to pay principal, premium and
interest, if any, on such series to redemption or maturity. Upon the termination
of the Company's obligations with respect to all the Debt Securities of a
series, the Trustee, at the request of Texaco Capital, shall release its rights
and interests with respect to such series of Debt Securities in any security
granted by Texaco Capital or Texaco Inc. As a condition to any such termination,
Texaco Capital is required to furnish an opinion of recognized independent tax
counsel to the effect that such proposed deposit and termination will not have
any effect on the Holders of the Debt Securities for Federal income tax
purposes. Such opinion must be based upon a ruling of the Internal Revenue
Service or a change in United States federal income tax law occurring after the
date of this Prospectus since such a result would not occur under current tax
law.
OTHER DEBT SECURITIES
In addition to the Debt Securities described above, Texaco Capital may issue
subordinated debt securities (which will be guaranteed on a subordinated basis
by Texaco Inc.) and Texaco Inc. may issue either senior or subordinated debt
securities. Any such debt securities will be described in a Prospectus
Supplement and will be issued pursuant to an indenture entered into among Texaco
Inc., a trustee and, if applicable, Texaco Capital, which indenture will be
filed with the SEC and qualified under the Trust Indenture Act.
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DESCRIPTION OF TEXACO INC. COMMON STOCK
As of the date of this Prospectus, Texaco Inc.'s Certificate of
Incorporation authorizes the issuance of 700,000,000 shares of Common Stock,
$3.125 par value per share. As of February 5, 1998, 540,987,148 shares of Common
Stock were outstanding.
Subject to the rights of the holders of any outstanding shares of preferred
stock, holders of Common Stock are entitled to receive such dividends, in cash,
securities, or property, as may from time to time be declared by the Board of
Directors. Subject to the provisions of Texaco Inc.'s By-laws, as from time to
time amended, with respect to the closing of the transfer books and the fixing
of a record date, holders of shares of Common Stock are entitled to one vote per
share of Common Stock held on all matters requiring a vote of the stockholders.
In the event of any liquidation, dissolution, or winding up of Texaco Inc.,
either voluntary or involuntary, after payment shall have been made to the
holders of preferred stock of the full amount to which they shall be entitled,
the holders of Common Stock shall be entitled to share ratably, according to the
number of shares held by them, in all remaining assets of Texaco Inc. available
for distribution. Shares of Common Stock are not redeemable and have no
subscription, conversion or preemptive rights. Each share of Common Stock has
attached to it a Right to purchase, under certain circumstances, additional
shares of Common Stock or other securities at a significant discount, when
certain conditions are met.
DESCRIPTION OF TEXACO INC. PREFERRED STOCK
The following is a description of certain general terms and provisions of
Texaco Inc.'s Preferred Stock. The particular terms of any series of Preferred
Stock will be described in the applicable Prospectus Supplement. If so indicated
in a Prospectus Supplement, the terms of any such series may differ from the
terms set forth below.
The summary of terms of Texaco Inc.'s Preferred Stock contained in this
Prospectus does not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of Texaco Inc.'s Certificate of Incorporation
and the certificate of designations relating to each series of the Preferred
Stock (the "Certificate of Designations"), which will be filed as an exhibit to
or incorporated by reference in the Registration Statement of which this
Prospectus is a part at or prior to the time of issuance of such series of the
Preferred Stock.
Texaco Inc.'s Certificate of Incorporation authorizes the issuance of
30,000,000 shares of Preferred Stock, par value $1.00 per share. The Texaco Inc.
Board is authorized to designate any series of Preferred Stock and the powers,
preferences and rights of the shares of such series and the qualifications,
limitations or restrictions thereof without further action by the holders of
Common Stock. As of February 5, 1998, there were outstanding 691,020 shares of
Series B ESOP Convertible Preferred Stock, 55,695 shares of Series F ESOP
Convertible Preferred Stock and 1,200 shares of Market Auction Preferred Stock.
There are 3,000,000 shares designated as Series D Junior Participating Preferred
Stock, none of which are currently outstanding.
