PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JANUARY 12, 2001
[3M LOGO]
$1,400,000,000
MINNESOTA MINING AND MANUFACTURING COMPANY
Medium-Term Notes, Series C
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3M may offer from time to time medium-term notes, series C. 3M will
receive between $1,389,500,000 and $1,398,250,000 of the proceeds from the sale
of the notes, after paying the agents' discounts and commissions of between
$1,750,000 and $10,500,000. The following terms may apply to the notes that 3M
may sell at one or more times. The final terms of each note will be included in
a pricing supplement.
* Mature nine months or longer * Amount of principal or interest may be
* Fixed or floating interest rate, zero-coupon or determined by reference to an index or formula
issued with original issue discount; a floating * Book-entry form only
interest rate may be based on: * May be subject to redemption by us or repurchase
* Commercial paper rate at the option of the Holder
* Prime rate * Not amortized or subject to a sinking fund
* CD rate * Interest paid on fixed rate notes semi-annually
* Federal funds rate * Interest paid on floating rate notes monthly,
* LIBOR quarterly, semi-annually or annually
* EURIBOR * Minimum denominations of $1,000 and multiples of
* Treasury rate $1,000
* CMT rate * Fully registered form
* 11th district cost of funds rate * May be foreign currency or composite currency
* Any other rate specified by us in a pricing denominated
supplement * Same day settlement and payment in immediately
* Any combination of rates specified in a pricing available funds
supplement
We do not plan to list the notes for trading on a securities exchange.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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We may sell the notes directly or through one or more agents or
dealers, including the agents listed below. The agents are not required to sell
any specific number or amount of the notes. They will use their reasonable best
efforts to sell the notes offered. No commission will be payable on sales that
we make directly. There is no established trading market for the notes and there
can be no assurance that a secondary market for the notes will develop.
GOLDMAN, SACHS & CO.
JPMORGAN
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
UBS WARBURG
Prospectus Supplement dated May 3, 2001.
ABOUT THIS PROSPECTUS SUPPLEMENT
You should read this prospectus supplement along with the accompanying
prospectus and your pricing supplement. These documents contain information you
should consider when making your investment decision. You should rely on the
information contained or incorporated by reference in this prospectus
supplement, the accompanying prospectus and your pricing supplement. We have
not, and the agents have not, authorized anyone else to provide you with
different or additional information. If anyone provides you with different or
inconsistent information, you should not rely on it.
This prospectus supplement, the accompanying prospectus and your
pricing supplement do not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the notes. This prospectus supplement,
the accompanying prospectus and the applicable pricing supplement do not
constitute an offer to sell or a solicitation of an offer to buy such notes in
any circumstances in which such offer or solicitation is unlawful.
Information in this prospectus supplement, the accompanying prospectus
or your pricing supplement may change after the date on the front of the
applicable document. You should not interpret the delivery of this prospectus
supplement, the accompanying prospectus or your pricing supplement or the sale
of the notes, as an indication that there has been no change in our affairs
since those dates.
DESCRIPTION OF NOTES WE MAY OFFER
PLEASE NOTE THAT IN THIS SECTION ENTITLED "DESCRIPTION OF NOTES WE MAY
OFFER", REFERENCES TO "3M", "WE", "OUR" AND "US" MEAN MINNESOTA MINING AND
MANUFACTURING COMPANY, UNLESS THE CONTEXT INDICATES OTHERWISE. ALSO, IN THIS
SECTION, REFERENCES TO "HOLDERS" MEAN THOSE WHO OWN NOTES REGISTERED IN THEIR
OWN NAMES, ON THE BOOKS THAT WE OR THE TRUSTEE MAINTAIN FOR THIS PURPOSE, AND
NOT THOSE WHO OWN BENEFICIAL INTERESTS IN NOTES REGISTERED IN STREET NAME OR IN
NOTES ISSUED IN BOOK-ENTRY FORM THROUGH THE DEPOSITORY TRUST COMPANY. OWNERS OF
BENEFICIAL INTERESTS IN THE NOTES SHOULD READ THE SUBSECTION ENTITLED "-- LEGAL
OWNERSHIP OF NOTES". CERTAIN DEFINED TERMS USED THROUGHOUT THIS PROSPECTUS
SUPPLEMENT ARE IN QUOTATION MARKS AND UNDERLINED WHERE THEY ARE FIRST DEFINED.
INFORMATION ABOUT OUR MEDIUM-TERM NOTE PROGRAM
THE NOTES WILL BE ISSUED UNDER THE INDENTURE
As required by U.S. federal law for all bonds and notes of companies
that are publicly offered, the notes are governed by a document called the
indenture. The indenture dated November 17, 2000 is a contract between us and
Citibank, N.A., which acts as trustee. The trustee has two main roles:
* First, the trustee can enforce your rights against us if we default.
There are limitations on the extent to which the trustee acts on
your behalf, which we describe in the
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accompanying prospectus under "Description of Debt Securities --
Events of Default"; and
* Second, the trustee performs administrative duties for us, such as
sending you interest payments and notices.
WE MAY ISSUE OTHER SERIES OF DEBT SECURITIES
The indenture permits us to issue different series of debt securities
from time to time. The series C medium-term notes will be a single, distinct
series of debt securities. We may, however, issue notes in such amounts, at such
times and on such terms as we wish. The notes will differ from one another, and
from other series, in their terms.
This section summarizes the material terms that will apply generally to
the notes as a series and adds to, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the debt
securities contained in the accompanying prospectus. Each particular note will
have financial and other terms specific to it, and the specific terms of each
note will be described in a pricing supplement. Those terms may vary from the
terms described here. As you read this section, therefore, please remember that
the specific terms of your note as described in your pricing supplement will
supplement and, if applicable, may modify or replace the general terms described
in this section. The statements we make in this section may not apply to your
note.
When we refer to the "notes", the "series C medium-term notes" or
"these notes", we mean our medium-term notes, series C. When we refer to a
"series of debt securities", we mean a series, such as the notes, issued under
the indenture. When we refer to "your pricing supplement", we mean the pricing
supplement describing the specific terms of the note you purchase.
AMOUNTS THAT WE MAY ISSUE
The indenture does not limit the aggregate amount of debt securities
that we may issue, nor does it limit the number of series or the aggregate
amount of any particular series. We have initially authorized the issuance of
series C medium-term notes in such amounts as will not result in the notes
having an aggregate initial offering price greater than $1,400,000,000, or an
equivalent amount in any other currency or currency unit. We may, however,
increase this authorized amount at any time without your consent. The indenture
and the notes do not limit our ability to incur other indebtedness or to issue
other securities. Also, we are not subject to financial or similar restrictions
by the terms of the notes, except as described under "Description of Debt
Securities--Restrictions on Secured Funded Debt" and "--Restrictions on Sale and
Lease-Back Transactions" in the accompanying prospectus.
HOW THE NOTES RANK AGAINST OTHER DEBT
The series C medium-term notes will not be secured by any of our
property or assets or any of our subsidiaries' property or assets. Thus, by
owning a note, you are one of our unsecured creditors.
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The notes will not be subordinated to any of our other debt
obligations. This means that, in a bankruptcy or liquidation proceeding against
us, the notes would rank equally in right of payment with all of our other
unsecured and unsubordinated debt.
THIS SECTION IS ONLY A SUMMARY
The indenture and its associated documents, including your note,
contain the full legal text of the matters described in this section, the
accompanying prospectus and your pricing supplement. The indenture and the notes
are governed by New York law. A copy of the indenture has been filed with the
SEC. See "About this Prospectus" and "Where You Can Find Additional Information"
in the accompanying prospectus for information on how to obtain a copy.
This section, the accompanying prospectus and your pricing supplement
summarize all the material terms of the indenture and your note. They do not,
however, describe every aspect of the indenture and your note. For example, in
this section, the accompanying prospectus and your pricing supplement, we use
terms that have been given special meaning in the indenture, but we describe the
meaning of only the more important of those terms.
FEATURES COMMON TO ALL NOTES
STATED MATURITY AND MATURITY
The day on which the principal amount of your note is scheduled to
become due is called the "stated maturity of the principal" and is specified in
your pricing supplement. The principal may become due sooner, by reason of
redemption, repayment or acceleration after a default. The day on which the
principal actually becomes due, 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 of the principal, as the case may be.
CURRENCY OF NOTES
Amounts that become due and payable on your note will be payable in a
currency, composite currency, basket of currencies or currency unit or units
specified in your pricing supplement. We refer to this currency, composite
currency, basket of currencies or currency unit or units as 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 for the principal to the agent that we name in your
pricing supplement, unless other
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arrangements have been made between you and us or you and that agent. We will
make payments on your notes in the specified currency, except as described below
in "-- Payment Mechanics".
TYPES OF NOTES
We will issue the following three types of notes:
* FIXED RATE NOTES. A note of this type will bear interest at a fixed
rate described in the applicable pricing supplement. This type
includes zero coupon notes, which bear no interest and are instead
issued at a price lower than the principal amount.
* 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. The various interest rate formulas
and these other features are described below in "-- Interest Rates
-- Floating Rate Notes". If your note is a floating rate note, the
formula and any adjustments that apply to the interest rate will be
specified in your pricing supplement.
* 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 current exchange rate, a composite currency, commodity price or
other financial or non-financial indices described in the applicable
pricing supplement. 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, how amounts that are to become
payable will be determined by reference to that index, risks of
indexed note investment that are not associated with an investment
in other types of notes, any applicable foreign currency risks and
certain risks and additional tax considerations associated with that
indexed note. For a description of certain risks associated with
indexed notes, see "Risks Associated with Indexed Notes" and
"Foreign Currency Risks" below.
ORIGINAL ISSUE DISCOUNT NOTES
A fixed rate note, a floating rate note or an indexed note may be an
original issue discount note. A note of this type is issued at a price lower
than its principal amount and provides that, upon redemption, repayment 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, repayment or acceleration of maturity.
See "United States Taxation -- United States Holders -- Original Issue Discount"
below for a brief description of the U.S. federal income tax consequences of
owning an original issue discount note.
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INFORMATION IN THE PRICING SUPPLEMENT
Your pricing supplement will describe one or more of the following
terms of your note:
* the stated maturity;
* the specified currency or currencies for principal and interest, if
not U.S. dollars;
* the price at which we originally issue your note, expressed as a
percentage of the principal amount, and the original issue date;
* whether your note is a fixed rate note, a floating rate note or an
indexed note and also whether it is an original issue discount note;
* if your note is a fixed rate note, the yearly rate at which your
note will bear interest, if any, and the interest payment dates, if
different from those set forth below under "-- Interest Rates --
Fixed Rate Notes";
* if your note is a floating rate note, the interest rate basis, which
may be one of the nine base rates described in "-- Interest Rates --
Floating Rate Notes" below; any applicable index currency or
maturity, spread or spread multiplier or initial, maximum or minimum
rate; the interest reset, determination, calculation and payment
dates; and the calculation agent, all of which we describe under "--
Interest Rates -- Floating Rate Notes" below;
* if your note is an original issue discount note, the yield to
maturity and any additional provisions relating to this feature of
the note;
* 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 or the formula we will use to
calculate these amounts, if any;
* 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 under "-- Redemption and Repayment" below;
* whether we will issue or make available your note in non-book-entry
form; and
* any other terms of your note that are not inconsistent with the
provisions of the indenture, which other terms could be different
from those described in this prospectus supplement.
Your pricing supplement will summarize specific financial and other
terms of your note, while this prospectus supplement describes terms that apply
generally to the notes as a series and the accompanying prospectus describes the
general terms and provisions of the debt securities issued under the indenture.
Consequently, the terms described in your pricing supplement will
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supplement those described in this prospectus supplement and the terms described
in this prospectus supplement will supplement those described in the
accompanying prospectus. In the event that the terms described in these
documents are inconsistent, the terms described in the document that is dated
later will be controlling. The terms used in your pricing supplement have the
meanings described in this prospectus supplement and the accompanying
prospectus, unless otherwise specified.
LEGAL OWNERSHIP OF NOTES
We refer to those who have notes registered in their own names, on the
books that we or the trustee maintain for this purpose, as the "Holders" of
those notes. These persons are the legal holders of the notes. We refer to those
who, indirectly through others, own beneficial interests in notes that are not
registered in their own names as "indirect holders" of those notes. As we
discuss below, indirect holders are not legal holders, and investors in notes
issued in book-entry form or in street name will be indirect holders.
BOOK-ENTRY HOLDERS
We will issue each note in book-entry form only, unless we specify
otherwise in the applicable pricing supplement. This means notes will be
represented by one or more global notes registered in the name of a financial
institution that holds them as depositary on behalf of other financial
institutions that participate in the depositary's book-entry system. These
participating institutions, in turn, hold beneficial interests in the notes on
behalf of themselves or their customers.
Under the indenture, only the person in whose name a note is registered
is recognized as the Holder of that note. Consequently, for notes issued in
global form, we will recognize only the depositary as the Holder of the notes
and we will make all payments on the notes to the depositary. The depositary
passes along the payments it receives to its participants, which in turn pass
the payments along to their customers who are the beneficial owners. The
depositary and its participants do so under agreements they have made with one
another or with their customers; they are not obligated to do so under the terms
of the notes.
As a result, investors will not own notes directly. Instead, they will
own beneficial interests in a global note, through a bank, broker or other
financial institution that participates in the depositary's book-entry system or
holds an interest through a participant. As long as the notes are issued in
global form, investors will be indirect holders, and not Holders, of the notes.
STREET NAME HOLDERS
In the future we may terminate a global note or issue notes initially
in non-global form. In these cases, investors may choose to hold their notes in
their own names or in "street name". Notes held by an investor in street name
would be registered in the name of a bank, broker or other financial institution
that the investor chooses, and the investor would hold only a beneficial
interest in those notes through an account he or she maintains at that
institution.
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For notes held in street name, we will recognize only the intermediary
banks, brokers and other financial institutions in whose names the notes are
registered as the Holders of those notes and we will make all payments on those
notes to them. These institutions pass along the payments they receive to their
customers who are the beneficial owners, but only because they agree to do so in
their customer agreements or because they are legally required to do so.
Investors who hold notes in street name will be indirect holders, not Holders,
of those notes.
LEGAL 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 the Holders of the
notes. We do not have obligations to investors who hold beneficial interests in
global notes, in street name or by any other indirect means. This will be the
case whether an investor chooses to be an indirect holder of a note or has no
choice because we are issuing the notes only in global form.
