<PAGE> 1
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 7, 1995
$100,000,000
MONSANTO
MEDIUM-TERM NOTES, SERIES D
DUE FROM 9 MONTHS TO 40 YEARS FROM DATE OF ISSUE
---------------------
The Company may offer from time to time its Medium-Term Notes, Series D, due
from 9 months to 40 years from the date of issue, as selected by the purchaser
and agreed to by the Company, at an aggregate initial public offering price not
to exceed $100,000,000 or its equivalent in another currency or composite
currency. The specific interest rates, maturities or ranges of maturities and
other terms will be established by the Company from time to time and will be
set forth in Pricing Supplements to this Prospectus Supplement.
The Notes may be denominated in U.S. dollars or in such foreign currencies
or composite currencies as may be designated by the Company at the time of
offering. The specific currency or composite currency, interest rate (if any),
issue price and maturity date of any Note will be set forth in the related
Pricing Supplement to this Prospectus Supplement. The principal amount of, or
interest on, the Notes may be determined by the relationship between the
specified currency and another currency, by the difference in the price of a
specified commodity on certain specified dates, or by some other index. See
"Description of Notes Currency Indexed Notes and Other Indexed Notes".
Unless otherwise specified in the applicable Pricing Supplement, Notes
denominated in other than U.S. dollars or ECUs will not be sold in, or to
residents of, the country issuing the Specified Currency. See "Foreign
Currency Risks." Unless otherwise specified in the applicable Pricing
Supplement, interest on the Fixed Rate Notes will be payable on each April 15
and October 15 and at maturity. Interest on the Floating Rate Notes will be
payable on the dates specified herein or in the applicable Pricing Supplement.
Zero Coupon Notes will not bear interest.
Unless a Redemption Commencement Date is specified in the applicable
Pricing Supplement, the Notes will not be redeemable at the option of the
Company prior to their Stated Maturity. If a Redemption Commencement Date is so
specified, the Notes will be redeemable at the option of the Company at any
time after such date as described herein. Unless otherwise specified in the
applicable Pricing Supplement, the Notes will not be repayable at the option of
the holder.
The Notes offered hereby will be issued only in registered form in
denominations of U.S. $1,000 or any integral multiple thereof or the
appropriate equivalent thereof in the Specified Currency. Each Note will be
represented either by a book-entry Note registered in the name of a nominee of
The Depository Trust Company, as Depository, or by a certificated Note issued
in temporary or definitive certified form, as set forth in the applicable
Pricing Supplement. Beneficial interests in book-entry Notes will be shown on,
and transfers thereof will be effected only through, records maintained by the
Depository (with respect to participants' interests) and its participants.
Book-entry Notes will not be issuable as certificated Notes except under the
circumstances described in the Prospectus under the caption "Description of
Debt Securities".
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY
PRICING SUPPLEMENT HERETO OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------------
<TABLE>
<CAPTION>
PRICE TO PUBLIC <F1> AGENTS' COMMISSION <F2> PROCEEDS TO COMPANY <F2><F3>
-------------------- ----------------------- ----------------------------
<S> <C> <C> <C>
Per Note................... 100% .125%-.750% 99.875%-99.250%
Total <F4>................. $100,000,000 $125,000-$750,000 $99,875,000-$99,250,000
<FN>
- -------
<F1> Notes will be issued at 100% of their principal amount, unless otherwise
specified in the applicable Pricing Supplement.
<F2> The Company will pay the Agents a commission of from .125% to .750%,
depending on maturity, of the principal amount of any Notes sold through
them as agents (or sold to such Agents as principal in circumstances in
which no other discount is agreed), except for Notes with maturities from
30 to 40 years. Unless otherwise specified in the applicable Pricing
Supplement, any Note sold to an Agent as principal will be purchased by
such Agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to an agency sale of a Note
of identical maturity, and may be resold by such Agent. The commission
payable by the Company to the Agents with respect to Notes with maturities
from 30 to 40 years will be negotiated at the time the Company issues such
Notes.
<F3> Before deducting estimated expenses of U.S. $250,000 payable by the
Company.
<F4> Or the approximate equivalent thereof in another Specified Currency.
</TABLE>
------------------------------
The Notes are offered on a continuing basis by the Company through the
Agents who have agreed to use their reasonable best efforts to solicit purchases
of the Notes. The Agents may also purchase Notes on their own behalf for resale
to investors at varying prices related to prevailing market prices at the time
of resale. The Company reserves the right to sell the Notes directly on its own
behalf. There can be no assurance that the Notes offered by this Prospectus
Supplement will be sold or that there will be a secondary market for the Notes.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice. The Company or the Agent who solicited the order may
reject any order in whole or in part. See "Supplemental Plan of
Distribution".
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
------------------
The date of this Prospectus Supplement is January 23, 1998
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH NOTES, AND
THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "SUPPLEMENTAL PLAN OF DISTRIBUTION".
AVAILABLE INFORMATION
The following information updates certain of the information under the same
caption in the accompanying Prospectus. The address of the Regional Office of
the Securities and Exchange Commission in New York is Seven World Trade Center,
New York, New York 10048. The address of the Regional Office of the Securities
and Exchange Commission in Chicago is Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Securities and Exchange Commission
maintains a World Wide Website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
------------------------
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-2516)
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") are
incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997.
3. The Company's Form 8-K Current Report dated September 1, 1997 and filed
on September 16, 1997.
4. The Company's Form 8-K Current Report dated December 5, 1997 and filed
on December 5, 1997.
5. The Company's Proxy Statement dated July 14, 1997.
All other documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
Supplement and prior to the termination of the offering of the Notes shall be
deemed to be incorporated by reference herein and to be part hereof from the
date of filing of such documents. Any statement contained herein, in the
accompanying Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement or the accompanying Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus Supplement is delivered, upon the written or
oral request of such person, a copy of any or all of the documents which have
been or may be incorporated by reference herein, other than exhibits to such
document (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to Monsanto
Company, at 800 North Lindbergh Boulevard, St. Louis, Missouri 63167
(Attention: Corporate Secretary), telephone: (314) 694-1000.
USE OF PROCEEDS
Unless otherwise specified in the applicable Pricing Supplement, the net
proceeds from the sale of the Notes will be used for general corporate purposes
which may include reducing the outstanding amount of commercial paper issued by
the Company. Such commercial paper has an average maturity of 28 days, and has
a weighted average interest rate of 5.91%, both as of December 31, 1997.
Pending application for this purpose, the net proceeds from the sale of the
Notes may be invested temporarily in marketable securities.
S-2
<PAGE> 3
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the unaudited historical ratio or earnings
to fixed charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- ---------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
3.17 7.89 4.44 4.60 5.50 3.87 <F1>
<FN>
- -------
<F1> Earnings were inadequate to cover fixed charges by $220 million.
</TABLE>
The ratio of earnings to fixed charges represents the number of times fixed
charges (interest expense, excluding capitalized interest, and other fixed
charges) are covered by earnings from continuing operations (excluding
undistributed earnings of affiliated companies) before income taxes,
extraordinary credits and fixed charges (other than capitalized interest).
Earnings from continuing operations included charges for acquired in-process
research and development, restructuring and other unusual items of $609 million
for the nine months ended September 30, 1997, and $376 million, $90 million
and $579 million for the years ended December 31, 1996, 1995 and 1992,
respectively. Excluding these unusual items, the ratio of earnings to fixed
charges would have been 7.04, 6.60, 5.10 and 2.92 in 1997, 1996, 1995 and 1992,
respectively. The ratio was not materially affected by the restructuring and
other unusual items in 1994 and 1993.
DESCRIPTION OF NOTES
GENERAL
The following description of the particular terms of the Notes offered
hereby (referred to in the Prospectus as "Offered Debt Securities")
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of Debt Securities set forth in the
Prospectus, to which description reference is hereby made. The following
description of the Notes will apply to such Notes, unless otherwise specified
in the applicable Pricing Supplement.
The Notes offered hereby constitute a single series of Offered Debt
Securities under the Indenture, which will be limited to an aggregate initial
offering price not to exceed $100,000,000 or its equivalent in another currency
or composite currency less an amount equal to the aggregate proceeds to the
Company from the sale of any other Debt Securities. The Notes will be unsecured
obligations of the Company and will rank on a parity with all other currently
outstanding unsecured and unsubordinated indebtedness of the Company.
Unless previously redeemed, a Note will mature on the date ("Stated
Maturity") from 9 months to 40 years from its date of issue as specified on
the face thereof and in the applicable Pricing Supplement or, if such Note is a
Floating Rate Note and such specified date is not a Market Day with respect to
such Note, the next succeeding Market Day (or, in the case of a LIBOR Note, if
such next succeeding Market Day falls in the next calendar month, the next
preceding Market Day).
Each Note will be denominated in a currency or composite currency
("Specified Currency") as specified on the face thereof and in the applicable
Pricing Supplement. Purchasers of the Notes are required to pay for them by
delivery of the requisite amount of the Specified Currency, unless other
arrangements have been made. A Pricing Supplement may designate more than one
currency or composite currency as the denomination of any Note. Unless
otherwise specified in the applicable Pricing Supplement, payments on the Notes
will be made in the applicable Specified Currency in the country issuing the
Specified Currency (or, in the case of European Currency Units ("ECUs"),
Brussels), or in any other jurisdiction acceptable to the Company and the
Paying Agent as shall have been designated at least 5 days prior to the
Interest Payment Date or Stated Maturity, as the case may be, by the registered
Holder of such Note on the relevant Regular Record date or maturity; provided
that, at the election of the Holder thereof and in certain circumstances at the
option of the Company, payments on Notes denominated in other than U.S. dollars
may be made in U.S. dollars. See "Payment of Principal and Interest."
S-3
<PAGE> 4
Notes are issuable only in fully-registered form in denominations of $1,000
or in any integral multiple thereof. The authorized denominations of any Note
denominated in other than U.S. dollars will be the amount of the Specified
Currency for such Note equivalent, at the noon buying rate in The City of New
York for cable transfers for such Specified Currency (the "Exchange Rate") on
the first Business Day in The City of New York and the country issuing such
currency (or, in the case of ECUs, Brussels) next preceding the date on which
the Company accepts the offer to purchase such Note, to U.S. $1,000 (rounded
down to an integral multiple of 1,000 units of such Specified Currency) and any
greater amount that is an integral multiple of 1,000 units of such Specified
Currency.
