-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SyZuN93LS2bpfbAjA/Upgbs+aR9zbPEVZZgSU9WVniUIkU4STUt5v4FPBdRQpo85 XbjzkQrYjtE20CYHiQutHQ== 0000950135-94-000144.txt : 19940316 0000950135-94-000144.hdr.sgml : 19940316 ACCESSION NUMBER: 0000950135-94-000144 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL EQUIPMENT CORP CENTRAL INDEX KEY: 0000028887 STANDARD INDUSTRIAL CLASSIFICATION: 3570 IRS NUMBER: 042226590 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 33 SEC FILE NUMBER: 033-51987 FILM NUMBER: 94515945 BUSINESS ADDRESS: STREET 1: 146 MAIN ST CITY: MAYNARD STATE: MA ZIP: 01754 BUSINESS PHONE: 6178975111 424B5 1 DIGITAL EQUIPMENT CORPORATION 424B5 1 Information contained in this prospectus supplement is subject to completion pursuant to Rule 424 under the Securities Act of 1933. A registration statement relating to these securities has been declared effective by the Securities and Exchange Commission pursuant to Rule 415 under the Securities Act of 1933. A final prospectus supplement and prospectus will be delivered to purchasers of these securities. This prospectus supplement and the prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Subject to Completion, dated March 14, 1994 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 11, 1994) 20,000,000 DEPOSITARY SHARES DIGITAL EQUIPMENT CORPORATION EACH REPRESENTING ONE-FOURTH OF A SHARE OF SERIES A % CUMULATIVE PREFERRED STOCK ------------------------ Each of the 20,000,000 Depositary Shares offered hereby (the "Depositary Shares") represents ownership of one-fourth of a share of Series A % Cumulative Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock"), liquidation preference $100 per share, of Digital Equipment Corporation (the "Corporation") deposited with the Depositary (as defined herein), and entitles the holder to all proportional rights and preferences of the Series A Preferred Stock (including dividend, redemption and liquidation rights). The proportionate liquidation preference of each Depositary Share is $25. See "Description of Series A Preferred Stock and Depositary Shares." Dividends on the Series A Preferred Stock shall be cumulative and shall accrue from the date of original issue at the fixed annual rate of $ per share (equivalent to $ per Depositary Share). Dividends shall be payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year commencing April 15, 1994. See "Description of Series A Preferred Stock and Depositary Shares -- Dividends." The Series A Preferred Stock is not redeemable prior to , 1999. On and after , 1999, the Corporation, at its option, may redeem shares of the Series A Preferred Stock, as a whole or in part, for cash at a redemption price per share of $100 (equivalent to $25 per Depositary Share), plus accrued and unpaid dividends to the redemption date. See "Description of Series A Preferred Stock and Depositary Shares -- Redemption." Application has been made to list the Depositary Shares on the New York Stock Exchange. The Series A Preferred Stock represented by the Depositary Shares will not be so listed, and the Corporation does not expect that there will be any trading market for the Series A Preferred Stock except as represented by the Depositary Shares. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC (1) DISCOUNT(2)(4) COMPANY(1)(3)(4) - -------------------------------------------------------------------------------------------------------- Per Depositary Share........................... $25.00 $ $ - -------------------------------------------------------------------------------------------------------- Total.......................................... $500,000,000 $ $ - -------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------
(1) Plus accrued dividends, if any, from the date of issue. (2) The Corporation has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by the Corporation estimated at $ . (4) The Underwriting Discount will be $ per Depositary Share with respect to any Depositary Shares sold to certain institutions. Therefore, to the extent of any such sales to such institutions, the actual total Underwriting Discount will be less than, and the actual total Proceeds to Corporation will be greater than, the amounts shown in the table above. ------------------------ The Depositary Shares offered by this Prospectus Supplement are offered by the Underwriters subject to prior sale, withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. It is expected that delivery of the Depositary Receipts evidencing the Depositary Shares will be made at the offices of Lehman Brothers Inc., New York, New York, on or about March , 1994. ------------------------ LEHMAN BROTHERS CS FIRST BOSTON DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. KIDDER, PEABODY & CO. INCORPORATED PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED SMITH BARNEY SHEARSON INC. March , 1994 2 Alpha AXP, Digital, the Digital logo and LinkWorks are trademarks of Digital Equipment Corporation. UNIX(R) is a registered trademark of Unix System Laboratories, Inc., a wholly-owned subsidiary of Novell, Inc. Windows NT is a trademark of Microsoft Corporation. OSF/1(R) is a registered trademark of the Open Software Foundation, Inc. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEPOSITARY SHARES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 3 THE COMPANY Founded in 1957, Digital Equipment Corporation (the "Corporation") is one of the world's largest suppliers of networked computer systems, software and services and a leader in interactive, distributed computing and multivendor systems integration in open computing environments. The Corporation offers a full range of desktop, client/server and production systems and related peripheral equipment, software and services used in a wide variety of applications and industries. As an integrated, worldwide provider of information technology and multivendor services, the Corporation is committed to open systems. To this end, the Corporation has entered into strategic alliances with customers, other hardware and software companies, systems integrators and suppliers to address the needs of a rapidly changing market place. The Corporation conducts operations in approximately 100 countries and derives more than 60% of its revenues from outside of the United States. The following table notes the percentage of revenues from products and services for the last five years, illustrating a shift in the revenue mix toward a greater percentage of service revenues.
YEAR ENDED ---------------------------------------------------------- JULY 3, JUNE 27, JUNE 29, JUNE 30, JULY 1, 1993 1992 1991 1990 1989 ------- -------- -------- -------- ------- Product Sales.................................. 53% 55% 60% 63% 64% Service and Other Revenues..................... 47 45 40 37 36 ------- --- --- --- ------- Total Revenues....................... 100% 100% 100% 100% 100%
PRODUCTS The Corporation offers one of the broadest ranges of compatible hardware, software and communications products in the information technology industry. SYSTEMS AND PRODUCTS: Most of the Corporation's systems are general purpose digital computers, designed to perform, interpret and record computations on collected data or act as servers providing computing resources across a network. The Corporation offers a broad line of VAX systems and servers, from VAXstation workstations to VAXcluster systems and VAX10000 mainframes. The Corporation also offers a full range of Intel-based and industry compatible personal computers and network hardware and desktop integration products. In addition, the Corporation offers a full range of peripheral and data storage devices, some of which are used with and sold as part of the Corporation's computer systems. Selected peripherals and components are also sold separately to other systems and peripheral equipment manufacturers and distributors. The Corporation also is a major manufacturer and supplier of video terminals, printers and network components, such as hubs, routers and switches. ALPHA AXP: In 1992, the Corporation announced a new 64-bit, reduced instruction set computing ("RISC") product architecture known as "Alpha AXPTM". The Alpha AXP architecture is designed to support multiple operating systems and to be the foundation for a leading high performance computer system family. Over the past two years, the Corporation has introduced a full line of Alpha AXP-based computer systems that range from personal computers and high performance workstations to larger general purpose computer systems. Although the Corporation's revenues from the sale of Alpha AXP-based systems have continued to increase since the initial introduction in fiscal 1993 of computer systems based on the Alpha architecture, it is too early to predict when and if revenues from sales of Alpha AXP systems will reach the levels previously realized from the sale of VAX systems. The Corporation is in the midst of a major product transition and believes that such transitions in the information technology industry take, and historically have taken, considerable time. This is particularly true because of the time it takes for software applications to become available on the new platforms. In the Corporation's case, two of the three major operating systems that Alpha supports -- DEC OSF/1 V1.2, its 64-bit unified UNIX(R) from the Open Software Foundation, and Windows NT(R) from Microsoft Corporation -- were delivered to the marketplace later than originally anticipated. These S-3 4 operating systems, as well as the Open VMS operating system, are now available and additional applications for each of the operating systems supported by Alpha are continuing to become available. SOFTWARE: The Corporation designs, develops or acquires from third parties and distributes under license various software products for use on its computer systems and computer systems from other vendors. These products consist of operating systems, communication and networking software, run-time services (such as data/information handling and graphical user interfaces), language compilers, productivity tools, production systems (including databases and transaction processing monitors), office and workgroup software frameworks, and other application software. Many customers and systems integrators use the application development software and the various software frameworks provided by the Corporation to design their own application software. The Corporation's software offerings are intended to promote open client/server computing and, to this end, are designed to open industry-standard interfaces that enable applications to work across different platforms and operating systems. Recent software product development announcements support this strategy. In October 1993 and February 1994, the Corporation introduced a number of software products, including its LinkWorksTM offerings, which enable users of industry standard personal computer applications to deploy and integrate those applications in a multivendor networked environment. The Corporation recently announced a joint effort with Microsoft Corporation to develop the Common Object Model, a set of software standards that are designed to enable applications in different operating systems, data formats and geographical locations to work together across a network. SERVICES The Corporation provides a comprehensive portfolio of consulting, systems integration and support services to help customers plan, implement and manage their information technology solutions through a global network of employees and partners. The Corporation's services offerings include maintenance and support services for the Corporation's products, as well as products manufactured by other companies; management and information systems consulting; technical and application design services; education and customer training services; systems integration and project management services; network design and support services; and outsourcing and resource management services. Many of the Corporation's services offerings assist and guide customers in the implementation of solutions in an open computing environment. These services are designed to help customers manage, implement and integrate the Corporation's hardware and software products, and products manufactured by other companies, to meet the customer's business and strategic objectives. The Corporation's principal executive offices are located at 146 Main Street, Maynard, Massachusetts 01754-2571, and its telephone number is (508) 493-5111. USE OF PROCEEDS The net proceeds from the sale of the Depositary Shares will be used for working capital and for other general corporate purposes. S-4 5 CAPITALIZATION The following table sets forth the consolidated capitalization of the Corporation at January 1, 1994 and as adjusted to give effect to the issuance of the Depositary Shares offered hereby and the application of the proceeds therefrom.
AS OF JANUARY 1, 1994 ----------------------------- ACTUAL AS ADJUSTED(1) ---------- -------------- (DOLLARS IN THOUSANDS) Cash and cash equivalents......................................... $1,147,257 $1,647,257 ---------- -------------- ---------- -------------- Short-term debt and current portion of long-term debt............. $ 11,574 $ 11,574 ---------- -------------- ---------- -------------- Long-term debt.................................................... $1,017,360 $1,017,360 ---------- -------------- Stockholders' equity: Preferred Stock, $1.00 par value; authorized 25,000,000 shares; 5,000,000 shares of Series A % Cumulative Preferred Stock issued and outstanding, as adjusted.......................... 0 5,000 Common Stock, $1.00 par value; authorized 450,000,000 shares; 137,889,665 shares issued and outstanding.................... 137,890 137,890 Additional paid-in capital...................................... 2,937,205 3,432,205 Retained earnings............................................... 1,754,856 1,754,856 ---------- -------------- Total stockholders' equity...................................... $4,829,951 $5,329,951 ---------- -------------- Total capitalization.................................... $5,847,311 $6,347,311 ---------- -------------- ---------- --------------
- --------------- (1) Before deduction of the underwriting discount, expected to be up to 3.15%, and expenses in connection with the offering. S-5 6 SUMMARY FINANCIAL INFORMATION The following table sets forth summary financial information for the Corporation for the six-month periods ended January 1, 1994 and December 26, 1992 and for each of the fiscal years in the five-year period ended July 3, 1993. The summary financial information for the five-year period has, with the exception of the ratio of earnings to fixed charges, been derived from the Corporation's consolidated financial statements, which have been examined by Coopers & Lybrand, independent accountants. Such information is contained in and should be read in conjunction with the consolidated financial statements and accompanying notes included or incorporated by reference in the Corporation's Annual Reports on Form 10-K for such years. The summary financial information for the six-month periods has been derived from the Corporation's unaudited financial statements. The unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, which the Corporation considers necessary for a fair presentation of the financial position and results of operations for these periods. Operating results for the six months ended January 1, 1994 are not necessarily indicative of the results that may be expected for the full fiscal year. The six-month data should be read in conjunction with the Corporation's Quarterly Reports on Form 10-Q for such periods and the Corporation's Annual Report on Form 10-K for the fiscal year ended July 3, 1993, as amended.