For example, once we make a payment or give a notice to the Holder, we
have no further responsibility for that payment or notice even if that Holder is
required, under agreements with depositary participants or customers or by law,
to pass it along to the indirect holders but does not do so. Similarly, if we
want to obtain the approval of the Holders for any purpose -- e.g., to amend the
indenture or to relieve us of the consequences of a default or of our obligation
to comply with a particular provision of the indenture -- we would seek the
approval only from the Holders, and not the indirect holders, of the notes.
Whether and how the Holders contact the indirect holders is up to the Holders.
When we refer to "you", we mean those who invest in the notes being
offered by this prospectus supplement and accompanying prospectus, whether they
are the Holders or only indirect holders of those notes. When we refer to "your
notes", we mean the notes in which you hold a direct or indirect interest.
SPECIAL CONSIDERATIONS FOR INDIRECT HOLDERS
If you hold notes through a bank, broker or other financial
institution, either in book-entry form or 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 a request for the Holders' consent, if ever
required;
* whether and how you can instruct it to send you notes registered in
your own name so you can be a Holder, if that is permitted in the
future;
* how it would exercise rights under the notes if there were a default
or other event triggering the need for Holders to act to protect
their interests; and
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* if the notes are in book-entry form, how the depositary's rules and
procedures will affect these matters.
WHAT IS A GLOBAL NOTE?
We will issue each note in book-entry form only, unless we specify
otherwise in the applicable pricing supplement. Each note issued in book-entry
form will be represented by a global note that we deposit with and register in
the name of a financial institution or its nominee, that we select. The
financial institution that we select for this purpose is called the
"depositary". Unless we specify otherwise in the applicable pricing supplement,
The Depository Trust Company, New York, New York, or "DTC", will be the
depositary for all notes issued in book-entry form. See "-- Information About
The Depository Trust Company" below.
A global note may represent one or any other number of individual
notes. All notes represented by the same global note will have the same terms.
A global note may not be transferred to or registered in the name of
anyone other than the depositary or its nominee, unless special termination
situations arise. We describe those situations below under "-- Special
Situations When a Global Note Will Be Terminated". As a result of these
arrangements, the depositary, or its nominee, will be the sole registered owner
and Holder of all notes represented by a global note, and investors will be
permitted to own only beneficial interests in a global note. Beneficial
interests must be held by means of an account with a broker, bank or other
financial institution that in turn has an account with the depositary or with
another institution that does. Thus, an investor whose note is represented by a
global note will not be a Holder of the note, but only an indirect holder of a
beneficial interest in the global note.
If the pricing supplement for a particular note indicates that the note
will be issued in global form only, then the note will be represented by a
global note at all times unless and until the global note is terminated. We
describe the situations in which this can occur below under "--Special
Situations When a Global Note Will Be Terminated". If termination occurs, we may
issue the notes through another book-entry clearing system or decide that the
notes may no longer be held through any book-entry clearing system.
SPECIAL CONSIDERATIONS FOR GLOBAL NOTES
As an indirect holder, an investor's rights relating to a global note
will be governed by the account rules of the investor's financial institution
and of the depositary, as well as general laws relating to securities transfers.
We do not recognize this type of investor as a Holder of notes and instead deal
only with the depositary that holds the global note.
If notes are issued only in the form of a global note, an investor
should be aware of the following:
* An investor cannot cause the notes to be registered in his or her
own name, and cannot obtain non-global certificates for his or her
interest in the notes, except in the special situations we describe
below;
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* An investor will be an indirect holder and must look to his or her
own bank or broker for payments on the notes and protection of his
or her legal rights relating to the notes, as we describe under "--
Legal Ownership of Notes" above;
* An investor may not be able to sell interests in the notes to some
insurance companies and other institutions that are required by law
to own their securities in non-book-entry form;
* An investor may not be able to pledge his or her interest in a
global note in circumstances where certificates representing the
notes must be delivered to the lender or other beneficiary of the
pledge in order for the pledge to be effective;
* The depositary's policies, which may change from time to time, will
govern payments, transfers, exchanges and other matters relating to
an investor's interest in a global note. We and the trustee have no
responsibility for any aspect of the depositary's actions or for its
records of ownership interests in a global note. We and the trustee
also do not supervise the depositary in any way;
* The depositary will require that those who purchase and sell
interests in a global note within its book-entry system use
immediately available funds and your broker or bank may require you
to do so as well; and
* Financial institutions that participate in the depositary's
book-entry system, and through which an investor holds its interest
in the global notes, may also have their own policies affecting
payments, notices and other matters relating to the notes. There may
be more than one financial intermediary in the chain of ownership
for an investor. We do not monitor and are not responsible for the
actions of any of those intermediaries.
SPECIAL SITUATIONS WHEN A GLOBAL NOTE WILL BE TERMINATED
In a few special situations described below, a global note will be
terminated and interests in it will be exchanged for certificates in a
non-global form representing the notes it represented. After that exchange, the
choice of whether to hold the notes directly or in street name will be up to the
investor. Investors must consult their own banks or brokers to find out how to
have their interests in a global note transferred on termination to their own
names, so that they will be Holders. We have described the rights of Holders and
street name investors above under "-- Legal Ownership of Notes".
The special situations for termination of a global note are as follows:
* if the depositary notifies us that it is unwilling or unable to
continue as depositary for that global note or if the depository
ceases to be a clearing agency registered under the Securities
Exchange Act of 1934 and a successor depositary is not appointed by
us within 90 days of receiving such notice or becoming aware of such
ineligibility;
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* if we notify the trustee that we wish to terminate that global note;
or
* if an event of default has occurred with regard to notes represented
by that global note and has not been cured or waived; we discuss
defaults in the accompanying prospectus under "Description of Debt
Securities -- Events of Default".
If a global note is terminated, only the depositary, and not we or the
trustee, is responsible for deciding the names of the institutions in whose
names the notes represented by the global note will be registered and,
therefore, who will be the Holders of those notes.
INFORMATION ABOUT THE DEPOSITORY TRUST COMPANY
DTC has provided the following information to us. DTC is:
* a limited-purpose trust company organized under the laws of the
State of New York;
* 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 under the Securities Exchange Act of
1934.
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 its original issue date or from 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 in the
applicable pricing supplement, until the principal is paid or made available for
payment. Unless otherwise specified in the applicable pricing supplement,
interest on a fixed rate note will be payable semiannually each May 15 and
November 15, which will be the interest payment dates for a fixed rate note, 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 none 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 of twelve 30-day
months. We will pay interest on each interest payment date and at maturity as
described below under "-- Payment Mechanics".
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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 THE FIRST TIME THEY APPEAR, AND WE DEFINE THESE TERMS IN
"-- SPECIAL RATE CALCULATION TERMS" AT THE END OF THIS SUBSECTION.
ALSO, PLEASE REMEMBER THAT THE SPECIFIC TERMS OF YOUR NOTE AS DESCRIBED
IN YOUR PRICING SUPPLEMENT WILL SUPPLEMENT AND, IF APPLICABLE, MAY MODIFY OR
REPLACE THE GENERAL TERMS REGARDING THE FLOATING RATES OF INTEREST DESCRIBED IN
THIS SUBSECTION. THE STATEMENTS WE MAKE IN THIS SUBSECTION MAY NOT APPLY TO YOUR
NOTE.
Each floating rate note will bear interest from its original issue date
or from 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 floating rate
note at the yearly rate determined pursuant to the interest rate formula stated
in the applicable 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 "-- Payment Mechanics".
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:
* commercial paper rate;
* prime rate;
* CD rate;
* federal funds rate;
* LIBOR;
* EURIBOR;
* treasury rate;
* CMT rate; and/or
* 11th district rate.
We describe each of these base rates in further detail below in this subsection.
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 base rate in effect
from the original issue date to the first interest reset date will be the
"initial base rate". We will specify the initial base rate in the applicable
pricing supplement.
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SPREAD OR SPREAD MULTIPLIER. In some cases, the base rate for a
floating rate note may be adjusted:
* by adding or subtracting a specified number of basis points, called
the "spread", with one basis point being 0.01%; or
* 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 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 being
adjusted by the spread or spread multiplier, may also be subject to either or
both of the following limits:
* a "maximum rate", which is a specified upper limit that the actual
interest rate in effect at any time may not exceed; and/or
* a "minimum rate", which is a specified lower limit that the actual
interest rate in effect at any time may not fall below.
If you purchase a floating rate note, your pricing supplement will specify
whether a maximum rate and/or 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.
The rest of this subsection describes how the interest rate and the
interest payment dates will be determined, and how interest will be calculated,
on a floating rate note.
INTEREST RESET DATES. The rate of interest on a floating rate note will
be reset, by the calculation agent described below, daily, weekly, monthly,
quarterly, semi-annually or annually. 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 the applicable pricing supplement, the interest reset
date will be as follows:
* for floating rate notes that reset daily, each BUSINESS DAY;
* 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 next to last paragraph under
"-- Interest Determination Dates" below;
* for floating rate notes that reset monthly, the third Wednesday of
each month;
* for floating rate notes that reset quarterly, the third Wednesday of
March, June, September and December of each year;
* for floating rate notes that reset semi-annually, the third
Wednesday of each of two months of each year as specified in the
applicable pricing supplement; and
* for floating rate notes that reset annually, the third Wednesday of
one month of each year as specified in the applicable pricing
supplement.
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.
The base rate in effect from the original issue date to the first
interest reset date will be the initial base rate. For floating rate notes that
reset daily or weekly, the base rate in effect for each day following the second
business day before an interest payment date to, but excluding, the interest
payment date, and for each day following the second business day before the
maturity to, but excluding, the maturity, will be the base rate in effect on
that second business day.
If any interest reset date for a floating rate note would otherwise be
a day that is not a business day, the interest reset date will be postponed to
the next day that is a business day. For a LIBOR or EURIBOR note, however, if
that business day is in the next succeeding calendar month, the interest reset
date will be the immediately preceding business day.
INTEREST DETERMINATION DATES. The interest rate that takes effect on an
interest reset date will be determined by the calculation agent by reference to
a particular date called an "interest determination date". Except as otherwise
specified in the applicable pricing supplement:
* For all floating rate notes other than LIBOR notes, EURIBOR notes,
treasury rate notes and 11th district rate notes, the interest
determination date relating to a particular interest reset date will
be the second business day before the interest reset date.
* For LIBOR notes, the interest determination date relating to a
particular interest reset date will be the second LONDON BUSINESS
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 refer to an interest determination
date for a LIBOR note as a "LIBOR interest determination date".
* 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
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refer to an interest determination date for a EURIBOR note as a
"EURIBOR interest determination date".
* For treasury rate notes, the interest determination date relating to
a particular interest reset date, which we refer to as 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 business day
following the auction date.
* For 11th district rate notes, the interest determination date
relating to a particular interest reset date will be the last
working day, in the first calendar month before that interest reset
date, on which the Federal Home Loan Bank of San Francisco publishes
the monthly average cost of funds paid by member institutions of the
Eleventh Federal Home Loan Bank District for the second calendar
month before that interest reset date. We refer to an interest
determination date for an 11th district rate note as an "11th
district interest determination date".
INTEREST CALCULATION DATES. As described above, the interest rate that
takes effect on a particular interest reset date will be determined by reference
to the corresponding interest determination date. Except for LIBOR notes and
EURIBOR notes, however, the determination of the rate will actually be made on a
day no later than the corresponding interest calculation date. The "interest
calculation date" will be the earlier of the following:
* the tenth calendar day after the interest determination date or, if
that tenth calendar day is not a business day, the next succeeding
business day; and
* the business day immediately preceding the interest payment date or
the maturity, whichever is the day on which the next payment of
interest will be due.
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. The "interest payment dates" for a floating
rate note will depend on when the interest rate is reset and, unless we specify
otherwise in the applicable pricing supplement, will be as follows:
* for floating rate notes that reset daily, weekly or monthly, the
third Wednesday of each month or the third Wednesday of March, June,
September and December of each year, as specified in the applicable
pricing supplement;
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* for floating rate notes that reset quarterly, the third Wednesday of
March, June, September and December of each year;
* for floating rate notes that reset semi-annually, the third
Wednesday of the two months of each year specified in the applicable
pricing supplement; or
* for floating rate notes that reset annually, the third Wednesday of
the month specified in the applicable pricing supplement.
Regardless of these rules, if a note is originally issued 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. We have defined the term
regular record date below under "-- Payment Mechanics -- Regular Record Dates
for Interest".
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 business day, then the interest payment date will be the next day that is
a business day. However, if the floating rate note is a LIBOR note or a EURIBOR
note and the next business day falls in the next calendar month, then the
interest payment date will be advanced to the next preceding day that is a
business day. In all cases, an interest payment date that falls on the maturity
will not be changed.
CALCULATION OF INTEREST. Calculations relating to floating rate notes
will be made by the calculation agent. Unless the applicable pricing supplement
states otherwise, the calculation agent for any issue of floating rate notes
will be Citibank, N.A. We may appoint a different institution to serve as
calculation agent from time to time after the original issue date of the note
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 -- i.e., the period from and including the original issue
date, or the last date to which interest has been paid or made available for
payment, to but excluding the payment date. 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 rate, also expressed as a decimal, applicable to that day:
* by 360, in the case of commercial paper rate notes, prime rate
notes, LIBOR notes, EURIBOR notes, CD rate notes, federal funds rate
notes and 11th district rate notes; or
* by the actual number of days in the year, in the case of treasury
rate notes and CMT rate notes.
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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) being
rounded down to 9.87654% (or .0987654) and 9.876545% (or .09876545) being
rounded up to 9.87655% (or .0987655)). All amounts used in or resulting from any
calculation relating to a floating rate note will be rounded upward or downward,
as appropriate, to the nearest cent, in the case of U.S. dollars, or to the
nearest corresponding hundredth of a unit, in the case of a currency other than
U.S. dollars, with one-half cent or one-half of a corresponding hundredth of a
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 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.
* If the rate described above does not appear in H.15(519) 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 commercial paper rate will
be 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 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 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 commercial paper rate will be
the money market yield of the arithmetic mean of the following
offered rates for U.S. dollar commercial paper
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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 prior interest period, however, it will remain in effect for
the new interest period.
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.
* If the rate described above does not appear in H.15(519) 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 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 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), 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
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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.
CD RATE NOTES
If you purchase a CD rate note, your note will bear interest at a base
rate equal to the CD rate and 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.