The Texaco Inc. Board is authorized to determine, for each series of
Preferred Stock, and the Prospectus Supplement shall set forth with respect to
such series: (i) whether the holders thereof shall be entitled to cumulative,
noncumulative, or partially cumulative dividends and, with respect to shares
entitled to dividends, the dividend rate or rates, including without limitation
the methods and procedures for determining such rate or rates, and any other
terms and conditions relating to such dividends; (ii) whether, and if so to what
extent and upon what terms and conditions, the holders thereof shall be entitled
to rights upon the liquidation of, or upon any distribution of the assets of,
Texaco Inc.; (iii) whether, and if so upon what terms and conditions, such
shares shall be convertible into Debt Securities, any other series of Preferred
Stock, Depositary Shares or Common Stock, or exchangeable for the securities of
any other corporation; (iv) whether, and if so upon what terms and conditions,
such shares shall be redeemable; (v) whether the shares shall be redeemable and
subject to any sinking fund provided
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for the purchase or redemption of such shares and, if so, the terms of such
fund; (vi) whether the holders thereof shall be entitled to voting rights and,
if so, the terms and conditions for the exercise thereof; and (vii) whether the
holders thereof shall be entitled to other preferences or rights, and, if so,
the qualifications, limitations, or restrictions of such preferences or rights.
DIVIDENDS
Holders of shares of Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds of Texaco Inc. legally
available for payment, cash dividends payable at such dates and at such rates
per share per annum as set forth in the applicable Prospectus Supplement. The
Prospectus Supplement will also state applicable record dates regarding the
payment of dividends. Except as set forth below, no dividends shall be declared
or paid or set apart for payment on any series of Preferred Stock unless full
dividends for all series of Preferred Stock (including any accumulation in
respect of unpaid dividends for prior dividend periods, if dividends on such
Preferred Stock are cumulative) have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof is set apart for
such payment. When dividends are not so paid in full (or a sum sufficient for
such full payment is not so set apart) upon the Preferred Stock, dividends
declared (if any) on the Preferred Stock shall be declared pro-rata so that the
amount of dividends declared per share on each series of Preferred Stock shall
in all cases bear to each other series the same ratio that (x) accrued dividends
(including any accumulation with respect to unpaid dividends for prior dividend
periods, if dividends for such series are cumulative) for the then-current
dividend period per share for each respective series of Preferred Stock bear to
(y) aggregate accrued dividends for the then-current dividend period (including
all accumulations with respect to unpaid dividends for prior periods for all
series which are cumulative) for all outstanding shares of Preferred Stock.
Unless all dividends on the Preferred Stock shall have been paid in full (i)
no dividend shall be declared and paid or declared and a sum sufficient thereof
set apart for payment (other than a dividend in Texaco Inc.'s common stock or in
any other class ranking junior to the Preferred Stock as to dividends and
liquidation preferences) or other distribution declared or made upon the shares
of Texaco Inc.'s common stock or upon any other class ranking junior to the
Preferred Stock as to dividends or liquidation preferences and (ii) no shares of
Texaco Inc.'s common stock or class of stock ranking junior to the Preferred
Stock as to dividends or liquidation preferences may be redeemed, purchased or
otherwise acquired by Texaco Inc. except by conversion into or exchange for
shares of Texaco Inc. ranking junior to the Preferred Stock as to dividends and
liquidation preferences.
No series of Preferred Stock will be convertible into, or exchangeable for,
other securities or property except as set forth in the related Prospectus
Supplement.
REDEMPTION AND SINKING FUND
No series of Preferred Stock will be redeemable or receive the benefit of a
sinking fund except as set forth in the related Prospectus Supplement.
