Prospectus Supplement to Prospectus dated
December 16, 2004
MERCK & CO., INC.
Medium-Term Notes, Series F
The following terms may apply to the notes which
we may offer and sell at one or more times. The final terms for
each note will be included in a pricing supplement. Unless
otherwise agreed, if we sell notes having the full aggregate
initial offering price set forth above, Merck & Co.,
Inc. will receive between $3,812,022,756 and $3,788,161,537 of
proceeds from the sale of the notes, after deducting expenses
estimated at $1,000,000 and paying the agents’ commissions
of between $4,772,244 and $28,633,463.
Investing in the notes involves certain risks.
See “Risks Relating to Indexed Notes” beginning on
page S-23 and “Risks Relating to Foreign Currency
Notes” beginning on page S-25 of this prospectus
supplement.
Neither the Securities and Exchange Commission
nor any other regulatory body has approved or disapproved of
these securities or passed upon the accuracy or adequacy of this
prospectus supplement, the accompanying prospectus or any
pricing supplement. Any representation to the contrary is a
criminal offense.
The notes will be offered from time to time on a
best efforts basis by the agents named below on our behalf. In
addition, the agents may purchase notes from us at negotiated
discounts for resale to investors, and we may sell notes
directly to investors on our own behalf. We do not expect that
any of the notes will be listed on a securities exchange, and a
market for the notes may not develop.
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mature 9 months or more from their issue date
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we may have a right to extend the maturity or the
maturity may extend automatically unless you elect an earlier
maturity
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fixed or floating interest rate or zero coupon or
other original issue discount notes
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floating interest rate may be based on one or
more of the following indices, in some cases plus or minus a
spread and/or multiplied by a spread multiplier and subject to a
minimum and/or maximum rate:
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commercial paper rate
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prime rate
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LIBOR
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EURIBOR
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treasury rate
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CMT rate
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CD rate
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federal funds rate
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any other rate or combination of rates specified
in the pricing supplement
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the amount of principal or interest may be
determined by reference to an index or formula
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global form only unless otherwise specified in
the pricing supplement
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we may have a right to redeem early and/or the
holder may have a right to elect early repayment, if specified
in the pricing supplement
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may be amortizing notes
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interest paid on fixed rate notes on the interest
payment date or dates specified in the notes and in the pricing
supplement, and at maturity
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interest paid on floating rate notes on the
interest payment date or dates specified in the notes and in the
pricing supplement, and at maturity
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denominations of $1,000 and integral multiples
thereof, or as specified in the pricing supplement
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may be denominated in U.S. dollars, or in
one or more foreign currencies, currency units or composite
currencies.
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settlement in immediately available funds
Goldman, Sachs & Co.
Merrill Lynch & Co.
JPMorgan
Morgan Stanley
Citigroup
ABOUT THIS PROSPECTUS SUPPLEMENT AND PRICING
SUPPLEMENTS
This prospectus supplement sets forth certain
terms of the Medium-Term Notes, Series F, that we may offer
and supplements the prospectus that is attached to the back of
this prospectus supplement. This prospectus supplement
supersedes the accompanying prospectus to the extent it contains
information that is different from the information in the
accompanying prospectus which is not inconsistent with the
indenture.
Each time we offer notes, we will attach a
pricing supplement to this prospectus supplement. The pricing
supplement will contain the specific description of the notes we
are offering and the terms of the offering. The pricing
supplement will supersede this prospectus supplement or the
accompanying prospectus to the extent it contains information
that is different from the information contained in this
prospectus supplement or the accompanying prospectus which is
not inconsistent with the indenture.
It is important for you to read and consider all
information contained in this prospectus supplement and the
accompanying prospectus and pricing supplement in making your
investment decision. You should also read and consider the
information contained in the documents identified in “Where
You Can Find More Information” on page 29 of the
accompanying prospectus.
USE OF PROCEEDS
If all of the notes are sold, the net proceeds
from the sale of the notes, after deduction of underwriting fees
and commissions and other expenses, are anticipated to be
approximately $3,812,022,756 to $3,788,161,537. Unless otherwise
specified in your pricing supplement, we will use the net
proceeds from the sale of notes for general corporate purposes,
including the reduction of short-term debt. We may temporarily
invest funds that we do not immediately need for these purposes
in short-term marketable securities.
DESCRIPTION OF NOTES WE MAY
OFFER
This section is a summary of the material
terms that are common to the notes. When we issue any particular
notes, we will specify their particular terms in a pricing
supplement to this prospectus supplement. The terms of any
particular notes may be different from or in addition to the
terms summarized here. The interest-related information
described here or in the accompanying prospectus does not apply
to zero coupon notes described below.
The indenture and its associated documents,
including your note, contain the full legal text of the matters
described in this section, the section of the accompanying
prospectus entitled “Description of Debt Securities We May
Offer” on page 3 and your pricing supplement.
Because this section and your pricing supplement
provide only a summary, they do not describe every aspect of the
indenture and your note. For example, in this section and your
pricing supplement, we use terms that have been given special
meaning in the indenture. In this section, however, we describe
the meaning of only the more important of those terms.
Terms used in the accompanying prospectus have
the same meanings when used in this prospectus supplement unless
otherwise specified.
In this section, “holders” means those
who own notes registered in their own names and not those who
own beneficial interests in notes registered in street name or
in notes represented by a global note or notes issued in
book-entry form through the depositary, and “you”
means those who invest in the notes, whether they are the
holders or only indirect owners. Owners of beneficial interests
in the notes should read the subsection below entitled
“— Form of Notes” and the section entitled
“Legal Ownership and Book-Entry Issuance” in the
accompanying prospectus.
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When we define a specialized term used in this
section, it appears in bold, italicized type surrounded
by quotation marks, except as noted below in
“— Interest Rates — Floating Rate
Notes” on page S-6.
Information About Our Medium-Term
Note Program
All of our Medium-Term Notes, Series F,
referred to in this prospectus supplement as the
“notes”, will be a single,
distinct series of debt securities issued under the indenture as
described in the accompanying prospectus under “Description
of Debt Securities We May Offer” on page 3. We may,
however, issue notes in various amounts, at various times and on
the terms we choose. The terms of the notes may differ from one
another, and from other series of our debt securities. We may
also offer notes having the same terms (or the same terms except
the initial interest payment date) in tranches at different
times and varying amounts.
The notes are limited to such aggregate principal
amount as shall result in an aggregate initial offering price
not to exceed $3,817,795,000. We may increase this limit if in
the future we determine that we may want to sell additional
notes. For a description of the rights attached to different
series of debt securities under the indenture, see
“Description of Debt Securities We May Offer” on
page 3 of the accompanying prospectus.
New York law governs the indenture and the notes.
Unless otherwise indicated in your pricing
supplement, neither the restrictive covenants under the
indenture nor any additional ones contained in the notes will
necessarily afford holders of the notes protection in the event
of a highly leveraged transaction involving us, such as a
leveraged buyout.
When we refer to “your pricing
supplement”, we mean the pricing supplement
describing the specific terms of the note you purchase.
Stated Maturity and Maturity
The day on which the principal amount of your
note is scheduled to become due and payable is called the
“stated maturity” of the principal and
will be a market day nine months or more from the issuance date
of the note. This date will be specified on the face of the note
and in your pricing supplement. The principal may become due and
payable sooner, by reason of redemption or acceleration after a
default. The day on which the principal actually becomes due and
payable, whether at the stated maturity or earlier, is called
the “maturity” of the principal.
We also use the terms “stated maturity”
and “maturity” to refer to the dates when other
payments become due. For example, we may refer to a regular
interest payment date when an installment of interest is
scheduled to become due as the “stated maturity” of
that installment. When we refer to the “stated
maturity” or the “maturity” of a note without
specifying a particular payment, we mean the stated maturity or
maturity, as the case may be, of the principal.
Currency of Notes
Amounts that become due and payable on your note
will be payable in a currency, currency unit or composite
currency specified in your pricing supplement.
We call this currency, currency unit or composite
currency a “specified currency”. The specified
currency for your note will be U.S. dollars unless your
pricing supplement states otherwise. Some notes may have
different specified currencies for principal and interest.
You will have to pay for your notes by delivering
the requisite amount of the specified currency to a dealer that
we name in your pricing supplement, unless other arrangements
have been made between you and us or you and that dealer. We
will make payments on your notes in the specified currency or in
U.S. dollars, as described below under
“— Payments on the Notes”. Before you
purchase a foreign currency note, you should read carefully the
section below entitled “Risks Relating to Foreign Currency
Notes” and any other risk factors which are specified in
your pricing supplement.
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Types of Notes
We will issue two main types of notes, which are
distinguishable by the manner in which they bear interest:
The notes may also be distinguished by the prices
at which they are originally issued or by the fact that the
amounts payable on them at maturity or otherwise will depend on
variable factors. There are three types:
The notes may also be distinguished by a variable
maturity, as follows:
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Fixed Rate
Notes. A note of this type will
bear interest at a fixed rate described in your pricing
supplement. This type includes “zero coupon
notes”, which bear no interest and are instead
issued at a price lower than the principal amount.
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Floating Rate
Notes. A note of this type will
bear interest at rates that are determined by reference to an
interest rate formula. In some cases, the rates may also be
adjusted by adding or subtracting a spread or multiplying by a
spread multiplier and may be subject to a minimum rate or a
maximum rate. We describe the various interest rate formulas and
these other features below under “— Interest
Rates — Floating Rate Notes” on page S-6. If
your note is a floating rate note, we will specify the formula
and any adjustments that apply to the interest rate in your
pricing supplement.
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Original Issue Discount
Notes. A note of this type is
issued at a price lower than its principal amount and provides
that, upon early redemption or acceleration of its maturity, an
amount less than its principal amount will be payable. A note
issued at a discount to its principal may, for U.S. federal
income tax purposes, be considered an original issue discount
note, regardless of the amount payable upon redemption or
acceleration. See “United States Taxation —
United States Holders — Original Issue Discount”
on page 17 of the accompanying prospectus. An original
issue discount note may be a zero coupon note or may bear
interest at a fixed or floating rate.
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Indexed
Notes. A note of this type
provides that the principal amount payable at its maturity,
and/or the amount of interest payable on an interest payment
date, will be determined by reference to a currency exchange
rate, commodity price, security price or index, or to any other
financial or non-financial index or indices or baskets of any of
these items described in your pricing supplement. This type
includes “currency indexed notes”, for
which the index is determined by the change, from one date to
another, in the exchange rate between the specified currency and
another currency. If you are a holder of an indexed note, you
may receive a principal amount at maturity that is greater than
or less than the face amount of your note depending upon the
value of the applicable index at maturity. That value may
fluctuate over time. If you purchase an indexed note, your
pricing supplement will include information about the relevant
index and about how amounts that are to become payable will be
determined by reference to that index. Before you purchase any
indexed note, you should read carefully the section entitled
“Risks Relating to Indexed Notes” on page S-23 of
this prospectus supplement and any other risk factors which are
specified in your pricing supplement.
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Amortizing
Notes. If you are a holder of an
amortizing note, you will receive payments of principal and
interest in installments over the life of your note. Unless
otherwise specified in your pricing supplement, interest on each
amortizing note will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Payments on amortizing notes
will be applied first to interest due and payable and then to
the reduction of the unpaid principal amount. Further
information concerning additional terms of amortizing notes will
be specified in your pricing supplement, including a table
setting forth repayment information for your amortizing note.
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Extendable
Notes. We may offer notes which
give us the option to extend the stated maturity of the notes
for one or more periods. If a note gives us this option, your
pricing supplement will say so and will specify a final date
beyond which we may not extend the stated maturity. The pricing
supplement for notes of this type will also specify the
procedures applicable to our exercise of the option to extend.
Whether the Defeasance Provisions
Apply
The full defeasance and covenant defeasance
provisions of the indenture described under “Description of
Debt Securities We May Offer — Defeasance” in the
accompanying prospectus will apply to the notes. However, we
might be unable to effect either full defeasance or covenant
defeasance of the notes if we choose to issue any floating rate
notes, notes denominated other than in U.S. dollars or
indexed notes. In addition, as described in the accompanying
prospectus under “Description of Debt Securities We May
Offer — Defeasance” on page 10, we could not
effect full defeasance of the notes unless there is a change in
U.S. federal tax law.
Information to Be Contained in Your Pricing
Supplement
Your pricing supplement will describe one or more
of the following terms of your note:
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Renewable
Notes. We may offer notes for
which the stated maturity will automatically be extended for one
or more periods, but not beyond a specified final date, unless
the holder elects that the note should mature. If your note has
this automatic renewal feature, your pricing supplement will say
so and will specify the dates and procedures that will apply.
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the stated maturity and if the stated maturity
will be extended automatically or may be extended at our option;
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the specified currency or currencies for
principal and any premium and interest, and, if the specified
currency is other than U.S. dollars, certain other terms
relating to your note, including the authorized denominations
and any exchange rate agent that will determine the relevant
exchange rate;
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the price at which we originally issue your note,
expressed as a percentage of the principal amount, and the
original issue date of your note;
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whether your note is a fixed rate note or a
floating rate note;
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if your note is a fixed rate note, the rate per
annum at which your note will bear interest, if any, any regular
record date or dates and any interest payment date or dates;
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if your note is a floating rate note, the
interest rate basis, which may be one of the base rates
described below in “— Interest Rates —
Floating Rate Notes” beginning on page S-6; if
applicable, the calculation agent, the index maturity, the
spread or spread multiplier and the initial, maximum or minimum
rate; and the interest reset dates, the determination dates, the
interest calculation dates, the regular record dates and the
interest payment dates; we describe all of these terms below
under “— Interest Rates — Floating Rate
Notes” beginning on page S-6;
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if your note is a discount note, the yield to
maturity and, if it is an original issue discount note, the
amount that would be payable if the note is redeemed prior to
its stated maturity or the maturity of its principal is
accelerated;
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if your note is an indexed note, the principal
amount, if any, we will pay you at maturity; the amount of
interest, if any, we will pay you on an interest payment date,
as determined by reference to the applicable index, or the
formula we will use to calculate these amounts, if any;
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whether your note is an amortizing note, and if
so, repayment information with respect to installments of
principal and interest;
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whether your note may be redeemed at our option
or repaid at the holder’s option prior to the stated
maturity and, if so, other relevant terms such as the redemption
commencement date, repayment date(s), redemption price(s) and
redemption period(s), all of which we describe below under
“— Redemption and Repayment” on
page S-16;
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whether your note will be represented by a global
note in book-entry form or issued as a physical note in
certificated form; and
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any other terms of your note that are not
inconsistent with the provisions of the indenture.
Interest Rates
This subsection describes the different kinds of
interest rates that may apply to your note, if it bears interest.
Fixed Rate Notes
Each fixed rate note, except any zero coupon
note, will bear interest from and including its original issue
date or from and including the most recent date to which
interest on the note has been paid or made available for
payment. Interest will accrue on the principal of a fixed rate
note at the fixed yearly rate stated on the face of the note and
in your pricing supplement, until the principal is paid or made
available for payment. We will pay interest on each interest
payment date and at maturity as described below under
“— Payments on the Notes” on page S-18.
Floating Rate Notes
In this subsection, we use several specialized
terms relating to the manner in which floating interest rates
are calculated. These terms appear in bold, italicized
type without quotation marks the first time they appear and
we define these terms in “— Special Rate
Calculation Terms” at the end of this subsection beginning
on page S-15.
Also, please remember that the specific terms
of your note as described in your pricing supplement will
supplement, and may modify or replace, the general terms
regarding the floating rates of interest described in this
subsection. Some of the statements we make in this subsection
may not apply to your note.
Each floating rate note will bear interest from
and including its original issue date or from and including the
most recent date to which interest on the note has been paid or
made available for payment, to but excluding the next interest
payment date or maturity date, as the case may be, which we
refer to as the “interest period”.
Interest will accrue on the principal of a floating rate note at
the yearly rate determined pursuant to the interest rate formula
stated in the note and your pricing supplement, until the
principal is paid or made available for payment. We will pay
interest on each interest payment date and at maturity as
described below under “— Payments on the
Notes” on page S-18.
Base Rates.
We currently expect to issue floating rate notes that bear
interest at rates based on one or more of the following
“base rates”:
We describe in further detail below in this
subsection each of the base rates named above. If you purchase a
floating rate note, your pricing supplement will specify the
type of base rate that applies to your note.
Initial Base
Rate. For any floating rate note,
the interest rate in effect from the original issue date to the
first interest reset date will be the “initial base
rate” specified in your pricing supplement.
Spread or Spread
Multiplier. In some cases, the
base rate for a floating rate note may be adjusted:
If you purchase a floating rate note, your
pricing supplement will specify whether a spread or spread
multiplier will apply to your note and, if so, the amount of the
spread or spread multiplier.
Maximum and Minimum
Rates. The actual interest rate,
after any adjustment, may
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commercial paper rate;
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prime rate;
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LIBOR;
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EURIBOR;
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treasury rate;
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CMT rate;
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CD rate;
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federal funds rate; and
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any other interest rate basis or formula or
combination of rates stated in your pricing supplement.
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by adding or subtracting a specified number of
basis points called the “spread”, with
one basis point being 0.01%; or
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by multiplying the base rate by a specified
percentage called the “spread
multiplier”.
If you purchase a floating rate note, your
pricing supplement will specify whether a maximum rate and/or a
minimum rate will apply to your note and, if so, what those
rates are.
Whether or not a maximum rate applies, the
interest rate on a floating rate note will in no event be higher
than the maximum rate permitted by New York law, as it may be
modified by U.S. law of general application. Under current
New York law, the maximum rate of interest, with some
exceptions, for any loan in an amount less than $250,000 is 16%
and for any loan in the amount of $250,000 or more but less than
$2,500,000 is 25% per year on a simple interest basis.
These limits do not apply to loans of $2,500,000 or more.
Interest Reset
Dates. The rate of interest on a
floating rate note will be reset as described below, daily,
weekly, monthly, quarterly, semi-annually, annually or
otherwise, as specified in your pricing supplement. The date on
which the interest rate resets and the reset rate becomes
effective is called the “interest reset
date”. Except as otherwise specified in your
pricing supplement and as described below under
“— Interest Determination Dates” regarding
treasury rate notes, the interest reset date will be as follows:
For a floating rate note, the interest rate in
effect on any particular day will be the interest rate
determined with respect to the latest interest reset date that
occurs on or before that day. There are several exceptions,
however, to the reset provisions described above.
For floating rate notes that reset daily or
weekly, the base rate in effect for each day following the
second market day prior to an interest payment date to but
excluding the interest payment date and for each day following
the second market day prior to the maturity to but excluding the
maturity will be the base rate in effect on that second market
day.
If any interest reset date for a floating rate
note would otherwise be a day that is not a market day for that
note, the interest reset date will be postponed to the next day
that is a market day for that note. For a LIBOR or EURIBOR note,
however, if that market day is in the next succeeding calendar
month, the interest reset date will be the immediately preceding
market day for that note.