* If the rate described above does not appear in H.15(519) 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 CD rate will be the rate,
for the relevant interest determination date, 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 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 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.
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 and 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 TELERATE
page 120. If the federal funds rate cannot be determined in this manner, the
following procedures will apply.
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* If the rate described above is not displayed on 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 Telerate page 120
and does not appear in H.15(519), H.15 daily update or another
recognized electronic source 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 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.
LIBOR NOTES
If you purchase a LIBOR note, your note will bear interest at a base
rate equal to the London interbank offered rate for deposits in U.S. dollars or
any other index currency, which is referred to as "LIBOR", 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:
* LIBOR will be either:
* the offered rate appearing on the 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 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, Telerate LIBOR page will apply to your LIBOR note.
* If Telerate LIBOR page applies and the rate described above does not
appear on that page, or if Reuters screen LIBOR page applies and
fewer than two of the rates described above appears on that page or
no rate appears on any page on which only one rate
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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 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 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:
* EURIBOR will be the offered rate for deposits in euros having the
index maturity specified in your pricing supplement, beginning on
the relevant interest reset date, as that rate appears on 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 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
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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.
TREASURY RATE NOTES
If you purchase a treasury rate note, your note will bear interest at a
base rate equal to the treasury rate and adjusted by the spread or spread
multiplier, if any, specified in your pricing supplement.
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 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.
* 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 that source 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 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 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
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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) 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), 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 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 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.
CMT RATE NOTES
If you purchase a CMT rate note, your note will bear interest at a base
rate equal to the CMT rate and 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
TELERATE PAGE under the heading " . . . Treasury Constant Maturities . . .
Federal Reserve Board Release H.15 . . . Mondays Approximately 3:45 P.M.", under
the column for the DESIGNATED CMT INDEX MATURITY:
* if the designated CMT Telerate page is Telerate page 7051, the rate
for the relevant interest determination date; or
* if the designated CMT Telerate page is 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
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that ends immediately before the month in which the relevant
interest determination date falls, as applicable.
If the CMT rate cannot be determined in this manner, the following procedures
will apply.
* If the applicable rate described above is not displayed on the
relevant designated CMT 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)
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), 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 Telerate
page and published in H.15(519).
* If the rate described in the prior paragraph does not appear 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), 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
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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 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.
11TH DISTRICT RATE NOTES
If you purchase an 11th district rate note, your note will bear
interest at a base rate equal to the 11th district rate and adjusted by the
spread or spread multiplier, if any, specified in your pricing supplement.
The 11th district rate will be the rate equal to the monthly weighted
average cost of funds for the calendar month immediately before the relevant
11th district interest determination date, as displayed on Telerate page 7058
under the heading "11th District" as of 11:00 A.M., San Francisco time, on that
date. If the 11th district rate cannot be determined in this manner, the
following procedures will apply.
* If the rate described above does not appear on Telerate page 7058 on
the relevant 11th district interest determination date, then the
11th district rate for that date will be the monthly weighted
average cost of funds paid by institutions that are members of the
Eleventh Federal Home Loan Bank District for the calendar month
immediately before the relevant 11th district interest determination
date, as most recently announced by the Federal Home Loan Bank of
San Francisco as that cost of funds.
* If the Federal Home Loan Bank of San Francisco fails to announce the
cost of funds described in the prior paragraph on or before the
relevant 11th district interest determination date, the 11th
district rate in effect for the new interest period will be the 11th
district rate in effect for the prior interest period. If the
initial base rate has been in
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effect for the prior interest period, however, it will remain in
effect for the new interest period.
SPECIAL RATE CALCULATION TERMS
In this subsection entitled "-- Interest Rates", we use several terms
that have special meanings relevant to calculating floating interest rates. We
describe these terms as follows:
The term "BOND EQUIVALENT YIELD" means a yield expressed as a
percentage and calculated in accordance with the following formula:
D x N
bond equivalent yield = --------------------- x 100
360 - (D x M)
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 reset
period.
The term "BUSINESS DAY" means, for any note, a day that meets all the
following applicable requirements:
* for all notes, is a Monday, Tuesday, Wednesday, Thursday or Friday
that is not a day on which banking institutions in New York City
generally are authorized or obligated by law, regulation or
executive order to close;
* if the note is a LIBOR note, is also a London business day;
* if the note has a specified currency other than U.S. dollars or
euros, is also a day on which banking institutions are not
authorized or obligated by law, regulation or executive order to
close in the principal financial center of the country issuing the
specified currency;
* 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; and
* for all notes, and solely with respect to any payment or other
action to be made or taken at any place of payment designated by us
outside New York City, is a Monday, Tuesday, Wednesday, Thursday or
Friday that is not a day on which banking institutions in such place
of payment generally are authorized or obligated by law, regulation
or executive order to close.
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The term "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 the
applicable pricing supplement. If no such original maturity period is so
specified, the designated CMT index maturity will be 2 years.
The term "DESIGNATED CMT TELERATE PAGE" means the Telerate page
specified in the applicable pricing supplement that displays treasury constant
maturities as reported in H.15(519). If no Telerate page is so specified, then
the applicable page will be Telerate page 7052. If Telerate page 7052 applies
but the applicable pricing supplement does not specify whether the weekly or
monthly average applies, the weekly average will apply.
The term "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.
The term "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.
"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.bog.frb.fed.us/releases/h15/update,
or any successor site or publication.
The term "INDEX CURRENCY" means, with respect to a LIBOR note, the
currency specified as such in the applicable 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 the applicable pricing supplement.
The term "INDEX MATURITY" means, with respect to a floating rate note,
the period to maturity of the instrument or obligation on which the interest
rate formula is based, as specified in the applicable pricing supplement.
"LONDON BUSINESS DAY" means any day on which dealings in the relevant
index currency are transacted in the London interbank market.
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The term "MONEY MARKET YIELD" means a yield expressed as a percentage
and calculated in accordance with the following formula:
D x 360
money market yield = --------------------------- x 100
360 - (D x M)
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 reset
period.
The term "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 "LIBO"
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.
"TELERATE LIBOR PAGE" means Telerate page 3750 or any replacement page
or pages on which London interbank rates of major banks for the relevant index
currency are displayed.
"TELERATE PAGE" means the display on Bridge Telerate, Inc., or any
successor service, on the page or pages specified in this prospectus supplement
or the applicable pricing supplement, or any replacement page or pages on that
service.
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,
Telerate LIBOR page or 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 your note before its
stated maturity unless your pricing supplement specifies a redemption
commencement date. You will not be entitled to require us to buy your note from
you, before its stated maturity, unless your pricing supplement specifies one or
more repayment dates.
S-27
If your pricing supplement specifies a redemption commencement date or
a repayment date, it will also specify one or more redemption prices or
repayment 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
unless otherwise indicated in your pricing supplement. 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 your pricing supplement specifies a repayment date, your note will
be repayable at your option on the specified repayment date at the specified
repayment price, together with interest accrued to the repayment date.
In the event that 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. We will give the notice in the manner described
below in "-- Notices".
If a note represented by a global note is subject to repayment at the
Holder's option, the depositary 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 interests, requesting that they notify the depositary 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
depositary 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 any notes are redeemable and we redeem less than all those notes, we
may block the transfer or exchange of those notes 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 of or exchange any note selected for
redemption, except that we will continue to permit transfers and exchanges of
the unredeemed portion of any note being partially redeemed.
In the event that 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, we will comply with Rule 14e-1
as then in effect to the extent applicable.
S-28
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 cancelled.
PAYMENT MECHANICS
WHO RECEIVES PAYMENT?
If interest is due on a note on an interest payment date, we will pay
the interest to the person or entity in whose name the note is registered at the
close of business on the regular record date relating to the interest payment
date. If interest is due at maturity but on a day that is not an interest
payment date, we will pay the interest to the person or entity entitled to
receive the principal of the note. If principal or another amount besides
interest is due on a note at maturity, we will pay the amount to the Holder of
the note against surrender of the note at a proper place of payment or, in the
case of a global note, in accordance with the applicable policies of the
depositary.
REGULAR RECORD DATES FOR INTEREST
Unless we specify otherwise in the applicable pricing supplement, the
"regular record date" relating to an interest payment date for any fixed rate
note will be the May 1 or November 1 next preceding that interest payment date,
and for any floating rate note will be the 15th calendar day before that
interest payment date, in each case whether or not the record date is a business
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.
HOW WE WILL MAKE PAYMENTS DUE IN U.S. DOLLARS
We will follow the practice described in this subsection when paying
amounts due in U.S. dollars. Payments of amounts due in other currencies will be
made as described in the next subsection.
PAYMENTS ON GLOBAL NOTES. We will make payments on a global note in
accordance with the applicable policies of the depositary as in effect from time
to time. Under those policies, we will pay directly to the depositary, or its
nominee, and not to any indirect holders who own beneficial interests in the
global note. An indirect holder's right to receive those payments will be
governed by the rules and practices of the depositary and its participants, as
described under "-- What Is a Global Note?".
PAYMENTS ON NON-GLOBAL NOTES. We will make payments on a note in
non-global form as follows. We will pay interest that is due on an interest
payment date by check mailed on the interest payment date to the Holder at his
or her address shown on the trustee's records as of the close of business on the
regular record date. We will make all other payments by check at the paying
agent described below, against surrender of the note. All payments by check will
be made in next-day funds -- i.e., funds that become available on the day after
the check is cashed.
S-29
Alternatively, if a non-global note has a face amount of at least
$1,000,000 and the Holder asks us to do so, we will pay any amount that becomes
due on the note by wire transfer of immediately available funds to an account at
a bank in New York City, on the due date. To request wire payment, the Holder
must give the paying agent appropriate wire transfer instructions at least ten
days before the requested wire payment is due. In the case of any interest
payment due on an interest payment date, the instructions must be given by the
person or entity who is the Holder on the relevant regular record date. In the
case of any other payment, payment will be made only after the note is
surrendered to the paying agent. Any wire instructions, once properly given,
will remain in effect unless and until new instructions are given in the manner
described above.
BOOK-ENTRY AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW THEY WILL RECEIVE PAYMENTS ON THEIR NOTES.
HOW WE WILL MAKE PAYMENTS DUE IN OTHER CURRENCIES
We will follow the practice described in this subsection when paying
amounts that are due in a specified currency other than U.S. dollars.
PAYMENTS ON GLOBAL NOTES. We will make payments on a global note in
accordance with the applicable policies of the depositary as in effect from time
to time. We understand that these policies, as currently in effect at DTC, are
as follows.
Unless otherwise indicated in your pricing supplement, if you are an
indirect holder of global notes denominated in a specified currency other than
U.S. dollars and if you elect to receive payments in that other currency, you
must notify the participant through which your interest in the global 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 stated maturity, or any
redemption or repayment date, in the case of payment of principal or
any premium.
You may elect to receive all or only a portion of any interest,
principal or premium payment in a specified currency other than U.S. dollars.
Your participant must, in turn, notify DTC of your election on or
before the third DTC business day after that regular record date, in the case of
a payment of interest, and on or before the 12th DTC business day prior to
stated maturity, or on the redemption or repayment date if your note is redeemed
or repaid earlier, in the case of a payment of principal or any premium.
DTC, in turn, will notify the paying agent of your election in
accordance with DTC's procedures.
If complete instructions are received by the participant and forwarded
by the participant to DTC, and by DTC to the paying agent, on or before the
dates noted above, the paying agent, in accordance with DTC's instructions, will
make the payments to you or your participant by wire
S-30
transfer of immediately available funds to an account maintained by the payee
with a bank located in the country issuing the specified currency or in another
jurisdiction acceptable to us and the paying agent.
If the foregoing steps are not properly completed, we expect DTC to
inform the paying agent that payment is to be made in U.S. dollars. In that
case, we or our agent will convert the payment to U.S. dollars in the manner
described below under "-- Conversion to U.S. Dollars". We expect that we or our
agent will then make the payment in U.S. dollars to DTC, and that DTC in turn
will pass it along to its participants.
INDIRECT HOLDERS OF 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.
PAYMENTS ON NON-GLOBAL NOTES. Except as described in the last paragraph
under this heading, we will make payments on notes in non-global form in the
applicable specified currency. We will make these payments by wire transfer of
immediately available funds to any account that is maintained in the applicable
specified currency at a bank designated by the Holder and is acceptable to us
and the trustee. To designate an account for wire payment, the Holder must give
the paying agent appropriate wire instructions at least ten days before the
requested wire payment is due. In the case of any interest payment due on an
interest payment date, the instructions must be given by the person or entity
who is the Holder on the regular record date. In the case of any other payment,
the payment will be made only after the note is surrendered to the paying agent.
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 business 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.
Although a payment on a note in non-global form 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 least ten days
before the next due date for which payment in U.S. dollars is requested. In the
case of any interest payment due on an interest payment date, the request must
be made by the person or entity who is the Holder on the regular record date.
Any request, once properly made, will remain in effect unless and until revoked
by notice properly given in the manner described above.
BOOK-ENTRY AND OTHER INDIRECT HOLDERS OF 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.
CONVERSION TO U.S. DOLLARS. When we are asked by a Holder to make
payments in U.S. dollars of an amount due in another currency, either on a
global note or a non-global note as
S-31
described above, we will determine the U.S. dollar amount the Holder receives as
follows. The exchange rate agent described below will request currency bid
quotations expressed in U.S. dollars from three or, if three are not available,
then two, recognized foreign exchange dealers in New York City, any of which may
be the exchange rate agent, as of 11:00 A.M., New York City time, on the second
business day before the payment date. Currency bid quotations will be requested
on an aggregate basis, for all Holders of notes and other debt securities, if
any, requesting U.S. dollar payments of amounts due on the same date in the same
specified currency. The U.S. dollar amount the Holder receives will be based on
the highest acceptable currency bid quotation received by the exchange rate
agent. If the exchange rate agent determines that at least two acceptable
currency bid quotations are not available on that second business day, the
payment will be made in the specified currency.
To be acceptable, a quotation must be given as of 11:00 A.M., New York
City time, on the second business day before the due date and the quoting dealer
must commit to execute a contract at the quotation. If some or all of the
relevant notes are LIBOR notes or EURIBOR notes, the second preceding business
day will be determined for this purpose as if none of those notes were LIBOR
notes or EURIBOR notes.
A Holder that requests payment in U.S. dollars will bear all associated
currency exchange costs, which will be deducted from the payment.