SIX MONTHS ENDED YEAR ENDED ----------------------- ------------------------------------------------------------------- JAN. 1, DEC. 26, JULY 3, JUNE 27, JUNE 29, JUNE 30, JULY 1, 1994 1992 1993 1992 1991 1990 1989 ---------- ---------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA) STATEMENTS OF OPERATIONS DATA: Product sales..................... $3,216,928 $3,735,055 $ 7,587,994 $ 7,696,029 $ 8,298,515 $ 8,145,491 $ 8,190,308 Service and other revenues........ 3,052,099 3,268,687 6,783,375 6,234,843 5,612,489 4,797,032 4,551,648 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total operating revenues.......... 6,269,027 7,003,742 14,371,369 13,930,872 13,911,004 12,942,523 12,741,956 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Cost of product sales............. 2,093,707 2,136,495 4,464,445 4,248,118 3,905,355 3,825,897 3,468,307 Service expense and cost of other revenues........................ 1,912,350 2,075,920 4,166,946 3,883,705 3,373,025 2,968,529 2,773,563 Research and engineering expenses........................ 645,665 810,320 1,530,119 1,753,898 1,649,380 1,614,423 1,525,129 Selling, general and administrative expenses......... 1,780,895 2,308,493 4,447,160 4,680,822 4,471,629 3,971,059 3,638,868 Restructuring charges............. -- -- -- 1,500,000 1,100,000 550,000 -- ---------- ---------- ----------- ----------- ----------- ----------- ----------- Operating income/(loss)........... (163,590) (327,486) (237,301) (2,135,671) (588,385) 12,615 1,336,089 Interest income................... 29,284 27,425 63,831 96,176 113,221 142,015 124,021 Interest expense.................. 35,034 16,344 50,837 38,517 44,556 30,641 39,435 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Income/(loss) before income taxes and cumulative effect of change in accounting principle......... (169,340) (316,405) (224,307) (2,078,012) (519,720) 123,989 1,420,675 Provision for income taxes........ 6,031 18,000 27,023 232,000 97,707 49,596 348,065 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Income/(loss) before cumulative effect of change in accounting principle....................... (175,371) (334,405) (251,330) (2,310,012) (617,427) 74,393 1,072,610 Cumulative effect of change in accounting principle, net of tax............................. (20,042) -- -- 485,495 -- -- -- ---------- ---------- ----------- ----------- ----------- ----------- ----------- Net income/(loss)................. $ (155,329) $ (334,405) $ (251,330) $(2,795,507) $ (617,427) $ 74,393 $ 1,072,610 ---------- ---------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- Income/(loss) per share before cumulative effect of change in accounting principle............ $(1.29) $(2.60) $(1.93) $(18.50) $(5.08) $0.59 $8.45 Cumulative effect of change in accounting principle per share....................... 0.14 -- -- (3.89) -- -- -- ---------- ---------- ----------- ----------- ----------- ----------- ----------- Net income/(loss) per share....... $(1.15) $(2.60) $(1.93) $(22.39) $(5.08) $0.59 $8.45 ---------- ---------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and cash equivalents......... 1,147,257 1,365,340 1,643,195 1,337,172 1,924,050 2,008,983 1,655,264 Working capital................... 2,999,979 2,653,837 2,963,801 2,014,790 3,777,217 4,331,843 4,500,969 Total assets...................... 10,368,757 11,025,756 10,950,343 11,284,309 11,874,703 11,654,821 10,667,779 Long-term debt.................... 1,017,360 779,785 1,017,577 41,636 150,004 150,001 136,019 OTHER DATA: Employees......................... 92,300 102,100 94,200 113,800 121,000 124,000 125,800 Ratio of earnings to fixed charges (unaudited)(a).................. (b) (c) (d) (e) (f) 1.6x(g) 8.5x
- --------------- (a) For the purpose of calculating the ratio of earnings to fixed charges, "earnings" consist of income before income taxes and "fixed charges." "Fixed charges" include interest on indebtedness and one-third of all rental expense, excluding rent on capitalized leases (being deemed representative of the interest factor in rental expense). (b) Earnings were inadequate to cover fixed charges by $175 million. (c) Earnings were inadequate to cover fixed charges by $316 million. (d) Earnings were inadequate to cover fixed charges by $229 million. (e) Earnings were inadequate to cover fixed charges by $2,078 million and by $578 million excluding restructuring charges. (f) Earnings were inadequate to cover fixed charges by $519 million; the ratio would have been 3.6x excluding restructuring charges. (g) The ratio would have been 4.3x excluding restructuring charges. S-6 7 SUPPLEMENTAL INFORMATION CONCERNING THE CORPORATION The following information is derived from the Corporation's Quarterly Report on Form 10-Q for the quarter ended January 1, 1994 (including information incorporated by reference therein) and should be read in conjunction with the consolidated financial statements and notes thereto and other information included or incorporated therein. See "Incorporation of Certain Documents by Reference" in the Prospectus. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION REVENUES Total operating revenues for the first six months of fiscal 1994 were $6.27 billion, down 10% from the comparable period a year ago. Total operating revenues included product sales of $3.22 billion, down 14% from a year ago and service and other revenues of $3.05 billion, down 7%. Operating revenues from customers outside the United States were $3.86 billion or 61% of total operating revenues, compared with $4.47 billion or 64% of total operating revenues for the comparable six-month period last year. The Corporation continued to experience a significant decrease in European revenues, as well as a decline in U.S. revenues, partially offset by revenue growth in the Asia Pacific region and Latin America. Total operating revenues for the quarter and first six months were negatively affected by foreign currency exchange rate fluctuations. For the quarter ended January 1, 1994, total operating revenues were $3.25 billion, down 12% from the comparable period a year ago. Product sales were $1.66 billion, down 16% and service and other revenues were $1.59 billion, down 7%. Operating revenues from customers outside the United States were $2.04 billion or 63% of total operating revenues; this compared with $2.41 billion or 65% of total operating revenues for the second quarter of fiscal 1993. Although revenues from the sale of Alpha AXP systems continue to grow, and represented approximately 10% of product sales for both the quarter and first six months, the Corporation continues to experience a significant decline in demand for its VAX systems. Product sales for the quarter and first six months were positively affected by a growth in demand for personal computers and Alpha AXP workstations, as well as storage devices and networking products. The decline in service revenues over the comparable periods of fiscal 1993 was due principally to lower levels of revenue from the Corporation's VAX/VMS systems maintenance business, as well as the greater reliability of, and lower maintenance revenues associated with newer products. This was partially offset by an increase in revenues from maintenance of products manufactured by other companies. In addition, the Corporation is becoming more selective in pursuing consulting and systems integration opportunities, increasing its focus on the profitability of projects; as a result, revenues from consulting and systems integration services were down slightly for the quarter and essentially flat for the first six months compared with the comparable periods a year ago. The Corporation continues to take actions to respond to changes in industry demand, economic conditions and other factors affecting the Corporation's business. In October 1993, the Corporation announced new open client-server products and related software and service products. The Corporation continues to seek alliances with other companies and to focus its resources in order to offer products and services which meet customer needs for open systems. Just after the close of the second quarter, the Corporation announced that it had hired a new general manager to lead its European operations. The Corporation also is focusing on increasing market penetration by improving its direct sales efforts, targeting the growing small and medium enterprise information technology market and expanding its use of resellers and other indirect channels of distribution. EXPENSES AND PROFIT MARGINS The Corporation recorded an operating loss of $66 million for the second quarter of fiscal 1994, compared with an operating loss of $68 million in the second quarter a year ago. For the first six months, the Corporation S-7 8 recorded an operating loss of $164 million, compared with an operating loss of $327 million for the comparable period a year ago. Gross profit on product sales for the quarter and first six months declined from the comparable periods a year ago. Product gross margin (gross profit as a percentage of product sales) represented 33% and 35% of product sales, respectively, down 10 and 8 percentage points, respectively, from the comparable periods last year. The decline in product gross profit resulted from the decrease in product sales, a continued shift in the mix of product sales toward personal computers and Alpha AXP-based systems which typically carry lower margins than the Corporation's VAX systems, competitive pricing pressures and unfavorable currency exchange rate fluctuations, partially offset by manufacturing cost efficiencies. Gross profit on service revenues for the quarter and first six months declined slightly from the comparable periods a year ago. Service gross margin (gross profit as a percentage of service revenues) represented 39% and 37% of service revenues, respectively, slightly higher than the comparable periods of fiscal 1993. The modest decline in service gross profit resulted principally from lower service revenues, partially offset by increased efficiency in service delivery and an increased focus on the profitability of consulting projects. Spending on research and engineering (R&E) in the quarter totaled $331 million, a decrease of 18% from the $405 million of the comparable quarter a year ago. For the first six months, R&E spending totaled $646 million, down 20% from the $810 million of the comparable period last year. The Corporation is focusing its current R&E investments on maintaining a strong, market-driven product set and on attaining and sustaining technology leadership in selected areas. Selling, general and administrative (SG&A) expenses totaled $909 million in the quarter, down 23% from the $1.18 billion of the comparable quarter a year ago. For the first six months, SG&A spending totaled $1.78 billion, down 23% from the $2.31 billion of the comparable period in fiscal 1993. While spending for R&E and SG&A is declining, the Corporation believes its cost and expense levels are still too high for the level and mix of total operating revenues. The Corporation is reducing expenses by streamlining its product offerings and selling and administrative practices, resulting in reductions in employee population, closing and consolidation of facilities and reductions in discretionary spending. The Corporation believes that the remaining restructuring reserve of $443 million is adequate to cover presently planned restructuring actions. The Corporation will continue to take actions necessary to achieve a level of costs appropriate for its revenues and competitive for its business. Interest income for the quarter and first six months was $12 million and $29 million, respectively. Interest expense for the quarter and first six months was $15 million and $35 million, respectively, up from the comparable periods a year ago due to the issuance of $1 billion aggregate principal amount of long-term debt in fiscal 1993. Interest expense for the second quarter includes the differential received on interest rate swap agreements entered into in the first quarter of fiscal 1994 relating to $750 million of long-term debt. Tax expense for the quarter and first six months was $2 million and $6 million, respectively. The tax expense reflects taxes provided for profitable non-U.S. operations and an inability to recognize U.S. tax benefits from operating losses. The Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 109 -- Accounting for Income Taxes, effective July 4, 1993. The Corporation had previously accounted for income taxes under Accounting Principles Board Opinion No. 11. In the first quarter of fiscal 1994, the Corporation recorded a one-time benefit of $20 million, or $0.14 per share, for the recognition of previously unrecognized tax benefits. There is no cash flow impact from the adoption of SFAS No. 109. The standard was adopted on a prospective basis and amounts presented for prior years were not restated. AVAILABILITY OF FUNDS TO SUPPORT CURRENT AND FUTURE OPERATIONS Cash and cash equivalents totaled $1.15 billion at the end of the quarter, down from $1.64 billion at the end of fiscal 1993. The net decrease in cash and cash equivalents for the quarter was $127 million. S-8 9 Operating activities generated $6 million of cash for the quarter, and used $241 million of cash for the first six months of fiscal 1994. Cash used for the first six months was due principally to restructuring activities, higher inventory levels and the operating loss, partially offset by a decrease in accounts receivable. Net cash used for investing activities was $198 million for the quarter and $331 million for the first six months. Capital spending was $181 million for the quarter and $348 million for the first six months, consisting principally of investments in semiconductor and storage technology facilities and equipment. During the first six months, the Corporation generated $57 million in cash proceeds from the disposal of property, plant and equipment and other assets, principally as the result of restructuring activities. Net cash from financing activities was $65 million for the quarter, due principally to the issuance of Common Stock under the Corporation's employee stock plans. On January 21, 1994 the Corporation filed with the Securities and Exchange Commission a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, covering the registration of securities, including senior and subordinated debt securities, preferred stock, depositary shares (including the Depositary Shares offered hereby) and warrants to purchase equity and debt securities (the "Securities"), in an aggregate amount of $1 billion. The Securities may be offered from time to time in amounts, at prices and on terms to be determined at the time of sale. The Corporation believes the shelf registration provides additional financing flexibility to meet potential future funding requirements and to take advantage of potentially attractive capital market conditions. The Corporation historically has maintained a conservative capital structure, and believes that its current cash position and access to capital markets are adequate to support current and future operations. DESCRIPTION OF SERIES A PREFERRED STOCK AND DEPOSITARY SHARES The following description of the particular terms of the Series A Preferred Stock and Depositary Shares supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the