Interest Determination
Dates. The interest rate that
takes effect on an interest reset date will be determined by the
“calculation agent”, an institution that we
appoint for the purpose of making calculations relating to
floating rate notes. The interest rate that will take effect on
an interest reset date will be determined by reference to a
particular date called an “interest determination
date”. Except as otherwise specified in your
pricing supplement:
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a “maximum
rate” — i.e., a specified upper
limit that the actual interest rate in effect at any time may
not exceed; and/or
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a “minimum
rate” — i.e., a specified lower
limit that the actual interest rate in effect at any time may
not fall below.
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for floating rate notes that reset daily, each
market day;
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for floating rate notes that reset weekly and are
not treasury rate notes, the Wednesday of each week;
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for treasury rate notes that reset weekly, the
Tuesday of each week, except as otherwise described in the
penultimate bullet under “— Interest
Determination Dates” on page S-8;
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for floating rate notes that reset monthly, the
third Wednesday of each month;
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for floating rate notes that reset quarterly, the
third Wednesday of March, June, September and December of each
year;
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for floating rate notes that reset semiannually,
the third Wednesday of each of two months of each year as
specified in your pricing supplement; and
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for floating rate notes that reset annually, the
third Wednesday of one month of each year as specified in your
pricing supplement.
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For commercial paper rate notes, federal funds
rate notes and prime rate notes, the interest determination date
relating to a particular interest reset date will be the first
market day immediately preceding that interest reset date.
Interest Calculation
Dates. As described above, the
calculation agent will determine the interest rate that takes
effect on a particular interest reset date by reference to the
corresponding interest determination date. Except for LIBOR
notes and EURIBOR notes, however, the calculation agent will
actually make the determination of the rate no later than the
corresponding interest calculation date. The
“interest calculation date” will be the
earlier of the following:
The calculation agent need not wait until the
relevant interest calculation date to determine the interest
rate if the rate information it needs to make the determination
is available from the relevant sources sooner.
Interest Payment
Dates. We will pay interest on
each interest payment date and at maturity. The “interest
payment dates” for a floating rate note will depend on when
the interest rate is reset, as described below under
“— Payments on the Notes” on page S-18.
Calculation of
Interest. Calculations relating to
floating rate notes will be made by the calculation agent.
Unless otherwise specified in your pricing supplement,
U.S. Bank Trust National Association initially will be
the calculation agent for all the notes. We may appoint a
different institution to serve as calculation agent from time to
time without your consent and without notifying you of the
change.
For each floating rate note, the calculation
agent will determine, on the corresponding interest calculation
or determination date, as applicable, the interest rate that
takes effect on each interest reset date. In addition, the
calculation agent will calculate the amount of interest that has
accrued during each interest period. For each interest period,
the calculation agent will calculate the amount of accrued
interest by multiplying the face amount of the floating rate
note by an accrued interest factor for the interest period. This
factor will equal the sum of the interest factors calculated for
each day during the interest period. The interest factor for
each day will be expressed as a decimal and will be calculated
by dividing the interest
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For LIBOR notes, the interest determination date
relating to a particular interest reset date will be the second
London market day preceding the interest reset
date, unless the index currency is pounds
sterling, in which case the interest determination date will be
the interest reset date. We call the interest determination date
for a LIBOR note the “LIBOR interest determination
date”.
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For EURIBOR notes, the interest determination
date relating to a particular interest reset date will be the
second euro business day preceding the interest
reset date. We call the interest determination date for a
EURIBOR note the “EURIBOR interest determination
date”.
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For treasury rate notes, the interest
determination date relating to a particular interest reset date,
which we call a “treasury interest determination
date”, will be the day of the week in which the
interest reset date falls on which “treasury
bills” — i.e., direct obligations
of the U.S. government — would normally be
auctioned. Treasury bills are usually 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 the auction may be held on the preceding Friday. If
as the result of a legal holiday an auction is held on the
preceding Friday, that Friday will be the treasury interest
determination date relating to the interest reset date occurring
in the next succeeding week. If the auction is held on a day
that would otherwise be an interest reset date, then the
interest reset date will instead be the first market day
following the auction date.
•
For CD rate notes and CMT rate notes, the
interest determination date relating to a particular interest
reset date will be the second market day before the interest
reset date.
•
the tenth calendar day after the interest
determination date or, if that tenth calendar day is not a
market day, the next succeeding market day; and
•
the market day immediately preceding the interest
payment date or the maturity, whichever is the day on which the
next payment of interest will be due.
Upon the request of the holder of any floating
rate note, the calculation agent will provide for that note the
interest rate then in effect — and, if determined, the
interest rate that will become effective on the next interest
reset date. The calculation agent’s determination of any
interest rate, and its calculation of the amount of interest for
any interest period, will be final and binding in the absence of
manifest error.
All percentages resulting from any calculation
relating to a note will be rounded upward or downward, as
appropriate, to the next higher or lower one hundred-thousandth
of a percentage point (e.g., 9.876541% (or .09876541) would be
rounded down to 9.87654% (or .0987654) and 9.876545% (or
.09876545) would be rounded up to 9.87655% (or .0987655)). The
calculation agent will round all amounts used in or resulting
from any calculation relating to a floating rate note to the
nearest cent, in the case of U.S. dollars, or to the
nearest corresponding unit, in the case of a currency other than
U.S. dollars, with one-half cent or one-half of a
corresponding unit or more being rounded upward.
In determining the base rate that applies to a
floating rate note during a particular interest period, the
calculation agent may obtain rate quotes from various banks or
dealers active in the relevant market, as described in the
following subsections. Those reference banks and dealers may
include the calculation agent itself and its affiliates, as well
as any agent named on the cover of this prospectus supplement
and its affiliates.
Commercial Paper Rate
Notes. If you purchase a
commercial paper rate note, your note will bear interest at a
base rate equal to the commercial paper rate and adjusted by the
spread or spread multiplier, if any, specified in your pricing
supplement.
The “commercial paper rate”
will be the money market yield of the
rate, for the relevant interest determination date, for
commercial paper having the index maturity
specified in your pricing supplement, as published in
H.15(519) under the heading “Commercial
Paper — Nonfinancial”. If the commercial paper
rate cannot be determined as described above, the following
procedures will apply:
S-9
•
by 360, in the case of commercial paper rate
notes, prime rate notes, LIBOR notes, EURIBOR notes, CD rate
notes and federal funds rate notes; or
•
by the actual number of days in the year, in the
case of treasury rate notes and CMT rate notes.
•
If the rate described above does not appear in
H.15(519) by 9:00 A.M., New York City time, on the relevant
interest calculation date (unless the calculation is made
earlier and the rate is available from that source at that
time), then the commercial paper rate will be the money market
yield of the discount rate, for the relevant interest
determination date, for commercial paper having the index
maturity specified in your pricing supplement, as published in
H.15 daily update or any other recognized
electronic source used for displaying that rate, under the
heading “Commercial paper — Nonfinancial”.
•
If the rate described above does not appear in
H.15(519), H.15 daily update or another recognized electronic
source by 3:00 P.M., New York City time, on the relevant
interest calculation date (unless the calculation is made
earlier and the rate is available from one of those sources at
that time), the commercial paper rate will be the money market
yield of the arithmetic mean of the following offered rates for
U.S. dollar commercial paper that has the relevant index
maturity and is placed for an industrial issuer whose bond
rating is “Aa”, or the equivalent, from a nationally
recognized rating agency: the rates offered as of
11:00 A.M., New York City time, on the relevant interest
determination date, by three leading U.S. dollar commercial
paper dealers in New York City selected by the calculation agent.
•
If fewer than three dealers selected by the
calculation agent are quoting as described above, the commercial
paper rate for the new interest period will be the commercial
paper rate in effect for the prior interest period. If the
initial base rate has been in effect for the
Prime Rate
Notes. If you purchase a prime
rate note, your note will bear interest at a base rate equal to
the prime rate and adjusted by the spread or spread multiplier,
if any, specified in your pricing supplement.
The “prime rate” will be
the rate, for the relevant interest determination date,
published in H.15(519) under the heading “Bank Prime
Loan”. If the prime rate cannot be determined as described
above, the following procedures will apply:
LIBOR Notes.
If you purchase a LIBOR note, your note will bear interest at a
base rate equal to “LIBOR”, which means
the London interbank offered rate for deposits in
U.S. dollars or any other index currency, as specified in
your pricing supplement. In addition, the applicable LIBOR base
rate will be adjusted by the spread or spread multiplier, if
any, specified in your pricing supplement. LIBOR will be
determined in the following manner:
S-10
prior interest period, however, it will remain in
effect for the new interest period.
•
If the rate described above does not appear in
H.15(519) by 9:00 A.M., New York City time, on the relevant
interest calculation date (unless the calculation is made
earlier and the rate is available from that source at that
time), then the prime rate will be the rate, for the relevant
interest determination date, as published in H.15 daily update
or another recognized electronic source used for the purpose of
displaying that rate, under the heading “Bank prime
loan”.
•
If the rate described above does not appear in
H.15(519), H.15 daily update or another recognized electronic
source by 3:00 P.M., New York City time, on the relevant
interest calculation date (unless the calculation is made
earlier and the rate is available from one of those sources at
that time), then the prime rate will be the arithmetic mean of
the following rates as they appear on the Reuters screen
US PRIME 1 page: the rate of interest publicly
announced by each bank appearing on that page as that
bank’s prime rate or base lending rate, as of
11:00 A.M., New York City time, on the relevant interest
determination date.
•
If fewer than four of these rates appear on the
Reuters screen US PRIME 1 page, the prime rate will be the
arithmetic mean of the prime rates or base lending rates, as of
the close of business on the relevant interest determination
date, of three major banks in New York City selected by the
calculation agent. For this purpose, the calculation agent will
use rates quoted on the basis of the actual number of days in
the year divided by a 360-day year.
•
If fewer than three banks selected by the
calculation agent are quoting as described above, the prime rate
for the new interest period will be the prime rate in effect for
the prior interest period. If the initial base rate has been in
effect for the prior interest period, however, it will remain in
effect for the new interest period.
•
LIBOR will be either:
•
the offered rate appearing on the Moneyline
Telerate LIBOR page; or
•
the arithmetic mean of the offered rates
appearing on the Reuters screen LIBOR page unless
that page by its terms cites only one rate, in which case that
one rate;
in either case, as of 11:00 A.M., London
time, on the relevant LIBOR interest determination date, for
deposits of the relevant index currency having the relevant
index maturity beginning on the relevant interest reset date.
Your pricing supplement will indicate the index currency, the
index maturity and the reference page that apply to your LIBOR
note. If no reference page is specified in your pricing
supplement, the Moneyline Telerate LIBOR page will apply to your
LIBOR note.
•
If the Moneyline Telerate LIBOR page applies and
the rate described above does not appear on that page, or if the
Reuters screen LIBOR page applies and fewer than two of the
relevant rates appears on that page or no rate appears on any
page on which only one rate normally appears, then LIBOR will be
determined on the basis of the rates, at approximately
11:00 A.M., London time, on the relevant LIBOR interest
determination date, at which deposits of the following kind are
offered to prime banks in the London interbank market by four
major banks in that
EURIBOR
Notes. If you purchase a EURIBOR
note, your note will bear interest at a base rate equal to the
interest rate for deposits in euros designated as
“EURIBOR” and sponsored jointly by the European
Banking Federation and ACI — the Financial Market
Association (or any company established by the joint sponsors
for purposes of compiling and publishing that rate). In
addition, the EURIBOR base rate will be adjusted by the spread
or spread multiplier, if any, specified in your pricing
supplement. EURIBOR will be determined in the following manner:
Treasury Rate
Notes. If you purchase a treasury
rate note, your note will bear interest at a base rate equal to
the treasury rate, adjusted by the spread or spread multiplier,
if any, specified in your pricing supplement.
S-11
market selected by the calculation agent:
deposits of the index currency having the relevant index
maturity, beginning on the relevant interest reset date, and in
a representative amount. The calculation agent
will request the principal London office of each of these banks
to provide a quotation of its rate. If at least two quotations
are provided, LIBOR for the relevant LIBOR interest
determination date will be the arithmetic mean of the quotations.
•
If fewer than two quotations are provided as
described above, LIBOR for the relevant LIBOR interest
determination date will be the arithmetic mean of the rates for
loans of the following kind to leading European banks quoted, at
approximately 11:00 A.M., in the principal financial
center for the country of the index currency, on that
LIBOR interest determination date, by three major banks in that
financial center selected by the calculation agent: loans of the
index currency having the relevant index maturity, beginning on
the relevant interest reset date, and in a representative amount.
•
If fewer than three banks selected by the
calculation agent are quoting as described above, LIBOR for the
new interest period will be LIBOR in effect for the prior
interest period. If the initial base rate has been in effect for
the prior interest period, however, it will remain in effect for
the new interest period.
•
EURIBOR will be the offered rate for deposits in
euros having the index maturity specified in your pricing
supplement, beginning on the second euro business day
after the relevant EURIBOR interest determination date,
as that rate appears on Moneyline Telerate page 248 as of
11:00 A.M., Brussels time, on the relevant EURIBOR interest
determination date.
•
If the rate described above does not appear on
Moneyline Telerate page 248, EURIBOR will be determined on
the basis of the rates, at approximately 11:00 A.M.,
Brussels time, on the relevant EURIBOR interest determination
date, at which deposits of the following kind are offered to
prime banks in the euro-zone interbank market by the principal
euro-zone office of each of four major banks in
that market selected by the calculation agent: euro deposits
having the relevant index maturity, beginning on the relevant
interest reset date, and in a representative amount. The
calculation agent will request the principal euro-zone office of
each of these banks to provide a quotation of its rate. If at
least two quotations are provided, EURIBOR for the relevant
EURIBOR interest determination date will be the arithmetic mean
of the quotations.
•
If fewer than two quotations are provided as
described above, EURIBOR for the relevant EURIBOR interest
determination date will be the arithmetic mean of the rates for
loans of the following kind to leading euro-zone banks quoted,
at approximately 11:00 A.M., Brussels time, on that EURIBOR
interest determination date, by three major banks in the
euro-zone selected by the calculation agent: loans of euros
having the relevant index maturity, beginning on the relevant
interest reset date, and in a representative amount.
•
If fewer than three banks selected by the
calculation agent are quoting as described above, EURIBOR for
the new interest period will be EURIBOR in effect for the prior
interest period. If the initial base rate has been in effect for
the prior interest period, however, it will remain in effect for
the new interest period.
The “treasury rate” will
be the rate for the auction, on the relevant treasury interest
determination date, of treasury bills having the index maturity
specified in your pricing supplement, as that rate appears on
Moneyline Telerate page 56 or 57 under the heading
“Investment Rate”. If the treasury rate cannot be
determined in this manner, the following procedures will apply.
CMT Rate
Notes. If you purchase a CMT rate
note, your note will bear interest at a base rate equal to the
CMT rate, adjusted by the spread or spread multiplier, if any,
specified in your pricing supplement.
The “CMT rate” will be
the following rate displayed on the designated CMT
Moneyline Telerate page under the heading “...
Treasury Constant Maturities ... Federal Reserve Board Release
H.15 ... Mondays Approximately
S-12
•
If the rate described above does not appear on
either page at 3:00 P.M., New York City time, on the
relevant interest calculation date (unless the calculation is
made earlier and the rate is available from one of those sources
at that time), the treasury rate will be the bond equivalent
yield of the rate, for the relevant interest determination
date, for the type of treasury bill described above, as
published in H.15 daily update, or another recognized electronic
source used for displaying that rate, under the heading
“U.S. Government Securities/ Treasury Bills/ Auction
High”.
•
If the rate described in the prior paragraph does
not appear in H.15 daily update or another recognized electronic
source by 3:00 P.M., New York City time, on the relevant
interest calculation date (unless the calculation is made
earlier and the rate is available from one of those sources at
that time), the treasury rate will be the bond equivalent
yield of the auction rate, for the relevant treasury
interest determination date and for treasury bills of the kind
described above, as announced by the U.S. Department of the
Treasury.
•
If the auction rate described in the prior
paragraph is not so announced by 3:00 P.M., New York City
time, on the relevant interest calculation date, or if no such
auction is held for the relevant week, then the treasury rate
will be the bond equivalent yield of the rate, for the relevant
treasury interest determination date and for treasury bills
having a remaining maturity closest to the specified index
maturity, as published in H.15(519) under the heading
“U.S. Government Securities/ Treasury Bills/ Secondary
Market”.
•
If the rate described in the prior paragraph does
not appear in H.15(519) by 3:00 P.M., New York City time,
on the relevant interest calculation date (unless the
calculation is made earlier and the rate is available from that
source at that time), then the treasury rate will be the rate,
for the relevant treasury interest determination date and for
treasury bills having a remaining maturity closest to the
specified index maturity, as published in H.15 daily update, or
another recognized electronic source used for displaying that
rate, under the heading “U.S. Government Securities/
Treasury Bills/ Secondary Market”.
•
If the rate described in the prior paragraph does
not appear in H.15 daily update or another recognized electronic
source by 3:00 P.M., New York City time, on the relevant
interest calculation date (unless the calculation is made
earlier and the rate is available from one of those sources at
that time), the treasury rate will be the bond equivalent yield
of the arithmetic mean of the following secondary market bid
rates for the issue of treasury bills with a remaining maturity
closest to the specified index maturity: the rates bid as of
approximately 3:30 P.M., New York City time, on the
relevant treasury interest determination date, by three primary
U.S. government securities dealers in New York City
selected by the calculation agent.
•
If fewer than three dealers selected by the
calculation agent are quoting as described in the prior
paragraph, the treasury rate in effect for the new interest
period will be the treasury rate in effect for the prior
interest period. If the initial base rate has been in effect for
the prior interest period, however, it will remain in effect for
the new interest period.
If the CMT rate cannot be determined in this
manner, the following procedures will apply.
S-13
•
if the designated CMT Moneyline Telerate page is
Moneyline Telerate page 7051, the rate for the relevant
interest determination date; or
•
if the designated CMT Moneyline Telerate page is
Moneyline Telerate page 7052, the weekly or monthly
average, as specified in your pricing supplement, for the week
that ends immediately before the week in which the relevant
interest determination date falls, or for the month that ends
immediately before the month in which the relevant interest
determination date falls, as applicable.
•
If the applicable rate described above is not
displayed on the relevant designated CMT Moneyline Telerate page
at 3:00 P.M., New York City time, on the relevant interest
calculation date (unless the calculation is made earlier and the
rate is available from that source at that time), then the CMT
rate will be the applicable treasury constant maturity rate
described above — i.e., for the designated CMT
index maturity and for either the relevant interest
determination date or the weekly or monthly average, as
applicable — as published in H.15(519).
•
If the applicable rate described above does not
appear in H.15(519) by 3:00 P.M., New York City time, on
the relevant interest calculation date (unless the calculation
is made earlier and the rate is available from that source at
that time), then the CMT rate will be the treasury constant
maturity rate, or other U.S. treasury rate, for the
designated CMT index maturity and with reference to the relevant
interest determination date, that:
•
is published by the Board of Governors of the
Federal Reserve System, or the U.S. Department of the
Treasury, and
•
is determined by the calculation agent to be
comparable to the applicable rate formerly displayed on the
designated CMT Moneyline Telerate page and published in
H.15(519).