Each Note will be issuable initially in either book-entry or certificated
form, as described in the accompanying Prospectus, in fully registered form
without coupons. Only Notes denominated and payable in U.S. dollars may be
issued as book-entry Notes. Unless otherwise specified in the applicable
Pricing Supplement, book-entry Notes (a) will not be exchangeable by the holder
for certificated Notes and (b) except as set forth under "Book-Entry
Securities" in the Prospectus, will not otherwise be issuable as certificated
Notes.
Notes will be sold in individual issues of Notes having such interest rate
or interest rate formula, if any, Stated Maturity, date of original issuance
and other terms as shall be selected by the initial purchasers and agreed to by
the Company. Unless otherwise indicated in the applicable Pricing Supplement,
each Note, except any Zero Coupon Note, will bear interest at a fixed rate or
at a rate determined by reference to the Commercial Paper Rate, the Prime Rate,
LIBOR, the Treasury Rate, the CD Rate or the Federal Funds Rate, as adjusted by
the Spread or Spread Multiplier, if any, applicable to such Note. See
"Interest Rate." Zero Coupon Notes will be issued at a discount from the
principal amount payable at maturity thereof, but holders of Zero Coupon Notes
will not receive periodic payments of interest thereon.
The Notes may be issued as Original Issue Discount Notes. An Original Issue
Discount Note is a Note, including any Zero Coupon Note, which is issued at a
price lower than the principal amount thereof and which provides that upon
redemption, repayment or acceleration of the maturity thereof an amount less
than the principal thereof shall become due and payable. In the event of
redemption, repayment or acceleration of the maturity of an Original Issue
Discount Note, the amount payable to the Holder of such Note upon such
redemption, repayment or acceleration will be determined in accordance with the
terms of the Note, but will be an amount less than the amount payable at the
Stated Maturity of such Note. In addition, a Note issued at a discount may, for
United States federal income tax purposes, be considered an original issue
discount note, regardless of the amount payable upon redemption or acceleration
of maturity of such Note. See "United States Taxation--United States
Holders--Original Issue Discount."
The Notes will not be subject to any sinking fund and, unless a Redemption
Commencement Date is specified in the applicable Pricing Supplement, will not
be redeemable at the option of the Company prior to their Stated Maturity. If a
Redemption Commencement Date is so specified with respect to any Note, the
applicable Pricing Supplement will also specify one or more redemption prices
(expressed as a percentage of the principal amount of such Note) ("Redemption
Prices") and the redemption period or periods ("Redemption Periods") during
which such Redemption Prices shall apply. Unless otherwise specified in the
Pricing Supplement, any such Note shall be redeemable at the option of the
Company at any time on or after such specified Redemption Commencement Date at
the specified Redemption Price applicable to the Redemption Period during which
such Note is to be redeemed, together with interest accrued to the redemption
date.
Unless one or more Repayment Dates are specified in the applicable Pricing
Supplement, the Notes will not be repayable at the option of the holder prior
to their Stated Maturity. Unless otherwise specified in the applicable Pricing
Supplement, the Repayment Price of any Note repayable at the option of the
Holder (a "Repayable Note") will be equal to 100% of the principal amount of
such Repayable Note, plus accrued interest to the date of repayment. Unless
otherwise set forth in the applicable Pricing Supplement, in order to elect
repayment of a Repayable Note, the holder thereof must surrender such Repayable
Note to the Paying Agent at the Paying Agency Office not less than 30 days nor
more than 45 days prior to the Repayment Date. Election or repayment shall
(unless otherwise provided by law) be irrevocable. If the Repayable Notes are
Book-Entry Securities, surrender and election will take place in accordance
with the Depository's then established procedures.
S-4
<PAGE> 5
The Notes may be issued as Currency Indexed Notes the principal amount of
which payable at maturity will be determined by the difference between the
currency in which such Notes are denominated and another currency or composite
currency set forth in the applicable Pricing Supplement. See "Currency Indexed
Notes." The Notes may also be issued as indexed notes the principal amount of
which payable at maturity, or the interest on which, will be determined by the
difference in the price of a specified commodity on certain specified dates or
by some other index. See "Other Indexed Notes."
The Notes may be presented for registration of transfer or exchange at the
Corporate Trust Office of The Chase Manhattan Bank in The City of New York.
The defeasance provisions described in the Prospectus will apply to the
Offered Debt Securities.
INTEREST RATE
Each Note, other than a Zero Coupon Note, will bear interest from its date
of issue or from the most recent Interest Payment Date (or, if such Note is a
Floating Rate Note and the Interest Reset Dates are weekly, from the day
following the most recent Regular Record Date) to which interest on such Note
has been paid or duly provided for at the fixed rate per annum, or at the rate
per annum determined pursuant to the interest rate formula, stated therein and
in the applicable Pricing Supplement until the principal thereof is paid or
made available for payment. Interest will be payable on each Interest Payment
Date and at maturity as specified below under "Payment of Principal and
Interest."
Each Note, other than a Zero Coupon Note, will bear interest at either (a)
a fixed rate (a "Fixed Rate Note") or (b) a variable rate determined by
reference to an interest rate formula (a "Floating Rate Note"), which may be
adjusted by adding or subtracting the Spread or multiplying by the Spread
Multiplier (each term as defined below). A Floating Rate Note may also have
either or both of the following: (a) a maximum numerical interest rate
limitation, or ceiling, on the rate of interest which may accrue during any
interest period (a "Maximum Rate"); and (b) a minimum numerical interest rate
limitation, or floor, on the rate of interest which may accrue during any
interest period (a "Minimum Rate"). The "Spread" is the number of basis
points specified in the applicable Pricing Supplement as being applicable to
the interest rate for such Note and the "Spread Multiplier" is the percentage
specified in the applicable Pricing Supplement as being applicable to the
interest rate for such Note. "Market Day" means (a) with respect to any Note
(other than any LIBOR Note), any Business Day in The City of New York, and (b)
with respect to any LIBOR Note, any such Business Day on which dealings in
deposits in U.S. dollars are transacted in the London interbank market. "Index
Maturity" means, with respect to a Floating Rate Note, the period to maturity
of the instrument or obligation on which the interest rate formula is based, as
specified in the applicable Pricing Supplement. Unless otherwise provided in
the applicable Pricing Supplement, The Chase Manhattan Bank will be the
calculation agent (the "Calculation Agent") with respect to the Floating Rate
Notes.
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Fixed Rate Note.
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis (the "Interest Rate Basis") for such
Floating Rate Note. The Interest Rate Basis for each Floating Rate Note will
be: (a) the Commercial Paper Rate, in which case such Note will be a Commercial
Paper Rate Note; (b) the Prime Rate, in which case such Note will be a Prime
Rate Note; (c) LIBOR, in which case such Note will be a LIBOR Note; (d) the
Treasury Rate, in which case such Note will be a Treasury Rate Note; (e) the CD
Rate, in which case such Note will be a CD Rate Note; (f) the Federal Funds
Rate, in which case such Note will be a Federal Funds Rate Note; or (g) such
other interest rate formula as is set forth in such Pricing Supplement. The
applicable Pricing Supplement for a Floating Rate Note will specify the
Interest Rate Basis and, if applicable, the Calculation Agent, the Index
Maturity, the Spread or Spread Multiplier, the Maximum Rate, the Minimum Rate,
the Initial Interest Rate, the Interest Payment Dates, the Regular Record
Dates, the Calculation Date, the Interest Determination Date and the Interest
Reset Date with respect to such Note.
The rate of interest on each Floating Rate Note will be reset and become
effective weekly, monthly, quarterly, semi-annually or annually (each an
"Interest Reset Date"), as specified in the applicable Pricing Supplement.
The Interest Reset Date will be, in the case of Floating Rate Notes (other than
Treasury Rate Notes) which reset weekly, the Wednesday of each week; in the
case of Treasury Rate Notes which reset
S-5
<PAGE> 6
weekly, the Tuesday of each week; in the case of Floating Rate Notes which
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes which reset quarterly, the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes which reset semi-annually, the
third Wednesday of two months of each year as specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes which reset
annually, the third Wednesday of one month of each year as specified in the
applicable Pricing Supplement; provided, however, that (a) the interest rate in
effect from the date of issue to the first Interest Reset Date with respect to
a Floating Rate Note will be the Initial Interest Rate (as set forth in the
applicable Pricing Supplement) and (b) the interest rate in effect for the ten
days immediately prior to the Stated Maturity of a Note will be that in effect
on the tenth day preceding such maturity. If any Interest Reset Date for any
Floating Rate Note would otherwise be a day that is not a Market Day with
respect to such Floating Rate Note, the Interest Reset Date for such Floating
Rate Note shall be postponed to the next day that is a Market Day with respect
to such Floating Rate, except that in the case of a LIBOR Note, if such Market
Day is in the next succeeding calendar month, such Interest Reset Date shall be
the immediately preceding Market Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination
Date"), for a Prime Rate Note (the "Prime Rate Interest Determination
Date"), for a CD Rate Note (the "CD Rate Interest Determination Date") and
for a Federal Funds Rate Note (the "Federal Funds Rate Interest Determination
Date") will be the second Market Day preceding such Interest Reset Date. The
Interest Determination Date pertaining to an Interest Reset Date for a LIBOR
Note (the "LIBOR Interest Determination Date") will be the second London
Business Day preceding such Interest Reset Date. The Interest Determination
Date pertaining to an Interest Reset Date for a Treasury Rate Note (the
"Treasury Interest Determination Date") will be the day of the week in which
such Interest Reset Date falls on which Treasury bills would normally be
auctioned. Treasury bills are normally sold at auction on the Monday of each
week, unless that day is a legal holiday, in which case the auction is usually
held on the following Tuesday, except that such auction may be held on the
preceding Friday. If, as the result of a legal holiday, an auction is so held
on the preceding Friday, such Friday will be the Treasury Interest
Determination Date pertaining to the Interest Reset Date occurring in the next
succeeding week. If an auction date shall fall on any Interest Reset Date for a
Treasury Rate Note, then such Interest Reset Date shall instead be the first
Market Day immediately following such auction date.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point (e.g., 9.876541% (or .09876541)
being rounded to 9.87655% (or .0987655)), and all U.S. dollar amounts used in
or resulting from such calculations will be rounded to the nearest cent (with
one half cent being rounded upwards).