Preferred Stock and Depositary Shares set forth in the Prospectus, to which description reference is hereby made. The description of certain provisions of the Series A Preferred Stock set forth below does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Corporation's Restated Articles of Organization, as amended (the "Restated Articles"), including the Certificate of Designation relating to the Series A Preferred Stock (the "Certificate of Designation"), 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 the Series A Preferred Stock, and the Corporation's By-laws, as amended. GENERAL The Series A Preferred Stock will consist of 5,000,000 shares of Preferred Stock. The Series A Preferred Stock will not be convertible into, or exchangeable for, shares of any other class or classes of stock of the Corporation. The Series A Preferred Stock will have priority as to dividends over the Corporation's Common Stock and any other series or class of the Corporation's stock hereafter issued that ranks junior as to dividends to the Series A Preferred Stock. CERTAIN TERMS OF THE DEPOSITARY SHARES Each Depositary Share represents ownership of one-fourth of a share of Series A Preferred Stock. The shares of Series A Preferred Stock underlying the Depositary Shares will be deposited with the Depositary under a Deposit Agreement (the "Deposit Agreement") among the Corporation, the Depositary and the holders from time to time of the depositary receipts issued by the Depositary thereunder (the "Depositary Receipts"). The Depositary Receipts so issued will evidence the Depositary Shares. Subject to the terms of the Deposit Agreement, each owner of a Depositary Share will be entitled to all the rights and preferences of one-fourth of a share of Series A Preferred Stock (including dividend, redemption and liquidation rights). Since each share of Series A Preferred Stock entitles the holder thereof to one vote on matters on which the S-9 10 Series A Preferred Stock is entitled to vote, each Depositary Share will, in effect, entitle the holder thereof to one-fourth of a vote thereon, rather than one full vote. The Depositary for the Series A Preferred Stock is Citibank, N.A., and its principal office is currently located at 120 Wall Street, 5th Floor, New York, NY 10073. See "Description of the Depositary Shares" in the accompanying Prospectus. DIVIDENDS Holders of shares of the Series A Preferred Stock shall be entitled to receive dividends at a fixed annual rate of $ per share (equivalent to $ per Depositary Share). Such dividends shall be cumulative from the date of original issue and shall be payable, when and as declared by the Board of Directors of the Corporation out of funds legally available therefor, quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. If a dividend payment date is not a business day, dividends on the Series A Preferred Stock will be paid on the immediately succeeding business day, without interest. Each such dividend will be payable to holders of record as they appear in the stock records of the Corporation at the close of business on each record date, which shall be the 15th day prior to the payment date or such other date designated by the Board of Directors of the Corporation (or an authorized committee thereof) for the payment of dividends that is not more than thirty (30) nor less than ten (10) days prior to such dividend payment date. The first dividend, which will be paid on April 15, 1994, will be for less than a full quarter and will be paid with respect to the period commencing on the issue date of the Series A Preferred Stock and ending April 15, 1994 to holders of record on the issue date. Dividends on the Series A Preferred Stock will accrue regardless of whether there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Accrued but unpaid dividends on the Series A Preferred Stock will accumulate as of the dividend payment date on which they first become payable, but no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Stock which may be in arrears. Except as set forth below, no dividends shall be declared or paid or set apart for payment on any class or classes of stock of the Corporation or any series thereof ranking, as to dividends, on a parity with or junior to the Series A Preferred Stock (other than a dividend in the Corporation's Common Stock or in any other class of stock ranking junior to the Series A Preferred Stock as to dividends and liquidation preferences) for any period unless full cumulative dividends on the Series A Preferred Stock have been or contemporaneously are declared and paid or a sum sufficient for the payment thereof set apart for such payment. When dividends are not so paid in full (or a sum sufficient for full payment thereof is not so set apart) upon the Series A Preferred Stock or any other shares of any class or classes of stock or series thereof ranking on a parity as to dividends with the Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and such other shares shall be declared pro rata. Upon such pro rata declaration, the amount of dividends declared per share on the Series A Preferred Stock and such other shares shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of the Series A Preferred Stock and such other shares bear to each other. Holders of shares of the Series A Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series A Preferred Stock. Dividends payable on the Series A Preferred Stock for any period less than a quarterly dividend period, and for the dividend period beginning on the date of issuance of the Series A Preferred Stock, will be computed on the basis of a 360-day year consisting of twelve 30-day months. Unless the cumulative dividends on the Series A Preferred Stock shall have been declared and paid in full, or declared and a sum sufficient for payment thereof set apart for payment, no shares of the Corporation's Common Stock or class of stock ranking junior to or on a parity with the Series A Preferred Stock as to dividends or liquidation preferences may be redeemed, purchased or otherwise acquired by the Corporation except (i) by conversion into or exchange for shares of the Corporation ranking junior to the Series A Preferred Stock as to dividends and liquidation preferences and (ii) for repurchases of shares of Common Stock at cost by the Corporation under employee stock plans and programs approved by the Board of Directors of the Corporation. See "Description of the Preferred Stock -- Dividends" in the accompanying Prospectus. S-10 11 REDEMPTION The Series A Preferred Stock is not redeemable prior to , 1999. On and after , 1999, the Corporation, at its option upon not less than 35 nor more than 60 days' notice, may redeem shares of the Series A Preferred Stock (and the Depositary will redeem the number of Depositary Shares representing the shares of Series A Preferred Stock so redeemed upon not less than 30 days' notice to the holders thereof), as a whole or in part, at any time or from time to time, at a redemption price per share of $100 (equivalent to $25 per Depositary Share), plus accrued and unpaid dividends thereon to the date of redemption. If less than all the outstanding shares of Series A Preferred Stock are to be redeemed, the Corporation will select those to be redeemed pro rata, by lot or by a substantially equivalent method. On and after the redemption date, dividends will cease to accrue on the shares called for redemption, and such shares will be deemed to cease to be outstanding, provided that the redemption price (including any accrued and unpaid dividends to the date fixed for redemption) has been duly paid or set aside for payment. The Series A Preferred Stock will not be entitled to any sinking fund. See "Description of the Preferred Stock -- Redemption of Depositary Shares" in the accompanying Prospectus. LIQUIDATION PREFERENCE Upon any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment or provision for payment has been made of the debts and other liabilities of the Corporation and payment or provision for payment has been made on all amounts required to be paid in respect of any senior classes or series of preferred stock, the holders of the Series A Preferred Stock shall be entitled, subject to certain exceptions, to receive the amount of $100 per share (equivalent to $25 per Depositary Share), plus accrued and unpaid dividends thereon to the date of final distribution. See "Description of the Preferred Stock -- Liquidation Preference" in the accompanying Prospectus. VOTING The holders of the Series A Preferred Stock shall not have any voting rights, except that if at any time the Corporation shall have failed to declare and pay in full dividends for six quarterly periods, whether consecutive or not, on the Series A Preferred Stock and all such preferred dividends remain unpaid (a "Preferred Dividend Default"), the Board of Directors shall take such action as may be necessary to increase the number of directors of the Corporation by two, and the holders of the Series A 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 (each a "Preferred Stock Director" and together the "Preferred Stock 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, the Board of Directors shall within twenty (20) 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 Preferred Stock Directors. If and when all accumulated dividends on the Series A Preferred Stock shall have been paid in full or set aside for payment in full, the holders of shares of Series A Preferred Stock 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 the Series A Preferred Stock (and all other series of Preferred Stock) for which there has been a Preferred Dividend Default, the term of office of each Preferred Stock Director so elected shall terminate and the Board of Directors shall take such action as may be necessary to reduce the number of directors of the Corporation by two, subject always to the increase in the number of directors pursuant to the foregoing provisions in the 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 the Series A Preferred Stock and all other series of Preferred Stock who are entitled to participate in such director's election, voting together as a class, at a meeting called for such purpose. So long as a Preferred Dividend 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 shares of Series A Preferred Stock and all other series of Preferred Stock who are then entitled to participate in the election of such Preferred Stock Directors. The Preferred Stock Directors shall each be entitled to one vote per director on any matter. S-11 12 In addition, the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Series A Preferred Stock, voting together as a class with all other series of Preferred Stock affected in the same manner, is required to authorize any amendment, alteration or repeal of the Restated Articles or of the Certificate of Designation which would adversely affect the rights of such series of Preferred Stock, including authorizing any class or series of stock with superior dividend rights or liquidation preferences. An amendment which increases the number of authorized shares of or authorizes the creation or issuance of other classes or series of preferred stock ranking junior to or on a parity with the Series A Preferred Stock with respect to the payment of dividends or rights upon liquidation shall not be considered to be such an adverse change. TRANSFER AGENT The transfer agent and registrar for the Series A Preferred Stock will be Citibank, N.A. or such other entity as may be appointed by the Corporation. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain United States federal income tax consequences of the purchase and sale of the Depositary Shares by investors who hold Depositary Shares as capital assets, and does not purport to be a complete analysis of all potential tax effects relevant to a decision to purchase the Depositary Shares. This summary is based on current laws, regulations, rulings and decisions now in effect, all of which are subject to change. Investors considering the purchase of Depositary Shares should consult their own tax advisors with respect to the application of the federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Distributions with respect to the Depositary Shares will constitute dividends for federal income tax purposes and will be taxable as ordinary income to the extent made out of the Corporation's current or accumulated earnings and profits, as calculated under federal income tax principles. Any holder of Depositary Shares that is a corporation generally entitled to the corporate dividends received deduction (the "Dividends-Received Deduction") under Section 243(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), will be allowed that deduction with respect to dividends received on the Depositary Shares, provided that such holder satisfies certain minimum holding period requirements and certain other requirements, including the debt-financed portfolio stock limitations, as contained in Sections 246 and 246A of the Code. Under current law, the amount of the Dividends-Received Deduction is equal to 70% of the dividends received. Prospective corporate investors in the Depositary Shares also should consider the application of the "extraordinary dividend" rules of Section 1059 of the Code as well as the possible reduction or elimination of the benefit of the Dividends-Received Deductible by the corporate alternative minimum tax. Individuals, partnerships, trusts and certain corporations are not eligible for the Dividends-Received Deduction. To the extent that distributions made by the Corporation with respect to the Depositary Shares were to exceed the Corporation's current or accumulated earnings and profits, they would not constitute dividends for federal income tax purposes and therefore would not qualify for the Dividends-Received Deduction. Rather, they would be treated as returns of capital, reducing a holder's adjusted basis in its Depositary Shares (but not below zero). Such returns of capital would be tax-free to such holder to the extent they do not exceed the holder's adjusted basis in its Depositary Shares immediately before the distribution. However, the reduction in adjusted basis would increase any gain, or reduce any loss, realized by the holder on any subsequent sale, redemption or other disposition of its Depositary Shares. Any such distributions in excess of a holder's adjusted basis in its Depositary Shares would be treated as gain from the sale of such shares. THE PRECEDING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF PURCHASING, HOLDING AND DISPOSING OF THE DEPOSITARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN APPLICABLE LAW. S-12 13 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement among the Corporation and Lehman Brothers Inc., CS First Boston Corporation, Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc., Kidder, Peabody & Co. Incorporated, PaineWebber Incorporated, Prudential Securities Incorporated and Smith Barney Shearson Inc., as representatives of the several Underwriters (the "Representatives"), the Corporation has agreed to sell to the Underwriters, and each of the Underwriters has severally agreed to purchase from the Corporation the respective number of Depositary Shares set forth opposite its name below.