LIQUIDATION
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Texaco Inc., holders of any series of Preferred Stock will be entitled to
receive the liquidation preference per share specified in the Prospectus
Supplement, if any, in each case together with any applicable accrued and unpaid
dividends and before any distribution to holders of Texaco Inc.'s common stock
or any class of stock ranking junior to the Preferred Stock as to dividends and
liquidation preferences. In the event there are insufficient assets to pay such
liquidation preferences for all classes of Preferred Stock in full, the
remaining assets shall be allocated ratably among all series of Preferred Stock
based upon the aggregate liquidation preference for all outstanding shares for
each such series. After payment of the full amount of the liquidation preference
to
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which they are entitled, the holders of shares of Preferred Stock will not be
entitled to any further participation in any distribution of assets by Texaco
Inc. unless otherwise provided in a Prospectus Supplement, and the remaining
assets of Texaco Inc. shall be distributable exclusively among the holders of
Texaco Inc.'s common stock and any class of stock ranking junior to the
Preferred Stock as to dividends and liquidation preferences, according to their
respective interests.
VOTING
No series of Preferred Stock will be entitled to vote except as provided
below or in the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, if at any time Texaco Inc. shall have failed to
declare and pay in full dividends for six quarterly periods, whether consecutive
or not, on any applicable series of Preferred Stock and all such preferred
dividends remain unpaid (a "Preferred Dividend Default"), the number of
directors of Texaco Inc. shall be increased by two and the holders of such
series of Preferred Stock, voting together as a class with all other series of
Preferred Stock then entitled to vote on such election of directors, shall be
entitled to elect such two additional directors until the full dividends
accumulated on all outstanding shares of such series shall have been declared
and paid in full. Upon the occurrence of a Preferred Dividend Default, Texaco
Inc.'s Board of Directors shall within 10 business days of such default call a
special meeting of the holders of shares of all affected series, for which there
is a Preferred Dividend Default, for the purpose of electing the additional
directors. In lieu of holding such meeting, the holders of record of a majority
of the outstanding shares of all series for which there is a Preferred Dividend
Default who are then entitled to participate in the election of directors may,
by action taken by written consent, elect such additional directors. If and when
all accumulated dividends on any series of Preferred Stock have been paid in
full, the holders of shares of such series shall be divested of the foregoing
voting rights subject to revesting in the event of each and every Preferred
Dividend Default. Upon termination of such special voting rights attributable to
all series for which there has been a Preferred Dividend Default, the term of
office of each director so elected (a "Preferred Stock Director") shall
terminate and the number of directors of Texaco Inc. shall, without further
action, be reduced by two, subject always to the increase in the number of
directors pursuant to the foregoing provisions in case of a future Preferred
Dividend Default. Any Preferred Stock Director may be removed at any time with
or without cause by, and shall not be removed otherwise than by, the vote of the
holders of record of a majority of the outstanding shares of all series of
Preferred Stock who were entitled to participate in such director's election,
voting as a separate class, at a meeting called for such purpose or by written
consent. So long as a Preferred Stock Default shall continue, any vacancy in the
office of a Preferred Stock Director may be filled by written consent of the
Preferred Stock Director remaining in office, or if none remains in office, by a
vote of the holders of record of a majority of the outstanding series of
Preferred Stock who are then entitled to participate in the election of such
Preferred Stock Directors as provided above. As long as the Preferred Dividend
Default shall continue, holders of the Preferred Stock shall not, as such
stockholders, be entitled to vote on the election or removal or directors, other
than Preferred Stock Directors, but shall not be divested of any other voting
rights provided to the holders of Preferred Stock by law with respect to any
other matter to be acted upon by the stockholders of Texaco Inc. The Preferred
Stock Directors shall each be entitled to one vote per director on any matter.
Additionally, unless otherwise specified in a Prospectus Supplement, the
affirmative vote of the holders of a majority of the outstanding shares of each
series of Preferred Stock voting together as a class, is required to authorize
any amendment, alteration or repeal of Texaco Inc.'s Certificate of
Incorporation or any Certificate of Designations which would adversely affect
the powers, preferences, or special rights of the Preferred Stock including
authorizing any class of stock with superior dividend and liquidation
preferences.