In addition to any maximum interest rate which may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on the
Floating Rate Notes will in no event be higher than the maximum rate permitted
by New York law, as the same may be modified by United States law of general
application.
Upon the request of the Holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect, and, if determined, the
interest rate which will become effective on the next Interest Reset Date with
respect to such Floating Rate Note. The Calculation Agent's determination of
any interest rate will be final and binding in the absence of manifest error.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread or
Spread Multiplier, if any), and will be payable on the dates specified on the
face of the Commercial Paper Rate Note and in the applicable Pricing
Supplement. Unless otherwise indicated in the applicable Pricing Supplement,
the "Calculation Date" pertaining to a Commercial Paper Interest
Determination Date will be the tenth day after such Commercial Paper Interest
Determination Date or, if any such day is not a Market Day, the next succeeding
Market Day.
Unless otherwise indicated in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Reset Date, the
Money Market Yield (calculated as described below) of the per annum rate
(quoted on a bank discount basis) for the relevant Commercial Paper Interest
Determination Date for
S-6
<PAGE> 7
commercial paper having the specified Index Maturity as published by the Board
of Governors of the Federal Reserve System in "Statistical Release H.15(519),
Selected Interest Rates" or any successor publication of the Board of
Governors of the Federal Reserve System ("H.15(519)") under the caption
"Commercial Paper-Nonfinancial" or, if unavailable, such other headings
representing commercial paper issued by non-financial entities whose bond
rating is "AA" or the equivalent from a nationally recognized statistical
rating agency. In the event that such rate is not published prior to 9:00 A.M.,
New York City time, on the relevant Calculation Date, then the Commercial Paper
Rate with respect to such Interest Reset Date shall be the Money Market Yield
of such rate on such Commercial Paper Interest Determination Date for
commercial paper having the specified Index Maturity as published by the
Federal Reserve Bank of New York in its daily statistical release, "Composite
3:30 P.M. Quotations for U.S. Government Securities" or any successor
publication published by the Federal Reserve Bank of New York ("Composite
Quotations") under the heading "Commercial Paper." If by 3:00 P.M., New York
City time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, the Commercial Paper Rate with respect to
such Interest Reset Date shall be calculated by the Calculation Agent and shall
be the Money Market Yield of the arithmetic mean of the offered per annum rates
(quoted on a bank discount basis), as of 11:00 A.M., New York City time, on
such Commercial Paper Interest Determination Date, of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent for
commercial paper of the specified Index Maturity placed for an industrial
issuer whose bond is "AA," or the equivalent, from a nationally recognized
rating agency; provided, however, that if fewer than three dealers selected as
aforesaid by the Calculation Agent are quoting as mentioned in this sentence,
the Commercial Paper Rate with respect to such Interest Reset Date will be the
Commercial Paper Rate in effect on such Commercial Paper Interest Determination
Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = 100 x 360 x D
-------------
360 - (D x M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the Prime Rate Note and
in the applicable Pricing Supplement. Unless otherwise indicated in the
applicable Pricing Supplement, the "Calculation Date" pertaining to a Prime
Rate Interest Determination Date will be the tenth day after such Prime Rate
Interest Determination Date or, if any such day is not a Market Day, the next
succeeding Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Reset Date, the rate set forth for
the relevant Prime Rate Interest Determination Date in H.15(519) under the
heading "Bank Prime Loan." In the event that such rate is not published prior
to 9:00 A.M., New York City time, on the relevant Calculation Date, then the
Prime Rate with respect to such Interest Reset Date will be determined by the
Calculation Agent and will be the arithmetic mean of the rates of interest
publicly announced by each bank that appears on the display designated as page
"USPRIME1" on the Reuters Monitor Money Rates Service (or such other page as
may replace the USPRIME1 page on that service for the purpose of displaying
prime rates or base lending rates of major United States banks) ("Reuters
Screen USPRIME1 Page") as such bank's prime rate or base lending rate as in
effect for such Prime Rate Interest Determination Date as quoted on the Reuters
Screen USPRIME1 Page on such Prime Rate Interest Determination Date. If fewer
than four such rates appear on the Reuters Screen USPRIME1 Page on such Prime
Rate Interest Determination Date, the Prime Rate with respect to such Interest
Reset Date will be determined by the Calculation Agent and will be the
arithmetic mean of the prime rates or base lending rates (quoted on the basis
of the actual number of days in the year divided by a 360-day year) as of the
close of business on such Prime Rate Interest Determination Date by three major
banks in The City of New York selected by the Calculation Agent; provided,
however, that if fewer than three banks selected as foresaid by the Calculation
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Agent are quoting as mentioned in this sentence, the Prime Rate with respect to
such Interest Reset Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
LIBOR NOTES
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any), and will be
payable on the dates, specified on the face of the LIBOR Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR with
respect to any Interest Reset Date will be determined by the Calculation Agent
in accordance with the following provisions:
(i) On the relevant LIBOR Interest Determination Date, LIBOR will be
determined on the basis of the offered rate for deposits of not less than
U.S. $1,000,000 having the specified Index Maturity, commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date, which appears on the display designated as page
"3750" on the Telerate Service (or such other page as may replace the
"3750" page on the service for the purpose of displaying London interbank
offered rates of major banks) (or, if such display is not available at any
such time, a comparable display, as determined in the sole discretion of,
and selected by, the Calculation Agent, of London interbank offered rates
of major banks as may be available from a similar service) ("Telerate Page
3750") as of 11:00 A.M., London time, on such LIBOR Interest Determination
Date. If no rate appears, LIBOR with respect to such Interest Reset Date
will be determined as described in (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which no
offered rate for the applicable Index Maturity appears on the Telerate Page
3750 as described in (i) above, LIBOR will be determined on the basis of
the rates at approximately 11:00 A.M., London time, on such LIBOR Interest
Determination Date at which deposits in U.S. dollars having the specified
Index Maturity are offered to prime banks in the London interbank market by
four major banks in the London interbank market selected by the Calculation
Agent commencing on the second Market Day immediately following such LIBOR
Interest Determination Date and in a principal amount equal to an amount of
not less than U.S. $1,000,000 that in the Calculation Agent's judgment is
representative for a single transaction in such market at such time (a
"Representative Amount"). The Calculation Agent will request the
principal London office of each of such banks to provide a quotation of its
rate. If at least two such quotations are provided, LIBOR with respect to
such Interest Reset Date will be the arithmetic mean of such quotations. If
fewer than two quotations are provided, LIBOR with respect to such Interest
Reset Date will be the arithmetic mean of the rates quoted at approximately
11:00 A.M., New York City time, on such LIBOR Interest Determination Date
by three major banks in The City of New York, selected by the Calculation
Agent, for loans in U.S. dollars to leading European banks having the
specified Index Maturity commencing on the Interest Reset Date and in a
Representative Amount; provided, however, that if fewer than three banks
selected as aforesaid by the Calculation Agent are quoting as mentioned in
this sentence, LIBOR with respect to such Interest Reset Date will be the
LIBOR in effect on such LIBOR Interest Determination Date.
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if
any) and will be payable on the dates specified on the face of the Treasury
Rate Note and in the applicable Pricing Supplement. Unless otherwise specified
in the applicable Pricing Supplement, the "Calculation Date" with respect to
a Treasury Interest Determination Date will be the tenth day after such
Treasury Interest Determination Date or, if any such day is not Market Day, the
next succeeding Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Interest Reset Date, the rate for the auction
on the relevant Treasury Interest Determination Date of direct obligations of
the United States ("Treasury bills") having the specified Index Maturity as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Auction Average (Investment)" or, if not so published by 9:00 A.M., New
York City time, on the relevant Calculation Date, the auction average rate
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) for such auction as otherwise
announced by the United States Department of the Treasury. In the
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event that the results of such auction of Treasury bills having the specified
Index Maturity are not published or reported as provided above by 3:00 P.M.,
New York City time, on such Calculation Date, or if no such auction is held
during such week, then the Treasury Rate shall be the rate set forth in
H.15(519) for the relevant Treasury Rate Interest Determination Date for the
specified Index Maturity under the heading "U.S. Government
Securities/Treasury Bills/Secondary Market." In the event such rate is not so
published by 3:00 P.M., New York City time, on the relevant Calculation Date
the Treasury Rate with respect to such Interest Reset Date shall be calculated
by the Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean of the secondary market bid
rates as of approximately 3:30 P.M., New York City time, on such Treasury
Interest Determination Date, of three primary United States government
securities dealers in The City of New York selected by the Calculation Agent
for the issue of Treasury bills with a remaining maturity closest to the
specified Index Maturity; provided, however, that if fewer than three dealers
selected as aforesaid by the Calculation Agent are quoting as mentioned in this
sentence, the Treasury Rate with respect to such Interest Reset Date will be
the Treasury Rate in effect on such Treasury Interest Determination Date.
CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any), and will
be payable on the dates, specified on the face of the CD Rate Note and in the
applicable Pricing Supplement. Unless otherwise indicated in the applicable
Pricing Supplement, the "Calculation Date" pertaining to a CD Interest
Determination Date will be the tenth day after such CD Interest Determination
Date or, if such day is not a Market Day, the next succeeding Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, "CD
Rate" means, with respect to any Interest Reset Date, the rate for the
relevant CD Rate Interest Determination Date for negotiable certificates of
deposit having the specified Index Maturity as published in H.15(519) under the
heading "CDs (Secondary Market)." In the event that such rate is not
published prior to 9:00 A.M., New York City time, on the relevant Calculation
Date, then the CD Rate with respect to such Interest Reset Date shall be the
rate on such CD Rate Interest Determination Date for negotiable certificates of
deposit having the specified Index Maturity as published in Composite
Quotations under the heading "Certificates of Deposit." If by 3:00 P.M., New
York City time, on such Calculation Date such rate is not published in either
H.15(519) or Composite Quotations, the CD Rate with respect to such Interest
Reset Date shall be calculated by the Calculation Agent and shall be the
arithmetic mean of the secondary market offered rates, as of 10:00 A.M., New
York City time, on such CD Rate Interest Determination Date, of three leading
nonbank dealers of negotiable U.S. dollar certificates of deposit in The City
of New York selected by the Calculation Agent for negotiable certificates of
deposit of major United States money center banks with a remaining maturity
closest to the specified Index Maturity in a denomination of U.S. $5,000,000;
provided, however, that if fewer than three dealers selected as aforesaid by
the Calculation Agent are quoting as mentioned in this sentence, the CD Rate
with respect to such Interest Reset Date will be the CD Rate in effect on such
CD Rate Interest Determination Date.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rates and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Federal Funds Rate Note and in the applicable Pricing Supplement. Unless
otherwise indicated in the applicable Pricing Supplement, the "Calculation
Date" pertaining to a Federal Funds Interest Determination Date will be the
tenth day after such Federal Funds Interest Determination Date or, if such day
is not a Market Day, the next succeeding Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Reset Date, the rate on the
relevant Federal Funds Interest Determination Date for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)." In the
event that such rate is not published prior to 9:00 A.M., New York City time,
on the relevant Calculation Date, then the Federal Funds Rate with respect to
such Interest Reset Date will be the rate on such Federal Funds Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either
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H.15(519) or Composite Quotations, the Federal Funds Rate with respect to such
Interest Reset Date shall be calculated by the Calculation Agent and shall be
the arithmetic mean of the rates, as of 9:00 A.M., New York City time, on such
Federal Funds Interest Determination Date, for the last transaction in
overnight Federal Funds arranged by three leading brokers of Federal Funds
transactions in The City of New York selected by the Calculation Agent;
provided, however, that if fewer than three brokers selected by the Calculation
Agent are quoting as mentioned in this sentence, the Federal Funds Rate with
respect to such Interest Reset Date will be the Federal Funds Rate in effect on
such Federal Funds Interest Determination Date.
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, payments
of principal of (and premium, if any) and interest on all Notes will be made in
the applicable Specified Currency; provided, however, that payments of
principal (and premium, if any) and interest on Notes denominated in other than
U.S. dollars will nevertheless be made in U.S. dollars (i) at the option of the
Holders thereof under the procedures described in the two following paragraphs
and (ii) at the option of the Company in the case of imposition of exchange
controls or other circumstances beyond the control of the Company as described
in the last paragraph under this heading.
Unless otherwise specified in the applicable Pricing Supplement, and except
as provided in the next paragraph, payments of interest and principal (and
premium, if any) with respect to any Note denominated in other than U.S.
dollars will be made in U.S. dollars if the registered Holder of such Note on
the relevant Regular Record Date or at maturity, as the case may be, has
transmitted a written request for such payment in U.S. dollars to the Paying
Agent at its office in The City of New York on or prior to such Regular Record
Date or the date 15 days prior to maturity, as the case may be. Such request
must be in writing (mailed or hand delivered) or by cable, telex or other form
of facsimile transmission. Any such request made with respect to any Note by a
registered Holder will remain in effect with respect to any further payments of
interest and principal (and premium, if any) with respect to such Note payable
to such Holder, unless such request is revoked on or prior to the relevant
Regular Record Date or the date 15 days prior to maturity, as the case may be.
Holders of Notes denominated in other than U.S. dollars whose Notes are
registered in the name of a broker or nominee should contact such broker or
nominee to determine whether and how an election to receive payments in U.S.
dollars may be made.
The U.S. dollar amount to be received by a Holder of a Note denominated in
other than U.S. dollars who elects to receive payment in U.S. dollars will be
determined by the Exchange Rate Agent (as defined below) based on the highest
bid quotation in The City of New York received by the Exchange Rate Agent as of
11:00 A.M. New York City time on the second Business Day next preceding the
applicable payment date from three recognized foreign exchange dealers selected
by the Exchange Rate Agent (one of which may be the Exchange Rate Agent) for
the purchase by the quoting dealer of the Specified Currency for U.S. dollars
for settlement on such payment date in the aggregate amount of the Specified
Currency payable to all Holders of Notes electing to receive U.S. dollar
payments on such payment date and at which the applicable dealer commits to
execute a contract. If three such bid quotations are not available on the
second Business Day preceding the date of payment of principal (and premium, if
any) or interest with respect to any Note, such payment will be made in the
Specified Currency. All currency exchange costs associated with any payment in
U.S. dollars on any such Note will be borne by the Holder thereof by deductions
from such payment. Unless otherwise provided in the applicable Pricing
Supplement, The Chase Manhattan Bank will be the Exchange Rate Agent (the
"Exchange Rate Agent") with respect to the Notes. All determinations by the
Exchange Rate Agent shall be conclusive and binding in the absence of manifest
error.
Interest will be payable to the person in whose name a Note is registered
at the close of business on the Regular Record Date next preceding each
Interest Payment Date; provided, however, that interest payable at maturity
will be payable to the person to whom principal shall be payable. The first
payment of interest on any Note originally issued between a Regular Record Date
and an Interest Payment Date will be made on the Interest Payment Date
following the next succeeding Regular Record Date to the registered owner on
such next succeeding Regular Record Date. Unless otherwise indicated in the
applicable Pricing Supplement, the "Regular Record Date" with respect to any
Floating Rate Note shall be the date 15 calendar days prior to each Interest
Payment Date, whether or not such date shall be a Business Day, and the
"Regular Record
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Date" with respect to any Fixed Rate Note shall be the April 1 and October 1
next preceding each April 15 and October 15 (each an "Interest Payment
Date").
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable in the case of Floating Rate Notes
which reset weekly, on the third Wednesday of March, June, September and
December of each year; in the case of Floating Rate Notes which reset monthly,
on the third Wednesday of each month or on the third Wednesday of March, June,
September and December of each year (as indicated in the applicable Pricing
Supplement); in the case of Floating Rate Notes which reset quarterly, on the
third Wednesday of March, June, September and December of each year; in the
case of Floating Rate Notes which reset semi-annually, on the third Wednesday
of the two months of each year specified in the applicable Pricing Supplement;
and in the case of Floating Rate Notes which reset annually, on the third
Wednesday of the month specified in the applicable Pricing Supplement (each an
"Interest Payment Date"), and in each case, at maturity. If any Interest
Payment Date for any Floating Rate Note would otherwise be a day that is not a
Market Day with respect to such Floating Rate Note, the Interest Payment Date
for such Floating Rate Note shall be postponed to the next day that is a Market
Day with respect to such Floating Rate, except that in the case of a LIBOR
Note, if such Market Day is in the next succeeding calendar month, such
Interest Payment Date shall be the immediately preceding Market Day.
Payments of interest on any Fixed Rate Note or Floating Rate Note with
respect to any Interest Payment Date will include interest accrued to but
excluding such Interest Payment Date; provided, however, that if the Interest
Reset Dates with respect to any Floating Rate Note are weekly, interest payable
on such Note on any Interest Payment Date, other than interest payable on the
date on which principal on any such Note is payable, will include interest
accrued to but excluding the day following the next preceding Regular Record
Date.
With respect to a Floating Rate Note, accrued interest from the date of
issue or from the last date to which interest has been paid is calculated by
multiplying the face amount of such Floating Rate Note by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factor
calculated for each day from the date of issue, or from the last date to which
interest has been paid, to but excluding the date for which accrued interest is
being calculated. The interest factor (expressed as a decimal) for each such
day is computed by dividing the interest rate (expressed as a decimal)
applicable to such date by 360, in the case of Commercial Paper Rate Notes,
Prime Rate Notes, LIBOR Notes, CD Rate Notes or Federal Funds Rate Notes, or by
the actual number of days in the year, in the case of Treasury Rate Notes.
Interest on Fixed Rate Notes will be computed on the basis of a 360-day year of
twelve 30-day months.
Any payment on any Fixed Rate Note or any payment on the Maturity Date for
any Floating Rate Note due on any day which is not a Business Day in The City
of New York (and, in the case of any Note denominated in other than U.S.
dollars, in the country issuing the Specified Currency (or, in the case of
ECUs, Brussels)) need not be made on such day, but may be made on the next
succeeding Business Day with the same force and effect as if made on the due
date, and no interest shall accrue for the period from and after such date. The
term "Business Day," as used herein with respect to any particular location,
means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day
on which banking institutions in such location are authorized or obligated by
law to close.
Payment of the principal of (and premium, if any) or any interest due with
respect to any Note at maturity to be made in U.S. dollars will be made in
immediately available funds upon surrender of such Note at the Corporate Trust
Office of the Paying Agent, The Chase Manhattan Bank in the City of New York,
provided that the Note is presented to the Paying Agent in time for the Paying
Agent to make such payments in such funds in accordance with its normal
procedures. Payments of interest to be made in U.S. dollars other than at
maturity will be made by check mailed to the address of the Person entitled
thereto as it appears in the Security Register or by wire transfer in the case
of a holder of U.S. $10,000,000 in aggregate principal amount of Notes of like
tenor and term to such account as may have been appropriately designated by
such Person in writing and received by the Paying Agent prior to the applicable
Regular Record Date.
Unless otherwise specified in the applicable Pricing Supplement, payments
of interest and principal (and premium, if any) with respect to any Note to be
made in a Specified Currency other than U.S. dollars will be made by wire
transfer to such account with a bank located in the country issuing the
Specified Currency (or,
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with respect to Notes denominated in ECUs, Brussels) or other jurisdiction
acceptable to the Company and the Paying Agent as shall have been designated at
least 5 days prior to the Interest Payment Date or Stated Maturity, as the case
may be, by the registered Holder of such Note on the relevant Regular Record
Date or maturity, provided that, in the case of payment of principal of (and
premium, if any) and any interest due at maturity, the Note is presented to the
Paying Agent in time for the Paying Agent to make such payments in such funds
in accordance with its normal procedures. Such designation shall be made by
filing the appropriate information with the Paying Agent at its Corporate Trust
Office in The City of New York, and, unless revoked, any such designation made
with respect to any Note by a registered Holder will remain in effect with
respect to any further payments with respect to such Note payable to such
Holder. If a payment with respect to any such Note cannot be made by wire
transfer because the required designation has not been received by the Paying
Agent on or before the requisite date or for any other reason, a notice will be
mailed to the Holder at its registered address requesting a designation
pursuant to which such wire transfer can be made and, upon the Paying Agent's
receipt of such a designation, such payment will be made within 5 days of such
receipt. The Company will pay any administrative costs imposed by banks in
connection with making payments by wire transfer, but any tax, assessment or
governmental charge imposed upon payments will be borne by the Holders of the
Notes in respect of which payments are made.