NUMBER OF DEPOSITARY UNDERWRITERS SHARES ------------------------------------------------------------------------- ---------- Lehman Brothers Inc...................................................... CS First Boston Corporation.............................................. Dean Witter Reynolds Inc................................................. A.G. Edwards & Sons, Inc................................................. Kidder, Peabody & Co. Incorporated....................................... PaineWebber Incorporated................................................. Prudential Securities Incorporated....................................... Smith Barney Shearson Inc................................................ ---------- TOTAL.......................................................... 20,000,000 ---------- ----------
The Underwriting Agreement provides that the obligations of the Underwriters thereunder are subject to approval of certain legal matters by counsel and to various other conditions. The Corporation has been advised by the Representatives that the Underwriters propose to offer the Depositary Shares directly to the public initially at the offering price set forth on the cover page of this Prospectus Supplement and, through the Representatives, to certain dealers at such price less a concession not in excess of $0. per Depositary Share. The Underwriters may allow and such dealers may reallow a concession not in excess of $0. per Depositary Share to certain other dealers. After the initial offering, the offering price and other selling terms may be changed by the Representatives. The Corporation has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments which the Underwriters may be required to make in respect thereof. Application has been made to list the Depositary Shares on the New York Stock Exchange. The Corporation has been advised by the Representatives that the Underwriters currently intend to make a market in the Depositary Shares, but that they are not obligated to do so and may discontinue such market making at any time without notice. S-13 14 The Underwriters and their affiliates may engage in transactions with and perform services for the Corporation and its affiliates in the ordinary course of their respective businesses, including, without limitation, commercial banking and investment banking services. The Corporation has agreed not to, directly or indirectly, sell, offer or enter into any agreement to offer or sell, shares of Series A Preferred Stock, or any security of the same class or series or ranking on a parity with the Series A Preferred Stock, for 60 days from the date hereof without the prior written consent of the Underwriters. LEGAL OPINIONS The validity of the Series A Preferred Stock and the Depositary Shares will be passed upon for the Corporation by Testa, Hurwitz & Thibeault, Boston, Massachusetts, and for the Underwriters by Goodwin, Procter & Hoar, Boston, Massachusetts. Various attorneys in the firm of Testa, Hurwitz & Thibeault beneficially own shares of the Common Stock of the Corporation. From time to time Goodwin, Procter & Hoar serves as special counsel to the Corporation as to certain environmental matters. S-14 15 PROSPECTUS $1,000,000,000 DIGITAL EQUIPMENT CORPORATION DEBT SECURITIES PREFERRED STOCK DEPOSITARY SHARES WARRANTS TO PURCHASE SECURITIES ------------------------ Digital Equipment Corporation (the "Corporation") may offer from time to time together or separately up to $1,000,000,000 in the aggregate of (a) its unsecured debt securities (the "Debt Securities"), which may be either senior debt securities (the "Senior Debt Securities") or subordinated debt securities (the "Subordinated Debt Securities"), (b) shares of preferred stock, par value $1.00 per share (the "Preferred Stock"), of the Corporation in one or more series, (c) depositary shares of the Corporation (the "Depositary Shares"), or (d) warrants to purchase capital stock or Debt Securities of the Corporation (the "Warrants"), each on terms to be determined at the time of sale. The Subordinated Debt Securities may be issued as convertible debt securities which may be convertible into shares of common stock of the Corporation, par value $1.00 per share (the "Common Stock"), or other securities. The Debt Securities, the Preferred Stock, the Depositary Shares and the Warrants are collectively referred to herein as the "Securities." When a particular series of Securities is offered, a supplement to this Prospectus (each a "Prospectus Supplement") will be delivered with the Prospectus. For Debt Securities, the Prospectus Supplement will set forth with respect to such series (the "Offered Debt Securities"): the designation (including whether senior or subordinated and whether convertible); aggregate principal amount; authorized denominations; maturity; rate or rates (or method of determining the same) and the time or times of payment of any interest; purchase price; any optional or mandatory redemption provisions; any sinking fund provisions; any terms regarding payment in or on the basis of currencies other than U.S. dollars (including composite currencies); provisions relating to any conversion feature of the Offered Debt Securities; and any other specific terms of the Offered Debt Securities. For Preferred Stock and Depositary Shares, the Prospectus Supplement will set forth with respect to such series (the "Offered Preferred Stock" or the "Offered Depositary Shares"): the designation, rights, preferences and limitations, including rate or rates (or method of determining the same) and the time or times of payment of dividends; voting rights, if any; liquidation preference; any conversion, redemption or sinking fund provisions; and any other specific terms of the Offered Preferred Stock or the Offered Depositary Shares. In addition, with respect to the Offered Depositary Shares, the Prospectus Supplement will set forth the fraction of a share of Preferred Stock represented by each of the Offered Depositary Shares. For Warrants, the Prospectus Supplement will set forth with respect to such series (the "Offered Warrants"): the description of the securities for which the Offered Warrants will be exercisable and the offering price, exercise price, duration, detachability, call provisions and any other specific terms of the Offered Warrants. The Securities may be sold directly by the Corporation, through agents designated from time to time or to or through underwriters or dealers. See "Plan of Distribution." If any such agents or underwriters are involved in the sale of any Securities, the names of such agents or underwriters and any applicable commissions or discounts will be set forth in the applicable Prospectus Supplement. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ This Prospectus may not be used to consummate sales of Securities unless accompanied by the applicable Prospectus Supplement. The date of this Prospectus is March 11, 1994. 16 AVAILABLE INFORMATION The Corporation is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained upon written request from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, certain of the Corporation's securities are listed on the New York Stock Exchange, the Pacific Stock Exchange, the Chicago Stock Exchange and the Montreal Exchange, and the aforementioned materials may also be inspected at the offices of such exchanges at 20 Broad Street, New York, New York; 301 Pine Street, San Francisco, California; 440 South LaSalle Street, Chicago, Illinois; and La Tour de la Bourse, P.O. Box 61, 800 Victoria Square, Montreal, Quebec H4Z1A9 Canada, respectively. The Corporation has filed with the Commission a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Securities offered hereby (the "Registration Statement"). This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information pertaining to the Securities and the Corporation, reference is made to the Registration Statement. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Corporation's Annual Report on Form 10-K for the fiscal year ended July 3, 1993, as amended by Form 10-K/A dated March 11, 1994, the Corporation's Quarterly Reports on Form 10-Q for the quarters ended October 2, 1993 and January 1, 1994 filed with the Commission (File No. 1-5296) pursuant to the Exchange Act and the documents incorporated by reference therein are incorporated herein by reference. All documents filed by the Corporation pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Securities shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document that is incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Corporation will provide, without charge, to each person to whom a copy of this Prospectus is delivered, on the written or oral request of such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits thereto, unless such exhibits are specifically incorporated by reference into such documents). Written requests for such copies should be directed to Inquiry Section, Digital Equipment Corporation, 44 Whitney Street (NR02/H3), Northborough, MA 01532-2599. Telephone requests should be directed to Investor Relations Department, Digital Equipment Corporation, 146 Main Street (ML03-2/T98), Maynard, Massachusetts 01754, telephone (508) 493-7182. 2 17 THE COMPANY The Corporation is one of the world's largest suppliers of networked computer systems, software and services and a leader in interactive, distributed computing and multivendor systems integration in open computing environments. The Corporation offers a full range of desktop, client-server and production systems and related peripheral equipment, software and services used in a wide variety of applications and industries. The Corporation conducts operations in approximately 100 countries and derives more than 60% of its revenues from outside of the United States. The Corporation's principal executive offices are located at 146 Main Street, Maynard, Massachusetts 01754-2571, and its telephone number is (508) 493-5111. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratios of earnings to fixed charges of the Corporation and its consolidated subsidiaries for each of the years in the five year period ended July 3, 1993 and for the six months ended January 1, 1994 and December 26, 1992.
YEAR ENDED SIX MONTHS ENDED -------------------------------------------------- ------------------------- JULY 3, JUNE 27, JUNE 29, JUNE 30, JULY 1, JANUARY 1, DECEMBER 26, 1993 1992 1991 1990 1989 1994 1992 ------- -------- -------- -------- ------- ---------- ------------ Ratio of earnings to fixed charges (unaudited)(a)......... (b) (c) (d) 1.6x(e) 8.5x (f) (g)
- --------------- (a) For the purpose of calculating the ratio of earnings to fixed charges, "earnings" consist of income before income taxes and "fixed charges." "Fixed charges" include interest on indebtedness and one-third of all rental expense, excluding rent on capitalized leases (being deemed representative of the interest factor in rental expense). (b) Earnings were inadequate to cover fixed charges by $229 million. (c) Earnings were inadequate to cover fixed charges by $2,078 million and by $578 million excluding restructuring charges. (d) Earnings were inadequate to cover fixed charges by $519 million; the ratio would have been 3.6x excluding restructuring charges. (e) The ratio would have been 4.3x excluding restructuring charges. (f) Earnings were inadequate to cover fixed charges by $175 million. (g) Earnings were inadequate to cover fixed charges by $316 million. For the fiscal years 1991 through 1993 and for the six months ended January 1, 1994, the ratios of earnings to fixed charges were negative. This is a continuation of a trend of declining fixed charge coverage ratios that has occurred over the last several years. A negative ratio means that the Corporation had insufficient earnings before taxes and fixed charges to cover its fixed charges. This situation results from operating loss, including restructuring charges, in recent periods. Continued poor operating results could cause the ratio to remain negative. 3 18 USE OF PROCEEDS Unless otherwise described in the applicable Prospectus Supplement, the Corporation intends to use the net proceeds from the sale of the Securities for working capital and for other general corporate purposes, which may include the financing of capital expenditures and possible acquisitions of, or investments in, businesses and assets. DESCRIPTION OF DEBT SECURITIES GENERAL The Corporation may offer Debt Securities consisting of Senior Debt Securities and/or Subordinated Debt Securities. Senior Debt Securities may be issued from time to time in series under an indenture, dated as of September 15, 1992, as supplemented from time to time, between the Corporation and Citibank, N.A., as trustee (the "Senior Trustee"), a copy of which is incorporated by reference into the Registration Statement of which this Prospectus is a part (the "Senior Indenture"). Subordinated Debt Securities may be issued from time to time in series under an indenture between the Corporation and Bankers Trust Company, as trustee (the "Subordinated Trustee"), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part (the "Subordinated Indenture"). The Senior Indenture and the Subordinated Indenture are sometimes referred to collectively as the "Indentures," and the Senior Trustee and the Subordinated Trustee are sometimes referred to collectively as the "Trustees." The Subordinated Debt Securities may be convertible into shares of Common Stock of the Corporation. The Indentures do not limit the aggregate principal amount of Debt Securities which may be issued by the Corporation thereunder and provide that the Debt Securities may be issued in one or more series. The statements under this caption are summaries of certain provisions contained in the Indentures, do not purport to be complete and are qualified in their entirety by reference to the Indentures. Capitalized terms used herein and not defined shall have the meanings assigned to them in the applicable Indenture. Section references referred to below, unless otherwise noted, refer to the respective Sections of both Indentures. The following summaries set forth certain general terms and provisions of the Indentures and the Debt Securities. Further terms of the Offered Debt Securities will be set forth in the applicable Prospectus Supplement. The Debt Securities will be direct, unsecured obligations of the Corporation. The indebtedness represented by the Senior Debt Securities will rank on a parity with all other unsecured and unsubordinated indebtedness of the Corporation. The indebtedness represented by the Subordinated Debt Securities will be subordinated in right of payment to the prior payment in full of the Senior Indebtedness of the Corporation as described under "Ranking of Debt Securities." The particular terms of the Offered Debt Securities will be described in the applicable Prospectus Supplement, along with any applicable modifications of or additions to the general terms of the Debt Securities as described herein and in the applicable Indenture and any applicable federal income tax considerations. Accordingly, for a description of the terms of the Offered Debt Securities, reference must be made to both the Prospectus Supplement relating thereto and the description of the Debt Securities set forth in this Prospectus. The applicable Prospectus Supplement will describe the following terms of the Offered Debt Securities: (a) the title of the Offered Debt Securities and whether such Offered Debt Securities are Senior Debt Securities or Subordinated Debt Securities; (b) any limit on the aggregate principal amount of the Offered Debt Securities; (c) the price (expressed as a percentage of the aggregate principal amount thereof) at which the Offered Debt Securities will be issued; (d) the date or dates on which the principal of the Offered Debt Securities will be payable; (e) the rate or rates (which may be fixed or variable) at which the Offered Debt Securities will bear any interest (or the method of determining the same) and the date or dates from which such interest will accrue; (f) the dates on which any interest on the Offered Debt Securities will be payable and the Regular Record Dates for the interest payable on such Interest Payment Dates; (g) any mandatory or optional sinking fund or analogous provisions; (h) the period or periods within which and the price or prices at which the Offered Debt Securities may, pursuant to any optional or mandatory redemption provisions (including any provisions for redemption or repurchase at the option of the holder), be redeemed and the 4 19 other terms and conditions of any such optional or mandatory redemption; (i) if the Offered Debt Securities are Original Issue Discount Securities, the amount of principal payable upon acceleration of such Original Issue Discount Securities following an Event of Default; (j) the currency or currencies, which may be a composite currency such as the European Currency Unit, in which payment of the principal of (and premium, if any) and/or interest on the Offered Debt Securities will be payable if other than the currency of the United States; (k) any currency (including composite currencies) other than the stated currency of the Debt Securities in which the principal of (and premium, if any) and/or interest on the Offered Debt Securities may, at the election of the Corporation or the holders, be payable, and the periods within which, and terms and conditions upon which, such election may be made; (1) the manner in which the amount of payments of principal of (and premium, if any) and/or interest on the Offered Debt Securities is to be determined if such