•
If the rate described in the prior paragraph does
not appear by 3:00 P.M., New York City time, on the
relevant interest calculation date (unless the calculation is
made earlier and the rate is available from one of those sources
at that time), then the CMT rate will be the yield to maturity
of the arithmetic mean of the following secondary market offered
rates for the most recently issued treasury notes having an
original maturity of approximately the designated CMT index
maturity and a remaining term to maturity of not less than the
designated CMT index maturity minus one year and in a
representative amount: the offered rates, as of approximately
3:30 P.M., New York City time, on the relevant interest
determination date, of three primary U.S. government
securities dealers in New York City selected by the calculation
agent. In selecting these offered rates, the calculation agent
will request quotations from five of these primary dealers and
will disregard the highest quotation — or, if there is
equality, one of the highest — and the lowest
quotation — or, if there is equality, one of the
lowest. “Treasury notes” are direct,
non-callable, fixed rate obligations of the U.S. government.
•
If the calculation agent is unable to obtain
three quotations of the kind described in the prior paragraph,
the CMT rate will be the yield to maturity of the arithmetic
mean of the following secondary market offered rates for
treasury notes with an original maturity longer than the
designated CMT index maturity, with a remaining term to maturity
closest to the designated CMT index maturity and in a
representative amount: the offered rates, as of approximately
3:30 P.M., New York City time, on the relevant interest
determination date, of three primary U.S. government
securities dealers in New York City selected by the calculation
agent. In selecting these offered rates, the calculation agent
will request quotations from five of these primary dealers and
will disregard the highest quotation — or, if there is
equality, one of the highest — and the lowest
quotation — or, if there is equality, one of the
lowest. If two treasury notes with an original maturity longer
than the designated CMT index maturity have remaining terms to
maturity that are
CD Rate Notes.
If you purchase a CD rate note,
your note will bear interest at a base rate equal to the CD
rate, adjusted by the spread or spread multiplier, if any,
specified in your pricing supplement.
The “CD rate” will be the
rate, on the relevant interest determination date, for
negotiable U.S. dollar certificates of deposit having the
index maturity specified in your pricing supplement, as
published in H.15(519) under the heading “CDs (Secondary
Market)”. If the CD rate cannot be determined in this
manner, the following procedures will apply:
Federal Funds Rate Notes.
If you purchase a federal funds
rate note, your note will bear interest at a base rate equal to
the federal funds rate, adjusted by the spread or spread
multiplier, if any, specified in your pricing supplement.
The “federal funds rate”
will be the rate for U.S. dollar federal funds on
the relevant interest determination date, as published in
H.15(519) under the heading “Federal Funds
(Effective)”, as that rate is displayed on Moneyline
Telerate page 120. If the federal funds rate cannot be
determined in this manner, the following procedures will apply:
S-14
equally close to the designated CMT index
maturity, the calculation agent will obtain quotations for the
treasury note with the shorter remaining term to maturity.
•
If fewer than five but more than two of these
primary dealers are quoting as described in the prior paragraph,
then the CMT rate for the relevant interest determination date
will be based on the arithmetic mean of the offered rates so
obtained, and neither the highest nor the lowest of those
quotations will be disregarded.
•
If two or fewer primary dealers selected by the
calculation agent are quoting as described above, the CMT rate
in effect for the new interest period will be the CMT rate in
effect for the prior interest period. If the initial base rate
has been in effect for the prior interest period, however, it
will remain in effect for the new interest period.
•
If the rate described above does not appear in
H.15(519) by 3:00 P.M., New York City time, on the relevant
interest calculation date, then the CD rate for the relevant
interest determination date will be the rate described above as
published in H.15 daily update, or another recognized electronic
source used for displaying that rate, under the heading
“CDs (Secondary Market)”.
•
If the rate described above does not appear in
H.15(519), H.15 daily update or another recognized electronic
source by 3:00 P.M., New York City time, on the relevant
interest calculation date (unless the calculation is made
earlier and the rate is available from one of those sources at
that time), the CD rate will be the arithmetic mean of the
following secondary market offered rates for negotiable
U.S. dollar certificates of deposit of major
U.S. money center banks with a remaining maturity closest
to the specified index maturity, and in a representative amount:
the rates offered as of 10:00 A.M., New York City time, on
the relevant interest determination date, by three leading
nonbank dealers in negotiable U.S. dollar certificates of
deposit in New York City, as selected by the calculation agent.
•
If fewer than three dealers selected by the
calculation agent are quoting as described above, the CD rate in
effect for the new interest period will be the CD rate in effect
for the prior interest period. If the initial base rate has been
in effect for the prior interest period, however, it will remain
in effect for the new interest period.
•
If the rate described above is not displayed on
Moneyline Telerate page 120 at 3:00 P.M., New York
City time, on the relevant interest calculation date (unless the
calculation is made earlier and the rate is available from that
source at that time), then the federal funds rate for the
relevant interest determination date will be the rate described
above as published in H.15 daily update, or another recognized
electronic source used for displaying that rate, under the
heading “Federal Funds (Effective)”.
•
If the rate described above is not displayed on
Moneyline Telerate page 120 and does not appear in
H.15(519), H.15 daily update or another recognized electronic
source by 3:00 P.M., New York City time, on the
Special Rate Calculation Terms
In the section entitled
“— Interest Rates — Floating Rate
Notes”, we introduced several terms that have special
meanings relevant to calculating floating interest rates without
explaining the meanings. We define these terms as follows:
“Bond equivalent yield”
means a yield expressed as a
percentage and calculated in accordance with the following
formula:
relevant interest calculation date (unless the
calculation is made earlier and the rate is available from one
of those sources at that time), the federal funds rate will be
the arithmetic mean of the rates for the last transaction in
overnight, U.S. dollar federal funds arranged before
9:00 A.M., New York City time, on the relevant interest
determination date, by three leading brokers of U.S. dollar
federal funds transactions in New York City selected by the
calculation agent.
•
If fewer than three brokers selected by the
calculation agent are quoting as described above, the federal
funds rate in effect for the new interest period will be the
federal funds rate in effect for the prior interest period. If
the initial base rate has been in effect for the prior interest
period, however, it will remain in effect for the new interest
period.
|
bond equivalent yield =
|
D × N N - (D × M) |
× 100 |
where
| • | “D” means the annual rate for treasury bills quoted on a bank discount basis and expressed as a decimal; |
| • | “N” means 365 or 366, as the case may be; and |
| • | “M” means the actual number of days in the applicable interest rate period. |
“Business day” means a Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in that place generally are authorized or obligated by law or executive order to close.
“Designated CMT index maturity” means the index maturity for a CMT rate note and will be the original period to maturity of a U.S. treasury security — either 1, 2, 3, 5, 7, 10, 20 or 30 years — specified in your pricing supplement. If no such original maturity period is so specified, the designated CMT index maturity will be 2 years.
“Designated CMT Moneyline Telerate page” means the Moneyline Telerate page specified in your pricing supplement that displays treasury constant maturities as reported in H.15(519). If no Moneyline Telerate page is so specified, then the applicable page will be Moneyline Telerate page 7052. If Moneyline Telerate page 7052 applies but your pricing supplement does not specify whether the weekly or monthly average applies, the weekly average will apply.
“Euro business day” means any day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System, or any successor system, is open for business.
“Euro-zone” means, at any time, the region comprised of the member states of the European Economic and Monetary Union that, as of that time, have adopted a single currency in accordance with the Treaty on European Union of February 1992, as amended.
“H.15(519)” means the weekly statistical release entitled “Statistical Release H.15(519)”, or any successor publication, published by the Board of Governors of the Federal Reserve System.
“H.15 daily update” means the daily update of H.15(519) available through the worldwide-web site of the Board of Governors of the Federal Reserve System, at http://www.federalreserve.gov/releases/H15/update, or any successor site or publication.
“Index currency” means, with respect to a LIBOR note, the currency specified as such in your pricing supplement. The index currency may be U.S. dollars or any other currency, and will be U.S. dollars unless another currency is specified in your pricing supplement.
“Index maturity” means, with respect to a floating rate note, the period to maturity of the instrument or obligation on which the
S-15
“London market day”
means any day on which dealings in
the relevant index currency are transacted in the London
interbank market.
“Market day”
means, for any note, a day that
meets all the following applicable requirements:
“Money market yield”
means a yield expressed as a
percentage and calculated in accordance with the following
formula:
•
for all notes, is a business day in New York City;
•
if the note is a LIBOR note, is also a
London market day, unless otherwise specified in
your pricing supplement;
•
if the note has a specified currency other than
U.S. dollars or euros, is also a business day in the
principal financial center of the country issuing the specified
currency, unless otherwise specified in your pricing supplement;
•
if the note is a EURIBOR note or has a specified
currency of euros, or is a LIBOR note for which the index
currency is euros, is also a euro business day, unless
otherwise specified in your pricing supplement; and
•
for any other notes, is a business day in New
York City and as may be specified in your pricing supplement.
|
Money market yield =
|
D × 360 360 - (D × M) |
× 100 |
where
| • | “D” means the annual rate for commercial paper quoted on a bank discount basis and expressed as a decimal; and |
| • | “M” means the actual number of days in the relevant interest period. |
“Moneyline Telerate LIBOR page” means Moneyline Telerate page 3750 or any replacement page or pages on which London interbank rates of major banks for the relevant index currency are displayed.
“Moneyline Telerate page” means the display on Moneyline Telerate, Inc., or any successor service, on the page or pages specified in this prospectus supplement or your pricing supplement, or any replacement page or pages on that service.
“Principal financial center” means, unless otherwise specified in your pricing supplement, the capital city of the country issuing the specified currency, except that with respect to U.S. dollars, Australian dollars, Canadian dollars, South African rand and Swiss francs, the principal financial center will be The City of New York, Sydney, Toronto, Johannesburg and Zurich, respectively.
“Representative amount” means an amount that, in the calculation agent’s judgment, is representative of a single transaction in the relevant market at the relevant time.
“Reuters screen LIBOR page” means the display on the Reuters Monitor Money Rates Service, or any successor service, on the page designated as “LIBOR” or any replacement page or pages on which London interbank rates of major banks for the relevant index currency are displayed.
“Reuters screen US PRIME 1 page” means the display on the “US PRIME 1” page on the Reuters Monitor Money Rates Service, or any successor service, or any replacement page or pages on that service, for the purpose of displaying prime rates or base lending rates of major U.S. banks.
If, when we use the terms designated CMT Telerate page, H.15 (519), H.15 daily update, Reuters screen LIBOR page, Reuters screen US PRIME 1 page, Moneyline Telerate LIBOR page or Moneyline Telerate page, we refer to a particular heading or headings on any of those pages, those references include any successor or replacement heading or headings as determined by the calculation agent.
Redemption and Repayment
Unless otherwise indicated in your pricing supplement, your note will not be entitled to the benefit of any sinking fund — that is, we will not deposit money on a regular basis into any separate custodial account to repay your notes. In addition, we will not be entitled to redeem
S-16
If your pricing supplement specifies a redemption
commencement date, it will also specify one or more redemption
prices, which will be expressed as a percentage of the principal
amount of your note. It may also specify one or more redemption
periods during which the redemption prices relating to a
redemption of notes during those periods will apply.
If your pricing supplement specifies a redemption
commencement date, your note will be redeemable at our option at
any time on or after that date. If your pricing supplement
states that we may redeem notes in whole or in part, then we may
redeem your entire note or any portion of the principal amount
which would be an authorized denomination for the note, except
that any remaining unredeemed portion must be at least the
minimum denomination for the note. If we redeem your note, we
will do so at the specified redemption price, together with
interest accrued to the redemption date. If different prices are
specified for different redemption periods, the price we pay
will be the price that applies to the redemption period during
which your note is redeemed.
If we exercise an option to redeem any note, we
will give to the trustee and the holder written notice of the
principal amount of the note to be redeemed, not less than
30 days nor more than 60 days before the applicable
redemption date.
If your pricing supplement specifies an optional
repayment date, your note will be repayable at the option of the
holder on the specified optional repayment date at a repayment
price of 100% of the principal amount being redeemed, or, if
your note is an original issue discount note, at a price
specified in your pricing supplement, together with interest
accrued to the repayment date. If your pricing supplement states
that the holder may elect repayment of the note in whole or in
part, then the holder may elect repayment of the entire note or
any portion of the principal amount which would be an authorized
denomination for the note, except that any remaining unpaid
portion must be at least the minimum denomination for the note.
To obtain repayment, the holder must complete the “Option
to Elect Repayment” form on the note and surrender the note
at the corporate trust office of the trustee not more than
60 days nor less than 30 days before the date of
repayment. Exercise of the repayment option is irrevocable.
If a note represented by a global note is subject
to repayment at the holder’s option, the depository or its
nominee, as the holder, will be the only person that can
exercise the right to repayment. Any indirect holders who own
beneficial interests in the global note and wish to exercise a
repayment right must give proper and timely instructions to
their banks or brokers through which they hold their interest,
requesting that they notify the depository to exercise the
repayment right on their behalf. Different firms have different
deadlines for accepting instructions from their customers, and
you should take care to act promptly enough to ensure that your
request is given effect by the depository before the applicable
deadline for exercise.
Street name and other indirect holders should
contact their banks or brokers for information about how to
exercise a repayment right in a timely manner.
If the option of the holder to elect repayment as
described above is deemed to be a “tender offer”
within the meaning of Rule 14e-1 under the Securities
Exchange Act of 1934, as amended, we will comply with
Rule 14e-1 as then in effect to the extent applicable.
We or our affiliates may purchase notes from
investors who are willing to sell from time to time, either in
the open market at prevailing prices or in private transactions
at negotiated prices. Notes that we or they purchase may, at our
discretion, be held, resold or canceled.
Form of Notes
Unless your pricing supplement states otherwise,
we will issue all notes in the form of
S-17
Denomination of Notes
Unless we specify differently in your pricing
supplement, the denomination of your note will be $1,000 and
integral multiples of $1,000 above that. The denomination of
foreign currency notes will be specified in your pricing
supplement; however, no foreign currency notes will be issued
for less than $1,000 or its equivalent in other currencies or
composite currencies.
Payments on the Notes
In addition to the descriptions in this
subsection, you should read carefully the subsection entitled
“Description of Debt Securities We May Offer —
Additional Mechanics — Payment and Paying Agents”
in the accompanying prospectus for certain general procedures
that we follow in making payments to you.
Interest and, in the case of amortizing notes,
principal will be payable to the registered holder at the close
of business on the regular record date next preceding each
interest payment date. However, interest payable at maturity or
redemption will be payable to the registered holder to whom
principal is payable. In the case of a global note, the
registered holder will be the depositary or its nominee. The
first payment of interest and, in the case of amortizing notes,
principal, 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 that next succeeding
regular record date.
Unless otherwise indicated in your pricing
supplement, the regular record date means:
Fixed Rate
Notes. Unless otherwise specified
in your pricing supplement, interest on a fixed rate note will
be payable semi-annually or otherwise, on the dates specified in
the note and in your pricing supplement (we refer to each such
date as an interest payment date) and at maturity. Each payment
of interest due on an interest payment date or the date of
maturity will include interest accrued from and including the
last date to which interest has been paid or made available for
payment (or from the issue date if no interest has been paid or
made available for payment) to, but excluding, the interest
payment date or the date of maturity. We will compute interest
on fixed rate notes on the basis of a 360-day year consisting of
twelve 30-day months.
If any interest payment date or the date of
maturity of a fixed rate note falls on a day that is not a
market day, we will make the required payment of principal,
premium, if any, and interest on the next succeeding market day,
and no additional interest will accrue in respect of the payment
made on that next succeeding market day.
S-18
Who Receives Payment?
•
with respect to any floating rate note, the date
15 calendar days prior to each interest payment date, whether or
not that date is a market day.
•
with respect to any fixed rate note, the
fifteenth day of the month next preceding a scheduled interest
payment date that occurs on the first day of a month, or the
first day of a month where the scheduled interest payment date
is the fifteenth day of the month, in all cases, whether or not
the regular record date is a market day. For the purpose of
determining the holder at the close of business on a regular
record date when business is not being conducted, the close of
business will mean 5:00 P.M., New York City time, on that
day.
Payment Dates
Regardless of these rules, if we originally issue
a note after the regular record date and before the date that
would otherwise be the first interest payment date, the first
interest payment date will be the date that would otherwise be
the second interest payment date.
Floating Rate
Notes. Unless otherwise indicated
in your pricing supplement and except as provided below,
interest will be payable as follows:
Payments of interest on any floating rate note
with respect to any interest payment date will include interest
accrued from and including the last date to which interest has
been paid or made available for payment (or from the issue date
if no interest has been paid or made available for payment) to
but excluding that interest payment date or date of maturity, as
the case may be.
If any interest payment date other than the date
of maturity for any floating rate note would otherwise be a day
that is not a market day, such interest payment date will be
postponed to the next succeeding market day, except that in the
case of a floating rate note as to which LIBOR is the interest
rate basis and that market day falls in the next succeeding
calendar month, the particular interest payment date will be the
immediately preceding market day. If an interest payment date
falls on a date of maturity that is not a market day or if the
date of maturity falls on a day that is not a market day, we
will make the required payment of principal, premium, if any,
and interest on the next succeeding market day.
Regardless of these rules, if we originally issue
a note after the regular record date and before the date that
would otherwise be the first interest payment date, the first
interest payment date will be the date that would otherwise be
the second interest payment date.
In addition, the following special provision will
apply to a floating rate note with regard to any interest
payment date other than one that falls on the maturity. If the
interest payment date would otherwise fall on a day that is not
a market day, then the interest payment date will be the next
day that is a market day. However, if the floating rate note is
a LIBOR note or a EURIBOR note and the next market day falls in
the next calendar month, then the interest payment date will be
the next preceding day that is a market day.
Payment Mechanics
How We Will Make Payments on Global
Notes
We will make payments on a global note in
accordance with the applicable policies of the depository as in
effect from time to time. Currently, the depository is The
Depository Trust Company, New York, New York (DTC). Under
DTC’s policies, we will pay directly to DTC, or its
nominee, and not to any indirect holders who own beneficial
interests in the global note. We will do this by making the
funds available to the trustee on any interest payment date or
at maturity. As soon as possible after that, the trustee will
make such payments to DTC, and DTC will allocate and make such
payments to the holders of the notes in accordance with its
existing procedures. An indirect holder’s right to receive
those payments will be governed by the rules
S-19
•
in the case of floating rate notes which reset
daily, weekly or monthly, on the third Wednesday of each month
or on the third Wednesday of March, June, September and December
of each year, as indicated in your 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 your pricing supplement;
•
in the case of floating rate notes which reset
annually, on the third Wednesday of the month specified in your
pricing supplement (each an “interest payment
date”); and
•
in each case, at maturity.
Book-entry and other indirect holders
should consult their banks or brokers for information on how
they will receive payments.