If the principal of (and premium, if any) or interest on any Note is
payable in other than U.S. dollars and such Specified Currency is not available
due to the imposition of exchange controls or other circumstances beyond the
control of the Company, the Company will be entitled to satisfy its obligations
to Holders of the Notes by making such payment in U.S. dollars at a rate
determined by the Exchange Rate Agent on the basis of the most recently
available Exchange Rate. Any payment made under such circumstances in U.S.
dollars where the required payment is in other than U.S. dollars will not
constitute an Event of Default under the Indenture.
CURRENCY INDEXED NOTES
GENERAL
The Company may from time to time offer Notes ("Currency Indexed Notes")
the principal amount of which payable at the Stated Maturity Date is determined
by the rate of exchange between the Specified Currency and the other currency
or composite currency specified as the Indexed Currency (the "Indexed
Currency") in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement holders of Currency Indexed Notes will be
entitled to receive a principal amount of such Currency Indexed Notes exceeding
the amount designated as the face amount of such Currency Indexed Notes in the
applicable Pricing Supplement (the "Face Amount") if, at the Stated Maturity
Date, the rate at which the Specified Currency can be exchanged for the Indexed
Currency is greater than the rate of such exchange designated as the Base
Exchange Rate, expressed in units of the Indexed Currency per one unit of the
Specified Currency, in the applicable Pricing Supplement (the "Base Exchange
Rate") and will be entitled to receive a principal amount of such Currency
Indexed Notes less than the Face Amount of such Currency Indexed Notes, if, at
the Stated Maturity Date, the rate at which the Specified Currency can be
exchanged for the Indexed Currency is less than such Base Exchange Rate, in
each case determined as described below under "Payment of Principal and
Interest." Information as to the relative historical value of the applicable
Specified Currency against the applicable Indexed Currency, any exchange
controls applicable to such Specified Currency or Indexed Currency and the tax
consequences to holders will be set forth in the applicable Pricing Supplement.
See "Currency Risks."
Unless otherwise specified in the applicable Pricing Supplement, the term
"Exchange Rate Day" shall mean any day which is a Business Day in The City of
New York and, (a) if the Specified Currency or Indexed Currency is the ECU, in
Brussels, Belgium, and/or (b) if the Specified Currency or Indexed Currency is
any other currency or composite currency (other than the U.S. Dollar), in the
principal financial center of the country of such Specified Currency or Indexed
Currency.
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PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, interest
will be payable by the Company in the Specified Currency based on the Face
Amount of the Currency Indexed Notes and at the rate and times and in the
manner set forth herein and in the applicable Pricing Supplement. If the
formulas set forth below are applicable to Currency Indexed Notes, the maximum
principal amount payable at the Stated Maturity in respect of such Currency
Indexed Notes would be equal to twice the Face Amount and the minimum principal
amount payable would be zero.
Unless otherwise specified in the applicable Pricing Supplement, principal
of a Currency Indexed Note will be payable by the Company in the Specified
Currency at the Stated Maturity Date in an amount equal to the Face Amount of
the Currency Indexed Note, plus or minus an amount determined by the
determination agent specified in the applicable Pricing Supplement (the
"Determination Agent") by reference to the difference between the Base
Exchange rate and the Spot Rate (as defined below). The "Spot Rate" shall
mean the rate at which the Specified Currency can be exchanged for the Indexed
Currency as determined on the second Exchange Rate Day (the "Determination
Date") prior to the Stated Maturity Date of such Currency Indexed Note by the
Determination Agent, based upon the arithmetic mean of the open market spot
offer quotations for the Indexed Currency (spot bid quotation for the Specified
Currency) obtained by the Determination Agent from the Reference Dealers (as
defined below) in The City of New York at 11:00 A.M., New York City time, on
the Determination Date, for an amount of Indexed Currency equal to the Face
Amount of such Currency Indexed Note multiplied by the Base Exchange Rate, with
the Specified Currency for settlement on the Stated Maturity Date expressed in
units of the Indexed Currency per one unit of the Specified Currency. If such
quotations from the Reference Dealers are not available on the Determination
Date due to circumstances beyond the control of the Company or the
Determination Agent, the Spot Rate will be determined on the basis of the most
recently available quotations from the Reference Dealers. The principal amount
of the Currency Indexed Notes determined by the Determination Agent to be
payable at the Stated Maturity Date will be payable to the holders thereof in
the manner set forth herein and in the applicable Pricing Supplement. As used
herein, the term "Reference Dealers" shall mean the three banks or firms
specified as such in the applicable Pricing Supplement or, if any of them shall
be unwilling or unable to provide the requested quotations, such other major
money center bank or banks in The City of New York selected by the Company, in
consultation with the Determination Agent, to act as Reference Dealer or
Dealers in replacement therefor. In the absence of manifest error, the
determination by the Determination Agent of the Spot Rate and the principal
amount of Currency Indexed Notes payable at the Stated Maturity Date thereof
shall be final and binding on the Company and the holders of such Currency
Indexed Notes.
Unless otherwise specified in the applicable Pricing Supplement, on the
basis of the aforesaid determination by the Determination Agent and the formula
and limitations set forth below, (i) if the Base Exchange Rate equals the Spot
Rate for any Currency Indexed Note, then the principal amount of such Currency
Indexed Note payable at the Stated Maturity Date would be equal to the Face
Amount of such Currency Indexed Note; (ii) if the Spot Rate exceeds the Base
Exchange Rate (i.e., the Specified Currency has appreciated against the Indexed
Currency during the term of the Currency Indexed Note) then the principal
amount so payable would be greater than the Face Amount of such Currency
Indexed Note up to an amount equal to twice the Face Amount of such Currency
Indexed Note; (iii) if the Spot Rate is less than the Base Exchange Rate (i.e.,
the Specified Currency has depreciated against the Indexed Currency during the
term of the Currency Indexed Note) but is greater than one-half of the Base
Exchange Rate, then the principal amount so payable would be less than the Face
Amount of such Currency Indexed Note; and (iv) if the Spot Rate is less than or
equal to one-half of the Base Exchange Rate, then the Spot Rate will be deemed
to be one-half of the Base Exchange Rate and no principal amount of the
Currency Indexed Note would be payable at the Stated Maturity Date.
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Unless otherwise specified in the applicable Pricing Supplement, the
formula to be used by the Determination Agent to determine the principal amount
of a Currency Indexed Note payable at the Stated Maturity Date will be as
follows:
If the Spot Rate exceeds or equals the Base Exchange Rate, the principal
amount of a Currency Indexed Note payable at the Stated Maturity Date shall
equal:
Face Amount + (Face Amount x Spot Rate - Base Exchange Rate
------------------------------
Spot Rate ).
If the Base Exchange Rate exceeds the Spot Rate, the principal amount of a
Currency Indexed Note payable at the Stated Maturity Date (which shall, in no
event, be less than zero) shall equal:
Face Amount - (Face Amount x Base Exchange Rate - Spot Rate
------------------------------
Spot Rate ).
If the formulas set forth above are applicable to a Currency Indexed Note,
the maximum principal amount payable at the Stated Maturity Date in respect of
such Currency Indexed Note would be an amount equal to twice the Face Amount
and the minimum principal amount payable would be zero.
Unless otherwise specified in the applicable Pricing Supplement, in the
event of any redemption or repayment of a Currency Indexed Note prior to its
Stated Maturity Date, the term "Stated Maturity Date" used above would refer
to the redemption or repayment date of such Currency Indexed Note.
OTHER INDEXED NOTES
The Pricing Supplement relating to a Commodity Indexed Note will set forth
the method by which the amount of interest payable or the amount of principal
payable at the Stated Maturity Date in respect of such Commodity Indexed Note
will be determined, the tax consequences to holders of Commodity Indexed Notes,
a description of certain risks associated with investments in Commodity Indexed
Notes and other information relating to such Commodity Indexed Notes.
The Company may issue a Note for which the amount of interest payable or
the amount of principal payable at the Stated Maturity Date will be determined
with reference to such other index or indices as will be set forth in the
Pricing Supplement. The Pricing Supplement with respect to such Notes will
contain a description of such index or indices, a formula for calculating
interest and principal, the tax consequence to the holder of such Note and
certain risks associated with such Notes.
FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in other than U.S. dollars
entails significant risks that are not associated with similar investment in a
security denominated in U.S. dollars. Similarly, an investment in a Currency
Indexed Note entails significant risks that are not associated with a similar
investment in a non-currency indexed Note. Such risks include, without
limitation, the possibility of significant changes in rates of exchange between
the U.S. dollar and the various foreign currencies or composite currencies and
the possibility of the imposition or modification of foreign exchange controls
by either the U.S. or foreign governments. Such risks depend on economic and
political events over which the Company has no control. In recent years, rates
of exchange between the U.S. dollar and certain foreign currencies have been
highly volatile and such volatility may be expected in the future. Fluctuations
in any particular exchange rate that have occurred in the past are not
necessarily indicative, however, of fluctuations in the rate that may occur
during the term of any Note. Depreciation of the Specified Currency other than
U.S. dollars against the U.S. dollar would result in a decrease in the
effective yield of such Note below its coupon rate, and in certain
circumstances could result in a loss to the investor on a U.S. dollar basis.
Similarly, depreciation of the Specified Currency with respect to a Currency
Indexed Note against the applicable Indexed Currency would result in the
principal amount payable with respect to such Currency Indexed Note at the
Stated Maturity Date thereof being less than the Face Amount of such Currency
Indexed Note which, in turn, would decrease
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the effective yield of such Currency Indexed Note below its stated interest
rate and could also result in a loss to the investor. See "Description of
Notes--Currency Indexed Notes."