determination is to be made with reference to an index; (m) whether the Offered Debt Securities are to be issued in the form of one or more Global Securities, and, if so, the identity of the depositary for such series (the "Debt Depositary"); (n) if the Offered Debt Securities are to be issued upon the exercise of Warrants, the time, manner and place for such Offered Debt Securities to be authenticated and delivered; (o) any deletions from, modifications of or additions to the Events of Default or covenants of the Corporation with respect to the Offered Debt Securities, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth in the general provisions of the applicable Indenture, and any change in the right of any Trustee or any of the holders to declare the principal amount of any of the Offered Debt Securities due and payable; (p) if the Offered Debt Securities are Subordinated Debt Securities, whether they will be convertible into Common Stock of the Corporation or exchangeable for other securities, and, if so, the terms and conditions upon which the Offered Debt Securities will be so convertible or exchangeable, including the conversion or exchange price and the conversion or exchange period; (q) any other terms of the Offered Debt Securities. If so provided in the applicable Prospectus Supplement, Debt Securities may be issued as Original Issue Discount Securities to be sold at a substantial discount below their principal amount. In such cases, special Federal income tax and other considerations applicable to such Original Issue Discount Securities will be described in the applicable Prospectus Supplement. EXCHANGE AND TRANSFER At the option of the holder, subject to the terms of the applicable Indenture and the limitations applicable to Global Securities, Debt Securities of each series may be exchanged for other Debt Securities of the same series of any authorized denomination and of a like tenor and aggregate principal amount. Subject to the terms of the applicable Indenture and the limitations applicable to Global Securities, Debt Securities issued in fully registered form may be presented for exchange as provided above or for registration of transfer (duly endorsed or with the form of transfer endorsed thereon duly executed) at the office of the applicable Trustee or other security registrar or at the office of any transfer agent designated by the Corporation for such purpose. No service charge will be made for any registration of transfer or exchange of such Debt Securities, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Such transfer or exchange will be effected upon the security registrar or such transfer agent, as the case may be, being satisfied with the documents of title and identity of the person making the request. If the Debt Securities of any series are to be redeemed in part, the Corporation will not be required to (i) issue, register the transfer of, or exchange any Debt Security of that series during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of any such Debt Security that may be selected for redemption and ending at the close of business on the day of such mailing, or (ii) register the transfer of or exchange any Debt Security so selected for redemption, in whole or in part, except the unredeemed portion of any such Debt Security being redeemed in part. GLOBAL SECURITIES Some or all of the Debt Securities of any series may be represented, in whole or in part, by one or more Global Securities which will have an aggregate principal amount equal to that of the Debt Securities 5 20 represented thereby. Each Global Security will be registered in the name of a Debt Depositary or a nominee thereof identified in the applicable Prospectus Supplement, will be deposited with such Debt Depositary or nominee or a custodian therefor and will bear a legend regarding the restrictions on exchange and registration of transfer thereof referred to below and any such other matters as may be provided for pursuant to the applicable Indenture. Notwithstanding any provision of the applicable Indenture or any security described herein, no Global Security may be exchanged in whole or in part for Debt Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Debt Depositary for such Global Security or any nominee of such Debt Depositary, unless (i) the Debt Depositary has notified the Corporation that it is unwilling or unable to continue as Debt Depositary for such Global Security or has ceased to be qualified to act as such as required by the applicable Indenture, (ii) there shall have occurred and be continuing an Event of Default with respect to the Debt Securities represented by such Global Security, or (iii) there shall exist such circumstances, if any, in addition to or in lieu of those described above as may be described in the applicable Prospectus Supplement. All Debt Securities issued in exchange for a Global Security or any portion thereof will be registered in such names as the Debt Depositary may direct. Ownership of beneficial interests in a Global Security will be limited to institutions that have accounts with the Debt Depositary or its nominee ("participants") and to the persons that may hold beneficial interests through participants. In connection with the issuance of any Global Security, the Debt Depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of Debt Securities represented by the Global Security to the accounts of its participants. Ownership of beneficial interests in a Global Security will be shown only on, and the transfer of those ownership interests will be effected only through, records maintained by the Debt Depositary (with respect to participants' interest) or any such participant (with respect to interests of persons held by such participants on their behalf). Payments, transfers, exchanges and other matters relating to beneficial interests in a Global Security may be subject to various policies and procedures adopted by the Debt Depositary from time to time. As long as the Debt Depositary, or its nominee, is the registered holder of a Global Security, the Debt Depositary or such nominee, as the case may be, will be considered the sole owner and holder of such Global Security and the Debt Securities represented thereby for all purposes under the terms of the Debt Securities and the applicable Indenture. Except in the limited circumstances referred to above, owners of beneficial interests in a Global Security will not receive or be entitled to receive physical delivery of certificated Debt Securities in exchange therefor and will not be considered to be the owners or holders of such Global Security or any Debt Securities represented thereby for any purpose under the Debt Securities or the applicable Indenture. All payments of principal of and any premium and interest on a Global Security will be made to the Debt Depositary or its nominee, as the case may be, as the holder thereof. The Corporation expects that the Debt Depositary, upon receipt of any payment of principal, premium or interest, will credit participants' accounts on the payment date with payments in amounts proportionate to their respective beneficial interest in the principal amount of a Global Security for such Debt Securities as shown on the records of the Debt Depositary. The Corporation also expects that payments by participants to owners of beneficial interests in such Global Security held through them will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participants. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. These laws may impair the ability to transfer beneficial interests in a Global Security. None of the Corporation, any Trustee or any agent of the Corporation or any Trustee will have any responsibility or liability for any aspect of the Debt Depositary's or any participant's records relating to, or for payments made on account of, beneficial interests in a Global Security, or for maintaining, supervising or reviewing any records relating to such beneficial interest. Secondary trading in notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, beneficial interests in a Global Security, in some cases, may trade in the Debt Depositary's same-day funds settlement system, in which case, secondary market trading activity in those beneficial interests would be required by the Debt Depositary to settle in immediately available funds. There is no assurance as to the effect, if any, that settlement in immediately available funds would have on trading 6 21 activity in such beneficial interests. Also, settlement for purchases of beneficial interests in a Global Security upon the original issuance thereof may be required to be made in immediately available funds. PAYMENT AND PAYING AGENTS Unless otherwise indicated in the applicable Prospectus Supplement, payment of interest on a Debt Security on any interest payment date 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. Unless otherwise indicated in the applicable Prospectus Supplement, principal of and any premium and interest on the Debt Securities of a particular series will be payable at the office of such paying agent or paying agents as the Corporation may designate for such purpose from time to time, except that, at the option of the Corporation, payment of any interest may be made by check mailed to the address of the Person entitled thereto as such address appears in the security register. All moneys paid by the Corporation to a paying agent for the payment of the principal of or any premium or interest on any Debt Security which remain unclaimed at the end of two years after such principal, premium or interest has become due and payable will be repaid to the Corporation, and the holder of such Debt Security thereafter may look only to the Corporation for payment thereof. EVENTS OF DEFAULT Unless otherwise set forth in the applicable Prospectus Supplement, the following are Events of Default under the Indentures with respect to Debt Securities of any series: (a) failure to pay any interest on any Debt Security of that series when due, continued for 30 days; (b) failure to pay principal of or any premium on any Debt Security of that series when due; (c) failure to deposit any sinking fund payment when due in respect of any Debt Security of that series; (d) failure to perform any other covenant of the Corporation in the applicable Indenture (other than a covenant included in such Indenture solely for the benefit of series of Debt Securities other than that series) continued for 90 days after written notice as provided in the applicable Indenture; (e) certain events in bankruptcy or of insolvency or reorganization involving the Corporation; and (f) any other Event of Default provided with respect to Debt Securities of that series in the applicable Prospectus Supplement. (Section 501) If an Event of Default with respect to Debt Securities of any series occurs and is continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Debt Securities of that series may declare the principal amount (or, if the Debt Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all of the Debt Securities of that series to be due and payable immediately. At any time after a declaration of acceleration with respect to Debt Securities of any series has been made, but before a judgment or decree based on acceleration has been obtained, the holders of a majority in aggregate principal amount of outstanding Debt Securities of that series may, under certain circumstances, rescind and annul such acceleration. (Section 502) The Indentures provide that, subject to the duty of the Trustees during default to act with the required standard of care, the Trustees will be under no obligation to exercise any of their respective rights or powers under the Indentures at the request or direction of any of the holders of Debt Securities, unless such holders shall have offered to the Trustees reasonable indemnity. (Section 603) Subject to such provisions for the indemnification of the Trustees, the holders of a majority in aggregate principal amount of the outstanding Debt Securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the applicable Trustee, or exercising any trust or power conferred on such Trustee, with respect to the Debt Securities of that series. (Section 512) The Corporation is required to furnish to the Trustees annually a statement as to the performance by the Corporation of certain of its obligations under the Indentures and as to any default in such performance. (Section 1007) 7 22 COVENANTS OF THE CORPORATION The applicable Prospectus Supplement will describe any material covenants in respect of a series of Debt Securities. The general provisions of the Indentures do not contain any provisions that would limit the ability of the Corporation to incur indebtedness or that would afford holders of Debt Securities protection in the event of a highly leveraged or similar transaction involving the Corporation. Unless otherwise indicated in the applicable Prospectus Supplement, Senior Debt Securities will include the following covenants of the Corporation: Limitation on Liens. The Corporation will not issue, incur, create, assume or guarantee, and will not permit any Restricted Subsidiary to issue, incur, create, assume or guarantee, any debt for money borrowed secured by a mortgage, security interest, pledge, lien, charge or other encumbrance ("Mortgages") upon any Principal Property of the Corporation or any Restricted Subsidiary or upon any shares of stock or indebtedness of any Restricted Subsidiary (whether such Principal Property, shares or indebtedness are now existing or owed or hereafter created or acquired) without in each such case effectively providing concurrently with the issuance, incurrence, creation, assumption or guaranty of any such secured debt, or the grant of a mortgage with respect to any such indebtedness, that the Senior Debt Securities (together with, if the Corporation shall so determine, any other indebtedness of or guarantee by the Corporation or such Restricted Subsidiary ranking equally with the Senior Debt Securities) shall be secured equally and ratably with such secured debt. The foregoing restriction, however, will not apply to: (a) Mortgages on property, shares of stock or indebtedness or other assets of any corporation existing at the time such corporation becomes a Restricted Subsidiary; (b) Mortgages existing at the time of acquisition of such property by the Corporation or a Restricted Subsidiary or Mortgages to secure the payment of all or any part of the purchase price of such property upon the acquisition thereof or to secure debt incurred prior to, at the time of, or within 180 days after, the acquisition of such property for the purpose of financing all or part of the purchase price thereof, or Mortgages to secure the cost of improvements to such acquired property or the cost of construction of such property; (c) Mortgages to secure indebtedness of a Restricted Subsidiary owing to the Corporation or another Restricted Subsidiary; (d) Mortgages existing at the date of the Senior Indenture; (e) Mortgages on property of a corporation existing at the time such corporation is merged into or consolidated with the Corporation or a Restricted Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation as an entirety or substantially as an entirety to the Corporation or a Restricted Subsidiary; (f) certain Mortgages in favor of governmental entities; or (g) extensions, renewals or replacements of any Mortgage referred to in the foregoing clauses (a) through (f); provided, however, that any Mortgages permitted by any of the foregoing clauses (a), (b), (c), (d), (e) and (f) shall not extend to or cover any property of the Corporation or such Restricted Subsidiary, as the case may be, other than the property specified in such clauses and improvements thereto. (Section 1010) Notwithstanding the restrictions outlined in the preceding paragraph, the Corporation or any Restricted Subsidiary will be permitted to issue, incur, create, assume or guarantee debt secured by a Mortgage which would otherwise be subject to such restrictions, without equally and ratably securing the Senior Debt Securities, provided that after giving effect thereto, the aggregate amount of all debt so secured by Mortgages (not including Mortgages permitted under clauses (a) through (g) above) does not exceed 10% of the Consolidated Net Tangible Assets of the Corporation. (Section 1010) Limitation on Sale and Lease-Back. The Corporation will not, nor will it permit any Restricted Subsidiary to, enter into any sale and lease-back transaction with respect to any Principal Property, other than any such transaction involving a lease for a term of not more than three years or any such transaction between the Corporation and a Restricted Subsidiary or between Restricted Subsidiaries, unless: (a) the Corporation or such Restricted Subsidiary would be entitled to incur indebtedness secured by a Mortgage on the Principal Property involved in such transaction at least equal in amount to the Attributable Debt with respect to such sale 8 23 and lease-back transaction, without equally and ratably securing the Senior Debt Securities, pursuant to the limitation in the Senior Indenture on liens; or (b) the Corporation shall apply an amount equal to the greater of the net proceeds of such sale or the Attributable Debt with respect to such sale and lease-back transaction within 120 days to the retirement (other than any mandatory retirement or by payment at maturity) of debt for money borrowed of the Corporation or a Restricted Subsidiary that matures more than twelve months after the creation of such indebtedness. (Section 1011) DEFEASANCE AND DISCHARGE