WHEN THE SPECIFIED CURRENCY IS NOT AVAILABLE. If we are obligated to
make any payment in a specified currency other than U.S. dollars, and the
specified currency or any successor currency is not available to us due to
circumstances beyond our control -- such as the imposition of exchange controls
or a disruption in the currency markets -- we will be entitled to satisfy our
obligation to make the payment in that specified currency by making the payment
in U.S. dollars, on the basis of the most recently available exchange rate.
For a specified currency other than U.S. dollars, the exchange rate
will be the noon buying rate for cable transfers of the specified currency in
New York City as quoted by the Federal Reserve Bank of New York on the then-most
recent day on which that bank has quoted that rate.
The foregoing will apply to any note, whether in global or non-global
form, and to any payment, including a payment at maturity. Any payment made
under the circumstances and in a manner described above will not result in a
default under any note or the indenture.
THE EURO. The euro may be a specified currency for some notes. On
January 1, 1999, the euro became the legal currency for the member states
participating in the European Economic and Monetary Union. During a transition
period from January 1, 1999 to December 31, 2001 and for a maximum of six months
thereafter, the former national currencies of these member states will continue
to be legal tender in their country of issue, at rates irrevocably fixed on
December 31, 1998.
EXCHANGE RATE AGENT. If we issue a note in a specified currency other
than U.S. dollars, we will appoint a financial institution to act as the
exchange rate agent and will name the institution initially appointed when the
note is originally issued in the applicable pricing supplement. We may
S-32
change the exchange rate agent from time to time after the original issue date
of the note 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 the applicable 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.
PAYMENT WHEN OFFICES ARE CLOSED
If any payment is due on a note on a day that is not a business day, we
will make the payment on the next day that is a business day. Payments postponed
to the next business day in this situation will be treated under the indenture
as if they were made on the original due date. Postponement of this kind will
not result in a default under any note or the indenture, and no interest will
accrue on the postponed amount from the original due date to the next day that
is a business day. The term business day has a special meaning, which we
describe above under "-- Special Rate Calculation Terms".
PAYING AGENT
We may appoint one or more financial institutions to act as our paying
agents, at whose designated offices notes in non-global entry form may be
surrendered for payment at their maturity. We call each of those offices a
"paying agent". We may add, replace or terminate paying agents from time to
time. We may also choose to act as our own paying agent. Initially, we have
appointed the trustee, at its corporate trust office in New York City, as the
paying agent. We will notify you of changes in the paying agents.
UNCLAIMED PAYMENTS
Regardless of who acts as paying agent, all money paid by us to a
paying agent that remains unclaimed at the end of two years after the amount is
due to a Holder will be repaid to us. After that two-year period, the Holder may
look only to us for payment and not to the trustee, any other paying agent or
anyone else.
NOTICES
Notices to be given to Holders of a global note will be given only to
the depositary, in accordance with its applicable policies as in effect from
time to time. Notices to be given to Holders of notes not in global form will be
sent by mail to the respective addresses of the Holders as they appear in the
trustee's records, and will be deemed given when mailed. Neither the failure to
give any notice to a particular Holder, nor any defect in a notice given to a
particular Holder, will affect the sufficiency of any notice given to another
Holder.
BOOK-ENTRY AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW THEY WILL RECEIVE NOTICES.
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RISKS ASSOCIATED WITH INDEXED NOTES
The following is a brief summary of certain considerations which
prospective purchasers of indexed notes should take into account. Additional
risks and tax considerations will be set forth in the applicable pricing
supplement.
Due to the manner in which the principal amount due at maturity on an
indexed note is determined, holders of indexed notes may lose a portion or all
of their investment in indexed notes depending upon the value at maturity of the
applicable index. Similarly, holders of indexed notes may lose a major portion
or all of the interest due on an interest payment date depending upon the value
of the applicable index on any interest payment date. Indices based upon foreign
currencies, composite currencies, commodities or other financial or
non-financial indicators can be quite volatile in nature. INDEXED NOTES ARE
SPECULATIVE IN NATURE AND INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK THAT
THE PRINCIPAL AMOUNT PAYABLE AT MATURITY MAY BE ZERO AND THAT ON ONE OR MORE
INTEREST PAYMENT DATES THE INTEREST RATE MAY BE ZERO PERCENT. PROSPECTIVE
PURCHASERS SHOULD THEREFORE BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE PRINCIPAL
OF THE INDEXED NOTES AND TO RECEIVE NO INTEREST THEREON. INDEXED NOTES ARE NOT
AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE NOT SOPHISTICATED WITH RESPECT
TO FOREIGN CURRENCY TRANSACTIONS, COMMODITY PRICES AND COMMODITY AND FINANCIAL
OR NON-FINANCIAL INDICES.
Prospective purchasers are encouraged to review the applicable pricing
supplement for additional risks associated with the specific issuance of indexed
notes. See also "Foreign Currency Risks" below.
FOREIGN CURRENCY RISKS
GENERAL
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in notes that are denominated in other than U.S. dollars
entails significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
* the possibility of significant changes in rates of exchange between
the U.S. dollar and the various foreign currencies or composite
currencies, and
* the possibility of the imposition or modification of foreign
exchange controls by either the U.S. or foreign governments.
Such risks depend on economic and political events over which we have no
control. In recent years, rates of exchange between the U.S. dollar and certain
foreign currencies have been highly volatile and such volatility may be expected
in the future. Fluctuations in any particular exchange rate that have occurred
in the past are not necessarily indicative, however, of fluctuations in the rate
that may occur during the term of any note. Depreciation of a specified currency
other than U.S. dollars against the U.S. dollar would result in a decrease in
the effective yield of such note
S-34
below its coupon rate, and in certain circumstances could result in a loss to
the investor on a U.S. dollar basis.
Governments have imposed from time to time, and may in the future
impose, exchange controls which could affect exchange rates as well as the
availability of a specified foreign currency at a note's maturity. Even if there
are no actual exchange controls, it is possible that the specified currency for
any particular note will not be available at such note's maturity. In that
event, we will repay in U.S. dollars on the basis of the most recently available
exchange rate.
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS AND ANY
APPLICABLE PRICING SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN
THE NOTES DENOMINATED IN OTHER THAN U.S. DOLLARS. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN
INVESTMENT IN THE NOTES DENOMINATED IN OTHER THAN U.S. DOLLARS. NOTES
DENOMINATED IN OTHER THAN U.S. DOLLARS ARE NOT AN APPROPRIATE INVESTMENT FOR
INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
Currently, there are limited facilities in the United States for
conversion of U.S. dollars into foreign currencies, and vice versa. In addition,
banks offer limited non-U.S. dollar denominated checking or saving account
facilities in the United States. Accordingly, unless otherwise specified in the
applicable pricing supplement, payments on notes made in a specified currency
other than U.S. dollars may be made from an account with a bank located in the
country issuing the specified currency.
UNLESS OTHERWISE SPECIFIED IN THE APPLICABLE 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. THE INFORMATION SET FORTH IN THIS PROSPECTUS SUPPLEMENT IS DIRECTED
TO PROSPECTIVE PURCHASERS WHO ARE UNITED STATES RESIDENTS, AND WE DISCLAIM ANY
RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS WHO ARE RESIDENTS OF COUNTRIES
OTHER THAN THE UNITED STATES WITH RESPECT TO ANY MATTERS THAT MAY AFFECT THE
PURCHASE, HOLDING OR RECEIPT OF PAYMENTS OF PRINCIPAL OF AND INTEREST ON THE
NOTES. SUCH PERSONS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS WITH
REGARD TO SUCH MATTERS.
GOVERNING LAW AND JUDGMENTS
The notes will be governed by and construed in accordance with the laws
of the State of New York. If an action based on the notes were commenced in a
court in the United States, it is likely that such court would grant judgment
relating to the notes only in U.S. dollars. It is not clear, however, whether,
in granting such judgment, the rate of conversion into U.S. dollars would be
determined with reference to the date of default, the date judgment is rendered
or some other date. New York statutory law provides, however, that a court shall
render a judgment in a foreign currency of the underlying obligation and that
the judgment shall be converted into U.S. dollars at the rate of exchange
prevailing on the date of the entry of the judgment.
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EXCHANGE RATE AND CONTROLS FOR SPECIFIED CURRENCIES
With respect to any note denominated in other than U.S. dollars, a
pricing supplement including a currency supplement with respect to the
applicable specified currency (which supplement shall include information with
respect to applicable current foreign exchange controls, if any) and the
relevant historical exchange rates for the specified currency shall constitute a
part of this prospectus supplement. Such information concerning exchange rates
is furnished as a matter of information only and should not be regarded as
indicative of the range of or trends in fluctuations in currency exchange rates
that may occur in the future.
UNITED STATES TAXATION
This section describes the material United States federal income tax
consequences of owning the series C medium-term notes and is the opinion of John
J. Donovan III, United States tax counsel to Minnesota Mining and Manufacturing
Company. It applies to you only if you hold your notes 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 holds notes that are a hedge or that are hedged
against interest rate or currency risks;
* a person that holds notes as part of a straddle or conversion
transaction for tax purposes; or
* a person whose functional currency for tax purposes is not the U.S.
dollar.
This section deals only with notes that are due to mature 30 years or
less from the date on which they are issued. The United States federal income
tax consequences of owning notes that are due to mature more than 30 years from
their date of issue will be discussed in any applicable pricing supplement. This
section is based on the Internal Revenue Code of 1986, its legislative history,
existing and proposed regulations under the Internal Revenue Code, and published
rulings and court decisions, all as currently in effect. These laws are subject
to change, possibly on a retroactive basis.
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PLEASE CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF
OWNING THESE NOTES IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE
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 note
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 note
that is not qualified stated interest, each as defined below under "-- Original
Issue Discount -- General", you will be taxed on any interest on your note,
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 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
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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.
When you actually receive an interest payment, including a payment
attributable to accrued but unpaid interest upon the sale or retirement of your
note, 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. However, you may not treat this ordinary income gain or loss as an
adjustment to the interest income you receive.
ORIGINAL ISSUE DISCOUNT
GENERAL. If you own a note, other than a short-term note with a term of
one year or less, it will be treated as a discount note issued at an original
issue discount if the amount by which the note's stated redemption price at
maturity exceeds its issue price is more than a de minimis amount. Generally, a
note's issue price will be the first price at which a substantial amount of
notes included in the issue of which the note is a part is sold to persons other
than bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers. A note's stated
redemption price at maturity is the total of all payments provided by the note
that are not payments of qualified stated interest. Generally, an interest
payment on a note is qualified stated interest if it is one of a series of
stated interest payments on a note that are unconditionally payable at least
annually at a single fixed rate, with certain exceptions for lower rates paid
during some periods, applied to the outstanding principal amount of the note.
There are special rules for variable rate notes that are discussed under "--
Variable Rate Notes".
In general, your note is not a discount note 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% of its stated redemption price at maturity
multiplied by the number of complete years to its maturity. Your note will have
de minimis original issue discount if the amount of the excess is less than the
de minimis amount. If your note has de minimis original issue discount, you must
include the de minimis amount in income as stated principal payments are made on
the note, 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
note's de minimis original issue discount by a fraction equal to:
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* the amount of the principal payment made
divided by
* the stated principal amount of the note.
Generally, if your discount note matures more than one year from its
date of issue, you must include original issue discount 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
note. More specifically, you can calculate the amount of accrued OID that you
must include in income by adding the daily portions of OID with respect to your
discount note for each day during the taxable year or portion of the taxable
year that you hold your discount note. 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 note and you may vary the length of each accrual period
over the term of your note. However, no accrual period may be longer than one
year and each scheduled payment of interest or principal on the note 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 note's adjusted issue price at the
beginning of the accrual period by your note's yield to maturity;
and then
* subtracting from this figure the sum of the payments of qualified
stated interest on your note allocable to the accrual period.
You must determine the note'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 can determine your discount note's adjusted issue price at
the beginning of any accrual period by:
* adding your note's issue price and any accrued OID for each prior
accrual period; and then
* subtracting any payments previously made on your note that were not
qualified stated interest payments.
If an interval between payments of qualified stated interest on your
note 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
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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 note, other than any
payment of qualified stated interest; and
* your note's adjusted issue price as of the beginning of the final
accrual period.
ACQUISITION PREMIUM. If you purchase your note for an amount that is
less than or equal to the sum of all amounts, other than qualified stated
interest, payable on your note after the purchase date but is greater than the
amount of your note'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 an amount equal to:
* the excess of your adjusted basis in the note immediately after
purchase
over
* the adjusted issue price of the note
divided by:
* the excess of the sum of all amounts payable (other than qualified
stated interest) on the note after the purchase date
over
* the note's adjusted issue price.
MARKET DISCOUNT. You will be treated as if you purchased your note,
other than a short-term note, at a market discount, and your note will be a
market discount note if:
* you purchase your note for less than its issue price as determined
above under "-- General"; and
* the note's stated redemption price at maturity or, in the case of a
discount note, the note's revised issue price, exceeds the price you
paid for your note by at least 1/4 of 1% of your note's stated
redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the note's maturity.
To determine the revised issue price of your note for these
purposes, you generally add any OID that has accrued on your note to
its issue price.
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If your note's stated redemption price at maturity or, in the case of a
discount note, its revised issue price, does not exceed the price you paid for
the note by 1/4 of 1% multiplied by the number of complete years to the note'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 note as ordinary income to the extent of the accrued market
discount on your note. Alternatively, you may elect to include market discount
in income currently over the life of your note. 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 note and do not make this election, you
will generally be required to defer deductions for interest on borrowings
allocable to your note in an amount not exceeding the accrued market discount on
your note until the maturity or disposition of your note.
You will accrue market discount on your market discount note 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 note
with respect to which it is made and you may not revoke it.
PRE-ISSUANCE ACCRUED INTEREST. An election may be made to decrease the
issue price of your note by the amount of pre-issuance accrued interest if:
* a portion of the initial purchase price of your note is attributable
to pre-issuance accrued interest;
* the first stated interest payment on your note is to be made within
one year of your note'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 note.
NOTES SUBJECT TO CONTINGENCIES INCLUDING OPTIONAL REDEMPTION. Your note
is subject to a contingency if it provides for an alternative payment schedule
or schedules applicable upon the occurrence of a contingency or contingencies,
other than a remote or incidental contingency, whether such contingency relates
to payments of interest or of principal. In such a case, you must determine the
yield and maturity of your note by assuming that the payments will be made
according to the payment schedule most likely to occur if:
* 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.