Governments have imposed from time to time and may in the future impose
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency at a Note's maturity. Even if there are no
actual exchange controls, it is possible that the Specified Currency for any
particular Note would not be available at such Note's maturity. In that event,
the Company will repay in U.S. dollars on the basis of the most recently
available Exchange Rate. See "Description of Notes--Payment of Principal and
Interest."
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS AND PRICING
SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN THE NOTES
DENOMINATED IN OTHER THAN U.S. DOLLARS. PROSPECTUS INVESTORS SHOULD CONSULT
THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN
INVESTMENT IN THE NOTES DENOMINATED IN OTHER THAN U.S. DOLLARS. NOTES
DENOMINATED IN OTHER THAN U.S. DOLLARS MAY NOT BE AN APPROPRIATE INVESTMENT FOR
INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
Currently, there are limited facilities in the United States for conversion
of U.S. dollars into foreign currencies, and vice versa. In addition, banks do
not offer non-U.S. dollar denominated checking or savings account facilities in
the United States. Accordingly, payments on Notes made in a Specified Currency
other than U.S. dollars will be made from an account with a bank located in the
country issuing the Specified Currency (or, with respect to Notes denominated
in ECUs, Brussels). See "Description of Notes--Payment of Principal and
Interest."
Unless otherwise specified in the applicable Pricing Supplement, Notes
denominated in other than U.S. dollars or ECUs will not be sold in, or to
residents of, the country issuing the Specified Currency in which particular
Notes are denominated. The information set forth in this Prospectus Supplement
is directed to prospective purchasers who are United States residents, and the
Company does not attempt to advise prospective purchasers who are residents of
countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of and
interest on the Notes. Such persons should consult their own financial and
legal advisors with regard to such matters.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If an action based on the Notes were commenced in a
court in the United States, it is likely that such court would grant judgment
relating to the Notes only in U.S. dollars. It is not clear, however, whether,
in granting such judgment, the rate of conversion into U.S. dollars would be
determined with reference to the date of default, the date the judgment is
rendered or some other date.
EXCHANGE RATE AND CONTROLS FOR SPECIFIED CURRENCIES
With respect to any Note denominated in other than U.S. dollars, a Currency
Supplement with respect to the applicable Specified Currency and Indexed
Currency, if any (which supplement shall include information with respect to
applicable current foreign exchange controls, if any) shall be attached to this
Prospectus Supplement. The information therein concerning exchange rates is
furnished as a matter of information only and should not be regarded as
indicative of the range of or trends in fluctuations in currency exchange rates
that may occur in the future.
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UNITED STATES TAXATION
The following summary of the principal United States federal income tax
consequences of ownership of Notes deals only with Notes held as capital assets
by initial purchasers, and not with special classes of holders, such as dealers
in securities or currencies, traders in securities that elect to mark to
market, banks, tax-exempt organizations, life insurance companies, persons that
hold Notes that are a hedge or that are hedged against currency risks or that
are part of a straddle or conversion transaction, or persons whose functional
currency is not the U.S. dollar. Moreover, the summary deals only with Notes
that are due to mature 30 years or less from the date on which they are issued.
The United States federal income tax consequences of ownership of Notes that
are due to mature more than 30 years from their date of issue will be discussed
in an applicable Pricing Supplement.
The summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change at any time, perhaps with retroactive effect.
Prospective purchasers of Notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of the ownership of Notes.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Interest on a Note, whether payable in U.S. dollars or a currency,
composite currency or basket of currencies other than U.S. dollars (a "foreign
currency"), other than interest on a "Discount Note" that is not "qualified
stated interest" (each as defined below under "Original Issue
Discount--General"), will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A United States Holder is a beneficial owner
that is (i) a citizen or resident of the United States, (ii) a domestic
corporation or partnership, (iii) an estate the income of which is subject to
United States federal income tax without regard to its source or (iv) a trust
if a court within the United States is able to exercise primary supervision
over the administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust.
If an interest payment is denominated in, or determined by reference to, a
foreign currency, the amount of income recognized by a cash basis United States
Holder will be the U.S. dollar value of the interest payment, based on the
exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a foreign currency in accordance with either of two methods.
Under the first method, the amount of income accrued will be based on the
average exchange rate in effect during the interest accrual period (or, with
respect to an accrual period that spans two taxable years, the part of the
period within the taxable year).
Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all
debt instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service (the "Service").
Upon receipt of the interest payment (including a payment attributable to
accrued but unpaid interest upon the sale or retirement of a Note) denominated
in, or determined by reference to, a foreign currency, the United States Holder
will recognize ordinary income or loss measured by the difference between (x)
the average exchange rate used to accrue interest income, or the exchange rate
as determined under the second
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method described above if the United States Holder elects that method, and (y)
the exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
ORIGINAL ISSUE DISCOUNT
General. A Note, other than a Note with a term of one year or less (a
"short-term Note"), will be treated as issued at an original issue discount
(a "Discount Note") if the excess of the Note's "stated redemption price at
maturity" over its issue price is more than a "de minimis amount" (as
defined below). Generally, the issue price of a Note will be the first price at
which a substantial amount of Notes included in the issue of which the Note is
a part is sold to other than bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents, or
wholesalers. The stated redemption price at maturity of a Note is the total of
all payments provided by the Note that are not payments of "qualified stated
interest". A qualified stated interest payment is generally any one of a
series of stated interest payments on a Note that are unconditionally payable
at least annually at a single fixed rate (with certain exceptions for lower
rates paid during some periods) applied to the outstanding principal amount of
the Note. Special rules for "Variable Rate Notes" (as defined below under
"Original Issue Discount--Variable Rate Notes") are described below under
"Original Issue Discount--Variable Rate Notes".
In general, if the excess of a Note's stated redemption price at maturity
over its issue price is less than 1/4 of 1 percent of the Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity (the "de minimis amount"), then such excess, if any, constitutes
"de minimis original issue discount" and the Note is not a Discount Note.
Unless the election described below under "Election to Treat All Interest as
Original Issue Discount" is made, a United States Holder of a Note with de
minimis original issue discount must include such de minimis original issue
discount in income as stated principal payments on the Note are made. The
includible amount with respect to each such payment will equal the product of
the total amount of the Note's de minimis original issue discount and a
fraction, the numerator of which is the amount of the principal payment made
and the denominator of which is the stated principal amount of the Note. Any
amount of de minimis original issue discount included in income under the
foregoing rule will be treated as gain recognized on retirement of the Note.
United States Holders of Discount Notes having a maturity of more than one
year from their date of issue must, generally, include original issue discount
("OID") in income calculated on a constant-yield method before the receipt of
cash attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Note. The amount of
OID includible in income by a United States Holder of a Discount Note is the
sum of the daily portions of OID with respect to the Discount Note for each day
during the taxable year or portion of the taxable year on which the United
States Holder holds such Discount Note ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata
portion of the OID allocable to that accrual period. Accrual periods with
respect to a Note may be of any length selected by the United States Holder and
may vary in length over the term of the Note as long as (i) no accrual period
is longer than one year and (ii) each scheduled payment of interest or
principal on the Note occurs on either the final or first day of an accrual
period. The amount of OID allocable to an accrual period equals the excess of
(a) the product of the Discount Note's adjusted issue price at the beginning of
the accrual period and such Note's yield to maturity (determined on the basis
of compounding at the close of each accrual period and properly adjusted for
the length of the accrual period) over (b) the sum of the payments of qualified
stated interest on the Note allocable to the accrual period. The "adjusted
issue price" of a Discount Note at the beginning of any accrual period is the
issue price of the Note increased by (x) the amount of accrued OID for each
prior accrual period and decreased by (y) the amount of any payments previously
made on the Note that were not qualified stated interest payments. For purposes
of determining the amount of OID allocable to an accrual period, if an interval
between payments of qualified stated interest on the Note contains more than
one accrual period, the amount of qualified stated interest payable at the end
of the interval (including any qualified stated interest that is payable on the
first day of the accrual period immediately following the interval) is
allocated pro rata on the basis of relative lengths to each accrual period in
the interval, and the adjusted issue price at the beginning of each accrual
period in the interval must be increased by the amount of any qualified stated
interest that has accrued prior to the first day of the accrual period but that
is not payable until the end of the interval. The amount of OID allocable to an
initial short accrual period may be computed using any reasonable method if all
other accrual periods other than a final short accrual period are of equal
length. The amount of OID allocable to the final accrual period is the
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difference between (x) the amount payable at the maturity of the Note (other
than any payment of qualified stated interest) and (y) the Note's adjusted
issue price as of the beginning of the final accrual period.
Acquisition Premium. A United States Holder that purchases a Note for an
amount less than or equal to the sum of all amounts payable on the Note after
the purchase date other than payments of qualified stated interest but in
excess of its adjusted issue price (as determined above under "Original Issue
Discount--General") (any such excess being "acquisition premium") and that
does not make the election described below under "Election to Treat All
Interest as Original Issue Discount" shall reduce the daily portions of OID by
a fraction, the numerator of which is the excess of the United States Holder's
adjusted basis in the Note immediately after its purchase over the adjusted
issue price of the Note, and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date, other than payments
of qualified stated interest, over the Note's adjusted issue price.
Market Discount. A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i) the amount
for which a United States Holder purchased the Note is less than the Note's
issue price (as determined above under "Original Issue Discount--General")
and (ii) the Note's stated redemption price at maturity or, in the case of a
Discount Note, the Note's "revised issue price", exceeds the amount for which
the United States Holder purchased the Note by at least 1/4 of 1 percent of
such Note's stated redemption price at maturity or revised issue price,
respectively, multiplied by the number of complete years to the Note's
maturity. If such excess is not sufficient to cause the Note to be a Market
Discount Note, then such excess constitutes "de minimis market discount" and
such Note is not subject to the rules discussed in the following paragraphs.