We understand that, under DTC’s current
practice, DTC elects to have all payments on a global note for
which it is the depository made in U.S. dollars, regardless
of the specified currency for the payment, unless notified by a
bank or broker participating in its book-entry system, through
which an indirect holder’s beneficial interest in the
global note may be held, that it elects to receive payment in
the specified currency.
Election to Receive Payments in the
Specified Currency. Unless
otherwise indicated in your pricing supplement, if you are an
indirect holder of global notes or other notes held indirectly
through DTC denominated in a specified currency other than
U.S. dollars, you may elect to receive all or part of the
payments on your note in a specified currency other than
U.S. dollars, provided the following steps are properly
followed and completed by all parties involved:
If complete instructions are received by the
participant and forwarded by the participant to DTC, and by DTC
to the trustee, on or before the dates noted above, the trustee,
in accordance with DTC’s instructions, will make the
payments to you or your participant by wire transfer of
immediately available funds to an account maintained by the
payee with a bank located in the country issuing the specified
currency.
If the foregoing steps are not properly
completed, you will receive payments in U.S. dollars.
In some circumstances, we will make a payment in
U.S. dollars even though it is due in another currency. See
“— Payments Due in Other Currencies —
Payments Due in Other Currencies May Be Made in
U.S. Dollars”.
How We Will Make Payments on Certificated
Notes
Payments Due in
U.S. Dollars. If you hold a
certificated note, and the interest, principal or any premium
due on the note at maturity is due in U.S. dollars, we will
make the payments in the following manner. We will pay interest
that is due on an interest payment date which is not the
maturity for principal:
We will make payments of principal and any
premium and any interest due at maturity by wire transfer of
immediately available funds to an account at a bank in New York
City, on the due date, upon surrender of the note at the
corporate trust office of U.S. Bank Trust National
Association in the Borough of Manhattan,
S-20
•
You must notify the participant through which
your interest in the global note or other note is held of your
election:
•
on or before the applicable regular record date,
in the case of a payment of interest, or
•
on or before the 16th day prior to the stated
maturity, or any redemption or repayment date, in the case of
payment of principal or any premium.
•
Your participant must, in turn, notify DTC of
your election on or before the third business day in New York
City after that regular record date, or after that 16th day.
•
DTC, in turn, must notify the trustee of your
election in accordance with DTC’s procedures on or prior to
the fifth business day in New York City after that regular
record date or after that 16th day.
Indirect holders who own beneficial
interests in a global note denominated in a currency other than
U.S. dollars should consult their banks or brokers for
information on how to request payment in the specified
currency.
•
by check mailed on the interest payment date to
the holder at his or her address for payments shown on the
trustee’s records as of the close of business on the
regular record date, or
•
by wire transfer of immediately available funds
to an account at a bank in New York City, if the holder has
provided appropriate wire transfer instructions to the trustee
at least five days prior to the payment date.
Any instructions, once properly given, will
remain in effect unless and until new instructions are properly
given in the manner described above.
Payments Due in Other
Currencies. Unless otherwise
specified in your pricing supplement and except as described
below under “— Payments Due in Other Currencies
May Be Made in U.S. Dollars”, payments of interest and
principal, and premium, if any, with respect to any certificated
note to be made in a specified currency other than
U.S. dollars will be made by wire transfer of immediately
available funds to any account requested by the holder,
provided that the account is with a bank located in the
country issuing the specified currency or, with respect to notes
denominated in euros, in a euro account. To designate an account
for payment by wire transfer, the holder must give the trustee
appropriate wire transfer instructions at least five days prior
to the payment date. In the case of any interest payment due on
an interest payment date, the person giving the instruction must
be the holder on the related regular record date. In the case of
payment of principal and premium, if any, and any interest due
at maturity, the certificated note must be surrendered to the
trustee or another paying agent appointed with respect to your
note in time for the trustee or that paying agent to make such
payments in accordance with its normal procedures.
Any instructions, once properly given, will
remain in effect unless and until new instructions are properly
given in the manner described above.
If a holder fails to give instructions as
described above, we will notify the holder at the address in the
trustee’s records and will make the payment within five
market days after the holder provides appropriate instructions.
Any late payment made in these circumstances will be treated
under the indenture as if made on the due date, and no interest
will accrue on the late payment from the due date to the date
paid.
We will pay any administrative costs imposed by
banks in connection with making payments by wire transfer, but
holders of the notes must bear any tax, assessment or
governmental charge imposed upon such payments.
Payments Due in Other Currencies May Be
Made in U.S. Dollars
There are a few instances where we will make a
payment in U.S. dollars even though it is due in another
currency. We describe below these special situations.
Request by
Holder. Although a payment on a
certificated note may be due in a specified currency other than
U.S. dollars, we will make the payment in U.S. dollars
if the holder asks us to do so. To request U.S. dollar
payment, the holder must provide appropriate written notice to
the trustee at the trustee’s corporate trust office in the
Borough of Manhattan, The City of New York. In the case of any
interest payment due on an interest payment date, the request
must be made by the person who is the holder on the relevant
regular record date and must be made no later than that regular
record date. In the case of any other payment, the request must
be made by the person who is the holder on the due date of the
payment and must be made at least 16 days prior to the
payment date. Any request, once properly made, will remain in
effect unless and until revoked by notice properly given in the
manner described above.
S-21
Book-entry and other indirect holders of a
beneficial interest in a note with a specified currency other
than U.S. dollars should contact their banks or brokers for
information about how to receive payments in the specified
currency or in U.S. dollars.
When a holder requests that we make payments in
U.S. dollars of an amount due in another currency, either
on a global note or a certificated note as described above, we
will use the following process to determine the U.S. dollar
amount the holder receives. The exchange rate agent will request
currency bid quotations from three recognized foreign exchange
dealers in New York City, one of which may be the exchange rate
agent, on the second market day before the payment date for
purchase by the quoting dealer of the specified currency for
U.S. dollars for settlement on such payment date. The
currency bid quotations will be requested on an aggregate basis,
for all holders requesting U.S. dollar payments of amounts
payable on the same date in the same specified currency. Each
quoting dealer must commit to executing a contract. The
U.S. dollar amount the holder receives will be based on the
highest currency bid quotation received by the exchange rate
agent as of 11:00 A.M., New York City time, on such date of
quotation. If the exchange rate agent determines that three
currency bid quotations are not available on the second market
day, the payment will be made in the specified currency. A
holder that requests payment in U.S. dollars will bear all
associated currency exchange costs, which will be deducted from
the payment.
Unless otherwise specified in your pricing
supplement, U.S. Bank Trust National Association
initially will be the exchange rate agent for notes in a
specified currency other than U.S. dollars. We may change
the exchange rate agent from time to time without your consent
and without notifying you of the change.
All determinations made by the exchange rate
agent will be at its sole discretion unless we state in your
pricing supplement that any determination is subject to our
approval. In the absence of manifest error, those determinations
will be conclusive for all purposes and binding on you and us,
without any liability on the part of the exchange rate agent.
Currency Exchange
Controls. If we are obligated to
make any payment in a specified currency other than
U.S. dollars, and the specified currency is not available
due to the imposition of exchange controls or other
circumstances beyond our control, we will be entitled to satisfy
our obligation by making the payment in U.S. dollars on the
basis of the most recently available noon buying rate for cable
transfers of the other currency as reported by the Federal
Reserve Bank of New York. See “Risks Relating to Foreign
Currency Notes — Non-U.S. Dollar Notes Will
Permit Us to Make Payments in Dollars if We Are Unable to Obtain
the Specified Currency”. The foregoing will apply to any
note, whether in global or certificated form, and to any
payment, including a payment at maturity. Any payment made under
the circumstances and in a manner described above will not
constitute an event of default under the indenture.
Unavailability of Foreign
Currency. If any specified
currency is converted into or replaced by another currency
pursuant to law having general and direct applicability in the
jurisdiction which issued that specified currency (which may
include European Community law), we will make any payments on
notes otherwise required to be made in that specified currency
in the currency into or by which that specified currency has
been converted or replaced, based on the conversion or
equivalency rate prescribed by law having general and direct
applicability in that jurisdiction (which may include European
Community law), and that specified currency will not be deemed
to be unavailable to us solely by reason of that conversion or
replacement.
Similarly, if any currency is introduced in the
jurisdiction issuing any specified currency on the basis of
legally enforceable equivalency to that specified currency
pursuant to law having general and direct applicability in that
jurisdiction (which may include European Community law) in
preparation for conversion of that specified currency into, or
replacement of that specified currency by, that other currency,
we will be entitled, at our option, to make any payments on
notes otherwise required to be made in that specified currency
in that other currency based on the equivalency rate prescribed
by law having general and direct applicability in that
jurisdiction (which may include European Community law). Making
payments in accordance with this paragraph or the preceding
paragraph will not, by itself, constitute a default in our
obligations to make those pay-
S-22
RISKS RELATING TO INDEXED NOTES
THIS PROSPECTUS SUPPLEMENT AND ANY ATTACHED
PROSPECTUS (INCLUDING YOUR PRICING SUPPLEMENT) DO NOT DESCRIBE
ALL THE RISKS OF AN INVESTMENT IN INDEXED NOTES, AND YOU SHOULD
CONSULT YOUR OWN FINANCIAL AND LEGAL ADVISORS ABOUT THE RISKS OF
AN INVESTMENT IN INDEXED NOTES. IF YOU ARE UNSOPHISTICATED WITH
RESPECT TO INDEXED SECURITIES, THESE NOTES ARE NOT AN
APPROPRIATE INVESTMENT FOR YOU.
We use the term “indexed notes” to mean
notes whose value is linked to an underlying asset or index, as
well as units that include a note of this kind.
An investment in indexed notes presents
significant risks not associated with other types of securities.
If we issue indexed notes, we will describe certain risks
associated with that particular indexed note more fully in your
pricing supplement. Indexed notes may present a high level of
risk, and you may lose your entire investment if you purchase
indexed notes.
The treatment of indexed notes for
U.S. federal income tax purposes is often unclear due to
the absence of any authority specifically addressing the issues
presented by any particular indexed note. Thus, if you are an
investor in indexed notes, you, or your tax advisor, should, in
general, be capable of independently evaluating the federal
income tax consequences of purchasing an indexed note that apply
in your particular circumstances. You should also read
“United States Taxation” on page 15 of the
accompanying prospectus.
The principal amount of an indexed note payable
at maturity, the amount of interest payable on an interest
payment date and at maturity, and/or the cash value or physical
settlement value of a physically settled note, will be
determined by reference to one or more of the following:
We refer to each of these as an
“index”. Your pricing supplement will provide
information regarding the index that applies to your notes.
The direction and magnitude of the change in the
value of the relevant index will determine the principal amount
of an indexed note payable at maturity, the amount of interest
payable on an interest payment date and at maturity and/or the
cash value or physical settlement value of a physically settled
note. The terms of a particular indexed note may or may not
include a guaranteed return of a percentage of the face amount
at maturity or a minimum interest rate. Thus, if you purchase an
indexed note, you may lose all or a portion of the principal you
invest and may receive no interest on the note.
S-23
An Investment in Indexed Notes Presents
Significant Risks Not Associated with Other Types of
Securities
Investors in Indexed Notes Could Lose
Principal or Interest
•
currencies, including baskets or indices of
currencies;
•
commodities, including baskets or indices of
commodities;
•
securities, including baskets or indices of
securities; or
•
any other index or financial measure, including
the occurrence or non-occurrence of any event or circumstances.
Several factors, many of which are beyond our
control, will influence the value of indexed notes, including:
These factors will influence the price that you
will receive if you sell your indexed securities prior to
maturity. For example, you may have to sell your indexed
securities at a substantial discount from the issue price if the
market price of the reference property is at, below or not
sufficiently above the price of the reference property at
pricing.
You cannot predict the future performance of an
index or an indexed security based on its historical performance.
The issuer of a stock or other security that
serves as the reference property or as part of the reference
property for an indexed note will, unless otherwise provided in
your pricing supplement, have no involvement in the offer and
sale of the indexed note and no obligations to the holder of the
indexed note. The issuer may take actions, such as a merger or
sale of assets, without regard to the interests of the holders
of our indexed notes. Any of these actions could adversely
affect the value of a note indexed to the reference property.
The issuer of the reference property is not
involved in the offering of the indexed notes in any way and has
no obligation to consider your investment as owner of these
indexed notes in taking any corporate actions that might affect
the value of your notes. None of the money you pay for an
indexed note will go to a third-party issuer.
Certain indices are highly volatile, which means
that their value may change significantly, up or down, over a
short period of time. The expected principal amount payable at
maturity, the amount of interest payable on an interest payment
date and at maturity and the cash value or physical settlement
value of a physically settled note based on a volatile index may
vary substantially from time to time. Because the amount payable
on an indexed note is generally calculated based on the value of
the relevant index on a specified date or over a limited period
of time, volatility in the index increases the risk that the
return on the indexed notes may be adversely affected by a
fluctuation in the level of the relevant index.
The volatility of an index may be affected by
political or economic events, including government actions, or
by the activities of participants in the relevant markets. Any
of these could adversely affect the value of an indexed security.
Some indices may consist of or refer to several
different currencies, commodities, securities or other financial
instruments. The compiler of such an index typically reserves
the right to alter the composition of the index and the manner
in which the value of the index is calculated. An alteration may
result in a decrease in the value of or return on an indexed
note that is linked to the index.
An index may become unavailable due to events
such as war, natural disasters, cessation of publication of the
index or a suspension of, or disruption in, trading in the
currency or currencies, commodity or commodities, security or
securities or other financial instrument or
S-24
The Market Price of Indexed Notes Will
Be Influenced by Many Unpredictable Factors
•
the market price of the index stock or other
property, which we call the reference property;
•
the volatility (frequency and magnitude of
changes in price) of the reference property;
•
the dividend rate on the reference property;
•
economic, financial, political, regulatory or
judicial events that affect markets generally and which may
affect the market price of the reference property;
•
interest and yield rates in the market; and
•
the time remaining until (a) you can
exchange your indexed notes for the reference property,
(b) we can call the indexed notes, and (c) the indexed
notes mature.
The Issuer of Reference Property Could Take
Actions That May Adversely Affect an Indexed
Security
An Indexed Note May Be Linked to a
Volatile Index, Which Could Hurt Your Investment
An Index to Which a Note Is Linked
Could Be Changed or Become Unavailable
Indexed notes may be linked to indices that are
not commonly used or have been developed only recently. The lack
of a trading history may make it difficult to anticipate the
volatility or other risks associated with an indexed note of
this kind. In addition, trading in these indices or their
underlying currencies, commodities, securities or other
financial instruments may be limited, which could increase the
volatility of these indices and decrease the value of or return
on the related indexed notes.
As an owner of indexed notes, you will not have
voting rights or the right to receive dividends or other
distributions or any other rights with respect to reference
property.
In order to hedge an exposure on a particular
indexed note, we may enter into transactions involving the
currencies, commodities, securities or other financial
instruments that underlie the index for that note, or derivative
instruments, such as options, on those currencies, commodities,
securities or other financial instruments. Transactions of this
kind could affect the value of the indexed note in a manner
adverse to you, as investor.
You Have No Right to Any of Our Hedging
Profits
We may engage in activities to hedge our exposure
under an indexed note. We may have profits or losses from these
hedging activities. It is possible that we could achieve
substantial profits from our hedging transactions while the
value of the indexed note may decline. As a holder of an indexed
note, you will have no right to any of this profit.
Information about Indices May Not Be
Indicative of Future Performance
If we issue an indexed note, we may include
historical information about the relevant index in your pricing
supplement. Any information about indices that we may provide
will be furnished as a matter of information only, and you
should not regard the information as indicative of the range of,
or trends or fluctuations in, the relevant index that may occur
in the future.
RISKS RELATING TO
THIS PROSPECTUS SUPPLEMENT AND ANY ATTACHED
PROSPECTUS (INCLUDING YOUR PRICING SUPPLEMENT) DO NOT DESCRIBE
ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN
CURRENCIES OTHER THAN U.S. DOLLARS. YOU SHOULD CONSULT YOUR
OWN FINANCIAL AND LEGAL ADVISORS ABOUT THE RISKS OF AN
INVESTMENT IN NOTES DENOMINATED IN A CURRENCY, INCLUDING
ANY COMPOSITE CURRENCY, OTHER THAN U.S. DOLLARS. IF YOU ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS,
THESE NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR
YOU.
THE INFORMATION IN THIS SECTION IS
DIRECTED TO INVESTORS WHO ARE U.S. RESIDENTS AND DOES NOT
ADDRESS RISKS FOR INVESTORS WHO ARE NOT U.S. RESIDENTS. WE
DISCLAIM ANY
S-25
You Have No Rights with Respect to the
Reference Property
We May Engage in Hedging Activities That
Could Adversely Affect the Value of an Indexed
Note
An Investment in a Non-U.S. Dollar
Security Involves Currency-Related Risks
An investment in a note with a specified currency
other than U.S. dollars entails significant risks that are
not associated with a similar investment in a note denominated
in U.S. dollars. These risks include, for example, 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. These risks generally depend
on factors over which we have no control, such as economic and
political events and the supply of, and demand for, the relevant
currencies.
Currency Exchange Rates Can Be Volatile and
Unpredictable
In recent years, rates of exchange between the
U.S. dollar and many foreign currencies have been highly
volatile, and this volatility may be expected to continue and
perhaps spread to other currencies 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. Fluctuations in
currency exchange rates could adversely affect an investment in
a note with a specified currency other than U.S. dollars.
Depreciation of the specified currency against the
U.S. dollar could result in a decrease in the
U.S. dollar-equivalent value of payments on the note,
including the principal payable at maturity or the settlement
value payable upon exercise. That in turn could cause the market
value of the note to fall. Depreciation of the specified
currency against the U.S. dollar could result in a loss to
the investor on a U.S. dollar basis.
Government Policy Can Adversely Affect
Currency Exchange Rates and an Investment in a
Non-U.S. Dollar Security
Foreign exchange rates can either float or be
fixed by sovereign governments. From time to time, governments
use a variety of techniques, such as intervention by a
country’s central bank or imposition of regulatory controls
or taxes, to affect the exchange rate of their currencies.
Governments may also issue a new currency to replace an existing
currency or alter the exchange rate or exchange characteristics
by devaluation or revaluation of a currency. Thus, a special
risk in purchasing non-U.S. dollar denominated notes is
that their U.S. dollar-equivalent yields or payouts could
be significantly and unpredictably affected by governmental
actions. Even in the absence of governmental action directly
affecting currency exchange rates, political or economic
developments in the country issuing the specified currency for a
non-U.S. dollar note or elsewhere could lead to significant
and sudden changes in the exchange rate between the
U.S. dollar and the specified currency. These changes could
affect the U.S. dollar equivalent value of the note as
participants in the global currency markets move to buy or sell
the specified currency or U.S. dollars in reaction to those
developments.
Governments have imposed from time to time and
may in the future impose exchange controls or other conditions
with respect to the exchange or transfer of a specified currency
that could affect exchange rates as well as the availability of
a specified currency for a note at its maturity or on any other
payment date. In addition, the ability of a holder to move
currency freely out of the country in which it is paid or to
convert the currency at a freely determined market rate could be
limited by governmental actions.