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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 note in accordance with the general rules that govern contingent
payment obligations. These rules will be discussed in the applicable pricing
supplement.
Notwithstanding the general rules for determining yield and maturity,
if your note 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 note under an alternative payment schedule or schedules, then in the
case of an option or options of ours, we will be deemed to exercise or not
exercise an option or combination of options in the manner that minimizes the
yield on your note and, in the case of an option or options that you hold, you
will be deemed to exercise or not exercise an option or combination of options
in the manner that maximizes the yield on your note. 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 note for the purposes of those calculations by using any date on which
your note 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 note as
the principal amount payable at maturity.
If a contingency, including the exercise of an option, actually occurs
or does not occur contrary to an assumption made according to the above rules
then, except to the extent that a portion of your note 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 note by treating your
note as having been retired and reissued on the date of the change in
circumstances for an amount equal to your note'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 note 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 "-- Notes Purchased at a
Premium", or acquisition premium.
If you make this election for your note, then, when you apply the
constant-yield method:
* the issue price of your note will equal your cost;
* the issue date of your note will be the date you acquired it; and
* no payments on your note will be treated as payments of qualified
stated interest.
Generally, this election will apply only to the note for which you make it;
however, if the note for which this election is made 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 note, you
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will be treated as having made the election discussed above under "-- Market
Discount" to include market discount in income currently over the life of all
debt instruments that you currently hold or later acquire. You may not revoke
any election to apply the constant-yield method to all interest on a note or the
deemed elections with respect to amortizable bond premium or market discount
notes without the consent of the Internal Revenue Service.
VARIABLE RATE NOTES. Your note will be a variable rate note if:
* your note's issue price does not exceed the total noncontingent
principal payments by more than the lesser of:
* .015 multiplied by the product of the total noncontingent
principal payments and the number of complete years to maturity
from the issue date, or
* 15 percent of the total noncontingent principal payments; and
* your note provides for stated interest, compounded or paid at least
annually, only at:
* one or more qualified floating rates,
* a single fixed rate and one or more qualified floating rates,
* a single objective rate, or
* a single fixed rate and a single objective rate that is a
qualified inverse floating rate.
Your note 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 note is denominated; or
* the rate is equal to such a rate multiplied by either:
* a fixed multiple that is greater than 0.65 but not more than
1.35, or
* a fixed multiple that is 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 note 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 note 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
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same values throughout the term of the note, the qualified floating rates
together constitute a single qualified floating rate.
Your note 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 note or are not reasonably expected to significantly affect the yield on the
note.
Your note 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 note is
set no earlier than three months before the first day on which that
value is in effect and no later than one year following that first
day.
Your note 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 note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of your note's term.
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 note will also have a single qualified floating rate or
an objective rate if interest on your note is stated at a fixed rate
for an initial period of one year or less followed by either a
qualified floating rate or an objective rate for a subsequent
period, and either:
* the fixed rate and the qualified floating rate or objective rate
have values on the issue date of the note that do not differ by
more than 0.25 percentage points; or
* the value of the qualified floating rate or objective rate is
intended to approximate the fixed rate.
Commercial paper rate notes, prime rate notes, CD rate notes, federal
funds rate notes, LIBOR notes, EURIBOR notes, treasury rate notes, CMT rate
notes, and 11th district rate notes generally will be treated as variable rate
notes under these rules.
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In general, if your variable rate note 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 note is
qualified stated interest. In this case, the amount of OID, if any, is
determined by using, for 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 note.
If your variable rate note does not provide for stated interest at a
single qualified floating rate or a single objective rate, and also does not
provide for interest payable at a fixed rate other than a single fixed rate for
an initial period, you generally must determine the interest and OID accruals on
your note by:
* determining a fixed rate substitute for each variable rate provided
under your variable rate note;
* 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 note, 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 note.
If your variable rate note 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 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 note will be treated, for purposes of the first three steps of the
determination, as if your note 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 note 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 NOTES. In general, if you are an individual or other cash
basis United States holder of a short-term note, 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. However, 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 company, common trust fund, or a certain type
of pass-through entity, or a cash basis taxpayer who so elects, you will be
required to accrue OID on short-term notes on either a straight-
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line basis or under the constant-yield method, based on daily compounding. If
you are not required and do not elect to include OID in income currently, any
gain you realize on the sale or retirement of your short-term note will be
ordinary income to the extent of the accrued OID, which will be determined on a
straight-line basis unless you make an election to accrue the OID under the
constant-yield method, through the date of sale or retirement. However, if you
are not required and do not elect to accrue OID on your short-term notes, you
will be required to defer deductions for interest on borrowings allocable to
your short-term notes in an amount not exceeding the deferred income until the
deferred income is realized.
When you determine the amount of OID subject to these rules, you must
include all interest payments on your short-term note, including stated
interest, in your short-term note's stated redemption price at maturity.
FOREIGN CURRENCY DISCOUNT NOTES. If your discount note is denominated
in, or determined by reference to, a foreign currency, you must determine OID
for any accrual period on your discount note 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 note.
NOTES PURCHASED AT A PREMIUM
If you purchase your note 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 note by the amount of
amortizable bond premium allocable to that year, based on your note's yield to
maturity. If your note 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 note 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
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 NOTES
Your tax basis in your note will generally be the U.S. dollar cost, as
defined below, of your note, adjusted by:
* adding any OID or market discount, de minimis original issue
discount and de minimis market discount; and then
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* subtracting any payments on your note that are not qualified stated
interest payments and any amortizable bond premium applied to reduce
the interest on your note.
If you purchase your note with foreign currency, the U.S. dollar cost of your
note 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 note is traded on an established securities
market, as defined in the applicable Treasury regulations, the U.S. dollar cost
of your note 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 note equal to the difference between the amount you realize on the sale or
retirement and your tax basis in your note. If your note 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 notes 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 United States holder that so elects, and the
notes 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
note, except to the extent attributable to changes in exchange rates as
described in the next paragraph or to accrued but unpaid interest, described
above under "-- Original Issue Discount -- Short-Term Notes" or "-- Market
Discount", or subject to the rules governing contingent payment obligations.
Capital gain of a non-corporate United States holder is generally taxed at a
maximum rate of 20% where the property is held for more than one year.
You must treat any portion of the gain or loss that you recognize on
the sale or retirement of a note as ordinary income or loss to the extent
attributable to changes in exchange rates. However, you only take exchange gain
or loss into account 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 note or on the sale
or retirement of your note, 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 notes or exchange it for U.S. dollars, any gain or loss recognized
generally will be ordinary income or loss.
S-47
INDEXED AND OTHER NOTES
The applicable pricing supplement will discuss any special United
States federal income tax rules with respect to contingent foreign currency
notes, notes the payments on which are determined by reference to any index and
other notes that are subject to the rules governing contingent payment
obligations which are not subject to the rules governing variable rate notes.
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 note 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 is not subject to United States federal
income tax on a net income basis on income or gain from a note.
If you are a United States holder, this section does not apply to you.
This discussion assumes that the note 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 present 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 note:
* we and other payors 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 interest:
* you do not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of Minnesota Mining
and Manufacturing Company entitled to vote,
* you are not a controlled foreign corporation that is related to us
through stock ownership, and
* you certify to us or a U.S. payor on an IRS Form W-8BEN (or
substitute form), under penalties of perjury, that you are not a
United States holder and provide your name and address, or
S-48
* a non-U.S. securities clearing organization, bank or other
financial institution that holds customers' securities in the
ordinary course of its trade or business and holds the note
certifies to us or a U.S. payor under penalties of perjury that a
similar statement has been received from you by it or by a
similar financial institution between it and you and furnishes
the payor with a copy thereof (special procedures contained in
Treasury regulations may apply to payments through
intermediaries); 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
note.
Further, a note held by an individual, who at death is not a citizen or resident
of the United States will not be includible in the individual's gross estate for
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 Minnesota
Mining and Manufacturing Company entitled to vote at the time of
death; and
* the income on the note would not have been effectively connected
with a United States trade or business of the decedent at the same
time.
THE RULES REGARDING WITHHOLDING ARE COMPLEX AND VARY DEPENDING ON YOUR
INDIVIDUAL SITUATION. THEY ARE ALSO SUBJECT TO CHANGE. IN ADDITION, SPECIAL
RULES APPLY TO CERTAIN TYPES OF NON-U.S. HOLDERS OF NOTES, INCLUDING
PARTNERSHIPS, TRUSTS, AND OTHER ENTITIES TREATED AS PASS-THROUGH ENTITIES FOR
U.S. FEDERAL INCOME TAX PURPOSES. WE SUGGEST THAT YOU CONSULT WITH YOUR TAX
ADVISOR REGARDING THE SPECIFIC METHODS FOR SATISFYING THESE REQUIREMENTS.
BACKUP WITHHOLDING AND
INFORMATION REPORTING
UNITED STATES HOLDERS
In general, if you are a non-corporate 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 note and the accrual of OID on a
discount note. In addition, the proceeds of the sale of your note before
maturity within the United States will be reported to the Internal Revenue
Service. Additionally, backup withholding at a rate of 31% will apply to any
payments, including payments of OID, if you fail to provide an accurate
certified 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.
UNITED STATES ALIEN HOLDERS
You are generally exempt from backup withholding and information
reporting, with respect to any payments of principal, premium or interest,
including OID, made by us and other payors, provided that you provide the
certification described above under "-- United States Alien
S-49
Holders", and provided further that the payor does not have actual knowledge or
reason to know that you are a United States person. We and other payors,
however, may report payments of interest on your notes on Internal Revenue
Service Form 1042-S.
In general, payment of the proceeds from the sale of notes to or
through a United States office of a broker is subject to both United States
backup withholding and information reporting. If, however, you are a United
States alien holder, you will not be subject to information reporting and backup
withholding if you certify as to your non-United States status as described
above under "-- United States Alien Holders", under penalties of perjury, or
otherwise establish an exemption. Payments of the proceeds from the sale by a
United States alien holder of a note made to or through a foreign office of a
broker will not be subject to information reporting or backup withholding.
However, information reporting, but not backup withholding, may apply to a
payment made outside the United States of the proceeds of a sale of a note
through an office outside the United States if the broker is:
* a United States person;
* a controlled foreign corporation for United States tax purposes;
* a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified
three-year period; 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
* the foreign partnership is engaged in a United States trade or
business
unless the broker has documentary evidence in its records that you are a
non-U.S. person and does not have actual knowledge or reason to know that you
are a U.S. person, or you otherwise establish an exemption.
S-50
SUPPLEMENTAL PLAN OF DISTRIBUTION
3M and Goldman, Sachs & Co., J.P. Morgan Securities Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated
and UBS Warburg LLC (the "agents") have entered into a distribution agreement
with respect to the notes. Subject to certain conditions, each of the agents has
agreed to use its reasonable best efforts to solicit purchases of the notes. 3M
has the sole right to accept offers to purchase notes and may reject any
proposed purchase of the notes. Each of the agents may, in its discretion
reasonably exercised, also reject any offer to purchase notes. 3M will pay the
agents a commission on any notes sold through the agents. The commission will
range from .125% to .750% of the principal amount of the notes, depending on the
stated maturity of the notes.
3M may also sell notes to the agents who will purchase the notes as
principal for their own accounts. The agents will purchase the notes at a price
equal to the issue price specified in the applicable prospectus supplement, less
a discount. Unless otherwise stated, the discount will equal the applicable
commission on an agency sale of notes with the same stated maturity. 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. 3M may also sell notes
directly to investors. No commissions will be paid on notes sold directly by 3M.
3M may accept offers to purchase notes through additional agents and may appoint
additional agents to solicit offers to purchase notes. Such other agents, if
any, will be named in the applicable pricing supplement.
The agents may resell any notes they purchase as principal to other
brokers or dealers at a discount, which may include all or part of the discount
the agents received from 3M. If all the notes are not sold at the initial
offering price, the agents may change the offering price and the other selling
terms.
The agents, whether acting as agents or principals, may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933. 3M has agreed
to indemnify the several agents against certain liabilities, including
liabilities under the Securities 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 3M to
the dealers. Such dealers may be deemed to be "underwriters" within the meaning
of the Securities Act.
3M estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$625,000.
Unless otherwise indicated in the applicable pricing supplement, the
purchase price of the notes will be required to be paid in immediately available
funds in New York, New York.
The agents may be customers of, engage in transactions with and perform
services for 3M in the ordinary course of business.
S-51
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for us by Gregg M.
Larson, who is our Assistant General Counsel, or another one of our lawyers, and
for the agents by Faegre & Benson LLP Minneapolis, Minnesota. Mr. Larson owns,
or has the right to acquire, a number of shares of our common stock which
represents less than 0.1% of the total outstanding common stock. Faegre & Benson
LLP represents us and certain of our subsidiaries in other legal matters. The
opinions of Gregg M. Larson and Faegre & Benson LLP will be based on certain
assumptions about future actions required to be taken by us and the trustee in
connection with the issuance and sale of each note, about the specific terms of
each note and about other matters that may affect the validity of the notes but
cannot be ascertained on the date of those opinions.
S-52
[3M Logo]
Minnesota Mining and
Manufacturing Company
3M Center
St. Paul, Minnesota 55144
(651) 733-1110
$1,500,000,000
MINNESOTA MINING AND MANUFACTURING COMPANY
Debt Securities
-----------------
We may from time to time issue up to $1,500,000,000 aggregate principal
amount of debt securities in supplements to this prospectus. We will provide
specific terms of the debt securities in supplements to this prospectus. These
specific terms will include the offering price and other information of the debt
securities. You should read this prospectus and the applicable supplement
carefully before you invest.
When we issue the debt securities offered by this prospectus, they will be
new securities without an established trading market. We may sell these
securities to or through underwriters, and also to other purchasers or through
agents. The names of the underwriters or agents, as the case may be, will be set
forth in the accompanying prospectus supplement.
INVESTING IN OUR DEBT SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, STATE SECURITIES 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.
-----------------
This prospectus is dated January 12, 2001.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement (No. 333-48922)
that we filed with the Securities and Exchange Commission using a "shelf"
registration process. Under this process, we may sell in one or more offerings
up to $1,500,000,000, or the equivalent in foreign or composite currencies, of
debt securities. This prospectus provides you with a general description of the
terms and conditions of the debt securities that we may offer. Each time we
offer 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, update or change information contained in this prospectus.