The Code provides that, for these purposes, the "revised issue price" of a
Note generally equals its issue price, increased by the amount of any OID that
has accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a United States
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such an election shall apply to all debt
instruments with market discount acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on
a constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A United States Holder of a
Market Discount Note that does not elect to include market discount in income
currently generally will be required to defer deductions for interest on
borrowings allocable to such Note in an amount not exceeding the accrued market
discount on such Note until the maturity or disposition of such Note.
Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the
first stated interest payment on the Note is to be made within one year of the
Note's issue date and (iii) the payment will equal or exceed the amount of
pre-issuance accrued interest, then the United States Holder may elect to
decrease the issue price of the Note by the amount of pre-issuance accrued
interest. In that event, a portion of the first stated interest payment will be
treated as a return of the excluded pre-issuance accrued interest and not as an
amount payable on the Note.
Notes Subject to Contingencies Including Optional Redemption. If a Note
provides for an alternative payment schedule or schedules applicable upon the
occurrence of a contingency or contingencies (other than a remote or incidental
contingency), whether such contingency relates to payments of interest or of
principal, if the timing and amount of the payments that comprise each payment
schedule are known as of the issue date and if one of such schedules is
significantly more likely than not to occur, the yield and maturity of the Note
are determined by assuming that the payments will be made according to that
payment schedule. If there is no single payment schedule that is significantly
more likely than not to occur (other than because of a mandatory sinking fund),
the Note will be subject to the general rules that govern contingent payment
obligations. These rules will be discussed in an applicable Pricing Supplement.
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Company or the holder has an
unconditional option or options that, if exercised, would require payments to
be made on the Note under an alternative payment schedule or schedules, then
(i) in the
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case of an option or options of the Company, the Company will be deemed to
exercise or not exercise an option or combination of options in the manner that
minimizes the yield on the Note and (ii) in the case of an option or options of
the holder, the holder will be deemed to exercise or not exercise an option or
combination of options in the manner that maximizes the yield on the Note. If
both the Company and the holder have options described in the preceding
sentence, those rules apply to such options in the order in which they may be
exercised. For purposes of those calculations, the yield on the Note is
determined by using any date on which the Note may be redeemed or repurchased
as the maturity date and the amount payable on such date in accordance with the
terms of the Note as the principal amount payable at maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the
Note is repaid as a result of the change in circumstances and solely for
purposes of determining the amount and accrual of OID, the yield and maturity
of the Note are redetermined by treating the Note as having been retired and
reissued on the date of the change in circumstances for an amount equal to the
Note's adjusted issue price on that date.
Election to Treat All Interest as Original Issue Discount. A United States
Holder may elect to include in gross income all interest that accrues on a Note
using the constant-yield method described above under the heading "Original
Issue Discount--General", with the modifications described below. For purposes
of this election, interest includes stated interest, OID, de minimis original
issue discount, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium (described below under
"Notes Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal its cost to the
electing United States Holder, the issue date of the Note will be the date of
its acquisition by the electing United States Holder, and no payments on the
Note will be treated as payments of qualified stated interest. This election
will generally apply only to the Note with respect to which it is made and may
not be revoked without the consent of the Service. If this election is made
with respect to a Note with amortizable bond premium, then the electing United
States Holder will be deemed to have elected to apply amortizable bond premium
against interest with respect to all debt instruments with amortizable bond
premium (other than debt instruments the interest on which is excludible from
gross income) held by the electing United States Holder as of the beginning of
the taxable year in which the Note with respect to which the election is made
is acquired or thereafter acquired. The deemed election with respect to
amortizable bond premium may not be revoked without the consent of the Service.
If the election to apply the constant-yield method to all interest on a
Note is made with respect to a Market Discount Note, the electing United States
Holder will be treated as having made the election discussed above under
"Original Issue Discount--Market Discount" to include market discount in
income currently over the life of all debt instruments held or thereafter
acquired by such United States Holder.
Variable Rate Notes. A "Variable Rate Note" is a Note that: (i) has an
issue price that does not exceed the total noncontingent principal payments by
more than the lesser of (1) the product of (x) the total noncontingent
principal payments, (y) the number of complete years to maturity from the issue
date and (z) .015, or (2) 15 percent of the total noncontingent principal
payments, and (ii) does not provide for stated interest other than stated
interest compounded or paid at least annually at (1) one or more "qualified
floating rates", (2) a single fixed rate and one or more qualified floating
rates, (3) a single "objective rate" or (4) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate".
A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no
earlier than 3 months prior to the first day on which that value is in effect
and no later than 1 year following that first day.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Note is denominated or (ii) it is equal to the product of such a rate and
either (a) a fixed multiple that is greater than 0.65 but not more than 1.35,
or (b) a fixed multiple greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. If a Note provides for two or more qualified
floating rates that (i) are within 0.25 percentage points of each other on the
issue date or (ii) can reasonably be expected to have
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approximately the same values throughout the term of the Note, the qualified
floating rates together constitute a single qualified floating rate. A rate is
not a qualified floating rate, however, if the rate is subject to certain
restrictions (including caps, floors, governors, or other similar restrictions)
unless such restrictions are fixed throughout the term of the Note or are not
reasonably expected to significantly affect the yield on the Note.
An "objective rate" is a rate, other than a qualified floating rate, that
is determined using a single, fixed formula and that is based on objective
financial or economic information that is not within the control of or unique
to the circumstances of the issuer or a related party. A variable rate is not
an objective rate, however, if it is reasonably expected that the average value
of the rate during the first half of the Note's term will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the Note's term. An objective rate is a
"qualified inverse floating rate" if (i) the rate is equal to a fixed rate
minus a qualified floating rate, and (ii) the variations in the rate can
reasonably be expected to inversely reflect contemporaneous variations in the
cost of newly borrowed funds.
If interest on a Note is stated at a fixed rate for an initial period of
one year or less followed by either a qualified floating rate or an objective
rate for a subsequent period and (i) the fixed rate and the qualified floating
rate or objective rate have values on the issue date of the Note that do not
differ by more than 0.25 percentage points or (ii) the value of the qualified
floating rate or objective rate is intended to approximate the fixed rate, the
fixed rate and the qualified floating rate or the objective rate constitute a
single qualified floating rate or objective rate. Under these rules, Commercial
Paper Rate Notes, Prime Rate Notes, LIBOR Notes, Treasury Rate Notes, CD Rate
Notes, and Federal Funds Rate Notes will generally be treated as Variable Rate
Notes.
In general, if a Variable Rate Note provides for stated interest at a
single qualified floating rate or objective rate, all stated interest on the
Note is qualified stated interest and the amount of OID, if any, is determined
by using, in the case of a qualified floating rate or qualified inverse
floating rate, the value as of the issue date of the qualified floating rate or
qualified inverse floating rate, or, in the case of any other objective rate, a
fixed rate that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or a single objective rate and also does not provide
for interest payable at a fixed rate (other than at a single fixed rate for an
initial period), the amount of interest and OID accruals on the Note are
generally determined by (i) determining a fixed rate substitute for each
variable rate provided under the Variable Rate Note (generally, the value of
each variable rate as of the issue date or, in the case of an objective rate
that is not a qualified inverse floating rate, a rate that reflects the
reasonably expected yield on the Note), (ii) constructing the equivalent fixed
rate debt instrument (using the fixed rate substitutes described above), (iii)
determining the amount of qualified stated interest and OID with respect to the
equivalent fixed rate debt instrument, and (iv) making the appropriate
adjustments for actual variable rates during the applicable accrual period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provided for a qualified floating
rate (or a qualified inverse floating rate, as the case may be) rather than the
fixed rate. The qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value of the
Variable Rate Note as of the issue date would be approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
the qualified floating rate (or qualified inverse floating rate) rather than
the fixed rate.
Short-Term Notes. In general, an individual or other cash basis United
States Holder of a short-term Note is not required to accrue OID (as specially
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis
United States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common trust funds,
United States Holders who hold Notes as part of certain identified hedging
transactions, certain pass-through entities and cash basis United States
Holders who so elect, are required to accrue OID on short-term Notes on either
a straight-line basis or under the constant-yield method (based on daily
compounding), at the
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election of the United States Holder. In the case of a United States Holder not
required and not electing to include OID in income currently, any gain realized
on the sale or retirement of the short-term Note will be ordinary income to the
extent of the OID accrued on a straight-line basis (unless an election is made
to accrue the OID under the constant-yield method) through the date of sale or
retirement. United States Holders who are not required and do not elect to
accrue OID on short-term Notes will be required to defer deductions for
interest on borrowings allocable to short-term Notes in an amount not exceeding
the deferred income until the deferred income is realized.
For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Note, including stated interest, are included
in the short-term Note's stated redemption price at maturity.
Foreign Currency Discount Notes. OID for any accrual period on a Discount
Note that is denominated in, or determined by reference to, a foreign currency
will be determined in the foreign currency and then translated into U.S.
dollars in the same manner as stated interest accrued by an accrual basis
United States Holder, as described under "Payments of Interest". Upon receipt
of an amount attributable to OID (whether in connection with a payment of
interest or the sale or retirement of a Note), a United States Holder may
recognize ordinary income or loss.
NOTES PURCHASED AT A PREMIUM
A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond
premium", in which case the amount required to be included in the United
States Holder's income each year with respect to interest on the Note will be
reduced by the amount of amortizable bond premium allocable (based on the
Note's yield to maturity) to such year. In the case of a Note that is
denominated in, or determined by reference to, a foreign currency, amortizable
bond premium will be computed in units of foreign currency, and amortizable
bond premium will reduce interest income in units of the foreign currency. At
the time amortized bond premium offsets interest income, exchange gain or loss
(taxable as ordinary income or loss) is realized measured by the difference
between exchange rates at that time and at the time of the acquisition of the
Notes. Any election to amortize bond premium shall apply to all bonds (other
than bonds the interest on which is excludible from gross income) held by the
United States Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the United States Holder, and is
irrevocable without the consent of the Service. See also "Original Issue
Discount--Election to Treat All Interest as Original Issue Discount".