MISCELLANEOUS
The holders of Preferred Stock will have no preemptive rights. The Preferred
Stock, upon issuance against full payment of the purchase price therefor, will
be fully paid and nonassessable. Shares of Preferred Stock redeemed or otherwise
reacquired by Texaco Inc. shall resume the status of authorized
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and unissued shares of Preferred Stock undesignated as to series, and shall be
available for subsequent issuance. There are no restrictions on repurchase or
redemption of the Preferred Stock while there is any arrearage on sinking fund
installments except as may be set forth in a Prospectus Supplement. Neither the
par value nor the liquidation preference is indicative of the price at which the
Preferred Stock will actually trade on or after the date of issuance. Payment of
dividends on any series of Preferred Stock may be restricted by loan agreements,
indentures and other transactions entered into by Texaco Inc.
NO OTHER RIGHTS
The shares of a series of Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in the related Prospectus Supplement, Texaco Inc.'s
Certificate of Incorporation or Certificate of Designations for the applicable
series of Preferred Stock or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent for each series of Preferred Stock will be described in
the related Prospectus Supplement.
DESCRIPTION OF THE DEPOSITARY SHARES
Texaco Inc. may, at its option, elect to offer Depositary Shares rather than
full shares of Preferred Stock. In the event such option is exercised, each of
the Depositary Shares will represent ownership of and entitlement to all rights
and preferences of a fraction of a share of Preferred Stock of a specified
series (including dividend, voting, redemption and liquidation rights). The
applicable fraction will be specified in the Prospectus Supplement. The shares
of Preferred Stock represented by the Depositary Shares will be deposited with a
Depositary (the "Depositary") named in the applicable Prospectus Supplement,
under a Deposit Agreement (the "Deposit Agreement"), among Texaco Inc., the
Depositary and the holders of the Depositary Receipts. Certificates evidencing
Depositary Shares ("Depositary Receipts") will be delivered to those persons
purchasing Depositary Shares in the offering. The Depositary will be the
transfer agent, registrar and dividend disbursing agent for the Depositary
Shares. Holders of Depositary Receipts agree to be bound by the Deposit
Agreement, which requires holders to take certain actions such as filing proof
of residence and paying certain charges.
The summary of terms of Texaco Inc.'s Depositary Shares contained in this
Prospectus does not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of the Deposit Agreement, Texaco Inc.'s
Certificate of Incorporation and the Certificate of Designations for the
applicable series of Preferred Stock.
DIVIDENDS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the series of Preferred Stock represented
by the Depositary Shares to the record holders of Depositary Receipts in
proportion to the number of Depositary Shares owned by such holders on the
relevant record date, which will be the same date as the record date fixed by
Texaco Inc. for the applicable series of Preferred Stock. The Depositary,
however, will distribute only such amount as can be distributed without
attributing to any Depositary Share a fraction of one cent, and any balance not
so distributed will be added to and treated as part of the next sum received by
the Depositary for distribution to record holders of Depositary Receipts then
outstanding.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Receipts
entitled thereto, in proportion, as nearly as may be practicable, to the number
of Depositary Shares owned by such holders on the relevant record date, unless
the Depositary determines (after consultation with Texaco Inc.) that it is not
feasible to make such
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distribution, in which case the Depositary may (with the approval of Texaco
Inc.) adopt any other method for such distribution as it deems appropriate,
including the sale of such property and distribution of the net proceeds from
such sale to such holders.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the affairs of
Texaco Inc., whether voluntary or involuntary, the holders of each Depositary
Share will be entitled to the fraction of the liquidation preference accorded
each share of the applicable series of Preferred Stock, as set forth in the
Prospectus Supplement.
REDEMPTION
If the series of Preferred Stock represented by the applicable series of
Depositary Shares is redeemable, such Depositary Shares will be redeemed from
the proceeds received by the Depositary resulting from the redemption, in whole
or in part, of Preferred Stock held by the Depositary. Whenever Texaco Inc.
redeems any Preferred Stock held by the Depositary, the Depositary will redeem
as of the same redemption date the number of Depositary Shares representing the
Preferred Stock so redeemed. The Depositary will mail the notice of redemption
promptly upon receipt of such notice from Texaco Inc. and not less than 35 nor
more than 60 days prior to the date fixed for redemption of the Preferred Stock
and the Depositary Shares to the record holders of the Depositary Receipts.