Non-U.S. Dollar Notes Will Permit
Us to Make Payments in Dollars If We Are Unable to Obtain the
Specified Currency
Notes payable in a currency other than
U.S. dollars will provide that, if the other currency is
not available to us at or about the time when a payment on the
notes comes due because of circumstances beyond our control,
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Payments Due in Other Currencies May Be
Made from an Overseas Bank
Currently, there are limited facilities in the
United States for conversion of U.S. dollars into foreign
currencies, and vice versa. Accordingly, payments on notes made
in a specified currency other than U.S. dollars are likely
to be made from an account with a bank located in the country
issuing the specified currency.
Unless otherwise specified in your pricing
supplement, notes denominated in other than U.S. dollars
will not be sold in, or to residents of, the country issuing the
specified currency in which particular notes are denominated.
We Will Not Adjust Non-U.S. Dollar
Notes to Compensate for Changes in Currency Exchange
Rates
Except as may be described in your pricing
supplement, we will not make any adjustment or change in the
terms of a note payable in a currency other than
U.S. dollars in the event of any change in exchange rates
for that currency, whether in the event of any devaluation,
revaluation or imposition of exchange or other regulatory
controls or taxes or in the event of other developments
affecting that currency, the U.S. dollar or any other
currency. Consequently, if you are an investor in a
non-U.S. dollar note, you will bear the risk that your
investment may be adversely affected by these types of events.
In a Lawsuit for Payment on a
Non-U.S. Dollar Security, You May Bear Currency Exchange
Risk
The notes will be governed by New York law. Under
New York law, a New York state court rendering a judgment on a
note denominated in a currency other than U.S. dollars
would be required to render the judgment in the specified
currency; however, the judgment would be converted into
U.S. dollars at the exchange rate prevailing on the date of
entry of the judgment. Consequently, in a lawsuit for payment on
a note denominated in a currency other than U.S. dollars,
investors would bear currency exchange risk until a New York
state court judgment is entered, which could be a long time.
In courts outside of New York, you may not be
able to obtain a judgment in a specified currency other than
U.S. dollars. For example, a judgment for money in an
action based on a non-U.S. dollar note in many other
U.S. federal or state courts ordinarily would be enforced
in the United States only in U.S. dollars. The date used to
determine the rate of conversion of the currency in which any
particular note is denominated into U.S. dollars will
depend upon various factors, including which court renders the
judgment.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions of the
distribution agreement between us and the agents named on the
cover of this prospectus supplement, the agents have agreed to
use their reasonable efforts to solicit offers to purchase
notes. We have the sole right to accept offers to purchase notes
and may reject any proposed purchase of the notes. The agents
may also reject any offer to purchase notes. The agents are
Goldman, Sachs & Co.; Merrill Lynch, Pierce,
Fenner & Smith Incorporated; J.P. Morgan
Securities Inc., Morgan Stanley & Co. Incorporated; and
Citigroup Global Markets Inc. We may appoint agents, other than
and in addition to the named agents.
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We may also sell notes to the agents who will
purchase the notes as principal for their own accounts. These
sales will be made at a discount to be agreed at the time of
sale. Any notes the agents purchase as principal may be resold
at the market price or at other prices determined by the agents
at the time of resale. We may also sell notes directly on our
own behalf. We will not pay a commission on notes that we sell
directly.
The agents, whether acting as agents or
principals, may be deemed to be “underwriters” within
the meaning of the Securities Act of 1933. We have agreed to
indemnify the several agents against liabilities, including
liabilities under the 1933 Act.
The agents may sell to dealers who may resell to
investors, and the agents may pay all or part of the discount or
commission they receive from us to the dealers. Those dealers
may be deemed to be “underwriters” within the meaning
of the 1933 Act.
We estimate that our share of the total expenses
of the offering, excluding underwriting discounts and
commissions, will be approximately $1,000,000.
In connection with the offering of the notes, the
agents may purchase and sell notes in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short
sales involve the sale by the agents of a greater principal
amount of notes than they are required to purchase in the
offering. Stabilizing transactions consist of certain bids for
or purchases of notes made for the purpose of preventing or
retarding a decline in the market price of the notes while the
offering is in progress.
The agents also may impose a penalty bid. This
occurs when a particular agent repays to the agents a portion of
the underwriting discount received by it because the agents have
repurchased notes sold by or for the account of that agent in
stabilizing or short covering transactions.
These activities by the agents may stabilize,
maintain or otherwise affect the market price of the notes. As a
result, the price of the notes may be higher than the price that
otherwise might exist in the open market. If these activities
are commenced, they may be discontinued by the agents at any
time. These transactions may be effected in the over-the-counter
market or otherwise.
The notes are a new issue of securities with no
established trading market and will not be listed on a
securities exchange. We cannot give you any assurance about how
liquid or illiquid the trading market for the notes will be.
Unless otherwise specified in your pricing
supplement, notes denominated in a specified currency other than
U.S. dollars or euro will not be sold in the country
issuing that specified currency or to residents of that country.
Unless otherwise indicated in your pricing
supplement, the purchase price of the notes will be required to
be paid in immediately available funds in New York City.
Each of the agents and their affiliates may
engage in various transactions with us and perform various
services for us in the ordinary course of their businesses.
VALIDITY OF NOTES
Kenneth C. Frazier, our Senior Vice President and
General Counsel, will pass on the validity of the notes for us.
Sullivan & Cromwell LLP, 125 Broad Street, New York,
New York 10004, will pass on the validity of the notes for the
agents. The opinions of Mr. Frazier and Sullivan &
Cromwell LLP will be conditioned upon and subject to assumptions
regarding future actions required to be taken by us and the
trustee in connection with the issuance and sale of any
particular note, the specific terms of the notes and other
matters which may affect the validity of the notes but which
cannot be ascertained on the date of their opinions. As of
December 31, 2004, Mr. Frazier owned, directly
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S-29
$3,817,795,000
Merck & Co., Inc.
Debt Securities
Merck & Co., Inc. may from time to time issue debt securities at an aggregate initial offering price of up to $3,817,795,000 or the equivalent in other currencies, currency units or composite currencies. The accompanying prospectus supplement will specify the terms of the debt securities.
Merck & Co., Inc. may sell these debt securities to or through underwriters, dealers and agents, or directly to purchasers, on a delayed or continuous basis.
This prospectus describes some of the general terms that may apply to the debt securities and the general manner in which they may be offered. The specific terms of the debt securities, and the specific manner in which they may be offered, including the names of any underwriters or agents, will be described in a supplement to this prospectus.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Prospectus dated December 16, 2004.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the SEC utilizing a shelf registration process. Under this shelf process, we may sell any combination of the debt securities described in this prospectus in one or more offerings up to a total amount of $3,817,795,000. This prospectus provides you with a general description of the debt securities we may offer. Each time we sell debt securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add to or update other information contained in this prospectus. You should read both this prospectus and the accompanying prospectus supplement together with additional information described under the heading “Where You Can Find More Information” on page 29.
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MERCK
We are a global research-driven pharmaceutical products company that discovers, develops, manufactures and markets a broad range of innovative products to improve human and animal health, directly and through our joint ventures. Our products include therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. Among these are atherosclerosis products, hypertension/heart failure products, anti-inflammatory/analgesics agents, an osteoporosis product, a respiratory product, vaccines/biologicals, anti-bacterial/anti-fungal products, opthamologicals, a urology product, HIV products and other products.
We were incorporated in the State of New Jersey in 1927 and maintain our principal offices at Whitehouse Station, New Jersey. Our address is P.O. Box 100, One Merck Drive, Whitehouse Station, New Jersey 08889-0100, and our telephone number is (908) 423-1000.
The terms “Merck”, “we”, “us” or “our” generally refer to Merck & Co., Inc. and its consolidated subsidiaries, except that only Merck & Co., Inc. legally will be the issuer of the debt securities offered under this prospectus.
RECENT DEVELOPMENTS
On September 30, 2004, we announced a voluntary worldwide withdrawal of Vioxx, our arthritis and acute pain medication, based on data from a placebo-controlled clinical trial in which there was an increased relative risk for confirmed cardiovascular events, such as heart attack and stroke, beginning after 18 months of treatment in the patients taking Vioxx compared to those taking placebo. Numerous product liability, securities and other lawsuits relating to Vioxx have been brought against us, and additional lawsuits continue to be brought. We are also subject to government investigations relating to Vioxx. These proceedings and any other suits or proceedings relating to Vioxx that may arise are expected to continue for an undetermined number of years. For a detailed discussion of our withdrawal of Vioxx, its impact on our financial statements and various legal proceedings and investigations related to Vioxx, see pages 15-16 and 21-22 in our Form 10-Q for the quarter ended September 30, 2004. A series of highly unfavorable outcomes in legal proceedings or investigations against us related to Vioxx could have a material adverse effect on our financial position, liquidity and results of operations.
The loss of sales of Vioxx and the expected reduction in sales of Zocor (our statin for modifying cholesterol and currently our largest revenue-producing product) due to the expiration of its U.S. patent protection in 2006 mean that our future success is dependent on our pipeline of new products, including new products which we are able to obtain through license or acquisition. For a discussion of our research and developments efforts and Arcoxia, see pages 16 and 18-20 in our Form 10-Q for the quarter ended September 30, 2004 and pages 9-12 in our Form 10-K for the year ended December 31, 2003. We cannot state with certainty when or whether any of our products now under development will be launched; whether we will be able to develop, license or otherwise acquire compounds, product candidates or products; or whether any products, once launched, will be commercially successful. Lack of success in developing, licensing or acquiring new products, or a series of highly unfavorable outcomes in legal proceedings or investigations or in tax proceedings that have been disclosed, could have a material adverse effect on our financial position, liquidity and results of operations.
RATIOS OF EARNINGS TO
Our consolidated ratios of earnings to fixed charges for the six months ended September 30, 2004 and each of the fiscal years ended December 31, 1999 through 2003 are as follows:
| Nine Months Ended | Years Ended December 31, | |||||||||||||||||||
| September 30, | ||||||||||||||||||||
| 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||
|
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|
15 | 15 | 13 | 12 | 16 | |||||||||||||||
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For purposes of computing these ratios, “earnings” consist of income from continuing operations before taxes, one-third of rents (deemed by Merck to be representative of the interest factor inherent in rents), interest expense, net of amounts capitalized, equity (income) loss from affiliates, net of distributions, and dividends on preferred stock of subsidiary companies. “Fixed charges” consist of one-third of rents, interest expense as reported in Merck’s consolidated financial statements and dividends on preferred stock of subsidiary companies.
USE OF PROCEEDS
Unless otherwise indicated in the accompanying prospectus supplement, we will use the net proceeds from the sale of the debt securities for general corporate purposes, including the reduction of short-term debt. We may temporarily invest funds that we do not immediately need for these purposes in short-term marketable securities.
DESCRIPTION OF DEBT SECURITIES
General
In this description “you” means direct holders and not street name or other indirect holders of debt securities. Indirect holders should read information, beginning on page 13, entitled “— Legal Ownership and Book-Entry Issuance”.
The debt securities are not secured by any of our property or assets. Accordingly, your ownership of debt securities means you are one of our unsecured creditors. The debt securities are not subordinated to any of our other debt obligations and therefore they rank equally with all our other unsecured and unsubordinated indebtedness.
As required by federal law for all bonds and notes that are publicly offered, a document called the indenture governs the debt securities. The indenture is a contract, dated as of April 1, 1991, which we amended once and may amend further in the future, between us and U.S. Bank Trust National Association, which acts as trustee. The trustee has two main roles. First, the trustee can enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, described on page 12 under “— Remedies if an Event of Default Occurs”. Second, the trustee performs administrative duties for us, such as sending you interest payments, registering transfers of your debt securities to a new buyer if you sell and sending you notices.
The indenture and its associated documents contain the full legal text of the matters described in this section. New York law governs the indenture and will govern the debt securities. The indenture is an exhibit to our registration statement. See “Where You Can Find More Information” on page 29 for information on how to obtain a copy.
We may issue as many distinct series of debt securities under the indenture as we wish. There is no limit on the amount of debt securities we may issue under the indenture. Also, the provisions of the indenture allow us both to issue debt securities with terms different from those previously issued under the indenture, and also to “reopen” a previous issue of a series of debt securities and issue additional debt securities of that series. We may issue debt securities in amounts that exceed the total amount specified on the cover of your prospectus supplement at any time without your consent and without notifying you.
This section summarizes all the material terms of the debt securities that are common to all series unless otherwise indicated in the prospectus supplement relating to a particular series. Because this section is a summary, it does not describe every aspect of the debt securities and is subject to and qualified in its entirety by reference to all the provisions of the indenture, including definitions of some of the terms used in the indenture. We describe the meaning for only some of the important terms. We also include references in parentheses to some sections of the indenture. Whenever we refer to particular sections or defined terms of the
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We may issue the debt securities as original issue discount securities, which we would offer and sell at a substantial discount below their stated principal amount. (section 101) A prospectus supplement relating to original issue discount securities will describe federal income tax consequences and other special considerations applicable to them. We may also issue the debt securities as indexed securities or securities denominated in foreign currencies, currency units or composite currencies, as described in more detail in a prospectus supplement relating to any of these types of debt securities. A prospectus supplement relating to indexed debt securities or foreign currency debt securities will also describe any additional tax consequences or other special considerations applicable to these types of debt securities.
In addition, we will describe the material specific financial, legal and other terms particular to debt securities of each series in a prospectus supplement relating to debt securities of that series. A prospectus supplement relating to debt securities of a series will describe the following terms of the debt securities:
| • | the title of the debt securities of the series; | |
| • | any limit on the total principal amount of the debt securities of the series; | |
| • | the person to whom interest on a debt security is payable, if other than the holder on the regular record date; | |
| • | the date or dates on which the debt securities of the series are scheduled to mature; | |
| • | any rate or rates, which may be fixed or variable, per annum at which the debt securities of the series will bear interest, if any, and the date or dates from which any interest will accrue; | |
| • | the date or dates on which any interest on the debt securities of the series will be payable and the regular record date or dates we will use to determine who is entitled to receive each interest payment; | |
| • | the place or places where the principal and any premium and interest will be payable; | |
| • | any date after which, or any period or periods within which, and the price or prices at which, we will have the option to redeem the debt securities of the series, and the other detailed terms and provisions of any optional redemption right; | |
| • | any obligation we will have to redeem the debt securities of the series under a sinking fund or analogous provision or to redeem your debt securities at your option and the period or periods during which, the price or prices at which and the other specific terms under which, we would be obligated to redeem the debt securities of the series under any obligation of this kind; | |
| • | if other than denominations of $1,000 and integral multiples thereof, the denominations in which we will issue the debt securities of the series; | |
| • | if other than United States dollars, the currency of payment of the principal and any premium and interest on the debt securities of the series; | |
| • | any index or other special method we will use to determine the amount of principal or any premium or interest we will pay on the debt securities of the series; | |
| • | if we or you have a right to choose the currency, currency units or composite currencies in which payments on any of the debt securities of the series will be made, the currencies, currency units or composite currencies that we or you may elect, when we or you may make the election and the other specific terms of the right to make an election of this kind; | |
| • | if other than the principal amount, the portion of the principal amount of the debt securities of the series which will be payable upon the declaration of acceleration of the maturity of the debt securities of the series; | |
| • | the applicability of the provisions described on page 10 under “— Defeasance”; |
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| • | if we will issue the debt securities of the series only in the form of global securities as described below under “— Global Securities”, the name of the depository for the debt securities of the series and the circumstances under which the trustee may terminate the global securities and register separate debt securities in the names of persons other than the depository or its nominee if other than those circumstances described on page 14 under “— Special Situations When a Global Security will be Terminated”; and | |
| • | any other special terms of the debt securities of the series that are not inconsistent with the provisions of the indenture. |
We will attach the prospectus supplement relating to the debt securities of the series to the front of this prospectus.
We may issue debt securities other than the debt securities described in this prospectus. There is no requirement that we issue any other debt securities under the indenture. Thus, we may issue any other debt securities under other indentures or documentation, containing provisions different from those included in the indenture or applicable to one or more issues of the debt securities described in this prospectus.
Overview of Remainder of this Description
The remainder of this description summarizes:
| • | Additional mechanics relevant to the debt securities under normal circumstances, such as how you transfer ownership and where we make payments. | |
| • | Your rights under several special situations, such as if we merge with another company or if we want to change a term of the debt securities. | |
| • | Restrictive covenants contained in the indenture which specify particular business actions that we promise not to take. Particular debt securities of a series may have additional restrictive covenants. | |
| • | Our right to release ourselves from all or some of our obligations under the debt securities and the indenture by a process called defeasance. | |
| • | Your rights if we default or experience other financial difficulties. | |
| • | Our relationship with the trustee. |
Additional Mechanics
Form, Exchange and Registration of Transfer
We will issue the debt securities:
| • | only in fully registered form; | |
| • | without interest coupons; and | |
| • | unless otherwise indicated in the prospectus supplement, in denominations of $1,000 and integral multiples of $1,000. (section 302) |
You may have your debt securities broken into more debt securities of smaller denominations of not less than $1,000 or combined into fewer debt securities of larger denominations, as long as the total principal amount is not changed. (section 305) This is called an exchange.
You may exchange or register a transfer of debt securities at the office of the trustee. You may also replace lost, stolen or mutilated debt securities at that office. The trustee acts as our agent for registering debt securities in the names of holders and registering transfers of debt securities. We may change this appointment to another entity or perform it ourselves. The entity performing the role of maintaining the list of registered
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You will not be required to pay a service charge to register a transfer of debt securities or to exchange debt securities, but you may be required to pay for any tax or other governmental charge associated with the transfer or exchange. The security registrar will make the registration of transfer or exchange only if it is satisfied with your proof of ownership. (section 305)
If we have designated additional transfer agents, they are named in the prospectus supplement. We may cancel the designation of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts. (section 1002)
If the debt securities are redeemable and we redeem less than all of the debt securities of a particular series, we may block the registration of transfer or exchange of debt securities during the period beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of debt securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt security being partially redeemed. (section 305)
The rules for exchange described above apply to exchange of debt securities for other debt securities of the same series and tenor.
Payment and Paying Agents
We will pay interest to you on each date interest is due if you are a direct holder listed in the trustee’s records at the close of business on a particular day in advance of each due date for interest, even if you no longer own the debt security on the interest due date. That particular day, usually about two weeks in advance of the interest due date, is called the regular record date and is stated in the prospectus supplement. (section 307) Holders buying and selling debt securities must work out between them how to compensate for the fact that we will pay all the interest for an interest period to the one who is the registered holder on the regular record date. The most common manner is to adjust the sales price of the debt securities to pro-rate interest fairly between buyer and seller. This pro-rated interest amount is called accrued interest.
Unless otherwise stated in the prospectus supplement, we will pay interest, principal and any other money due on the debt securities at the corporate trust office of the trustee in New York City. (section 1002) That office is currently located at 100 Wall Street, 16th floor, New York, New York 10005. You must make arrangements to have your payments picked up at or wired from that office. We may also choose to pay interest by mailing checks.