PURCHASE, SALE AND RETIREMENT OF THE NOTES
A United States Holder's tax basis in a Note will generally be its U.S.
dollar cost (as defined below), increased by the amount of any OID or market
discount included in the United States Holder's income with respect to the Note
and the amount, if any, of income attributable to de minimis original issue
discount and de minimis market discount included in the United States Holder's
income with respect to the Note, and reduced by (i) the amount of any payments
that are not qualified stated interest payments, and (ii) the amount of any
amortizable bond premium applied to reduce interest on the Note. The U.S.
dollar cost of a Note purchased with a foreign currency will generally be the
U.S. dollar value of the purchase price on the date of purchase or, in the case
of Notes traded on an established securities market, as defined in the
applicable Treasury Regulations, that are purchased by a cash basis United
States Holder (or an accrual basis United States Holder that so elects), on the
settlement date for the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. The amount realized on a sale
or retirement for an amount in foreign currency will be the U.S. dollar value
of such amount on (i) the date payment is received in the case of a cash basis
United States Holder, (ii) the date of disposition in the case of an accrual
basis United States Holder or (iii) in the case of Notes traded on an
established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis United States Holder (or an accrual basis
United States Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue
Discount--Short-Term Notes" or "Original Issue Discount--Market Discount",
described in the next succeeding paragraph, attributable to accrued but unpaid
interest or subject to the general rules governing contingent payment
obligations, gain or loss recognized on the sale or retirement of a Note will
be capital gain or loss. Long-term capital gain of a non-
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corporate United States Holder is generally subject to a maximum tax rate of
28% in respect of property held for more than one year and to a maximum rate of
20% in respect of property held in excess of 18 months.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Note that is attributable to changes in exchange rates will be treated as
ordinary income or loss. However, exchange gain or loss is taken into account
only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on a Note or on the sale or
retirement of a Note will have a tax basis equal to its U.S. dollar value at
the time such interest is received or at the time of such sale or retirement.
Foreign currency that is purchased will generally have a tax basis equal to the
U.S. dollar value of the foreign currency on the date of purchase. Gain or loss
recognized on a sale or other disposition of a foreign currency (including its
use to purchase Notes or upon exchange for U.S. dollars) will generally be
ordinary income or loss.
INDEXED NOTES
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Notes that are not
subject to the rules governing Variable Rate Notes payments on which are
determined by reference to any index and other Notes that are subject to the
general rules governing contingent payment obligations.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder of a Note who is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership or estate or trust, in either case not subject to
United States federal income tax on a net income basis in respect of income or
gain from a Note. This discussion assumes that the Note is not subject to the
rules of Section 871(h)(4)(A) of the Code (relating to interest payments that
are determined by reference to the income, profits, changes in the value of
property or other attributes of the debtor or a related party).
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest, including OID, by
the Company or any of its paying agents to any holder of a Note that is a
United States Alien Holder will not be subject to United States federal
withholding tax if, in the case of interest or OID, (a) the beneficial owner of
the Note does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the beneficial owner of the Note is not a controlled foreign corporation
that is related to the Company through stock ownership, and (c) either (A) the
beneficial owner of the Note certifies to the Company or its agent, under
penalties of perjury, that it is not a United States Holder and provides its
name and address or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business (a "financial institution") and holds the Note
certifies to the Company or its agent under penalties of perjury that such
statement has been received from the beneficial owner by it or by a financial
institution between it and the beneficial owner and furnishes the payor with a
copy thereof;
(ii) a United States Alien Holder of a Note will not be subject to United
States federal withholding tax on any gain realized on the sale or exchange of
a Note; and
(iii) a Note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's gross
estate for purposes of the United States federal estate tax as a result of the
individual's death if (a) the individual did not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote and (b) the income on the Note would not have been
effectively connected with a United States trade or business of the individual
at the individual's death.
Recently finalized Internal Revenue Service Treasury regulations (the
"Final Withholding Regulations"), that are generally effective with respect
to payments after December 31, 1998, would provide alternative methods for
satisfying the certification requirement described in clause (i)(c) above. The
Final Withholding
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<PAGE> 23
Regulations also would require, in the case of Notes held by a foreign
partnership, that (x) the certification described in clause (i)(c) above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of a
Note before maturity within the United States to, and to the accrual of OID on
a Discount Note with respect to, non-corporate United States Holders, and
"backup withholding" at a rate of 31% will apply to such payments and to
payments of OID if the United States Holder fails to provide an accurate
taxpayer identification number or is notified by the Internal Revenue Service
that it has failed to report all interest and dividends required to be shown on
its federal income tax returns.
UNITED STATES ALIEN HOLDERS
Under current law, information reporting on Internal Revenue Service Form
1099 and backup withholding will not apply to payments of principal, premium
(if any) and interest (including OID) made by the Company or a paying agent to
a United States Alien Holder on a Note; provided the certification described in
clause (i)(c) under "United States Alien Holders" above is received; and
provided further that the payor does not have actual knowledge that the holder
is a United States person. The Company or a paying agent, however, may report
(on Internal Revenue Service Form 1042S) payments of interest (including OID)
on Notes. See the discussion above with respect to the rules under the Final
Withholding Regulations.
Payments of the proceeds from the sale by a United States Alien Holder of a
Note made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Note to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Distribution Agreement
dated January 23, 1998 (the "Distribution Agreement"), the Notes are being
offered on a continuing basis by Goldman, Sachs & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Agents"), who have agreed to use their
reasonable best efforts to solicit purchases of the Notes. The Company will have
the sole right to accept offers to purchase Notes and may reject any proposed
purchase of Notes in whole or in part. The Agents shall have the right, in their
discretion reasonably exercised, to reject any proposed purchase of Notes in
whole or in part. The Company will pay the Agents a commission ranging from
.125% to .750% of the principal amount of Notes, depending upon maturity, for
sales made through them as agents, except that the commission payable by the
Company to the Agents with respect to Notes with maturities from 30 to 40 years
will be negotiated at the time the Company issues such Notes.
The Company may also sell Notes to the Agents as principals for their own
accounts at a discount to be agreed upon at the time of sale, or the purchasing
Agents may receive from the Company a commission or discount equivalent to that
set forth on the cover page hereof in the case of any such principal
transaction in which no other discount is agreed. Such Notes may be resold at
prevailing market prices, or at prices related thereto, at the time of such
resale, as determined by the Agents, or in such other manner as may be
described in the applicable Pricing Supplement. The Company reserves the right
to sell Notes directly on its own behalf. No commission will be payable on any
Notes sold directly by the Company.
Each Agent may offer any Notes it has purchased as principal to other
dealers. Each Agent may sell any Notes it has purchased as principal to other
dealers at a discount and, unless otherwise specified in the applicable Pricing
Supplement, such discount allowed to any dealer may include all or part of the
discount to be received from the Company. Unless otherwise indicated in the
applicable Pricing Supplement, any Note
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<PAGE> 24
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage equal to the
commission applicable to any agency sale of a Note of identical maturity. After
the initial public offering of Notes to be resold to investors and other
purchasers on a fixed public offering price basis, the public offering price,
concession and discount may be changed.
In connection with the offering, the Agents may purchase and sell the Notes
in the open market. These transactions may include over-allotment and
stabilizing transactions, and purchases to cover short positions created by the
Agents in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Notes; and short positions created by the Agents
involve the sale by the Agents of a greater number of Notes than they are
required to purchase from the Company in the offering. The Agents may impose a
penalty bid, whereby selling concessions allowed to broker-dealers in respect
of the Notes sold in the offering may be reclaimed by the Agents if such Notes
are repurchased by the Agents in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Notes, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The Agents, as agents or principals, may be deemed to be "underwriters"
within the meaning of the Act. The Company has agreed to indemnify the Agents
again certain liabilities, including liabilities under the Act.
The Agents have from time to time provided, are currently providing or may
provide investment banking services to the Company.
The Agents may sell to or through dealers who may resell to investors, and
the Agents may pay all or part of their discount or commission to such dealers.
Such dealers may be deemed to be "underwriters" within the meaning of the
Act.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in The City of New York.
The Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. No assurance can be given as
to the existence or liquidity of the secondary market for the Notes.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company by Barbara L.
Blackford, Associate General Counsel for the Company, and for the Agents by
Sullivan & Cromwell, New York, New York. The opinions of Ms. Blackford and
Sullivan & Cromwell will be conditioned upon, and subject to certain
assumptions regarding, future action required to be taken by the Company and
the Trustee in connection with the issuance and sale of any particular Note,
the specific terms of Notes and other matters which may affect the validity of
Notes but which cannot be ascertained on the date of such opinions. Ms.
Blackford is a full-time employee of the Company and owns, and holds options to
purchase, shares of the Company's common stock. Sullivan & Cromwell has from
time to time represented the Company in connection with certain matters.
EXPERTS
The consolidated financial statements and supplemental schedules of the
Company at December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 appearing (or incorporated by reference) in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, and
the restated consolidated financial statements of Monsanto at December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996
appearing in the Company's Form 8-K Current Report dated December 5, 1997,
incorporated herein by reference, have been audited by Deloitte & Touche LLP,
independent public accountants, as stated in their reports, which also are
incorporated herein by reference, and are incorporated by reference herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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<PAGE> 25
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY PRICING SUPPLEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS AND ANY PRICING
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR
ANY PRICING SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
PAGE
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Available Information........................................................... S-2
Incorporation of Documents by Reference......................................... S-2
Use of Proceeds................................................................. S-2
Ratio of Earnings to Fixed Charges.............................................. S-3
Description of Notes............................................................ S-3
Foreign Currency Risks.......................................................... S-14
United States Taxation.......................................................... S-16
Supplemental Plan of Distribution............................................... S-23
Validity of Notes............................................................... S-24
Experts......................................................................... S-24
PROSPECTUS
Available Information........................................................... 2
Incorporation of Documents by Reference......................................... 2
The Company..................................................................... 3
Use of Proceeds................................................................. 3
Ratio of Earnings to Fixed Charges.............................................. 3
Description of Debt Securities.................................................. 3
Plan of Distribution............................................................ 9
Legal Opinions.................................................................. 10
Experts......................................................................... 10
</TABLE>
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$100,000,000
MONSANTO COMPANY
MEDIUM-TERM NOTES,
SERIES D
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[MONSANTO LOGO]
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GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
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