To understand the terms of our debt securities, you should carefully
read this document with the applicable prospectus supplement that together give
the specific terms of the debt securities that we may offer. You should also
read the documents we have referred you to in "Where You Can Find Additional
Information" below for information on our company and our financial statements.
The registration statement that contains this prospectus, including the
exhibits to the registration statement, provides additional information about us
and the debt securities offered under this prospectus. The registration
statement can be read at the Securities and Exchange Commission, or the SEC, web
site or at the SEC offices mentioned under the heading "Where You Can Find
Additional Information".
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current 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. You may also read and
copy any document we file with the SEC at its public reference room located at
450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of
the documents at prescribed rates by writing to the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the public
reference facilities. Our SEC filings are also available at the office of the
New York Stock Exchange. For further information on obtaining copies of our
public filings at the New York Stock Exchange, you should call (212) 656-5060.
Our SEC filings are also available to the public over the Internet at EDGAR
Online, Inc.'s web site at http://www.freeedgar.com.
We "incorporate by reference" into this prospectus the information we
file with the SEC, which means we can disclose important information to you by
referring you to those documents filed separately with the SEC. The information
incorporated by reference is an important part of this prospectus. Some
information contained in this prospectus updates the information incorporated by
reference, and information that we file subsequently with the SEC will
automatically update this prospectus. In other words, in the case of a conflict
or inconsistency between information set forth in this prospectus and
information incorporated by reference into this prospectus, you should rely on
the information contained in the document that was filed later. We incorporate
by reference the documents listed below that we filed with the SEC (File No.
1-3285) and any filings we make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the initial filing of the
registration statement that contains this prospectus and before the time that we
sell all the debt securities offered by this prospectus:
* our Annual Report on Form 10-K for the year ended December 31,
1999, including information specifically incorporated by
reference into our Form 10-K from our definitive Notice and Proxy
Statement for our 2000 Annual Meeting of Stockholders, our
Quarterly Report on Form 10-Q for the quarter ended June 30,
1987, our Form 8-K dated November 20, 1996, our Form 8-K dated
June 30, 1997, and Registration Nos. 33-48089 and 333-30689;
2
* Quarterly Reports on Form 10-Q for the quarters ended March 31,
2000, June 30, 2000 and September 30, 2000; and
* Current Reports on Form 8-K filed May 16, 2000, July 27, 2000,
July 27, 2000, October 23, 2000, November 20, 2000, December 6,
2000, December 7, 2000 and January 11, 2001.
You may request a copy of these filings, other than an exhibit to a
filing unless that exhibit is specifically incorporated by reference into that
filing, at no cost, by writing to or telephoning us at the following address:
Office of the Secretary
3M Center Bldg 220-14W-06
St. Paul, MN 55144-1000
Phone: (651) 733-1529
Fax: (651) 733-2782
You should rely only on the information incorporated by reference or presented
in this prospectus or the applicable prospectus supplement. Neither we, nor any
underwriters or agents, have authorized anyone else to provide you with
different information. We may only use this prospectus to sell debt securities
if it is accompanied by a prospectus supplement. We are only offering these debt
securities in states where the offer is permitted. You should not assume that
the information in this prospectus or the applicable prospectus supplement is
accurate as of any date other than the dates on the front of those documents.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. ADDITIONAL RISKS WE ARE NOT PRESENTLY AWARE OF OR THAT WE
CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.
DEPENDING ON THE TERMS OF A PARTICULAR DEBT SECURITY, WE MAY ALSO POINT OUT
ADDITIONAL RISKS RELATING TO AN INVESTMENT IN THIS SECURITY IN A PROSPECTUS
SUPPLEMENT. IN ASSESSING THESE RISKS, YOU SHOULD ALSO REFER TO THE OTHER
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, INCLUDING
OUR FINANCIAL STATEMENTS AND RELATED NOTES, AND IN THE APPLICABLE PROSPECTUS
SUPPLEMENT.
3M IS THE SUBJECT OF VARIOUS LEGAL PROCEEDINGS, AND DUE TO THE INHERENT
UNCERTAINTY OF LITIGATION, THERE EXISTS THE REMOTE POSSIBILITY THAT A FUTURE
ADVERSE RULING COULD RESULT IN FUTURE CHARGES THAT COULD HAVE A MATERIAL ADVERSE
IMPACT ON 3M.
3M and some of its subsidiaries are named defendants in a number of
actions, governmental proceedings and claims, including environmental
proceedings and products liability claims involving products that 3M now or
formerly manufactured and sold. While 3M believes that a material adverse impact
on its consolidated financial position, results of operations, or cash flows
from any future charges arising from these legal proceedings is remote, due to
the inherent uncertainties of litigation, there exists the remote possibility
that a future adverse ruling could result in future charges that could have a
material adverse impact on 3M.
With respect to the environmental proceedings, 3M may be jointly and
severally liable under various environmental laws, including the United States
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
similar state laws, for the costs of environmental contamination at current or
former facilities and at off-site locations at which 3M has disposed of
hazardous waste. 3M has identified numerous locations, most of which are in the
United States, at which it may have some liability for
3
remediating contamination. Amounts expensed for environmental remediation
activities are not expected to be material at these locations.
Breast implant products liability claims are reported in 3M's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000. 3M and various
other companies have been named as defendants in a number of claims and lawsuits
alleging damages for personal injuries of various types resulting from breast
implants formerly manufactured by 3M or a related company. In some actions, the
claimants seek damages and other relief, which, if granted, would require
substantial expenditures.
These lawsuits purport to represent 4,514 individual claimants. 3M has
confirmed that 111 of the 4,514 claimants have opted out of the class action
settlement and have 3M implants. Approximately 93% of the claimants in these
confirmed cases have alleged an unspecified amount of damages above the
jurisdictional limit of the courts in which the cases were filed. As of
September 30, 2000, we had eight claimants that filed lawsuits in the New York
state courts alleging damages of $20 million each. All but one of these eight
lawsuits has since been resolved.
3M believes that most of the remaining 4,403 claimants will be dismissed
either because the claimants did not have 3M implants or the claimants accepted
benefits under the class action settlement. Approximately 88% of these claimants
have filed lawsuits that either do not allege a specific amount of damages or
allege an unspecified amount of damages above the jurisdictional limit of the
court. The rest of these claimants allege damages of approximately $300 million
in their lawsuits. Approximately 390 claimants that have filed lawsuits in New
York state courts have alleged damages in excess of $20 million each. 3M expects
that all of these New York cases will be dismissed without payment for the
reasons stated above.
Based on 3M's experience in resolving thousands of these lawsuits, 3M
believes that the amount of damages alleged in complaints is not a reliable or
meaningful measure of the potential liability that 3M may incur in the breast
implant litigation. Investors should place no reliance on the amount of damages
alleged in breast implant lawsuits against 3M.
3M's best estimate of the remaining probable amount to cover all costs for
resolving the breast implant litigation is $41 million. 3M believes that the
ultimate outcome of these proceedings and claims, individually and in the
aggregate, will not have a material adverse effect on the consolidated financial
position, results of operations, or cash flows of 3M. However, there can be no
absolute certainty that 3M may not ultimately incur charges for breast implant
claims in excess of presently established accruals. While 3M believes that a
material adverse impact on its consolidated financial position, results of
operations, or cash flows from any future charges is remote, when litigation is
involved there exists the remote possibility that a future adverse ruling could
result in future charges that could have a material adverse impact on 3M. The
estimate of the potential impact on 3M's financial position for breast implant
litigation could change in the future.
3M also has recorded receivables for the probable amount of insurance
recoverable with respect to these matters. As of September 30, 2000, 3M had
remaining insurance receivable related to these matters of $527 million, which
represents 3M's best estimate of the remaining probable insurance recoverable.
3M can provide no assurance that 3M will collect all amounts of the insurance
recoverable with respect to these matters.
For a more detailed discussion of legal proceedings involving 3M, see the
discussion of "Legal Proceedings" in Part II, Item 1 of 3M's Quarterly Report on
Form 10-Q for the period ended September 30, 2000, which is incorporated by
reference.
4
THE COMPANY
3M was incorporated in 1929 under the laws of the State of Delaware to
continue operations, begun in 1902, of a Minnesota corporation of the same name.
3M's principal executive offices are located at 3M Center, St. Paul, Minnesota
55144 (telephone: 651-733-1110).
3M is an integrated enterprise characterized by substantial
intercompany cooperation in research, manufacturing and marketing of products.
3M's business has developed from its research and technology in coating and
bonding for coated abrasives, the company's original product. Coating and
bonding is the process of applying one material to another, such as abrasive
granules to paper or cloth (coated abrasives), adhesives to a backing
(pressure-sensitive tapes), ceramic coating to granular mineral (roofing
granules), glass beads to plastic backing (reflective sheeting), and low-tack
adhesives to paper (repositionable notes).
3M is among the leading manufacturers of products for many of the
markets it serves. In all cases, 3M products are subject to direct or indirect
competition. Most 3M products involve expertise in product development,
manufacturing and marketing, and are subject to competition from products
manufactured and sold by other technically oriented companies.
Our strategic business units have been aggregated into six reportable
segments: Industrial Markets, Health Care Markets, Transportation, Graphics and
Safety Markets, Consumer and Office Markets, Electro and Communications Markets
and Specialty Material Markets. These segments bring together common or related
3M technologies, enhancing the development of innovative products and services
and providing for efficient sharing of business resources. These segments have
worldwide responsibility for virtually all 3M product lines. A few miscellaneous
businesses and staff-sponsored products, as well as various corporate assets and
corporate overhead expenses, are not assigned to the segments.
When we refer to "3M", "our company", "we", "our", and "us" in this
prospectus under the headings "The Company" and "Ratio of Earnings to Fixed
Charges", we mean Minnesota Mining and Manufacturing Company and its
consolidated subsidiaries unless the context indicates otherwise. When these
terms are used elsewhere in this prospectus, we refer only to Minnesota Mining
and Manufacturing Company unless the context indicates otherwise.
5
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges
for the periods indicated:
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 2000
----------------------------------------------------------- ---------------------
12.41x(1) 16.59 21.58(2) 10.32(3) 18.22(4) 16.85(5)
--------------------------------
(1) The ratio for the year ended December 31, 1995 includes a pre-tax
restructuring charge of $79 million.
(2) The ratio for the year ended December 31, 1997 includes a pre-tax
gain on the sale of National Advertising Company of $803 million.
(3) The ratio for the year ended December 31, 1998 includes a pre-tax
restructuring charge of $493 million.
(4) The ratio for the year ended December 31, 1999 includes a
non-recurring net pre-tax gain of $100 million relating to gains on
divestitures, litigation expense, an investment valuation
adjustment, and a change in estimate that reduced the 1998
restructuring charge.
(5) The ratio for the nine months ended September 30, 2000 includes a
non-recurring net pre-tax gain of $51 million from the termination
of a product marketing and distribution agreement, gains relating
to asset dispositions, and non-recurring costs, primarily related
to our decision to phase out the perfluorooctanyl chemistry.
* For purposes of calculating the ratio, fixed charges consist of:
* gross interest, including the interest component of ESOP benefit
expense;
* amortization of debt expense and discount or premium relating to any
indebtedness; and
* the portion of rental expense on operating leases considered to be
representative of the interest factor therein.
* The ratio of earnings to fixed charges is calculated as follows:
(income from continuing operations (fixed (amortization of (capitalized
before income taxes and minority interest) + charges) + capitalized interest) - interest)
------------------------------------------------------------------------------------------
(fixed charges)
6
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, the
net proceeds we receive from the sale of the debt securities offered by this
prospectus and any accompanying prospectus supplement will be used for general
corporate purposes, including:
* the repayment of debt;
* investments in or extensions of credit to our subsidiaries; or
* the financing of possible acquisitions or business expansion.
Until the net proceeds have been used, they may be invested temporarily in
short-term marketable securities.
DESCRIPTION OF DEBT SECURITIES
This section describes the general terms and provisions of the debt
securities. The applicable prospectus supplement will describe the specific
terms of the debt securities offered through that prospectus supplement and any
general terms outlined in this section that will not apply to those debt
securities. The debt securities will be issued under an indenture between us and
the trustee named in the applicable prospectus supplement. As used in this
prospectus, "debt securities" means the debentures, notes, bonds and other
evidence of indebtedness that we issue and the trustee authenticates and
delivers under the indenture.
We have summarized the general terms and provisions of the indenture in
this section. This summary, however, does not describe every aspect of the
indenture. We have filed the form of the indenture as an exhibit to the
registration statement. You should read the form of indenture for additional
information before you buy any debt securities. The summary that follows
includes references to section numbers of the indenture so that you can more
easily locate these provisions.
GENERAL
The debt securities will be our direct, senior, unsecured obligations.
The indenture does not limit the amount of debt securities that we may issue and
permits us to issue debt securities from time to time. Debt securities issued
under the indenture will be issued as part of a series that has been established
by us under the indenture. (Section 301) Unless a prospectus supplement relating
to debt securities states otherwise, the indenture and the terms of the debt
securities will not contain any covenants designed to afford Holders (as defined
below) of any debt securities protection in a highly leveraged or other
transaction involving us that may adversely affect Holders of the debt
securities. If we ever issue bearer securities we will summarize provisions of
the indenture that relate to bearer securities in the applicable prospectus
supplement.
A prospectus supplement relating to a series of debt securities being
offered will include specific terms relating to the offering. (Section 301)
These terms will include some or all of the following:
* the title and type of the debt securities;
* any limit on the total principal amount of the debt securities;
* the price at which the debt securities will be issued;
* the maturity date of the debt securities;
7
* the date or dates on which the principal of and premium, if any, on
the debt securities will be payable;
* if the debt securities will bear interest:
* the interest rate on the debt securities;
* the date from which interest will accrue;
* the record and interest payment dates for the debt securities;
* the first interest payment date; and
* any circumstances under which we may defer interest payments;
* any optional redemption provisions that would permit us or the
Holders of debt securities to elect redemption of the debt
securities before their final maturity;
* any sinking fund provisions that would obligate us to redeem the
debt securities before their final maturity;
* the currency or currencies in which the debt securities will be
denominated and payable, if other than U.S. dollars;
* any provisions that would permit us or the Holders of the debt
securities to elect the currency or currencies in which the debt
securities are paid;
* whether the provisions described under the heading "Defeasance"
below apply to the debt securities;
* any changes to or additional events of default or covenants;
* whether the debt securities will be issued in whole or in part in
the form of temporary or permanent global securities and, if so, the
depositary for those global securities (a "global security" means a
debt security that we issue in accordance with the indenture to
represent all or part of a series of debt securities);
* any special tax implications of the debt securities; and
* any other terms of the debt securities.