OF DEBT SECURITIES Unless otherwise indicated in the applicable Prospectus Supplement, the following provisions will apply to Debt Securities under the Indentures: the Corporation, at its option (a) will be discharged from any and all obligations in respect to any series of Debt Securities (except for certain obligations to register the transfer or exchange of such Debt Securities, to replace stolen, lost or mutilated Debt Securities, to maintain paying agencies and to hold monies for payment in trust and, with respect to Subordinated Debt Securities which are convertible or exchangeable, the right to convert or exchange); or (b) need not comply with certain restrictive covenants of the Indentures in respect of such series of Debt Securities, in either case upon the deposit with the Trustee (and in the case of a discharge, 91 days after such deposit), in trust, of money and/or U.S. Government Obligations (as defined in the Indentures) which through the payment of interest and principal in respect thereof in accordance with their terms, without regard to any reinvestment thereof, will provide money in an amount sufficient to pay the principal of and each installment of interest on such Debt Securities on the Stated Maturity of such payments in accordance with the terms of the applicable Indenture and such Debt Securities. In the case of discharge under clause (a), such a trust may be established only if, among other things, the Corporation has received from, or there has been published by, the Internal Revenue Service a ruling, or there has otherwise been a change in law, to the effect that holders of such Debt Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred. (Section 403) In the event of any such discharge under clause (a), the holders of such Debt Securities would thereafter be able to look only to such trust fund for payment of principal (and premium, if any) and interest. CONSOLIDATION, MERGER AND SALE OF ASSETS The Indentures provide that the Corporation, without the consent of the holders of any of the outstanding Debt Securities, may consolidate or merge with or into, or transfer or lease its assets as an entirety or substantially as an entirety to, any corporation or may acquire or lease the assets of any person, provided that: (a) the corporation formed by such consolidation or into which the Corporation is merged or which acquires or leases the assets of the Corporation as an entirety or substantially as an entirety is organized under the laws of any domestic jurisdiction and assumes the Corporation's obligations on the Debt Securities and under the Indentures and, with respect to Subordinated Debt Securities which are convertible or exchangeable, provides for conversion or exchange rights in accordance with the Subordinated Indenture; (b) immediately after giving effect to the transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing; and (c) certain other conditions are met. Upon compliance with these provisions by a successor corporation, the Corporation would be relieved of its obligations under the Indentures and the Debt Securities. (Sections 801 and 802) The Senior Indenture also provides that, if upon any such consolidation, merger, sale, conveyance or lease, any Principal Property would become subject to any Mortgage, the Corporation or such successor corporation will be obligated under such Senior Indenture to cause the Senior Debt Securities to be secured equally and ratably with (or, at the Corporation's or such successor corporation's option, prior to) any indebtedness secured by such Mortgage. MODIFICATION AND WAIVER Modifications and amendments of the Indentures may be made by the Corporation and the applicable Trustee with the consent of the holders of a majority in aggregate principal amount of the outstanding Debt 9 24 Securities of each series affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Debt Security affected thereby: (a) change the stated maturity date of the principal of, any installment of principal or interest on, or sinking fund payments in respect of, such Debt Security; (b) alter the redemption or conversion provisions of such Debt Security in a manner materially adverse to the holder thereof; (c) reduce the principal amount of, or any premium or interest on, such Debt Security; (d) reduce the amount of principal of an Original Issue Discount Security payable upon acceleration of the maturity thereof; (e) change the place or currency of payment of principal of, or any premium or interest on, such Debt Security; (f) impair the right to institute suit for the enforcement of any payment on or with respect to such Debt Security; (g) with respect to Subordinated Debt Securities which are convertible or exchangeable, adversely affect the right to convert or exchange any such Subordinated Debt Security; (h) with respect to Subordinated Debt Securities, modify the provisions of the Subordinated Indenture with respect to subordination in a manner materially adverse to the Subordinated Debt Securities; or (i) reduce the percentage in principal amount of outstanding Debt Securities of any series the consent of the holders of which is required for modification or amendment of the applicable Indenture or for waiver of compliance with certain provisions of such Indenture or for waiver of certain defaults. (Section 902) The holders of a majority in aggregate principal amount of the outstanding Debt Securities of each series may, on behalf of all holders of Debt Securities of that series, waive, insofar as that series is concerned: (a) compliance by the Corporation with certain restrictive provisions of the applicable Indenture; or (b) any past default under the applicable Indenture, except a default in the payment of principal or any premium or interest and, with respect to any Subordinated Debt Securities which are convertible, a default in respect of the right to convert. (Sections 1008 and 513) Modifications and amendments may be made by the Corporation and the Trustee to the Indentures, without the consent of any holder of any Debt Security of any series, to add covenants and Events of Default, and to make provisions with respect to other matters and issues arising under the Indentures, provided that any such provision does not adversely affect the rights of the holders of Debt Securities of any series. (Section 901) RANKING OF DEBT SECURITIES The Senior Debt Securities will be unsecured and unsubordinated obligations of the Corporation and will rank on a parity with all other unsecured and unsubordinated indebtedness of the Corporation. Unless otherwise provided in the applicable Prospectus Supplement, Subordinated Debt Securities will be subject to the following subordination provisions. The payment of the principal of, interest on, or any other amounts due on, the Subordinated Debt Securities will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined below) of the Corporation. (Section 1601) No payment on account of the principal of, redemption of, interest on or any other amounts due on the Subordinated Debt Securities and no redemption, purchase or other acquisition of the Subordinated Debt Securities may be made, unless (i) full payment of amounts then due for principal, sinking funds, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Corporation, whether or not a claim for such post-petition interest is allowed in such proceeding), penalties, reimbursement or indemnification amounts, fees and expenses, and of all other amounts then due on all Senior Indebtedness shall have been made or duly provided for pursuant to the terms of the instrument governing such Senior Indebtedness, and (ii) at the time of, or immediately after giving effect to, any such payment, redemption, purchase or other acquisition, there shall not exist under any Senior Indebtedness or any agreement pursuant to which any Senior Indebtedness has been issued, any default which shall not have been cured or waived and which shall have resulted in the full amount of such Senior Indebtedness being declared due and payable. In addition, the Subordinated Indenture provides that, if holders of any Senior Indebtedness notify the Corporation and the Subordinated Trustee that a default has occurred giving the holders of such Senior Indebtedness the right to accelerate the maturity thereof, no payment on account of principal, sinking fund or other redemption, interest or any other amounts 10 25 due on the Subordinated Debt Securities and no purchase, redemption or other acquisition of the Subordinated Debt Securities will be made for the period (the "Payment Blockage Period") commencing on the date such notice is received and ending on the earlier of (A) the date on which such event of default shall have been cured or waived or (B) 180 days from the date such notice is received. (Section 1603) Notwithstanding the foregoing, only one payment blockage notice with respect to the same event of default or any other events of default existing and known to the person giving such notice at the time of such notice on the same issue of Senior Indebtedness may be given during any period of 360 consecutive days. (Section 1603) No new Payment Blockage Period may be commenced by the holders of Senior Indebtedness during any period of 360 consecutive days unless all events of default which triggered the preceding Payment Blockage Period have been cured or waived. (Section 1603) Upon any distribution of its assets in connection with any dissolution, winding-up, liquidation or reorganization of the Corporation, all Senior Indebtedness must be paid in full before the holders of the Subordinated Debt Securities are entitled to any payments whatsoever. (Section 1602) The Subordinated Indenture does not restrict the amount of Senior Indebtedness or other indebtedness of the Corporation or any subsidiary of the Corporation. As a result of these subordination provisions, in the event of the Corporation's insolvency, holders of the Subordinated Debt Securities may recover ratably less than general creditors of the Corporation. CONVERTIBLE SUBORDINATED DEBT SECURITIES The terms and conditions, if any, on which any series of Subordinated Debt Securities are convertible into Common Stock of the Corporation will be set forth in the applicable Prospectus Supplement. Such terms will include the conversion price, the conversion period and the manner in which the right to convert may be exercised, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of the convertible Subordinated Debt Securities. (Sections 1701, 1702 and 1704) CERTAIN DEFINITIONS "Attributable Debt" when used in connection with a sale and lease-back transaction involving a Principal Property means, at the time of determination, the lesser of: (a) the fair value of such property (as determined in good faith by the Board of Directors of the Corporation); or (b) the present value of the total net amount of rent required to be paid under such lease during the remaining term thereof (including any renewal term or period for which such lease has been extended), discounted at the rate of interest set forth or implicit in the terms of such lease. For purposes of the foregoing definition, rent shall not include amounts required to be paid by the lessee, whether or not designated as rent or additional rent, on account of or contingent upon maintenance and repair, insurance, taxes, assessments, water rates and similar charges. "Consolidated Net Tangible Assets" means, as of any particular time, the aggregate amount of assets (less applicable reserves and other properly deductible items) after deducting therefrom: (a) all current liabilities except for: (1) notes and loans payable, (2) current maturities of long-term debt, and (3) current maturities of obligations under capital leases; and (b) certain intangible assets, to the extent included in said aggregate amount of assets, all as set forth on the most recent consolidated balance sheet of the Corporation and its consolidated subsidiaries and computed in accordance with generally accepted accounting principles. "Indebtedness" means, with respect to any person, (i) any obligation of such person to pay the principal of, premium, if any, interest on (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such person, whether or not a claim for such post-petition interest is allowed in such proceeding), penalties, reimbursement or indemnification amounts, fees, expenses or other amounts relating to any indebtedness of such person (A) for borrowed money (whether or not the recourse of the lender is to the whole of the assets, of such person or only to a portion thereof), (B) evidenced by notes, debentures or similar instruments (including purchase money obligations) given in connection with the acquisition of any property or assets (other than inventory or similar property acquired in the ordinary course of business), including securities, for the payment of which such person is liable, directly or indirectly, or the payment of which is secured by a lien, charge or encumbrance on property or assets of such person, (C) for 11 26 goods, materials or services purchased in the ordinary course of business (other than trade accounts payable arising in the ordinary courses of business), (D) with respect to letters of credit or bankers acceptances issued for the account of such person or performance bonds, (E) for the payment of money relating to a Capitalized Lease Obligation (as defined in the Indenture), or (F) under interest rate swaps, caps or similar agreements and foreign exchange contracts, currency swaps or similar agreements; (ii) any liability of others of the kind described in the preceding clause (i) which such person has guaranteed or which is otherwise its legal liability; and (iii) any and all deferrals, renewals, extensions and refunding of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (i) or (ii). "Principal Property" means the principal corporate office and any manufacturing plant or manufacturing facility (whether now owned or hereafter acquired) which: (a) is owned by the Corporation or any Restricted Subsidiary; (b) is located within the United States of America; and (c) has not been determined in good faith by the Board of Directors of the Corporation not to be materially important to the total business conducted by the Corporation and its subsidiaries taken as a whole. "Restricted Subsidiary" means any Subsidiary which owns any Principal Property; provided, however, that the term "Restricted Subsidiary" does not include any Subsidiary which is principally engaged in leasing or in financing receivables, or which is principally engaged in financing the Corporation's operations outside the United States of America. "Senior Indebtedness" means Indebtedness of the Corporation, whether outstanding on the date of the Subordinated Indenture or thereafter created, incurred, assumed or guaranteed by the Corporation, other than the following: (1) any Indebtedness as to which, in the instrument evidencing such Indebtedness or pursuant to which such Indebtedness was issued, it is expressly provided that such Indebtedness is subordinate in right of payment to all indebtedness of the Corporation not expressly subordinated to such Indebtedness; (2) any Indebtedness which by its terms refers explicitly to the Subordinated Debt Securities and states that such Indebtedness shall not be senior, shall be pari passu or shall be subordinated in right of payment to the Subordinated Debt Securities; and (3) with respect to any series of Subordinated Debt Securities, any Indebtedness of the Corporation evidenced by Subordinated Debt Securities of the same or of another series. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include: (a) Indebtedness of or amounts owed by the Corporation for compensation to employees, or for goods or materials purchased in the ordinary course of business, or for services, or (b) Indebtedness of the Corporation to a subsidiary of the Corporation. "Subsidiary" means any corporation of which at least a majority of the outstanding stock having the voting power to elect a majority of the board of directors of such corporation is at the time owned, directly or indirectly, by the Corporation or by one or more Subsidiaries, or by the Corporation and one or more Subsidiaries. CONCERNING THE TRUSTEES Citibank, N.A. is the Senior Trustee under the Senior Indenture. Bankers Trust Company is the Subordinated Trustee under the Subordinated Indenture. Each of the Trustees has dealings with the Corporation in the ordinary course of business and from time to time may also make loans to the Corporation and its Subsidiaries. In addition, Citibank, N.A. has also been appointed as the Preferred Stock Depositary. A Trustee may resign or be removed with respect to one or more series of Debt Securities and a successor Trustee appointed with respect to such series. (Section 610) 12 27 DESCRIPTION OF CAPITAL STOCK GENERAL The Corporation is authorized to issue up to 450,000,000 shares of Common Stock and up to 25,000,000 shares of Preferred Stock which may be issued by the Board of Directors of the Corporation from time to time. The particular terms of any series of Preferred Stock offered hereunder 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 following summary descriptions of capital stock and Rights (as defined below) do not purport to be complete and are subject to, and qualified in their entirety by reference to, the more complete descriptions thereof set forth in the Corporation's Restated Articles of Organization, as amended (the "Restated Articles"), the Certificate of Designation relating to each series of Preferred Stock (the "Certificate of Designation"), the Corporation's By-laws, as amended, and the Rights Plan (as defined below). The applicable Certificate of Designation 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 the Offered Preferred Stock. DESCRIPTION OF COMMON STOCK The Corporation's Restated Articles authorize the issuance of up to 450,000,000 shares of Common Stock. Each share of the Common Stock is entitled to one vote at all meetings of stockholders for the election of directors and on all other matters. Dividends may be paid to the holders of the Common Stock when and if declared by the Board of Directors out of funds legally available therefor. The Common Stock has no pre-emptive or similar rights. The holders are not liable to further call or assessment. Upon liquidation, dissolution or winding up of the affairs of the Corporation, its assets remaining after provision for payment of creditors would be distributed pro rata among holders of the Common Stock, subject to the preferential rights of any then outstanding Preferred Stock. The Common Stock is listed on the New York Stock Exchange, the Chicago Stock Exchange, the German Stock Exchanges of Frankfurt, Munich and Berlin, the Montreal Exchange, the Pacific Stock Exchange and the Swiss Exchanges of Zurich, Geneva and Basel, and is admitted to unlisted trading privileges on the Boston Stock Exchange, Cincinnati Stock Exchange, Luxembourg Stock Exchange and Philadelphia Stock Exchange. First Chicago Trust Company of New York is the transfer agent for the Common Stock. The Corporation also serves as a co-transfer agent in connection with the Corporation's various employee stock programs. DESCRIPTION OF PREFERRED STOCK The following sets forth certain general terms and provisions of the Preferred Stock which would be offered hereby. Further terms of the Offered Preferred Stock will be set forth in the applicable Prospectus Supplement. The Corporation's Restated Articles authorize the issuance of up to 25,000,000 shares of Preferred Stock. As of the date of this Prospectus, no shares of Preferred Stock are currently outstanding, and no shares are reserved for issuance. Subject to limitations prescribed by law, the Board of Directors is authorized at any time to issue one or more series of Preferred Stock; to determine all designations, preferences and limitations for any such series; and to determine the number of shares in any such series. The Board of Directors is authorized to determine for each series of Preferred Stock, and the Prospectus Supplement will set forth with respect to such series, the following designations, preferences and limitations, if any: the dividend rights, the redemption provisions, the rights upon liquidation, dissolution or winding up of the Corporation, the conversion or exchange rights, the sinking fund provisions, the voting rights, provided that the holders of shares of Preferred Stock will not be entitled to more than one vote per share when voting as a class with the holders of shares of Common Stock; and the other preferences, powers, qualifications, special or 13 28 relative rights and privileges and limitations or restrictions of such preferences or rights, if any. No holders of shares of the capital stock of the Corporation have any pre-emptive rights to acquire any securities of the Corporation. 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 the Corporation legally available for payment, dividends payable at such dates and at such rates per share as set forth in the applicable Prospectus Supplement. The Prospectus Supplement will also state applicable record dates regarding the payment of dividends. CONVERTIBILITY 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 the Corporation, 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 the 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 such series. After payment of the full amount of the liquidation preference to 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 the Corporation unless otherwise provided in a Prospectus Supplement, and, in such case, the remaining assets of the Corporation shall be distributable exclusively among the holders of the 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. The holders of shares of Preferred Stock will not be entitled to more than one vote per share when voting as a class with the holders of shares of Common Stock. Unless otherwise specified in a Prospectus Supplement, the affirmative vote of the holders of two-thirds of the outstanding shares of a series of Preferred Stock voting separately is required to authorize any amendment, alteration or repeal of the Restated Articles or of the Certificate of Designation which would adversely affect the rights of any such class or series of Preferred Stock. MISCELLANEOUS Preferred Stock, upon issuance against full payment of the purchase price therefor, will be fully paid and nonassessable. 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 the Corporation. The transfer agent for each series of Preferred Stock will be specified in the related Prospectus Supplement. 14 29 DESCRIPTION OF RIGHTS On December 11, 1989, the Board of Directors unanimously adopted a Stockholder Rights Plan (the "Rights Plan"). Under the Rights Plan, the Corporation distributed to its stockholders a dividend of one Common Stock Purchase Right (a "Right" and collectively, the "Rights") for each outstanding share of the Corporation's Common Stock. Initially, each Right will entitle holders of Common Stock to buy one share of Common Stock of the Corporation at an exercise price of $400, subject to adjustment. The Rights will become exercisable only if a person or group acquires 20% or more of the Common Stock, or announces a tender or exchange offer which would result in its ownership of 30% or more of the Common Stock, or a person owning 10% or more of the Common Stock is determined by the Board of Directors to be an "Adverse Person," as defined in the Rights Plan. If any person or group becomes the beneficial owner of 25% or more of the Common Stock except pursuant to a tender offer for all shares which the directors determine to be at a fair price and in the best interests of the Corporation; a 20% or more stockholder engages in a merger with the Corporation in which the Corporation survives and its Common Stock remains outstanding and unchanged; certain other events involving the Corporation and a 20% or more stockholder occur; or, under certain circumstances, the Board of Directors determines a 10% or more stockholder to be an Adverse Person, each Right not then held by such person or related parties will entitle its holder to purchase, at the Right's then current exercise price, Common Stock of the Corporation (or, in certain circumstances as determined by the Board of Directors, a combination of cash, property, Common Stock or other securities) having a value of twice the Right's exercise price. In addition, at any time after a stockholder acquires a 20% or more equity interest in the Corporation, if the Corporation is involved in a merger or other business combination transaction with another person in which its Common Stock is changed or converted, or sells or transfers more than 50% of its assets or earning power to another person, each Right that has not previously been exercised or voided will entitle its holder to purchase, at the Right's then current exercise price, shares of common stock of such other person having a value of twice the Right's exercise price. The Corporation generally is entitled to redeem the Rights at $.01 per Right at any time until the Board of Directors determines a 10% or more stockholder to be an Adverse Person or the tenth day following public announcement that a 20% equity interest in the Corporation has been acquired. The Rights Plan will expire on December 21, 1999 unless the Rights are earlier redeemed by the Corporation. The adoption of the Rights Plan has the effect of making an unsolicited takeover of the Corporation more difficult and more costly to any potential acquiror in circumstances in which the Board of Directors determines that such an unsolicited takeover is not in the best interests of the Corporation's stockholders. ANTI-TAKEOVER NATURE OF CERTAIN RESTATED ARTICLES, BY-LAWS AND MASSACHUSETTS LAW PROVISIONS Massachusetts General Laws Chapter 156B, Section 50A requires that publicly-held Massachusetts corporations have a classified board of directors consisting of three classes as nearly equal in size as possible, unless the corporation elects not to be covered by Section 50A. Consequently, the Board of Directors of the Corporation is divided into three classes, with each class serving three years and with the terms of office of the respective classes expiring in successive years. The Corporation's By-laws contain provisions which give effect to Section 50A. The Corporation's By-laws also provide that special meetings of stockholders may be called upon written application of one or more stockholders who hold at least 90% of the capital stock entitled to vote at the meeting. The effect of this provision is to make it more difficult for the stockholders to call a special meeting of stockholders. In addition, the Corporation's By-laws require advance notice (i) for any business to be properly brought before a stockholders' meeting by a stockholder and (ii) of nominations of persons for election to the Board of Directors at the annual meeting. The Corporation is subject to the provisions of Chapter 110F of the Massachusetts General Laws, the so-called Business Combination Statute. Under Chapter 110F, a Massachusetts corporation with over 200 stockholders, such as the Corporation, may not engage in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless (i) the interested stockholder obtains the approval of the Board of Directors 15 30 prior to becoming an interested stockholder, (ii) the interested stockholder acquires 90% of the outstanding voting stock of the corporation (excluding shares held by certain affiliates of the corporation) at the time it becomes an interested stockholder, or (iii) the business combination is approved by both the Board of Directors and the holders of two-thirds of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). An "interested stockholder" is a person who, together with affiliates and associates, owns (or at any time within the prior three years did own) 5% or more of the outstanding voting stock of the corporation. A "business combination" includes a merger, a stock or assets sale, and other transactions resulting in a financial benefit to the stockholders. By vote of the Board of Directors, the Corporation has elected to be exempt from the applicability of Massachusetts General Laws, Chapter 110D, entitled "Regulation of Control Share Acquisitions." In general, this statute provides that any stockholder of a corporation subject to this statute who acquires 20% or more of the outstanding voting stock of a corporation (except in certain transactions) may not vote such stock unless the stockholders of the corporation so authorize. The Board of Directors may amend the Corporation's By-laws at any time to subject the Corporation to this statute prospectively. DESCRIPTION OF DEPOSITARY SHARES GENERAL The Corporation 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 applicable Prospectus Supplement. The shares of Preferred Stock represented by the Depositary Shares will be deposited with a depositary (the "Preferred Stock Depositary") named in the applicable Prospectus Supplement, under a deposit agreement (the "Deposit Agreement") among the Corporation, Citibank, N.A. or another financial institution, as Depositary, and the holders of certificates evidencing Depositary Shares ("Depositary Receipts"). Depositary Receipts will be delivered to those persons purchasing Depositary Shares in the offering. The Preferred Stock 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 description set forth herein and in any Prospectus Supplement of certain provisions of the Deposit Agreement and of the Depositary Shares and Depositary Receipts does not purport to be complete and is subject to and qualified in its entirety by reference to the forms of Deposit Agreement and Depositary Receipts and the Certificate of Designation relating to each series of Preferred Stock which have been or will be filed as exhibits to or incorporated by reference into the Registration Statement of which this Prospectus is a part, at or prior to the issuance of Depositary Shares. Upon surrender of Depositary Receipts at the office of the Preferred Stock Depositary and upon payment of the charges provided in the Deposit Agreement and subject to the terms thereof, a holder of Depositary Shares is entitled to have the Preferred Stock Depositary deliver to such holder the whole shares of Preferred Stock underlying the Depositary Shares evidenced by the surrendered Depositary Receipts. 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 Preferred Stock 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. DIVIDENDS AND OTHER DISTRIBUTIONS The Preferred Stock 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 16 31 Depositary Receipts relating to such Preferred Stock in proportion to the respective number of Depositary Shares owned by such holders on the relevant record date, which will be the same record date as the record date fixed by the Corporation for the applicable series of Preferred Stock. The Preferred Stock Depositary shall distribute only such amount, however, as can be distributed without attributing to any holder of Depositary Shares a fraction of one cent, and any balance not so distributed shall be added to and treated as part of the next sum received by the Preferred Stock Depositary for distribution to record holders of Depositary Shares. In the event of a distribution other than in cash, the Preferred Stock Depositary will distribute property received by it to the record holders of Depositary Receipts entitled thereto, in proportion, as nearly as practicable, to the respective number of Depositary Shares owned by such holders on the relevant record date. If the Preferred Stock Depositary, after consultation with the Corporation, determines that it is not feasible to make such distribution, the Preferred Stock Depositary may, with the approval of the Corporation, 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 the Corporation, 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 related Prospectus Supplement. REDEMPTION OF DEPOSITARY SHARES If a series of Preferred Stock represented by the applicable series of Depositary Shares is subject to redemption, such Depositary Shares will be redeemed from the proceeds received by the Preferred Stock Depositary resulting from the redemption, in whole or in part, of such series of Preferred Stock held by the Preferred Stock Depositary. The redemption price per Depositary Share will be equal to the applicable fraction of the redemption price per share payable with respect to such series of Preferred Stock. Whenever the Corporation redeems shares of Preferred Stock held by the Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the same redemption date the number of Depositary Shares representing the shares of Preferred Stock so redeemed. The Preferred Stock Depositary will mail the notice of redemption promptly upon receipt of such notice from the Corporation 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. If less than all of the Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will be selected by lot or pro rata as may be determined by the Preferred Stock Depositary. After the date fixed for redemption, the Depositary Shares so called for redemption will no longer be deemed to be outstanding and all rights of the holders of such Depositary Shares will cease, except the right to receive the moneys payable upon such redemption and any money or other property to which the holders of such Depositary Shares were entitled upon such redemption upon surrender to the Preferred Stock Depositary of the Depositary Receipts evidencing such Depositary Shares. VOTING Promptly upon receipt of notice of any meeting at which the holders of the series of Preferred Stock represented by an applicable series of Depositary Shares are entitled to vote, the Preferred Stock Depositary will mail the information contained in such notice of meeting to the record holders of the Depositary Receipts relating to such Preferred Stock. Each record holder of such Depositary Receipts on the record date (which will be the same date as the record date for the related Preferred Stock) will be entitled to instruct the Preferred Stock Depositary as to the exercise of the voting rights pertaining to the number of shares of Preferred Stock underlying such holder's Depositary Shares. The Preferred Stock Depositary will endeavor, insofar as practicable, to vote the number of shares of Preferred Stock underlying such Depositary Shares in accordance with such instructions, and the Corporation will agree to take all action which may be deemed necessary by the Preferred Stock Depositary in order to enable the Preferred Stock Depositary to do so. The 17 32 Preferred Stock Depositary will abstain from voting shares of Preferred Stock to the extent it does not receive specific instructions from the holders of Depositary Receipts relating to such Preferred Stock. AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT The form of Depositary Receipt evidencing the Depositary Shares and any provision of the Deposit Agreement may at any time be amended by agreement between the Corporation and the Preferred Stock Depositary. However, unless otherwise indicated in the applicable Prospectus Supplement, any amendment which materially and adversely