Street name and other indirect holders should consult their banks or brokers for information on how they will receive payments.
We may also arrange for additional payment offices, and may cancel or change these offices, including our use of the trustee’s corporate trust office. These offices are called paying agents. We may also choose to act as our own paying agent. We must notify you of changes in the paying agents for any particular debt securities of the series. (section 1002)
Notices
We and the trustee will send notices regarding the debt securities only to direct holders, using their addresses as listed in the trustee’s records. (sections 101 and 106)
All paying agents must return to us all money paid by us that remains unclaimed two years after the amount is due to direct holders. After that two-year period, you may look only to us for payment and not to the trustee, any other paying agent or anyone else. (section 1003)
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Special Situations
Mergers and Similar Events
We may consolidate or merge with another company or firm. We may also sell or lease substantially all of our assets to another firm, or to buy or lease substantially all of the assets of another firm. However, we may not take any of these actions unless the following conditions, among others, are met:
| • | When we merge out of existence or sell or lease substantially all our assets, the other firm must be a corporation, partnership or trust organized under the laws of a U.S. state or the District of Columbia or under Federal law and it must agree to be legally responsible for the debt securities. | |
| • | The merger, sale of assets or other transaction must not cause a default on the debt securities, and we must not already be in default unless the merger or other transaction would cure the default. For purposes of this no-default test, a default would include an event of default, as described on page 11, that has occurred and not been cured. A default for this purpose would also include the occurrence of any event that would be an event of default if we received the required notice of our default or if under the indenture the default would become an event of default after existing for a specific period of time. (section 801) | |
| • | It is possible that the merger, sale of assets or other transaction would cause some of our property to become subject to a mortgage or other legal mechanism giving lenders preferential rights in that property over other lenders or over our general creditors if we fail to pay them back. We have promised to limit these preferential rights, as discussed under “— Restrictive Covenants” on pages 8 through 10. If a merger or other transaction would create any liens on any of our property we must comply with those restrictive covenants. We would do this either by deciding that the liens were permitted, or by following the requirements of the restrictive covenants to grant an equivalent or higher-ranking lien to you and the other direct holders of the debt securities on the same property that we own. |
If the conditions described above are satisfied with respect to any series of debt securities, we will not need to obtain the approval of the holders of those debt securities in order to merge or consolidate or to sell our assets. Also, these conditions will apply only if we wish to merge or consolidate with another entity or sell substantially all of our assets to another entity. We will not need to satisfy these conditions if we enter into other types of transactions, including any transaction in which we acquire the stock or assets of another entity, any transaction that involves a change of control but in which we do not merge or consolidate and any transaction in which we sell less than substantially all of our assets. It is possible that this type of transaction may result in a reduction in our credit rating, may reduce our operating results or may impair our financial condition. However, you will have no approval right with respect to any transaction of this type.
Modification and Waiver
There are three types of changes we can make to the indenture and the debt securities.
Changes Requiring Your Approval. First, there are changes that cannot be made to your debt securities without your specific approval. Following is a list of those types of changes:
| • | change the payment due date of any installment of the principal or any premium or interest on a debt security stated in the debt security; | |
| • | reduce any amounts due on a debt security; | |
| • | reduce the amount of principal payable upon acceleration of the maturity of an original issue discount debt security following a default; | |
| • | change the place or currency of payment on a debt security; | |
| • | impair your right to sue for payment; |
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| • | reduce the percentage of debt securities the holders of which must consent to modify or amend the indenture; | |
| • | reduce the percentage of debt securities the holders of which must consent to waive compliance with certain provisions of the indenture or to waive certain defaults; and | |
| • | modify any other aspect of the provisions dealing with modification and waiver of the indenture. (section 902) |
Changes Requiring a Majority Vote. The second type of change to the indenture and the debt securities is the kind that requires a vote in favor by direct holders owning not less than a majority of the principal amount of the debt securities of the particular series affected. (section 902) Most changes fall into this category, such as if we wish to obtain a waiver of all or part of the restrictive covenants described below, or a waiver of a past default. However, we cannot obtain a waiver of a payment default or any other aspect of the indenture or the debt securities listed in the first category above under “— Changes Requiring Your Approval” unless we obtain your individual consent to the waiver. (section 513)
Changes Not Requiring Approval. The third type of change does not require any vote by holders of debt securities. This type is limited to corrections and clarifications and other changes that would not adversely affect holders of the debt securities. (section 901)
Further Details Concerning Voting. When taking a vote, we will use the following rules to decide how much principal amount to attribute to a debt security:
| • | For original issue discount securities, we will use the principal amount that would be due and payable on the voting date if the maturity of the debt securities were accelerated to that date because of a default. | |
| • | For debt securities for which the principal amount is undetermined because, for example, it is based on an index, we will use a special rule for that series of debt security that we will describe in the prospectus supplement. | |
| • | For debt securities denominated in one or more foreign currencies or currency units, we will use the U.S. dollar equivalent. |
Debt securities will not be considered outstanding and therefore will not carry voting rights if we have deposited or set aside in trust for you money for their payment or redemption. Debt securities will also not be eligible to vote if they have been fully defeased as described on page 10 under “— Full Defeasance”. (section 101)
We may set any day as a record date for the purpose of determining the direct holders of outstanding debt securities that are entitled to vote or take other action under the indenture. (section 301) In some circumstances, the trustee may set a record date for action by direct holders.
Street name and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to change the indenture or the debt securities or request a waiver.
Restrictive Covenants
In the following description of restrictive covenants, we use several specialized terms without explaining the meaning when we use the terms. We define these terms, which appear in bold, italicized type without quotation marks the first time they appear, in “— Definitions Relating to our Restrictive Covenants” at the end of this subsection on page 9.
Restrictions on Secured Debt. Some of our property may be subject to a mortgage or other legal mechanism that gives our lenders preferential rights in that property over other lenders, including you and the other direct holders of the debt securities, or over our general creditors if we fail to pay them back. These preferential rights are called liens. Debt which is protected by these preferential rights is called secured debt. In the indenture, we promise that we will not incur any new secured debt that is secured by a lien on any of our
8
We do not need to comply with this restriction if the amount of all debt that would be secured by liens on principal domestic manufacturing properties, including the new debt, the debt securities which we would so secure as described in the previous sentence, and all attributable debt, that results from a sale and leaseback transaction involving principal domestic manufacturing properties, is less than 10% of our consolidated net tangible assets.
This restriction on secured debt does not apply to debt secured by certain types of liens, and we can disregard this secured debt when we calculate the limits imposed by this restriction. These types of liens are:
| • | liens on the property of any of our domestic subsidiaries, or on their shares of stock or debt, if those liens existed at the time the corporation became our domestic subsidiary; | |
| • | liens in favor of us or our domestic subsidiaries; | |
| • | liens in favor of U.S. governmental bodies that we granted in order to assure our payments to such bodies that we owe by law or because of a contract we entered into; | |
| • | liens on property that existed at the time we acquired the property, including property we may acquire through a merger or similar transaction, or that we granted in order to purchase the property, which are sometimes called purchase money mortgages; and | |
| • | debt secured by liens that extend, renew or replace any of these types of liens. |
We and our subsidiaries may have as much unsecured debt as we may choose. (section 1008)
Restrictions on Sales and Leasebacks. We promise that neither we nor any of our domestic subsidiaries will enter into any sale and leaseback transaction involving a principal domestic manufacturing property, unless we comply with this restrictive covenant. A sale and leaseback transaction generally is an arrangement between us or a domestic subsidiary and a bank, insurance company or other lender or investor where we or the domestic subsidiary sell a property to a lender or investor more than 120 days after the completion of construction of the property and the beginning of its full operation and we lease the property back from the lender.
We can comply with this restrictive covenant in either of two ways:
| • | First, we will be in compliance if we or our domestic subsidiary could grant a lien on the principal domestic manufacturing property in an amount equal to the attributable debt for the sale and leaseback transaction without being required to grant an equivalent or higher-ranking lien to you and the other direct holders of the debt securities under the restriction on secured debt described above. | |
| • | Second, we can comply if we retire an amount of funded debt, within 120 days of the transaction, equal to at least the net proceeds of the sale of the principal domestic manufacturing property that we lease in the transaction or the fair value of that property, subject to credits for voluntary retirements of debt securities and funded debt we may make, whichever is greater. |
This restriction on sales and leasebacks does not apply to any sale and leaseback transaction that is between us and one of our domestic subsidiaries or between domestic subsidiaries, or that involves a lease for a period of three years or less. (section 1009)
Definitions Relating to our Restrictive Covenants. Following are the meanings of the terms that are important in understanding the restrictive covenants previously described:
| • | “Attributable debt” means the total net amount of rent, discounted at 1% per annum compounded semi-annually, that is required to be paid during the remaining term of any lease. |
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| • | “Consolidated net tangible assets” is the total amount of assets, less reserves and certain other permitted deductible items, after subtracting all current liabilities and all goodwill, trade names, trademarks, patents, unamortized debt discounts and expenses and similar intangible assets, as such amounts appear on our most recent consolidated balance sheet and computed in accordance with generally accepted accounting principles. | |
| • | A “domestic subsidiary” means any of our subsidiaries which transacts substantially all of its business in the United States, has substantially all of its fixed assets located in the United States, or owns or leases principal domestic manufacturing property. However, a subsidiary whose principal business is financing our operations outside of the United States is not a domestic subsidiary. A subsidiary is a corporation in which we and/or one or more of our other subsidiaries owns at least 50% of the voting stock, which is a kind of stock that ordinarily permits its owners to vote for the election of directors. | |
| • | “Funded debt” means all debt for borrowed money that either has a maturity of 12 months or more from the date on which the calculation of funded debt is made or has a maturity of less than 12 months from that date but is by its terms renewable or extendible beyond 12 months from that date at the option of the borrower. | |
| • | A “principal domestic manufacturing property” is any building or other structure or facility, and the land on which it sits and its associated fixtures, that we use primarily for manufacturing or processing and that is located in the United States, other than a building, structure or other facility that our board of directors has determined is not of material importance to the total business that we and our subsidiaries conduct or a building or structure which is financed by obligations issued by a U.S. governmental entity, the interest of which is excludable from gross income of the holders under provisions of the tax code. |
Defeasance
The following discussion of full defeasance and covenant defeasance will be applicable to your debt securities only if we choose to have those provisions apply to securities of that series. If we do so choose, we will state that in the prospectus supplement. (section 1301)
Full Defeasance. If there is a change in federal tax law, as described below, we can legally release ourselves from any payment or other obligations on the debt securities of a series if we put in place other arrangements for you to be repaid. This is called full defeasance. In order to achieve full defeasance, we must do the following:
| • | We must deposit in trust for your benefit and the benefit of all other direct holders of the debt securities of the series any combination of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the debt securities of that series on their various due dates. | |
| • | There must be a change in current federal tax law or an IRS ruling that lets us make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves. (Under current federal tax law, the deposit and our legal release from the debt securities would be treated as though we took back your debt securities and gave you your share of the cash and notes or bonds deposited in trust. In that event, you could recognize gain or loss on the debt securities you give back to us.) | |
| • | We must deliver to the trustee a legal opinion of our counsel confirming the tax law change described above. |
If we ever did accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment on the debt securities. You could not look to us for repayment in the unlikely event of any shortfall. (sections 1302 and 1304)
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Covenant Defeasance. Under current federal tax law, we can make the same type of deposit described above and be released from some of the restrictive covenants in the debt securities. This is called covenant defeasance. In that event, you would lose the protection of those restrictive covenants but would gain the protection of having money and securities set aside in trust to repay the debt securities. In order to achieve covenant defeasance of the debt securities of a series, we must do the following:
| • | We must deposit in trust for your benefit and the benefit of all other direct holders of the debt securities of the series any combination of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates. | |
| • | We must deliver to the trustee a legal opinion of our counsel confirming that under current federal income tax law we may make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves. |
If we accomplish covenant defeasance, the following provisions of the indenture and the debt securities would no longer apply:
| • | Our promises regarding conduct of our business previously described on pages 8 through 10 under “— Restrictive Covenants”, and any other similar covenants applicable to the debt securities of the series and described in the prospectus supplement. | |
| • | The condition regarding the treatment of liens when we merge or engage in similar transactions, as described on page 6 under “— Mergers and Similar Events”. | |
| • | The events of default relating to breach of covenants and acceleration of the maturity of other debt, described below under “— Default and Remedies — Events of Default — What Is an Event of Default?” |
If we accomplish covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit. In fact, if one of the remaining events of default occurred, such as our bankruptcy, and the debt securities become immediately due and payable, there may be such a shortfall in the trust deposit. (sections 1303 and 1304)
Default and Remedies — Events of Default
You will have special rights if an event of default occurs and is not cured, as described later in this subsection.
What Is an Event of Default?
The term event of default means any of the following:
| • | We do not pay the principal or any premium on a debt security of your series on its due date. | |
| • | We do not pay interest on a debt security of your series within 30 days of its due date. | |
| • | We do not deposit money into a separate custodial account known as a sinking fund when such deposit is due, if we agreed to maintain a sinking fund for your debt securities and other debt securities of the same series. | |
| • | We remain in breach of either of the restrictive covenants described on pages 8 through 10 under “— Restrictive Covenants” or any other covenant or warranty in the indenture for 90 days after we receive a notice of default stating we are in breach. The notice must be sent by either the trustee or direct holders of at least 25% of the principal amount of debt securities of the affected series. | |
| • | We file for bankruptcy or other specific events of bankruptcy, insolvency or reorganization occur. | |
| • | Any other event of default described in the prospectus supplement occurs. (section 501) |
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Remedies if an Event of Default Occurs.
If an event of default has occurred and has not been cured, the trustee or the direct holders of at least 25% in principal amount of the outstanding debt securities of the affected series may declare the entire principal amount of all the debt securities of that series to be due and immediately payable. This is called a declaration of acceleration of maturity. The direct holders of at least a majority in principal amount of the debt securities of the affected series may cancel a declaration of acceleration of maturity. (section 502)
Except in cases of default, where the trustee has some special duties, the trustee is not required to take any action under the indenture at the request of any holders unless the direct holders offer the trustee reasonable protection, called an indemnity, against expenses and liability. (section 603) If reasonable indemnity is provided, the direct holders of a majority in principal amount of the outstanding debt securities of the relevant series may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. These majority direct holders may also direct the trustee in performing any other action under the indenture. (section 512)
Before you bypass the trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the debt securities, the following must occur:
| • | You must give the trustee written notice that an event of default has occurred and remains uncured. | |
| • | The direct holders of at least 25% in principal amount of all outstanding debt securities of the relevant series must make a written request that the trustee take action because of the default, and must offer reasonable indemnity to the trustee against the cost and other liabilities of taking that action. | |
| • | The trustee must have not received from direct holders of a majority in principal amount of the outstanding debt securities of that series a direction inconsistent with the written notice. | |
| • | The trustee must have not taken action for 60 days after receipt of the above notice and offer of indemnity. (section 507) |
However, you are entitled at any time to bring a lawsuit for the payment of money due on your debt security on or after its due date. (section 508)
Street name and other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request of the trustee and to make or cancel a declaration of acceleration.
We will furnish to the trustee every year a written statement of our officers certifying that to their knowledge we are in compliance with the indenture and the debt securities, or else specifying any default. (section 1004)
Our Relationship with the Trustee
U.S. Bank Trust National Association is the trustee under the indenture. The trustee performs services for us in the ordinary course of business.
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LEGAL OWNERSHIP AND BOOK-ENTRY ISSUANCE
Street Name and Other Indirect Holders
We generally will not recognize investors who hold debt securities in accounts at banks or brokers as legal holders of debt securities. Holding in that way is called holding in street name. Instead, we would recognize only the bank or broker, or the financial institution the bank or broker uses to hold its debt securities. These intermediary banks, brokers and other financial institutions pass along principal, interest and other payments on the debt securities, either because they agree to do so in their customer agreements or because they are legally required to. If you hold debt securities in street name, you should check with your own institution to find out:
| • | how it handles securities payments and notices; | |
| • | whether it imposes fees or charges; | |
| • | how it would handle voting if ever required; | |
| • | whether and how you can instruct it to send you debt securities registered in your own name so you can be a direct holder as described below; and | |
| • | how it would pursue rights under the debt securities if there were a default or other event triggering the need for holders to act to protect their interests. |
Direct Holders
Our obligations, as well as the obligations of the trustee and those of any third parties employed by us or the trustee, run only to persons or entities who are the direct holders of debt securities, i.e., those who are registered as holders of debt securities. As noted above, we do not have obligations to you if you hold in street name or through other indirect means, either because you choose to hold debt securities in that manner or because we issued the debt securities in the form of global securities as described below. For example, once we make payment to the registered holder, we have no further responsibility for the payment even if that registered holder is legally required to pass the payment along to you as a street name customer but does not do so.
Global Securities
What is a Global Security? A global security is a special type of indirectly held security, as described above under “— Street Name and Other Indirect Holders”. If we choose to issue debt securities in the form of global securities only, the ultimate beneficial owners can only be indirect holders. We do this by requiring that the global security be registered in the name of a financial institution or clearing system, or their nominee, that we select and by requiring that the debt securities included in the global security not be transferred to the name of any other direct holder unless the special circumstances described below occur. The financial institution that acts as the sole direct holder of the global security is called the depository. The Depository Trust Company, New York, New York, known as DTC, may be a depository for one or more series of debt securities. For information regarding DTC, see “— Considerations Relating to DTC” on page 14.
Any person wishing to own a debt security included in a global security must do so indirectly by virtue of an account with a broker, bank or other financial institution that in turn has an account with the depository. The prospectus supplement indicates whether we will issue your debt securities only in the form of global securities.
Special Investor Considerations for Global Securities. The account rules of your financial institution and the rules of the depository, as well as general laws relating to securities transfers, will govern your rights as an indirect holder of a global security. We will not recognize you as a registered holder of debt securities and instead will deal only with the depository that holds the global security.
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You should be aware that if debt securities are issued only in the form of global securities:
| • | You cannot have debt securities registered in your own name. | |
| • | You cannot receive physical certificates for your interest in the debt securities. | |
| • | You will be a street name holder and must look to your own bank or broker for payments on the debt securities and protection of your legal rights relating to the debt securities. See “— Street Name and Other Indirect Holders” on page 13. | |
| • | You may not be able to sell interests in the debt securities to some insurance companies and other institutions that are required by law to own their securities as direct holders. | |
| • | The depository’s policies will govern payments, transfers, exchange and other matters relating to your interest in the global security, and those policies may change from time to time. We and the trustee have no responsibility for any aspect of the depository’s actions or for its records of ownership interests in the global security. We and the trustee also do not supervise the depository in any way. | |
| • | Financial institutions that participate in the depositary’s book-entry system and through which investors hold their interests in the global securities, directly or indirectly, may also have their own policies affecting payments, deliveries, transfers, exchanges, notices and other matters relating to the debt securities, and those policies may change from time to time. We do not monitor and are not responsible for the policies or actions or records of ownership interests of any of those intermediaries. | |
| • | The depository will require that you purchase or sell interests in a global security within its system using same-day funds for settlement. |
Special Situations When a Global Security will be Terminated. In a few special situations described below, the trustee will terminate the global security and will exchange interests in it for separate certificates representing debt securities. After that exchange, the choice of whether to hold debt securities directly or in street name will be up to you. You must consult your own bank or broker to find out how to have your interests in the debt securities transferred to your own name, so that you will be a direct holder. We previously described the rights of street name investors and direct holders in the debt securities in the subsections entitled, “— Street Name and Other Indirect Holders” on page 13 and “— Direct Holders” on page 13.