VOTING
Promptly upon receipt of notice of any meeting at which the holders of the
series of Preferred Stock represented by the applicable series of Depositary
Shares are entitled to vote, the Depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Receipts as of
the record date for such meeting. Each such record holder of Depositary Receipts
will be entitled to instruct the Depositary as to the exercise of the voting
rights pertaining to the number of shares of Preferred Stock represented by such
record holder's Depositary Shares. The Depositary will endeavor, insofar as
practicable, to vote such Preferred Stock represented by such Depositary Shares
in accordance with such instructions, and Texaco Inc. will agree to take all
action which may be deemed necessary by the Depositary in order to enable the
Depositary to do so. The Depositary will abstain from voting any of the
Preferred Stock to the extent that it does not receive specific instructions
from the holders of Depositary Receipts.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of Depositary Receipts at the principal office of the
Depositary, upon payment of any unpaid amount due the Depositary, and subject to
the terms of the Deposit Agreement, the owner of the Depositary Shares evidenced
thereby is entitled to delivery of the number of whole shares of Preferred Stock
and all money and other property, if any, represented by such Depositary Shares.
Partial shares of Preferred Stock will not be issued. If the Depositary Receipts
delivered by the holder evidence a number of Depositary Shares in excess of the
number of Depositary Shares representing the number of whole shares of Preferred
Stock to be withdrawn, the Depositary will deliver to such holder at the same
time a new Depositary Receipt evidencing such excess number of Depositary
Shares. Holders of Preferred Stock thus withdrawn will not thereafter be
entitled to deposit such shares under the Deposit Agreement or to receive
Depositary Receipts evidencing Depositary Shares therefor.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time and from time to time be
amended by agreement between Texaco Inc. and the Depositary. However, any
amendment which materially and adversely alters the rights of the holders
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(other than any change in fees) of Depositary Shares will not be effective
unless such amendment has been approved by at least a majority of the Depositary
Shares then outstanding. No such amendment may impair the right, subject to the
terms of the Deposit Agreement, of any owner of any Depositary Shares to
surrender the Depositary Receipt evidencing such Depositary Shares with
instructions to the Depositary to deliver to the holder the Preferred Stock and
all money and other property, if any, represented thereby, except in order to
comply with mandatory provisions of applicable law. The Deposit Agreement may be
terminated by Texaco Inc. or the Depositary only if (i) all outstanding
Depositary Shares have been redeemed or (ii) there has been a final distribution
in respect of the Preferred Stock in connection with any dissolution of Texaco
Inc. and such distribution has been made to all the holders of Depositary
Shares.
CHARGES OF DEPOSITARY
Texaco Inc. will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. Texaco Inc.
will pay charges of the Depositary in connection with the initial deposit of the
Preferred Stock and the initial issuance of the Depositary Shares, any
redemption of the Preferred Stock and all withdrawals of Preferred Stock by
owners of Depositary Shares. Holders of Depositary Receipts will pay transfer,
income and other taxes and governmental charges and certain other charges as are
provided in the Deposit Agreement to be for their accounts. In certain
circumstances, the Depositary may refuse to transfer Depositary Shares, may
withhold dividends and distributions and sell the Depositary Shares evidenced by
such Depositary Receipt if such charges are not paid.
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Receipts all
reports and communications from Texaco Inc. which are delivered to the
Depositary and which Texaco Inc. is required to furnish to the holders of the
Preferred Stock. In addition, the Depositary will make available for inspection
by holders of Depositary Receipts at the principal office of the Depositary, and
at such other places as it may from time to time deem advisable, any reports and
communications received from Texaco Inc. which are received by the Depositary as
the holder of Preferred Stock.