A "Holder," with respect to a registered security, means the person in whose
name the debt security is registered in the security register. (Section 101)
PAYMENT; EXCHANGE; TRANSFER
We will designate a place of payment where you can receive payment of
the principal of and any premium and interest on the debt securities or transfer
the debt securities. Even though we will designate a place of payment, we may
elect to pay any interest on the debt securities by mailing a check to the
person listed as the owner of the debt securities in the security register or by
wire transfer to an account designated by that person in writing not less than
ten days before the date of the interest payment. (Sections 305, 307, 1002)
There will be no service charge for any registration of transfer or exchange of
the debt securities, but we may
8
require you to pay any tax or other governmental charge payable in connection
with a transfer or exchange of the debt securities. (Section 305)
DENOMINATIONS
Unless the prospectus supplement states otherwise, the debt securities
will be issued only in registered form, without coupons, in denominations of
$1,000 each or multiples of $1,000.
ORIGINAL ISSUE DISCOUNT
Debt securities may be issued under the indenture as original issue
discount securities and sold at a substantial discount below their stated
principal amount. If a debt security is an "original issue discount security,"
that means that an amount less than the principal amount of the debt security
will be due and payable upon a declaration of acceleration of the maturity of
the debt security under the indenture. (Section 101) The applicable prospectus
supplement will describe the federal income tax consequences and other special
factors which should be considered before purchasing any original issue discount
securities.
CLASSIFICATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The indenture contains several restrictive covenants that apply to us
and all of our Restricted Subsidiaries. Those covenants do not apply to our
Unrestricted Subsidiaries. For example, the assets and indebtedness of
Unrestricted Subsidiaries and investments by us or our Restricted Subsidiaries
in Unrestricted Subsidiaries are not included in the calculations described
under the heading "-Restrictions on Secured Funded Debt" below. The indenture
does not require us to maintain any Restricted Subsidiaries and, if we do not,
the indenture will not provide any limitations on the amount of secured debt
created or incurred by our Subsidiaries.
A "Subsidiary" is any corporation of which we own more than 50% of the
outstanding shares of Voting Stock, except for directors' qualifying shares,
directly or through one or more of our other Subsidiaries. "Voting Stock" means
stock that is entitled in the ordinary course (I.E., not only as a result of the
happening of a contingency) to vote in an election for directors.
A "Restricted Subsidiary" means any of our Subsidiaries which has
substantially all of its property in the United States, which owns or is a
lessee of any Principal Property and in which our investment and the investment
of our Subsidiaries exceeds 1% of our Consolidated Net Tangible Assets as of the
date of the determination, other than Unrestricted Subsidiaries. Additionally,
this definition includes any other Subsidiary designated by our board of
directors as a Restricted Subsidiary. (Section 101). A "Wholly-owned Restricted
Subsidiary" is a Restricted Subsidiary of which we own all of the outstanding
capital stock directly or through our other Wholly-owned Restricted
Subsidiaries.
Our "Unrestricted Subsidiaries" are:
* 3M Financial Management Company;
* other Subsidiaries (whose primary business is in finance operations)
acquired or formed by us after the date of the indenture; and
* any other Subsidiary if a majority of its Voting Stock is owned
directly or indirectly by an Unrestricted Subsidiary.
9
Our board of directors can at any time change a Subsidiary's designation from an
Unrestricted Subsidiary to a Restricted Subsidiary if:
* the majority of that Subsidiary's Voting Stock is not owned by an
Unrestricted Subsidiary, and
* after the change of designation, we would be in compliance with the
restrictions contained in the Secured Funded Debt covenant described
under the heading "-Restrictions on Secured Funded Debt" below.
(Sections 101, 1010(a))
RESTRICTIONS ON SECURED FUNDED DEBT
The indenture limits the amount of Secured Funded Debt that we and our
Restricted Subsidiaries may incur or otherwise create (including by guarantee).
Neither we nor our Restricted Subsidiaries may incur or otherwise create any new
Secured Funded Debt unless immediately after this incurrence or creation:
* the sum of:
* the aggregate principal amount of all of our outstanding Secured
Funded Debt and that of our Restricted Subsidiaries, other than
the several categories of Secured Funded Debt discussed below on
page 13 of this prospectus, plus
* the aggregate amount of our Attributable Debt and that of our
Restricted Subsidiaries relating to sale and lease-back
transactions,
* does not exceed 15% of our Consolidated Net Tangible Assets.
This limitation does not apply if the outstanding debt securities are secured
equally and ratably with or prior to the new Secured Funded Debt. (Sections
1008(a), 1008(c))
"Secured Funded Debt" means Funded Debt which is secured by a mortgage,
lien or other similar encumbrance upon any of our assets or those of our
Restricted Subsidiaries. (Section 101)
"Funded Debt" means:
* Indebtedness maturing, or which we may extend or renew to mature,
more than 12 months after the time the amount of Funded Debt is
computed, plus
* guarantees of Indebtedness of the type described in the preceding
bullet point, or of dividends, except guarantees in connection with
the sale or discount of accounts receivable, trade acceptances and
other paper arising in the ordinary course of business, plus
* Funded Debt secured by a mortgage, lien or similar encumbrance on
our assets or those of our Restricted Subsidiaries, whether or not
this Funded Debt is assumed by us or one of our Restricted
Subsidiaries, plus
* in the case of a Subsidiary, all preferred stock of that Subsidiary.
Funded Debt DOES NOT INCLUDE any amount relating to obligations under leases, or
guarantees of leases, whether or not those obligations would be included as
liabilities on our consolidated balance sheet. (Section 101)
"Indebtedness" means, except as set forth in the next sentence:
10
* all items of indebtedness or liability, except capital and surplus,
which under accounting principles generally accepted in the United
States of America would be included in total liabilities on the
liability side of a balance sheet as of the date that indebtedness
is being determined;
* indebtedness secured by a mortgage, lien or other similar
encumbrance on property owned subject to that mortgage, lien or
other similar encumbrance, regardless of whether the indebtedness
secured by that mortgage, lien or other similar encumbrance was
assumed; and
* guarantees, endorsements, other than for purposes of collection, and
other contingent obligations relating to, or to purchase or
otherwise acquire, indebtedness of others, unless the amount of the
guarantees, endorsements or other contingent obligations is included
in the preceding two bullet points.
Indebtedness does not include any obligations or guarantees of obligations
relating to lease rentals, even if these obligations or guarantees of
obligations would be included as liabilities on our consolidated balance sheet.
(Section 101)
"Attributable Debt" means:
* the balance sheet liability amount of capital leases as determined
by accounting principles generally accepted in the United States of
America, plus
* the amount of future minimum operating lease payments required to be
disclosed by accounting principles generally accepted in the United
States of America, less any amounts required to be paid on account
of maintenance and repairs, insurance, taxes, assessments, water
rates and similar charges, discounted using the interest rate
implicit in the lease to calculate the present value of operating
lease payments.
The amount of Attributable Debt relating to an operating lease that can be
terminated by the lessee with the payment of a penalty will be calculated based
on the lesser of:
* the aggregate amount of lease payments required to be made until the
first date the lease can be terminated by the lessee plus the amount
of the penalty, or
* the aggregate amount of lease payments required to be made during
the remaining term of the lease. (Section 101)
"Consolidated Net Tangible Assets" means the total consolidated amount
of our assets and those of our Subsidiaries, minus applicable reserves and other
properly deductible items and after excluding any investments made in
Unrestricted Subsidiaries or in corporations while they were Unrestricted
Subsidiaries but which are not Subsidiaries at the time of the calculation,
minus
* all liabilities and liability items, including leases, or guarantees
of leases, which under accounting principles generally accepted in
the United States of America would be included in the balance sheet,
except Funded Debt, capital stock and surplus, surplus reserves and
deferred income taxes, and
11
* goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other similar intangibles. (Section 101)
The following categories of Secured Funded Debt will not be considered
in determining whether we are in compliance with the covenant described in the
first paragraph under the heading "Restrictions on Secured Funded Debt":
* Secured Funded Debt of a Restricted Subsidiary owing to us or to one
of our Wholly-owned Restricted Subsidiaries;
* Secured Funded Debt resulting from a mortgage, lien or other similar
encumbrance in favor of the U.S. Government or any State or any
instrumentality thereof to secure partial, progress, advance or
other payments;
* Secured Funded Debt resulting from a mortgage, lien or other similar
encumbrance on property, shares of stock or Indebtedness of any
company existing at the time that this company becomes one of our
Subsidiaries;
* Secured Funded Debt resulting from a mortgage, lien or other similar
encumbrance on property, shares of stock or Indebtedness which:
* exists at the time that the property, shares of stock or
Indebtedness is acquired by us or one of our Restricted
Subsidiaries, including acquisitions by merger or consolidation,
* secures the payment of any part of the purchase price of or
construction cost for the property, shares of stock or
Indebtedness or
* secures any indebtedness incurred prior to, at the time of, or
within 120 days after, the acquisition of the property, shares of
stock or Indebtedness or the completion of any construction of
the property for the purpose of financing all or a part of the
purchase price or construction cost of the property, shares of
stock or Indebtedness,
provided that, in all cases, we continue to comply with the covenant
relating to mergers and consolidations discussed under the heading
"-Consolidation, Merger or Sale" below;
* Secured Funded Debt secured by a mortgage, lien or other similar
encumbrance in connection with the issuance of revenue bonds on
which the interest is exempt from federal income tax pursuant to the
Internal Revenue Code of 1986; and
* any extension, renewal or refunding of:
* any Secured Funded Debt permitted under the first paragraph under
the heading "Restrictions on Secured Funded Debt,"
* any Secured Funded Debt outstanding at the end of our fiscal year
immediately preceding the execution date of the indenture of any
then Restricted Subsidiary or
* any Secured Funded Debt of any company outstanding at the time
this company became a Restricted Subsidiary. (Section 1008(b))
12
RESTRICTIONS ON SALE AND LEASE-BACK TRANSACTIONS
The indenture provides that neither we nor any of our Restricted
Subsidiaries may enter into any sale and lease-back transaction involving any
Principal Property, as defined below, more than 120 days after its acquisition
or the completion of its construction and commencement of its full operation,
unless either:
* we or any of our Restricted Subsidiaries could (1) create Secured
Funded Debt on the property equal to the Attributable Debt with
respect to the sale and lease-back transaction and (2) still be in
compliance with the restrictions on Secured Funded Debt (see
"-Restrictions on Secured Funded Debt" above); or
* we apply an amount, subject to credits for some voluntary
retirements of debt securities and/or Funded Debt as specified in
the indenture, equal to the greater of (1) the fair value of the
property or (2) the net proceeds of the sale, within 120 days, to
the retirement of Secured Funded Debt.
This restriction will not apply to any sale and lease-back transaction:
* between us and one of our Restricted Subsidiaries,
* between any of our Restricted Subsidiaries, or
* involving a lease for a period, including renewals, of three years
or less. (Section 1009)
"Principal Property" means any building or other facility located in the United
States, together with the land upon which it is erected and its fixtures that is
owned or leased by us or one of our Subsidiaries that is used primarily for
manufacturing or processing and has a gross book value, before deduction of any
depreciation reserves, greater than 1% of our Consolidated Net Tangible Assets,
other than:
* a building or facility that is financed by obligations issued by a
state or local government under several sections of the Internal
Revenue Code of 1986; or
* a building or facility that in the opinion of our board of directors
is not of material importance to the total business conducted by us
and our Subsidiaries considered together. (Section 101)
CONSOLIDATION, MERGER OR SALE
The indenture generally permits a consolidation or merger between us
and another corporation. It also permits the sale or transfer by us of all or
substantially all of our property and assets and the purchase by us of all or
substantially all of the property and assets of another corporation. These
transactions are permitted if:
* the resulting or acquiring corporation, if other than us, assumes
all of our responsibilities and liabilities under the indenture,
including the payment of all amounts due on the debt securities and
performance of the covenants in the indenture;
* immediately after the transaction, no event of default or event
which, with notice or lapse of time or both, would become an event
of default exists; and
* except in the case of a consolidation or merger of a Restricted
Subsidiary with and into us, either (1) we have obtained the consent
of the Holders of a majority in aggregate principal
13
amount of the outstanding debt securities of each series or (2)
immediately after the transaction, the resulting or acquiring
corporation could incur additional Secured Funded Debt and still be
in compliance with the restrictions on Secured Funded Debt (see
"-Restrictions on Secured Funded Debt" above). (Section 801)
Even though the indenture contains the provisions described above, we
are not required by the indenture to comply with those provisions if we sell all
of our property and assets to another corporation if, immediately after the
sale:
* that corporation is one of our Wholly-owned Restricted Subsidiaries;
and
* we could incur additional Secured Funded Debt and still be in
compliance with the restrictions on Secured Funded Debt (see
"-Restrictions on Secured Funded Debt" above). (Section 803)
If we consolidate or merge with or into any other corporation or sell
all or substantially all of our assets according to the terms and conditions of
the indenture, the resulting or acquiring corporation will be substituted for us
in the indenture with the same effect as if it had been an original party to the
indenture. As a result, this successor corporation may exercise our rights and
powers under the indenture, in our name or in its own name and we will be
released from all our liabilities and obligations under the indenture and under
the debt securities. (Section 802)
MODIFICATION AND WAIVER
Under the indenture, we and the trustee can modify or amend the
indenture with the consent of the Holders of a majority in aggregate principal
amount of the outstanding debt securities of each series of debt securities
affected by the modification or amendment. However, we may not, without the
consent of the Holder of each debt security affected:
* change the stated maturity date of any payment of principal or
interest;
* reduce payments due on the original issue discount securities;
* change the place of payment or currency in which any payment on the
debt securities is payable;
* limit a Holder's right to sue us for the enforcement of payments due
on the debt securities;
* reduce the percentage of outstanding debt securities required to
consent to a modification or amendment of the indenture;
* limit a Holder's right, if any, to repayment of debt securities at
the Holder's option; or
* modify any of the foregoing requirements or reduce the percentage of
outstanding debt securities required to waive compliance with
several provisions of the indenture or to waive defaults under the
indenture. (Section 902)
Under the indenture, the Holders of a majority in aggregate principal
amount of the outstanding debt securities of any series of debt securities may,
on behalf of all Holders of that series:
14
* waive compliance by us with several restrictive covenants of the
indenture, such as corporate existence and maintenance of
properties; and
* waive any past default under the indenture, except:
* a default in the payment of the principal of or any premium or
interest on any debt securities of that series; or
* a default under any provision of the indenture which itself
cannot be modified or amended without the consent of the Holders
of each outstanding debt security of that series. (Sections 1012,
513)
EVENTS OF DEFAULT
An event of default with respect to any series of debt securities will
occur under the indenture if:
* we fail to pay interest on any debt security of that series for 30
days after the payment is due;
* we fail to pay the principal of or any premium on any debt security
of that series when due;
* we fail to deposit any sinking fund payment when due on debt
securities of that series;
* we fail to perform any other covenant in the indenture that applies
to debt securities of that series for 90 days after we have received
written notice of the failure to perform in the manner specified in
the indenture;
* we default under any Indebtedness for borrowed money, including
other series of debt securities, or under any mortgage, lien or
other similar encumbrance, indenture or instrument, including the
indenture, which secures any Indebtedness for borrowed money, and
which results in acceleration of the maturity of an outstanding
principal amount of Indebtedness greater than $20 million, unless
this acceleration is rescinded (or the Indebtedness is discharged)
within 10 days after we have received written notice of the default
in the manner specified in the indenture;
* commencement of voluntary or involuntary bankruptcy, insolvency or
reorganization; or
* any other event of default that may be specified for the debt
securities of that series when that series is created occurs.