The special situations for termination of a global security are:
| • | When the depository notifies us that it is unwilling, unable or no longer qualified to continue as depository, | |
| • | When we notify the trustee that we wish to terminate the global security, or | |
| • | When an event of default on the debt securities has occurred and has not been cured. Defaults are discussed on pages 11 and 12 under “— Default and Remedies — Events of Default”. |
The prospectus supplement may also list additional situations for terminating a global security that would apply only to the particular debt securities of the series covered by the prospectus supplement. When a global security terminates, the depository, and not we or the trustee, is responsible for deciding the names of the institutions that will be the initial direct holders. (sections 204 and 305)
Considerations Relating to DTC. DTC has informed us that it is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act of 1934. DTC holds securities that DTC participants deposit with DTC. DTC also facilitates the settlement among DTC participants of securities transactions, such as transfers and pledges in deposited securities through electronic computerized book-entry changes in DTC participants’ accounts, thereby eliminating the need for physical movement of certificates. DTC participants include securities brokers and dealers, banks, trust companies and clearing corporations, and may include other organizations. DTC is owned by a number of its DTC participants and by the New York Stock Exchange,
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Purchases of securities within the DTC system must be made by or through DTC participants, which will receive a credit for the securities on DTC’s records. Transfers of ownership interests in the securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners.
Redemption notices will be sent to DTC’s nominee, Cede & Co., as the registered holder of the securities. If less than all of the securities are being redeemed, DTC will determine the amount of the interest of each direct participant to be redeemed in accordance with its then current procedures.
In instances in which a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to the securities. Under its usual procedures DTC would mail an omnibus proxy to the relevant trustee as soon as possible after the record date. The omnibus proxy assigns Cede & Co.’s consenting or voting rights to those direct participants to whose accounts such securities are credited on the record date (identified in a listing attached to the omnibus proxy).
Distribution payments on the securities will be made by the relevant trustee to DTC. DTC’s usual practice is to credit direct participants’ accounts on the relevant payment date in accordance with their respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices and will be the responsibility of such participants and not of DTC, the relevant trustee or us, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of distributions to DTC is the responsibility of the relevant trustee, and disbursements of such payment to the beneficial owners are the responsibility of direct and indirect participants.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that we believe to be accurate, but we assume no responsibility for the accuracy thereof. We do not have any responsibility for the performance by DTC or its participants of their respective obligations as described herein or under the rules and procedures governing their respective operations.
UNITED STATES TAXATION
This section describes the material United States federal income tax consequences of owning the debt securities we are offering. It applies to you only if you acquire debt securities in the offering and you hold your debt securities as capital assets for tax purposes. This section does not apply to you if you are a member of a class of holders subject to special rules, such as:
| • | a dealer in securities or currencies, | |
| • | a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings, | |
| • | a bank, | |
| • | a life insurance company, | |
| • | a tax-exempt organization, | |
| • | a person that owns debt securities that are a hedge or that are hedged against interest rate or currency risks, | |
| • | a person that owns debt securities as part of a straddle or conversion transaction for tax purposes, or | |
| • | a United States holder (as defined below) whose functional currency for tax purposes is not the U.S. dollar. |
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This section deals only with debt securities 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 owning debt securities that are due to mature more than 30 years from their date of issue will be discussed in an applicable prospectus supplement. This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.
Please consult your own tax advisor concerning the consequences of owning these debt securities in your particular circumstances under the Code and the laws of any other taxing jurisdiction.
United States Holders
This subsection describes the tax consequences to a United States holder. You are a United States holder if you are a beneficial owner of a debt security and you are:
| • | a citizen or resident of the United States, | |
| • | a domestic corporation, | |
| • | an estate whose income is subject to United States federal income tax regardless of its source, or | |
| • | a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust. |
If you are not a United States holder, this subsection does not apply to you and you should refer to “— United States Alien Holders” below.
Payments of Interest
Except as described below in the case of interest on a discount debt security that is not qualified stated interest each as defined below under “— Original Issue Discount — General”, you will be taxed on any interest on your debt security, whether payable in U.S. dollars or a foreign currency, including a composite currency or basket of currencies other than U.S. dollars as ordinary income at the time you receive the interest or when it accrues, depending on your method of accounting for tax purposes.
Cash Basis Taxpayers. If you are a taxpayer that uses the cash receipts and disbursements method of accounting for tax purposes and you receive an interest payment that is denominated in, or determined by reference to, a foreign currency, you must recognize income equal to the U.S. dollar value of the interest payment, based on the exchange rate in effect on the date of receipt, regardless of whether you actually convert the payment into U.S. dollars.
Accrual Basis Taxpayers. If you are a taxpayer that uses an accrual method of accounting for tax purposes, you may determine the amount of income that you recognize with respect to an interest payment denominated in, or determined by reference to, a foreign currency by using one of two methods. Under the first method, you will determine the amount of income accrued 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, that part of the period within the taxable year.
If you elect the second method, you would 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, under this second method, if you receive a payment of interest within five business days of the last day of your accrual period or taxable year, you may instead translate the interest accrued into U.S. dollars at the exchange rate in effect on the day that you actually receive the interest payment. If you elect the second method it will apply to all debt instruments that you hold at the beginning of the first taxable year to which the election applies and to all debt instruments that you subsequently acquire. You may not revoke this election without the consent of the Internal Revenue Service.
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When you actually receive an interest payment, including a payment attributable to accrued but unpaid interest upon the sale or retirement of your debt security, denominated in, or determined by reference to, a foreign currency for which you accrued an amount of income, you will recognize ordinary income or loss measured by the difference, if any, between the exchange rate that you used to accrue interest income and the exchange rate in effect on the date of receipt, regardless of whether you actually convert the payment into U.S. dollars.
Original Issue Discount
General. If you own a debt security, other than a short-term debt security with a term of one year or less, it will be treated as a discount debt security issued at an original issue discount if the amount by which the debt security’s stated redemption price at maturity exceeds its issue price is more than a de minimis amount. Generally, a debt security’s issue price will be the first price at which a substantial amount of debt securities included in the issue of which the debt security is a part is sold to persons other than bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers. A debt security’s stated redemption price at maturity is the total of all payments provided by the debt security that are not payments of qualified stated interest. Generally, an interest payment on a debt security is qualified stated interest if it is one of a series of stated interest payments on a debt security 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 debt security. There are special rules for variable rate debt securities that are discussed under “— Variable Rate Debt Securities”.
In general, your debt security is not a discount debt security if the amount by which its stated redemption price at maturity exceeds its issue price is less than the de minimis amount of 1/4 of 1 percent of its stated redemption price at maturity multiplied by the number of complete years to its maturity. Your debt security will have de minimis original issue discount if the amount of the excess is less than the de minimis amount. If your debt security has de minimis original issue discount, you must include the de minimis amount in income as stated principal payments are made on the debt security, unless you make the election described below under “— Election to Treat All Interest as Original Issue Discount”. You can determine the includible amount with respect to each such payment by multiplying the total amount of your debt security’s de minimis original issue discount by a fraction equal to:
| • | the amount of the principal payment made |
divided by:
| • | the stated principal amount of the debt security. |
Generally, if your discount debt security matures more than one year from its date of issue, you must include original issue discount, or OID, in income before you receive cash attributable to that income. The amount of OID that you must include in income is calculated using a constant-yield method, and generally you will include increasingly greater amounts of OID in income over the life of your debt security. More specifically, you can calculate the amount of OID that you must include in income by adding the daily portions of OID with respect to your discount debt security for each day during the taxable year or portion of the taxable year that you hold your discount debt security. You can determine the daily portion by allocating to each day in any accrual period a pro rata portion of the OID allocable to that accrual period. You may select an accrual period of any length with respect to your discount debt security and you may vary the length of each accrual period over the term of your discount debt security. However, no accrual period may be longer than one year and each scheduled payment of interest or principal on the discount debt security must occur on either the first or final day of an accrual period.
You can determine the amount of OID allocable to an accrual period by:
| • | multiplying your discount debt security’s adjusted issue price at the beginning of the accrual period by your debt security’s yield to maturity, and then |
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| • | subtracting from this figure the sum of the payments of qualified stated interest on your debt security allocable to the accrual period. |
You must determine the discount debt security’s yield to maturity on the basis of compounding at the close of each accrual period and adjusting for the length of each accrual period. Further, you determine your discount debt security’s adjusted issue price at the beginning of any accrual period by:
| • | adding your discount debt security’s issue price and any accrued OID for each prior accrual period, and then | |
| • | subtracting any payments previously made on your discount debt security that were not qualified stated interest payments. |
If an interval between payments of qualified stated interest on your discount debt security contains more than one accrual period, then, when you determine the amount of OID allocable to an accrual period, you must allocate 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, pro rata to each accrual period in the interval based on their relative lengths. In addition, you must increase the adjusted issue price at the beginning of each accrual period in the interval 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. You may compute the amount of OID allocable to an initial short accrual period by 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 equal to the difference between:
| • | the amount payable at the maturity of your debt security, other than any payment of qualified stated interest, and | |
| • | your debt security’s adjusted issue price as of the beginning of the final accrual period. |
Acquisition Premium. If you purchase your debt security for an amount that is less than or equal to the sum of all amounts, other than qualified stated interest, payable on your debt security after the purchase date but is greater than the amount of your debt security’s adjusted issue price, as determined above under “— General”, the excess is acquisition premium. If you do not make the election described below under “— Election to Treat All Interest as Original Issue Discount”, then you must reduce the daily portions of OID by a fraction equal to:
| • | the excess of your adjusted basis in the debt security immediately after purchase over the adjusted issue price of the debt security |
divided by:
| • | the excess of the sum of all amounts payable, other than qualified stated interest, on the debt security after the purchase date over the debt security’s adjusted issue price. |
Pre-Issuance Accrued Interest. An election may be made to decrease the issue price of your debt security by the amount of pre-issuance accrued interest if:
| • | a portion of the initial purchase price of your debt security is attributable to pre-issuance accrued interest, | |
| • | the first stated interest payment on your debt security is to be made within one year of your debt security’s issue date, and | |
| • | the payment will equal or exceed the amount of pre-issuance accrued interest. |
If this election is made, 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 your debt security.
Debt Securities Subject to Contingencies Including Optional Redemption. Your debt security is subject to a contingency if it provides for an alternative payment schedule or schedules applicable upon the occurrence
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| • | the timing and amounts of the payments that comprise each payment schedule are known as of the issue date and | |
| • | one of such schedules is significantly more likely than not to occur. |
If there is no single payment schedule that is significantly more likely than not to occur, other than because of a mandatory sinking fund, you must include income on your debt security in accordance with the general rules that govern contingent payment obligations. These rules will be discussed in the applicable prospectus supplement.
Notwithstanding the general rules for determining yield and maturity, if your debt security is subject to contingencies, and either you or we have an unconditional option or options that, if exercised, would require payments to be made on the debt security under an alternative payment schedule or schedules, then:
| • | in the case of an option or options that we may exercise, we will be deemed to exercise or not exercise an option or combination of options in the manner that minimizes the yield on your debt security and | |
| • | in the case of an option or options that you may exercise, you will be deemed to exercise or not exercise an option or combination of options in the manner that maximizes the yield on your debt security. |
If both you and we hold options described in the preceding sentence, those rules will apply to each option in the order in which they may be exercised. You may determine the yield on your debt security for the purposes of those calculations by using any date on which your debt security may be redeemed or repurchased as the maturity date and the amount payable on the date that you chose in accordance with the terms of your debt security 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 then, except to the extent that a portion of your debt security is repaid as a result of this change in circumstances and solely to determine the amount and accrual of OID, you must redetermine the yield and maturity of your debt security by treating your debt security as having been retired and reissued on the date of the change in circumstances for an amount equal to your debt security’s adjusted issue price on that date.
Election to Treat All Interest as Original Issue Discount. You may elect to include in gross income all interest that accrues on your debt security using the constant-yield method described above under “— General”, with the modifications described below. For purposes of this election, interest will include 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 “— Debt securities Purchased at a Premium,” or acquisition premium.
If you make this election for your debt security, then, when you apply the constant-yield method:
| • | the issue price of your debt security will equal your cost, | |
| • | the issue date of your debt security will be the date you acquired it, and | |
| • | no payments on your debt security will be treated as payments of qualified stated interest. |
Generally, this election will apply only to the debt security for which you make it; however, if the debt security has amortizable bond premium, you will be deemed to have made an election to apply amortizable bond premium against interest for all debt instruments with amortizable bond premium, other than debt instruments the interest on which is excludible from gross income, that you hold as of the beginning of the taxable year to which the election applies or any taxable year thereafter. Additionally, if you make this election for a market discount debt security, you will be treated as having made the election discussed below under “— Market Discount” to include market discount in income currently over the life of all debt instruments that
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Variable Rate Debt Securities. Your debt security will be a variable rate debt security if:
| • | your debt security’s issue price does not exceed the total noncontingent principal payments by more than the lesser of: |
| 1. | .015 multiplied by the product of the total noncontingent principal payments and the number of complete years to maturity from the issue date, or | |
| 2. | 15 percent of the total noncontingent principal payments; and |
| • | your debt security provides for stated interest, compounded or paid at least annually, only 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. |
Your debt security will have a variable rate that is a qualified floating rate if:
| • | 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 your debt security is denominated; or | |
| • | the rate is equal to such a rate multiplied by either: |
| 1. | a fixed multiple that is greater than 0.65 but not more than 1.35 or | |
| 2. | a fixed multiple greater than 0.65 but not more than 1.35, increased or decreased by a fixed rate; and |
| • | the value of the rate on any date during the term of your debt security is set no earlier than three months prior to the first day on which that value is in effect and no later than one year following that first day. |
If your debt security provides for two or more qualified floating rates that are within 0.25 percentage points of each other on the issue date or can reasonably be expected to have approximately the same values throughout the term of the debt security, the qualified floating rates together constitute a single qualified floating rate.
Your debt security will not have 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 debt security or are not reasonably expected to significantly affect the yield on the debt security.
Your debt security will have a variable rate that is a single objective rate if:
| • | the rate is not a qualified floating rate, | |
| • | the rate is determined using a single, fixed formula 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, and | |
| • | the value of the rate on any date during the term of your debt security is set no earlier than three months prior to the first day on which that value is in effect and no later than one year following that first day. |
Your debt security will not have a variable rate that is an objective rate, however, if it is reasonably expected that the average value of the rate during the first half of your debt security’s term will be either
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An objective rate as described above is a qualified inverse floating rate if:
| • | the rate is equal to a fixed rate minus a qualified floating rate and | |
| • | the variations in the rate can reasonably be expected to inversely reflect contemporaneous variations in the cost of newly borrowed funds. |
Your debt security will also have a single qualified floating rate or an objective rate if interest on your debt security 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 either:
| • | the fixed rate and the qualified floating rate or objective rate have values on the issue date of the debt security that do not differ by more than 0.25 percentage points or | |
| • | the value of the qualified floating rate or objective rate is intended to approximate the fixed rate. |
In general, if your variable rate debt security provides for stated interest at a single qualified floating rate or objective rate, or one of those rates after a single fixed rate for an initial period, all stated interest on your debt security is qualified stated interest. In this case, 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, for any other objective rate, a fixed rate that reflects the yield reasonably expected for your debt security.
If your variable rate debt security 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 a single fixed rate for an initial period, you generally must determine the interest and OID accruals on your debt security by:
| • | determining a fixed rate substitute for each variable rate provided under your variable rate debt security, | |
| • | constructing the equivalent fixed rate debt instrument, using the fixed rate substitute described above, | |
| • | determining the amount of qualified stated interest and OID with respect to the equivalent fixed rate debt instrument, and | |
| • | adjusting for actual variable rates during the applicable accrual period. |
When you determine the fixed rate substitute for each variable rate provided under the variable rate debt security, you generally will use the value of each variable rate as of the issue date or, for an objective rate that is not a qualified inverse floating rate, a rate that reflects the reasonably expected yield on your debt security.
If your variable rate debt security provides for stated interest either at one or more qualified floating rates or at a qualified inverse floating rate, and also provides for stated interest at a single fixed rate other than at a single fixed rate for an initial period, you generally must determine interest and OID accruals by using the method described in the previous paragraph. However, your variable rate debt security will be treated, for purposes of the first three steps of the determination, as if your debt security had provided for a qualified floating rate, or a qualified inverse floating rate, rather than the fixed rate. The qualified floating rate, or qualified inverse floating rate, that replaces the fixed rate must be such that the fair market value of your variable rate debt security as of the issue date approximates 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 Debt Securities. In general, if you are an individual or other cash basis United States holder of a short-term debt security, you are not required to accrue OID, as specially defined below for the purposes of this paragraph, for United States federal income tax purposes unless you elect to do so (although it is possible that you may be required to include any stated interest in income as you receive it). If you are an accrual basis taxpayer, a taxpayer in a special class, including, but not limited to, a regulated investment
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When you determine the amount of OID subject to these rules, you must include all interest payments on your short-term debt security, including stated interest, in your short-term debt security’s stated redemption price at maturity.
Foreign Currency Discount Debt Securities. If your discount debt security is denominated in, or determined by reference to, a foreign currency, you must determine OID for any accrual period on your discount debt security in the foreign currency and then translate the amount of OID into U.S. dollars in the same manner as stated interest accrued by an accrual basis United States holder, as described under “— United States Holders — Payments of Interest”. You may recognize ordinary income or loss when you receive an amount attributable to OID in connection with a payment of interest or the sale or retirement of your debt security.
Market Discount
You will be treated as if you purchased your debt security, other than a short-term debt security, at a market discount, and your debt security will be a market discount debt security if:
| • | you purchase your debt security for less than its issue price as determined above under “Original Issue Discount — General” and | |
| • | the difference between the debt security’s stated redemption price at maturity or, in the case of a discount debt security, the debt security’s revised issue price, and the price you paid for your debt security is equal to or greater than 1/4 of 1 percent of your debt security’s stated redemption price at maturity or revised issue price, respectively, multiplied by the number of complete years to the debt security’s maturity. To determine the revised issue price of your debt security for these purposes, you generally add any OID that has accrued on your debt security to its issue price. |
If your debt security’s stated redemption price at maturity or, in the case of a discount debt security, its revised issue price, exceeds the price you paid for the debt security by less than 1/4 of 1 percent multiplied by the number of complete years to the debt security’s maturity, the excess constitutes de minimis market discount, and the rules discussed below are not applicable to you.