Neither the Depositary nor Texaco Inc. assumes any obligation or will be
subject to any liability under the Deposit Agreement to holders of Depositary
Receipts other than for its negligence or willful misconduct. Neither the
Depositary nor Texaco Inc. will be liable if it is prevented or delayed by law
or any circumstance beyond its control in performing its obligations under the
Deposit Agreement. The obligations of Texaco Inc. and the Depositary under the
Deposit Agreement will be limited to performance in good faith of their duties
thereunder, and they will not be obligated to prosecute or defend any legal
proceeding in respect of any Depositary Shares or Preferred Stock unless
satisfactory indemnity is furnished. Texaco Inc. and the Depositary may rely on
written advice of counsel or accountants, on information provided by holders of
Depositary Receipts or other persons believed in good faith to be competent to
give such information and on documents believed to be genuine and to have been
signed or presented by the proper party or parties.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to Texaco Inc. notice of
its election to do so, and Texaco Inc. may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice for
resignation or removal and must be a bank or trust company having its principal
office in the United States of America and having a combined capital and surplus
of at least $150,000,000.
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FEDERAL INCOME TAX CONSEQUENCES
Owners of the Depositary Shares will be treated for Federal income tax
purposes as if they were owners of the Preferred Stock represented by such
Depositary Shares. Accordingly, such owners will be entitled to take into
account for Federal income tax purposes income and deductions to which they
would be entitled if they were holders of such Preferred Stock. In addition, (i)
no gain or loss will be recognized for Federal income tax purposes upon the
withdrawal of Preferred Stock in exchange for Depositary Shares, (ii) the tax
basis of each share of Preferred Stock to an exchanging owner of Depositary
Shares will, upon such exchange, be the same as the aggregate tax basis of the
Depositary Shares exchanged therefor, and (iii) the holding period for Preferred
Stock in the hands of an exchanging owner of Depositary Shares will include the
period during which such person owned such Depositary Shares.
DESCRIPTION OF THE WARRANTS
Texaco Capital may issue Warrants for the purchase of Debt Securities and
Texaco Inc. may issue Warrants for the Purchase of Texaco Inc. Debt Securities,
Preferred Stock or Common Stock. Warrants may be issued independently or
together with Debt Securities, Texaco Inc. Debt Securities, Preferred Stock or
Common Stock offered by any Prospectus Supplement and may be attached to or
separate from any such Securities. Each series of Warrants will be issued under
a separate warrant agreement (a "Warrant Agreement") to be entered into between
Texaco Capital or Texaco Inc. and a bank or trust company, as warrant agent (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of Texaco Inc.
or Texaco Capital in connection with the Warrants and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Warrants. The following summary of certain provisions of
the Warrants does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the Warrant Agreement that will
be filed with the SEC in connection with the offering of such Warrants.
DEBT WARRANTS
The Prospectus Supplement relating to a particular issue of Warrants to
issue Debt Securities ("Debt Warrants") will describe the terms of such Debt
Warrants, including the following: (a) the title of such Debt Warrants; (b) the
offering price for such Debt Warrants, if any; (c) the aggregate number of such
Debt Warrants; (d) the designation and terms of the Debt Securities or Texaco
Inc. Debt Securities purchasable upon exercise of such Debt Warrants; (e) if
applicable, the designation and terms of the Debt Securities or Texaco Inc. Debt
Securities with which such Debt Warrants are issued and the number of such Debt
Warrants issued with each such Debt Security or Texaco Inc. Debt Security; (f)
if applicable, the date from and after which such Debt Warrants and any Debt
Securities or Texaco Inc. Debt Securities issued therewith will be separately
transferable; (g) the principal amount of Debt Securities or Texaco Inc. Debt
Securities purchasable upon exercise of a Debt Warrant and the price at which
such principal amount of Debt Securities or Texaco Inc. Debt Securities may be
purchased upon exercise (which price may be payable in cash, securities, or
other property); (h) the date on which the right to exercise such Debt Warrants
shall commence and the date on which such right shall expire; (i) if applicable,
the minimum or maximum amount of such Debt Warrants that may be exercised at any
one time; (j) whether the Debt Warrants represented by the Debt Warrant
certificates, Debt Securities or Texaco Inc. Debt Securities that may be issued
upon exercise of the Debt Warrants will be issued in registered or bearer form;
(k) information with respect to book-entry procedures, if any; (l) the currency
or currency units in which the offering price, if any, and the exercise price
are payable; (m) if applicable, a discussion of material United States federal
income tax considerations; (n) the antidilution provisions of such Debt
Warrants, if any; (o) the redemption or call provisions, if any, applicable to
such Debt Warrants; and (p) any additional terms of the Debt Warrants, including
terms, procedures, and limitations relating to the exchange and exercise of such
Debt Warrants.