(Section 501)
If an event of default for any series of debt securities occurs and continues,
the trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding debt securities of the series may declare the entire principal of
all the debt securities of that series to be due and payable immediately. If
such a declaration occurs, the Holders of a majority of the aggregate principal
amount of the outstanding debt securities of that series can, subject to the
specific payment conditions set forth in the indenture, rescind the declaration.
(Sections 502, 513)
The prospectus supplement relating to each series of debt securities
which are original issue discount securities will describe the particular
provisions that relate to the acceleration of maturity of a portion of the
principal amount of that series when an event of default occurs and continues.
15
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under the indenture. The indenture requires us to file a
certificate with the trustee each year that states the nature of the default if
any default exists under the terms of the indenture. (Section 1011) The trustee
may withhold notice to the Holders of debt securities of any default, except
defaults in the payment of principal, premium, interest or any sinking fund
installment, if it considers the withholding of notice to be in the best
interests of the Holders. (Section 602)
Other than its duties in the case of a default, a trustee is not
obligated to exercise any of its rights or powers under the indenture at the
request, order or direction of any Holders, unless the Holders offer the trustee
reasonable indemnification. (Sections 601, 603) If reasonable indemnification is
provided, then, subject to other rights of the trustee provided in the
indenture, the Holders of a majority in principal amount of the outstanding debt
securities of any series may, with respect to the debt securities of that
series, direct the time, method and place of:
* conducting any proceeding for any remedy available to the trustee;
or
* exercising any trust or power conferred upon the trustee. (Sections
512, 603)
The Holder of a debt security of any series will have the right to
begin any proceeding with respect to the indenture or for any remedy only if:
* the Holder has previously given the trustee written notice of a
continuing event of default with respect to that series;
* the Holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made a written
request of, and offered reasonable indemnification to, the trustee
to begin the proceeding;
* the trustee has not started the proceeding within 60 days after
receiving the request; and
* the trustee has not received directions inconsistent with the
request from the Holders of a majority in aggregate principal amount
of the outstanding debt securities of that series during those 60
days. (Section 507)
However, the Holder of any debt security will have an absolute right to receive
payment of principal of and any premium and interest on the debt security when
due and to institute suit to enforce this payment. (Section 508)
DEFEASANCE
DEFEASANCE AND DISCHARGE. At the time that we establish a series of debt
securities under the indenture, we can provide that the debt securities of that
series are subject to the defeasance and discharge provisions of the indenture.
If we so provide, we will be discharged from our obligations on the debt
securities of that series if we deposit with the trustee, in trust, sufficient
money or Government Obligations, as defined below, to pay the principal,
interest, any premium and any other sums due on the debt securities of that
series, such as sinking fund payments, on the dates these payments are due under
the indenture and the terms of the debt securities. (Section 403) As used above,
"Government Obligations" mean:
* securities of the same government which issued the currency in which
the series of debt securities are denominated and in which interest
is payable; or
16
* securities of government agencies backed by the full faith and
credit of the government. (Section 101)
In the event that we deposit funds in trust and discharge our
obligations under a series of debt securities as described above, then:
* the indenture will no longer apply to the debt securities of that
series, except for the obligations to compensate, reimburse and
indemnify the trustee, to register the transfer and exchange of debt
securities, to replace lost, stolen or mutilated debt securities and
to maintain paying agencies and the trust funds; and
* Holders of debt securities of that series can only look to the trust
fund for payment of principal, any premium and interest on the debt
securities of that series. (Section 403)
Under federal income tax law, that deposit and discharge may be treated
as an exchange of the related debt securities for an interest in the trust
mentioned above. Each holder might be required to recognize gain or loss equal
to the difference between:
* the holder's cost or other tax basis for the debt securities, and
* the value of the holder's interest in the trust.
Holders might be required to include in income a share of the income, gain or
loss of the trust, including gain or loss recognized in connection with any
substitution of collateral, as described in this section under the heading
"-Substitution of Collateral" below. You are urged to consult your own tax
advisers as to the specific consequences of such a deposit and discharge,
including the applicability and effect of tax laws other than federal income tax
law.
DEFEASANCE OF COVENANTS AND EVENTS OF DEFAULT. At the time that we establish
a series of debt securities under the indenture, we can provide that the debt
securities of that series are subject to the covenant defeasance provisions of
the indenture. If we so provide and we make the deposit described in this
section under the heading "-Defeasance and Discharge" above:
* we will not have to comply with the following restrictive covenants
contained in the indenture: Consolidation, Merger or Sale (Sections
801, 803); Restrictions on Secured Debt (Section 1008); Restrictions
on Sale and Lease-Back Transactions (Section 1009); Classification
of Restricted and Unrestricted Subsidiaries (Section 1010); and any
other covenant we designate when we establish the series of debt
securities; and
* we will not have to treat the events described in the fourth bullet
point under the heading "-Events of Default" as they relate to the
covenants listed above that have been defeased and no longer are in
effect and the events described in the fifth, sixth and seventh
bullet points under the heading "-Events of Default" as events of
default under the indenture in connection with that series.
In the event of a defeasance, our obligations under the indenture and the debt
securities, other than with respect to the covenants and the events of default
specifically referred to above, will remain in effect. (Section 1501)
If we exercise our option not to comply with the covenants listed above
and the debt securities of that series become immediately due and payable
because an event of default has occurred, other than as a result of
17
an event of default specifically referred to above, the amount of money and/or
Government Obligations on deposit with the trustee will be sufficient to pay the
principal, interest, any premium and any other sums, due on the debt securities
of that series, such as sinking fund payments, on the date the payments are due
under the indenture and the terms of the debt securities, but may not be
sufficient to pay amounts due at the time of acceleration. However, we would
remain liable for the balance of the payments. (Section 1501).
SUBSTITUTION OF COLLATERAL. At the time that we establish a series of debt
securities under the indenture, we can provide for our ability to, at any time,
withdraw any money or Government Obligations deposited pursuant to the
defeasance provisions described above if we simultaneously substitute other
money and/or Government Obligations which would satisfy our payment obligations
on the debt securities of that series pursuant to the defeasance provisions
applicable to those debt securities. (Section 402)
PLAN OF DISTRIBUTION
We may sell the debt securities in four ways:
* through underwriters;
* through dealers;
* through agents; and
* directly to purchasers.
The distribution of the debt securities offered under this prospectus
may occur from time to time in one or more transactions at a fixed price or
prices, which may be changed, at market prices prevailing at the time of sale,
at prices related to the prevailing market prices or at negotiated prices.
If the applicable prospectus supplement indicates, we will authorize
dealers or our agents to solicit offers by institutions to purchase debt
securities from us pursuant to contracts that provide for payment and delivery
on a future date. We must approve all these institutions, but they may include,
among others:
* commercial and savings banks;
* insurance companies;
* pension funds;
* investment companies; and
* educational and charitable institutions.
The institutional purchaser's obligations under the contract are only subject to
the condition that the purchase of the debt securities at the time of delivery
is allowed by the laws that govern the purchaser. The dealers and our agents
will not be responsible for the validity or performance of the contracts.
If we use underwriters in an offering of securities using this
prospectus, we will execute an underwriting agreement with one or more
underwriters. The names of those underwriters and the terms of the transaction
will be set forth in the applicable prospectus supplement. The underwriting
agreement will provide that the obligations of the underwriters with respect to
a sale of the offered securities are subject to specified conditions precedent
and that the underwriters will be obligated to purchase all of the offered
18
securities if any are purchased. In connection with the sale of debt securities,
underwriters may receive compensation from us or from purchasers of debt
securities for whom they may act as agents in the form of discounts, concessions
or commissions. Underwriters may sell debt securities to or through dealers, and
these dealers may receive compensation in the form of discounts, concessions, or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents.
If we use a dealer in an offering of securities using this prospectus,
we will sell the offered securities to the dealer as principal. The dealer may
then resell those securities to the public or other deals at a fixed price or
varying prices to be determined at the time of resale. If we designate an agent
or agents in an offering of securities using this prospectus, unless otherwise
indicated in a prospectus supplement, that agent will be acting on a best
efforts basis for the period of its appointment. Underwriters, dealers and
agents that participate in the distribution of debt securities offered under
this prospectus may be deemed to be underwriters as defined in the Securities
Act. Any underwriters or agents will be identified and their compensation,
including underwriting discount, will be described in the applicable prospectus
supplement. The applicable prospectus supplement will also describe the other
terms of the offering, including any discounts or concessions allowed or
reallowed or paid to dealers and any securities exchanges on which the debt
securities may be listed.
We may have agreements with the underwriters, dealers and agents to
indemnify them against some liabilities, including liabilities under the
Securities Act, or to contribute with respect to payments which the
underwriters, dealers or agents may be required to make as a result of those
liabilities.
We may also use this prospectus to directly solicit offers to purchase
securities. Except as set forth in the applicable prospectus supplement, none of
our directors, officers or employees, nor those of our subsidiaries, will
solicit or receive a commission in connection with those direct sales. Those
persons may respond to inquiries by potential purchasers and perform ministerial
and clerical work in connection with direct sales.
When we issue the debt securities offered by this prospectus, they will
be new securities without an established trading market. If we sell a debt
security offered by this prospectus to an underwriter for public offering and
sale, the underwriter may make a market for that debt security, but the
underwriter will not be obligated to do so and could discontinue any market
making without notice at any time. Therefore, we cannot give any assurances to
you concerning the liquidity of any debt security offered by this prospectus.
Underwriters and agents and their affiliates may be customers of,
engage in transactions with, or perform services for us or our subsidiaries in
the ordinary course of their businesses.
LEGAL OPINIONS
Gregg M. Larson, who is our Assistant General Counsel, or another one
of our lawyers, will issue an opinion about the validity of the debt securities
offered in this prospectus, as well as other relevant legal matters. Mr. Larson
beneficially owns, or has options to acquire, a number of shares of our common
stock, which represents less than 1% of the total outstanding common stock. Any
underwriters or dealers will be represented by their own counsel.
19
EXPERTS
The consolidated financial statements of Minnesota Mining and
Manufacturing Company and Subsidiaries incorporated in this prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent auditors, given on the authority of said
firm as experts in auditing and accounting.
Our consolidated financial statements included in subsequent filings
with the SEC will be incorporated by reference in this prospectus in reliance
upon reports given upon the authority of our independent auditors as experts in
auditing and accounting (to the extent consolidated financial statements
included in these subsequent filings are covered by consents executed by these
independent auditors and filed with the SEC).
INDEPENDENT AUDITORS
With respect to the unaudited consolidated financial information of
Minnesota Mining and Manufacturing Company and Subsidiaries for the three-month
periods ended March 31, 2000 and 1999, the three- and six-month periods ended
June 30, 2000 and 1999 and the three- and nine-month periods ended September 30,
2000 and 1999, incorporated by reference in this prospectus,
PricewaterhouseCoopers LLP reported that they have applied limited procedures in
accordance with professional standards for a review of this information.
However, their separate reports dated April 25, 2000, July 26, 2000 and October
23, 2000, incorporated by reference herein, state that they did not audit and
they do not express an opinion on that unaudited consolidated financial
information. Accordingly, the degree of reliance on their reports on this
information should be restricted in light of the limited nature of the review
procedures applied. PricewaterhouseCoopers LLP is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their reports on the
unaudited consolidated financial information because these reports are not a
"report" or a "part" of the registration statement prepared or certified by
PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.
20
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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. YOU MUST NOT RELY
ON ANY UNAUTHORIZED INFORMATION OR
REPRESENTATIONS. THIS PROSPECTUS IS AN $1,400,000,000
OFFER TO SELL ONLY THE NOTES OFFERED
HEREBY, BUT ONLY UNDER CIRCUMSTANCES
AND IN JURISDICTIONS WHERE IT IS LAWFUL
TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF
ITS DATE.
MINNESOTA MINING AND
-------------- MANUFACTURING COMPANY
TABLE OF CONTENTS Medium-Term Notes, Series C
Prospectus Supplement
PAGE --------------
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[3M LOGO]
About this Prospectus Supplement.......S-1
Description of Notes We May Offer......S-1
Risks Associated with Indexed Notes...S-34 --------------
Foreign Currency Risks................S-34
United States Taxation................S-36
Supplemental Plan of Distribution.....S-51
Validity of the Notes.................S-52
Prospectus GOLDMAN, SACHS & CO.
JPMORGAN
About this Prospectus....................2 MERRILL LYNCH & CO.
Where You Can Find Additional MORGAN STANLEY DEAN WITTER
Information.............................2 UBS WARBURG
Risk Factors.............................3
The Company..............................5
Ratios of Earnings to Fixed Charges......6
Use of Proceeds..........................7
Description of Debt Securities...........7
Plan of Distribution....................18
Legal Opinions..........................19
Experts ................................20
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