You must treat any gain you recognize on the maturity or disposition of your market discount debt security as ordinary income to the extent of the accrued market discount on your debt security. Alternatively, you may elect to include market discount in income currently over the life of your debt security. If you make this election, it will apply to all debt instruments with market discount that you acquire on or after the first day of the first taxable year to which the election applies. You may not revoke this election without the consent of the Internal Revenue Service. If you own a market discount debt security and do not make this election, you will generally be required to defer deductions for interest on borrowings allocable to your debt security in an amount not exceeding the accrued market discount on your debt security until the maturity or disposition of your debt security.
You will accrue market discount on your market discount debt security on a straight-line basis unless you elect to accrue market discount using a constant-yield method. If you make this election, it will apply only to the debt security with respect to which it is made and you may not revoke it.
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Debt Securities Purchased at a Premium
If you purchase your debt security for an amount in excess of its principal amount, you may elect to treat the excess as amortizable bond premium. If you make this election, you will reduce the amount required to be included in your income each year with respect to interest on your debt security by the amount of amortizable bond premium allocable to that year, based on your debt security’s yield to maturity. If your debt security is denominated in, or determined by reference to, a foreign currency, you will compute your amortizable bond premium in units of the foreign currency and your amortizable bond premium will reduce your interest income in units of the foreign currency. Gain or loss recognized that is attributable to changes in exchange rates between the time your amortized bond premium offsets interest income and the time of the acquisition of your debt security is generally taxable as ordinary income or loss. If you make an election to amortize bond premium, it will apply to all debt instruments, other than debt instruments the interest on which is excludible from gross income, that you hold at the beginning of the first taxable year to which the election applies or that you thereafter acquire, and you may not revoke it without the consent of the Internal Revenue Service. See also “Original Issue Discount — Election to Treat All Interest as Original Issue Discount”.
Purchase, Sale and Retirement of the Debt Securities
Your tax basis in your debt security will generally be the U.S. dollar cost, as defined below, of your debt security, adjusted by:
| • | adding any OID or market discount, de minimis original issue discount and de minimis market discount previously included in income with respect to your debt security, and then | |
| • | subtracting any payments on your debt security that are not qualified stated interest payments and any amortizable bond premium applied to reduce interest on your debt security. |
If you purchase your debt security with foreign currency, the U.S. dollar cost of your debt security will generally be the U.S. dollar value of the purchase price on the date of purchase. However, if you are a cash basis taxpayer, or an accrual basis taxpayer if you so elect, and your debt security is traded on an established securities market, as defined in the applicable Treasury regulations, the U.S. dollar cost of your debt security will be the U.S. dollar value of the purchase price on the settlement date of your purchase.
You will generally recognize gain or loss on the sale or retirement of your debt security equal to the difference between the amount you realize on the sale or retirement and your tax basis in your debt security. If your debt security is sold or retired for an amount in foreign currency, the amount you realize will be the U.S. dollar value of such amount on:
| • | the date payment is received, if you are a cash basis taxpayer and the debt securities are not traded on an established securities market, as defined in the applicable Treasury regulations, | |
| • | the date of disposition, if you are an accrual basis taxpayer, or | |
| • | the settlement date for the sale, if you are a cash basis taxpayer, or an accrual basis taxpayer that so elects, and the debt securities are traded on an established securities market, as defined in the applicable Treasury regulations. |
You will recognize capital gain or loss when you sell or retire your debt security, except to the extent:
| • | described above under “— Original Issue Discount — Short-Term Debt Securities” or “— Market Discount”, | |
| • | attributable to accrued but unpaid interest, | |
| • | the rules governing contingent payment obligations apply, or | |
| • | attributable to changes in exchange rates as described below. |
Capital gain of a noncorporate United States holder that is recognized before January 1, 2009 is generally taxed at a maximum rate of 15% where the holder has a holding period greater than one year.
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You must treat any portion of the gain or loss that you recognize on the sale or retirement of a debt security as ordinary income or loss to the extent attributable to changes in exchange rates. However, you take exchange gain or loss into account only to the extent of the total gain or loss you realize on the transaction.
Exchange of Amounts in Other Than U.S. Dollars
If you receive foreign currency as interest on your debt security or on the sale or retirement of your debt security, your tax basis in the foreign currency will equal its U.S. dollar value when the interest is received or at the time of the sale or retirement. If you purchase foreign currency, you generally will have a tax basis equal to the U.S. dollar value of the foreign currency on the date of your purchase. If you sell or dispose of a foreign currency, including if you use it to purchase debt securities or exchange it for U.S. dollars, any gain or loss recognized generally will be ordinary income or loss.
Indexed Debt Securities
The applicable prospectus supplement will discuss any special United States federal income tax rules with respect to debt securities the payments on which are determined by reference to any index and other debt securities that are subject to the rules governing contingent payment obligations which are not subject to the rules governing variable rate debt securities.
United States Alien Holders
This subsection describes the tax consequences to a United States alien holder. You are a United States alien holder if you are the beneficial owner of a debt security and are, for United States federal income tax purposes:
| • | a nonresident alien individual, | |
| • | a foreign corporation, | |
| • | a foreign partnership, or | |
| • | an estate or trust that in either case is not subject to United States federal income tax on a net income basis on income or gain from a debt security. |
If you are a United States holder, this subsection does not apply to you.
This discussion assumes that the debt security is not subject to the rules of Section 871(h)(4)(A) of the Internal Revenue 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 United States federal income and estate tax law, and subject to the discussion of backup withholding below, if you are a United States alien holder of a debt security
| • | we and other U.S. payors generally will not be required to deduct United States withholding tax from payments of principal, premium, if any, and interest, including OID, to you if, in the case of payments of interest: |
| 1. | you do not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Merck & Co., Inc. entitled to vote, | |
| 2. | you are not a controlled foreign corporation that is related to us through stock ownership, and | |
| 3. | the U.S. payor does not have actual knowledge or reason to know that you are a United States person and: |
| a. | you have furnished to the U.S. payor an Internal Revenue Service Form W-8BEN or an acceptable substitute form upon which you certify, under penalties of perjury, that you are a non-United States person, |
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| b. | in the case of payments made outside the United States to you at an offshore account (generally, an account maintained by you at a bank or other financial institution at any location outside the United States), you have furnished to the U.S. payor documentation that establishes your identity and your status as a non-United States person, |
| c. | the U.S. payor has received a withholding certificate (furnished on an appropriate Internal Revenue Service Form W-8 or an acceptable substitute form) from a person claiming to be: |
| i. | withholding foreign partnership (generally a foreign partnership that has entered into an agreement with the Internal Revenue Service to a assume primary withholding responsibility with respect to distributions and guaranteed payments it makes to its partners), |
| ii. | a qualified intermediary (generally a non-United States financial institution or clearing organization or a non-United States branch or office of a United States financial institution or clearing organization that is a party to a withholding agreement with the Internal Revenue Service), or |
| iii. | a U.S. branch of a non-United States bank or of a non-United States insurance company, and the withholding foreign partnership, qualified intermediary or U.S. branch has received documentation upon which it may rely to treat the payment as made to a non-United States person in accordance with U.S. Treasury regulations (or, in the case of a qualified intermediary, in accordance with its agreement with the Internal Revenue Service), |
| d. | the U.S. payor receives a statement from a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business, |
| i. | certifying to the U.S. payor under penalties of perjury that an Internal Revenue Service Form W-8BEN or an acceptable substitute form has been received from you by it or by a similar financial institution between it and you, and |
| ii. | to which is attached a copy of the Internal Revenue Service Form W-8BEN or acceptable substitute form, or |
| e. | the U.S. payor otherwise possesses documentation upon which it may rely to treat the payment as made to a non-United States person in accordance with U.S. Treasury regulations; and |
| • | no deduction for any United States federal withholding tax will be made from any gain that you realize on the sale or exchange of your debt security. |
Further, a debt security 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 United States federal estate tax purposes if:
| • | the decedent did not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Merck & Co. Inc. entitled to vote at the time of death; and | |
| • | the income on the debt security would not have been effectively connected with a United States trade or business of the decedent at the same time. |
Treasury Regulations Requiring Disclosure of Reportable Transactions
Recently-promulgated Treasury regulations require United States taxpayers to report certain transactions that give rise to a loss in excess of certain thresholds (a “Reportable Transaction”). Under these regulations, if the debt securities are denominated in a foreign currency, a United States holder (or a United States alien holder that holds the debt securities in connection with a U.S. trade or business) that recognizes a loss with respect to the debt securities that is characterized as an ordinary loss due to changes in currency exchange rates (under any of the rules discussed above) would be required to report the loss on Internal Revenue Service Form 8886 (Reportable Transaction Statement) if the loss exceeds the thresholds set forth in the regulations. For individuals and trusts, this loss threshold is $50,000 in any single taxable year. For other types
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Backup Withholding and Information Reporting
In general, if you are a noncorporate United States holder, we and other payors are required to report to the Internal Revenue Service all payments of principal, any premium and interest on your debt security, and the accrual of OID on a discount debt security. In addition, we and other payors are required to report to the Internal Revenue Service any payment of proceeds of the sale of your debt security before maturity within the United States. Additionally, backup withholding will apply to any payments, including payments of OID, if you fail to provide an accurate taxpayer identification number, or you are notified by the Internal Revenue Service that you have failed to report all interest and dividends required to be shown on your federal income tax returns.
In general, if you are a United States alien holder, payments of principal, premium or interest, including OID, made by us and other payors to you will not be subject to backup withholding and information reporting, provided that the certification requirements described above under “— United States Alien Holders” are satisfied or you otherwise establish an exemption. However, we and other payors are required to report payments of interest on your debt securities on Internal Revenue Service Form 1042-S even if the payments are not otherwise subject to information reporting requirements. In addition, payment of the proceeds from the sale of debt securities effected at a United States office of a broker will not be subject to backup withholding and information reporting provided that:
| • | the broker does not have actual knowledge or reason to know that you are a United States person and you have furnished to the broker: |
| • | an appropriate Internal Revenue Service Form W-8 or an acceptable substitute form upon which you certify, under penalties of perjury, that you are not a United States person, or | |
| • | other documentation upon which it may rely to treat the payment as made to a non-United States person in accordance with U.S. Treasury regulations, or |
| • | you otherwise establish an exemption. |
If you fail to establish an exemption and the broker does not possess adequate documentation of your status as a non-United States person, the payments may be subject to information reporting and backup withholding. However, backup withholding will not apply with respect to payments made to an offshore account maintained by you unless the broker has actual knowledge that you are a United States person.
In general, payment of the proceeds from the sale of debt securities effected at a foreign office of a broker will not be subject to information reporting or backup withholding. However, a sale effected at a foreign office of a broker will be subject to information reporting and backup withholding if:
| • | the proceeds are transferred to an account maintained by you in the United States, | |
| • | the payment of proceeds or the confirmation of the sale is mailed to you at a United States address, or | |
| • | the sale has some other specified connection with the United States as provided in U.S. Treasury regulations, |
unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above (relating to a sale of debt securities effected at a United States office of a broker) are met or you otherwise establish an exemption.
In addition, payment of the proceeds from the sale of debt securities effected at a foreign office of a broker will be subject to information reporting if the broker is:
| • | a United States person, |
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| • | a controlled foreign corporation for United States tax purposes, | |
| • | a foreign person 50% or more of whose gross income is effectively connected with the conduct of a United States trade or business for a specified three-year period, or | |
| • | a foreign partnership, if at any time during its tax year: |
| • | one or more of its partners are “U.S. persons”, as defined in U.S. Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or | |
| • | such foreign partnership is engaged in the conduct of a United States trade or business, |
unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above (relating to a sale of debt securities effected at a United States office of a broker) are met or you otherwise establish an exemption. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that you are a United States person.
PLAN OF DISTRIBUTION
We may sell debt securities:
| • | to or through underwriting syndicates represented by managing underwriters; | |
| • | through one or more underwriters without a syndicate for them to offer and sell to the public; | |
| • | through dealers or agents; and | |
| • | directly to investors. |
The debt securities we distribute by any of these methods may be sold to the public, in one or more transactions, either:
| • | at a fixed price or prices, which may be changed; | |
| • | at market prices prevailing at the time of sale; | |
| • | at prices related to prevailing market prices; or | |
| • | at negotiated prices. |
We may sell debt securities from time to time to one or more underwriters, who would purchase the securities as principal for resale to the public, either on a firm-commitment or best-efforts basis. If we sell debt securities to underwriters, we may execute an underwriting agreement with them at the time of sale and will name them in the applicable prospectus supplement. In connection with those sales, underwriters may be deemed to have received compensation from us in the form of underwriting discounts or commissions and may also receive commissions from purchasers of the debt securities for whom they may act as agents. Underwriters may resell the debt securities to or through dealers, and those dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from purchasers for whom they may act as agents. The prospectus supplement will include any required information about underwriting compensation we pay to underwriters, and any discounts, concessions or commissions underwriters allow to participating dealers, in connection with an offering of debt securities.
We may solicit offers to purchase debt securities directly from the public from time to time. We may also designate agents from time to time to solicit offers to purchase debt securities from the public on our behalf. If required, the prospectus supplement relating to any particular offering of debt securities will name any agents designated to solicit offers, and will include information about any commissions we may pay the agents, in that offering. Agents may be deemed to be “underwriters” as that term is defined in the Securities Act of 1933.
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From time to time, we may sell debt securities to one or more dealers acting as principals. The dealers, who may be deemed to be “underwriters” as that term is defined in the Securities Act of 1933, may then resell those debt securities to the public.
Any underwriter or agent involved in the offer and sale of any debt securities will be named in the prospectus supplement.
Underwriters, agents and dealers may be entitled, under agreements with us, to indemnification against certain civil liabilities, including liabilities under the Securities Act of 1933.
Each series of debt securities will be a new issue, and there will be no established trading market for any debt security prior to its original issue date. We may not list a particular series of debt securities on a securities exchange or quotation system. Any underwriters to whom we sell debt securities for public offering may make a market in those debt securities. However, no such underwriter that makes a market will be obligated to do so, and any of them may stop doing so at any time without notice. No assurance can be given as to the liquidity or trading market for any of the debt securities.
Unless otherwise indicated in your prospectus supplement or confirmation of sale, the purchase price of the debt securities will be required to be paid in immediately available funds in New York City.
In connection with an offering, the underwriters may purchase and sell debt securities in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of debt securities than they are required to purchase in an offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the debt securities while an offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the underwriters have repurchased debt securities sold by or for the account of that underwriter in stabilizing or short-covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the debt securities. As a result, the price of the debt securities may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on an exchange or automated quotation system, if the debt securities are listed on that exchange or admitted for trading on that automated quotation system, or in the over-the-counter market or otherwise.
Underwriters, dealers and agents may engage in transactions with or perform services for us in the ordinary course of their businesses.
VALIDITY OF DEBT SECURITIES
Kenneth C. Frazier, our Senior Vice President and General Counsel, will pass upon the validity of the debt securities for us. Sullivan & Cromwell LLP, New York, New York, will pass upon the validity of the debt securities for any underwriters or agents. As of December 9, 2004, Mr. Frazier owned, directly and indirectly, 30,784.3175 shares of our common stock and exercisable options to purchase 420,235.6666 additional shares of our common stock. Partners of Sullivan & Cromwell LLP involved in representation of any underwriters or agents beneficially own approximately 1,020 shares of our common stock. Sullivan & Cromwell LLP has from time to time provided legal services to us.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2003 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s web site at http://www.sec.gov. The address of the SEC’s Internet site is provided solely for the information of investors and is not intended to be an active link. You may also read and copy any document we file at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.
The SEC allows us to incorporate by reference the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus. Information that we file later with the SEC, including filings after the date of this prospectus and prior to the termination of the offering of the debt securities, will automatically update and, where applicable, supersede the information contained in this prospectus or incorporated by reference in this prospectus. Information furnished under Item 2.02 and Item 7.01 (formerly Items 12 and 9 prior to August 23, 2004) of our current reports on Form 8-K is not incorporated by reference in this prospectus and registration statement. We furnished information under Items 2.02 and 7.01 in our current reports on Form 8-K filed on October 21, 2004 and December 8, 2004 and furnished information under former Items 9 and 12 in our current reports on Form 8-K filed on April 22, 2004 and July 21, 2004. We incorporate by reference:
| • | our annual report on Form 10-K for the year ended December 31, 2003, file number 1-3305; and | |
| • | our quarterly report on Form 10-Q for the quarter ended March 31, 2004, June 30, 2004 and September 30, 2004 file number 1-3305; and | |
| • | our current reports on Form 8-K, dated February 10, 2004, February 26, 2004, October 1, 2004, October 6, 2004, October 22, 2004, October 26, 2004, October 28, 2004 and November 29, 2004; and | |
| • | any future filings we make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until we sell all of the debt securities; and | |
| • | any filings we make with the SEC under Sections 13(a), 13(c), 14 and 15 of the Securities Exchange Act of 1934 after the date of filing of the initial registration statement and prior to effectiveness of the registration statement. |
You may request a copy of these filings at no cost, by writing or telephoning us at the following address:
Corporate Secretary
You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. We are not making an offer of these debt securities in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front cover of those documents.
CAUTIONARY STATEMENTS
This prospectus and the accompanying prospectus supplement and the documents incorporated by reference may include statements that may constitute “forward-looking statements” within the meaning of federal securities laws. One can identify these forward-looking statements by their use of words such as “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address Merck’s growth strategy, financial results, product approvals and development programs. One
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We undertake no obligation to update any forward-looking statements or to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.
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No dealer,
salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus supplement and the accompanying prospectus. You must
not rely on any unauthorized information or representations.
This prospectus supplement and the accompanying prospectus are
an offer to sell the debt securities they describe, but only
under circumstances and in jurisdictions where it is lawful to
do so. The information in this prospectus supplement and the
accompanying prospectus is current only as of its
date.
TABLE OF CONTENTS
| Page | ||||
| Prospectus Supplement | ||||
|
About This Prospectus
Supplement and Pricing Supplements
|
S-2 | |||
|
Use of Proceeds
|
S-2 | |||
|
Description of
Notes We May Offer
|
S-2 | |||
|
Risks Relating to Indexed
Notes
|
S-23 | |||
|
Risks Relating to Foreign
Currency Notes
|
S-25 | |||
|
Supplemental Plan of
Distribution
|
S-27 | |||
|
Validity of Notes
|
S-28 | |||
| Prospectus | ||||
|
About This Prospectus
|
1 | |||
|
Merck
|
2 | |||
|
Recent Developments
|
2 | |||
|
Ratios of Earnings to
Fixed Charges
|
2 | |||
|
Use of Proceeds
|
3 | |||
|
Description of Debt
Securities We May Offer
|
3 | |||
|
Legal Ownership and
Book-Entry Issuance
|
13 | |||
|
United States Taxation
|
15 | |||
|
Plan of Distribution
|
27 | |||
|
Validity of Debt Securities
|
28 | |||
|
Experts
|
28 | |||
|
Where You Can Find More
Information
|
29 | |||
|
Cautionary Statements
|
29 | |||
$3,817,795,000
Merck & Co., Inc.
Medium-Term Notes, Series F
Goldman, Sachs & Co.
January 12, 2005