alters the rights of the existing holders of Depositary Shares will not be effective unless such amendment has been approved by the record holders of a majority of the Depositary Shares then outstanding. No such amendment may impair the rights, subject to the terms of the Deposit Agreement, of any owner of any Depositary Shares to surrender the Depositary Receipts evidencing such Depositary Shares with instructions to the Preferred Stock 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. A Deposit Agreement may be terminated by the Corporation or the Preferred Stock Depositary only if (i) all outstanding Depositary Shares relating thereto have been redeemed or surrendered by the holders thereof or (ii) there has been a final distribution in respect of the Preferred Stock of the relevant series in connection with any liquidation, dissolution or winding up of the Corporation and such distribution has been distributed to the holders of the related Depositary Shares. CHARGES OF PREFERRED STOCK DEPOSITARY The Corporation will pay all transfer and other taxes and governmental charges arising solely from the existence of the Preferred Stock Depositary arrangements. The Corporation will pay charges of the Preferred Stock Depositary in connection with the initial deposit of the Preferred Stock and any redemption of the Preferred Stock and all withdrawals of Preferred Stock by owners of Depositary Shares. Holders of Depositary Shares will pay transfer and other taxes and governmental charges and such other charges as are expressly provided in the Deposit Agreement to be for their accounts. MISCELLANEOUS The Preferred Stock Depositary will forward to the holders of Depositary Shares all reports and communications from the Corporation which are delivered to the Preferred Stock Depositary and which the Corporation is required to furnish to the holders of Preferred Stock. In addition, the Preferred Stock Depositary will make available for inspection by holders of Depositary Receipts at the principal office of the Preferred Stock Depositary, and at such other places as it may from time to time deem advisable, any reports and communications received from the Corporation which are received by the Preferred Stock Depositary as the holder of Preferred Stock. Neither the Preferred Stock Depositary nor the Corporation will be liable if it is prevented or delayed by law or any circumstance beyond its control in performing its respective obligations under the Deposit Agreement. Neither the Preferred Stock Depositary nor the Corporation shall be liable under the Deposit Agreement except for its negligence or willful misconduct. The obligations of the Corporation and the Preferred Stock 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. In the performance of their duties, the Corporation and the Preferred Stock Depositary may rely upon (a) written advice of counsel or accountants, (b) information provided by persons presenting Preferred Stock for deposit, by holders of Depositary Shares or by other persons believed to be competent, and (c) documents believed by them to be genuine. RESIGNATION AND REMOVAL OF PREFERRED STOCK DEPOSITARY The Preferred Stock Depositary may resign at any time by delivering to the Corporation notice of its election to do so, and the Corporation may at any time remove the Preferred Stock Depositary, any such resignation or removal to take effect upon the appointment of a successor Preferred Stock Depositary and its acceptance of such appointment. Such successor Preferred Stock Depositary must be appointed within 90 18 33 days after delivery of the notice of resignation or removal and must be a bank or trust company having its principal office in the United States and having a combined capital and surplus of at least $50,000,000. 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 WARRANTS GENERAL The Corporation may issue warrants ("Warrants"), including Warrants to purchase Debt Securities or Warrants to purchase Common Stock. Warrants may be issued independently or together with Debt Securities, Preferred Stock or Depositary Shares offered by any Prospectus Supplement and may be attached to or separate from such Debt Securities, Preferred Stock or Depositary Shares. Each series of Warrants will be issued under a separate warrant agreement (each a "Warrant Agreement" and collectively, the "Warrant Agreements") to be entered into between the Corporation and a warrant agent (the "Warrant Agent"), all as set forth in the applicable Prospectus Supplement. The Warrant Agent will act solely as an agent of the Corporation in connection with the Warrant certificates relating to the Warrants and will not assume any obligation or relationship of agency or trust for or with any holders of Warrant certificates or beneficial owners of Warrants. The following summaries of certain provisions of the Warrant Agreements and the Warrants do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Warrant Agreement and the Warrant certificates relating to each series of Warrants which will be filed as an exhibit or incorporated by reference into the Registration Statement of which this Prospectus is a part at or prior to the time of the issuance of such series of Warrants. If Warrants are offered, the applicable Prospectus Supplement will describe the terms of such Warrants, including the following, where applicable: (i) the offering price; (ii) the number, amount, designation, exercise price and terms, as the case may be, of Common Stock or Debt Securities purchasable upon exercise of such Warrants (the "Warrant Securities"); (iii) the designation and terms of any series of Debt Securities, Preferred Stock or Depositary Shares with which Warrants are being offered and the number of such Warrants being offered with each such Debt Security, share of Preferred Stock or Depositary Share; (iv) the date, if any, on and after which such Warrants and the related series of Debt Securities, Preferred Stock or Depositary Shares will be transferable separately; (v) the date on which the right to exercise such Warrants shall commence and the date on which such right shall expire (the "Expiration Date"); (vi) whether the Warrants will be issued in registered or bearer form; (vii) any special federal income tax consequences; (viii) the terms, if any, on which the Corporation may accelerate the date by which the Warrants must be exercised; and (ix) any other terms of such Warrants. Warrant certificates may (i) be exchanged for new Warrant certificates of different denominations, (ii) if in registered form, be presented for registration of transfer, and (iii) be exercised at the corporate trust office of the Warrant Agent or any other office indicated in the applicable Prospectus Supplement. Prior to the exercise of any Warrant to purchase Debt Securities, holders of such Warrants will not have any of the rights of holders of Debt Securities purchasable upon such exercise, including the right to receive payments of principal of, premium, if any, or interest, if any, on such Debt Securities or to enforce covenants in the 19 34 applicable Indenture. Prior to the exercise of any Warrants to purchase Common Stock, holders of such Warrants will not have any rights of holders of such Common Stock, including the right to receive payments of dividends, if any, or to exercise voting rights. Any Warrants issued by the Corporation will involve a certain degree of risk, including risks arising from fluctuations in the price of the underlying securities and general risks applicable to the securities market (or markets) on which the underlying securities are traded. These risks reflect the nature of a Warrant as an asset which, other factors held constant, tends to decline in value over time and which becomes worthless upon expiration. Prospective purchasers of the Warrants should be experienced with respect to options and option transactions and understand the risks associated with options. EXERCISE OF WARRANTS Each Warrant will entitle the holder thereof to purchase such principal amount of Debt Securities or number of shares of Common Stock, as the case may be, at such exercise price as shall in each case be set forth in, or calculable from, the applicable Prospectus Supplement. After the close of business on the Expiration Date (or such later date to which such Expiration Date may be extended by the Corporation), unexercised Warrants will become void. Warrants may be exercised by delivering to the Warrant Agent payment as provided in the applicable Prospectus Supplement of the amount required to purchase the Debt Securities or Common Stock, as the case may be, purchasable upon such exercise, together with certain information set forth on the reverse side of the Warrant certificate. Warrants will be deemed to have been exercised upon receipt of payment of the exercise price, subject to receipt within 5 business days of the Warrant certificate evidencing such Warrants. Upon receipt of such payment and the Warrant certificate properly completed and duly executed at the office of the Warrant Agent or any other office indicated in the applicable Prospectus Supplement, the Corporation will, as soon as practicable, issue and deliver the Debt Securities or Common Stock, as the case may be, purchasable upon such exercise. If fewer than all of the Warrants represented by such Warrant certificate are exercised, a new Warrant certificate will be issued for the remaining Warrants. AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENTS The Warrant Agreements may be amended or supplemented without the consent of the holders of the Warrants issued thereunder to effect changes that are not inconsistent with the provisions of the Warrants and that do not adversely affect the interests of the holders of the Warrants. COMMON STOCK WARRANT ADJUSTMENTS Unless otherwise specified in the applicable Prospectus Supplement, the exercise price of, and the number of shares of Common Stock purchasable upon exercise of a Warrant to purchase Common Stock will be subject to adjustment in certain events as set forth in the applicable Prospectus Supplement. 20 35 PLAN OF DISTRIBUTION The Corporation may sell Securities (1) through underwriters or dealers, (2) directly to one or more purchasers, or (3) through agents. The applicable Prospectus Supplement will set forth the terms of the Securities offered thereby, including the name or names of any underwriters, the purchase price of the Securities, and the proceeds to the Corporation from the sale, any underwriting discounts and other items constituting underwriters' compensation, any initial public offering price, any discounts or concessions allowed or reallowed or paid to dealers, and any securities exchange or market on which the Securities may be listed. If underwriters are used in the sale, the Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The obligations of the underwriters to purchase the Securities will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all the Securities of the series offered by the applicable Prospectus Supplement if any of the Securities are purchased. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. Securities may also be sold directly by the Corporation through agents designated by the Corporation from time to time. Any agent involved in the offering and sale of Securities in respect of which this Prospectus is delivered will be named, and any commissions payable by the Corporation to such agent will be set forth, in the applicable Prospectus Supplement. Unless otherwise indicated in the applicable Prospectus Supplement, any such agent will be acting on a best-efforts basis for the period of its appointment. The distribution of Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at prices related to prevailing market prices at the time of sale or at negotiated prices. In connection with the sale of Securities, underwriters or agents may receive compensation from the Corporation or from purchasers of Securities for whom they may act as agent, in the form of discounts, concessions or commissions. Underwriters, dealers and agents that participate in the distribution of Securities may be deemed to be underwriters within the meaning of the Securities Act, and any discounts or commissions received by them from the Corporation and any profit on the resale of Securities by them may be deemed to be underwriting discounts and commissions under the Securities Act. If so indicated in the applicable Prospectus Supplement, the Corporation will authorize underwriters, agents or dealers to solicit offers by certain institutions to purchase Securities from the Corporation at the public offering price set forth in the Prospectus Supplement pursuant to delayed delivery contracts ("Contracts") providing for payment and delivery on the date or dates stated in the applicable Prospectus Supplement. There may be limitations on the minimum amount which may be purchased by any such institutional investor or on the portion of the aggregate amount of the particular Securities which may be sold pursuant to such arrangements. Institutions with whom Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions, and other institutions but will in all cases be subject to the approval of the Corporation. Contracts will not be subject to any conditions except: (a) the purchase by an institution of the Securities covered by its Contract shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United States to which such institution is subject; and (b) if the Securities are being sold to underwriters, the Corporation shall have sold to such underwriters the total amount of the Securities less the amount thereof covered by Contracts. The underwriters will not have any responsibility in respect of the validity or performance of the Contracts. Unless otherwise indicated in the applicable Prospectus Supplement, all Securities offered will be a new issue of securities with no established trading market. Any underwriters to whom such Securities are sold by the Corporation for public offering and sale may make a market in such Securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. No assurance can be given as to the liquidity of or the trading markets for any such Securities. 21 36 Agents and underwriters may engage in transactions with, or perform services for, the Corporation in the ordinary course of business. Under agreements which may be entered into by the Corporation, dealers and agents who participate in the distribution of Securities may be entitled, and the Corporation has agreed that underwriters, if any, will be entitled, to indemnification by the Corporation against certain liabilities, including liabilities under the Securities Act. LEGAL OPINIONS The validity of the Offered Securities will be passed upon for the Corporation by Testa, Hurwitz & Thibeault, Boston, Massachusetts, and for any underwriters, dealers or agents by Goodwin, Procter & Hoar, Boston, Massachusetts. From time to time, Goodwin, Procter & Hoar serves as special counsel to the Corporation as to certain environmental matters. EXPERTS The consolidated balance sheets of the Corporation as of July 3, 1993 and June 27, 1992, and the related consolidated statements of operations, cash flows, and stockholders' equity for each of the three years in the period ended July 3, 1993, and the related financial statement schedules, all included in the Corporation's Annual Report on Form 10-K for the fiscal year ended July 3, 1993, as amended by Form 10-K/A dated March 11, 1994, incorporated by reference in this Prospectus, have been incorporated herein in reliance on the report, which includes an explanatory paragraph indicating that the Corporation changed its method of accounting for post retirement benefits other than pensions in 1992, of Coopers & Lybrand, independent accountants, given on the authority of that firm as experts in accounting and auditing. 22 37 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 CORPORATION OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS 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. ------------------------ TABLE OF CONTENTS
Page PROSPECTUS SUPPLEMENT The Company........................... S-3 Use of Proceeds....................... S-4 Capitalization........................ S-5 Summary Financial Information......... S-6 Supplemental Information Concerning the Corporation..................... S-7 Description of Series A Preferred Stock and Depositary Shares......... S-9 Certain Federal Income Tax Considerations...................... S-12 Underwriting.......................... S-13 Legal Opinions........................ S-15 PROSPECTUS Available Information................. 2 Incorporation of Certain Documents by Reference........................... 2 The Company........................... 3 Ratio of Earnings to Fixed Charges.... 3 Use of Proceeds....................... 4 Description of Debt Securities........ 4 Description of Capital Stock.......... 13 Description of Depositary Shares...... 16 Description of Warrants............... 19 Plan of Distribution.................. 21 Legal Opinions........................ 22 Experts............................... 22
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 20,000,000 DEPOSITARY SHARES DIGITAL EQUIPMENT CORPORATION EACH REPRESENTING ONE-FOURTH OF A SHARE OF SERIES A % CUMULATIVE PREFERRED STOCK ------------------------ PROSPECTUS SUPPLEMENT March , 1994 ------------------------ LEHMAN BROTHERS CS FIRST BOSTON DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. KIDDER PEABODY & CO. INCORPORATED PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED SMITH BARNEY SHEARSON INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----