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<PAGE>
STOCK WARRANTS
The Prospectus Supplement relating to any particular issue of Warrants to
issue Common Stock or Preferred Stock will describe the terms of such Warrants,
including the following: (a) the title of such Warrants; (b) the offering price
for such Warrants, if any; (c) the aggregate number of such Warrants; (d) the
designation and terms of the Common Stock or Preferred Stock purchasable upon
exercise of such Warrants; (e) if applicable, the designation and terms of the
Securities with which such Warrants are issued and the number of such Warrants
issued with each such Security; (f) if applicable, the date from and after which
such Warrants and any Securities issued therewith will be separately
transferable; (g) the number of shares of Common Stock or Preferred Stock
purchasable upon exercise of a Warrant and the price at which such shares may be
purchased upon exercise; (h) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (i) if
applicable, the minimum or maximum amount of such Warrants that may be exercised
at any one time; (j) the currency or currency units in which the offering price,
if any, and the exercise price are payable; (k) if applicable, a discussion of
material United States federal income tax considerations; (l) the antidilution
provisions of such Warrants, if any; (m) the redemption or call provisions, if
any, applicable to such Warrants; and (n) any additional terms of the Warrants,
including terms, procedures, and limitations relating to the exchange and
exercise of such Warrants.
EXPERTS
The audited consolidated financial statements and schedules included or
incorporated by reference in the Annual Report of Texaco Inc. for the fiscal
year ended December 31, 1996 filed on Form 10-K, incorporated herein by
reference, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
LEGAL OPINIONS
The validity of the Securities being offered hereby will be passed upon for
Texaco Capital and Texaco Inc. by Paul R. Lovejoy, Esq., Assistant General
Counsel of Texaco Inc. or such other attorney of Texaco Inc. as Texaco Capital
and Texaco Inc. may designate, and for the purchasers by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, TEXACO INC. OR ANY UNDERWRITER. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR TEXACO INC. SINCE SUCH DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Ratio of Earnings to Fixed Charges............ S-2
Description of Medium-Term Notes.............. S-2
Important Currency Information................ S-19
Currency Risks................................ S-19
Certain United States Federal Income Tax
Consequences................................ S-21
Plan of Distribution.......................... S-32
Experts....................................... S-32
Legal Opinions................................ S-33
PROSPECTUS
Table of Contents............................. 2
Where You Can Find More Information........... 2
Documents Incorporated by Reference........... 3
Texaco Inc.................................... 3
Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and
Preferred Stock Dividends................... 4
Texaco Capital Inc............................ 4
Use of Proceeds............................... 4
Plan of Distribution.......................... 4
Description of the Debt Securities............ 5
Description of Texaco Inc. Common Stock....... 11
Description of Texaco Inc. Preferred Stock.... 11
Description of the Depositary Shares.......... 14
Description of the Warrants................... 17
Experts....................................... 18
Legal Opinions................................ 18
</TABLE>
[LOGO]
U.S. $500,000,000
TEXACO CAPITAL INC.
SERIES 1998 MEDIUM-TERM NOTES
GUARANTEED BY
TEXACO INC.
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
BEAR, STEARNS & CO. INC.
BLAYLOCK & PARTNERS, L.P.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
MARCH 4, 1998
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