<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
Merrill Lynch & Co., Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2740599
-------------- -------------
(State of incorporation or organization) (I.R.S. Employer
Identification No.)
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
------------------------------ --------------
(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- ------------------- ------------------------------
AMEX Oil Index/SM/ Stock Market American Stock Exchange
Annual Reset Term/SM/ Notes
due December 31, 2000
"SMART Notes/SM/"
Securities to be registered pursuant to Section 12(g) of the Act:
None
-------------------------------------------------------------------
(Title of class)
/SM/"SMART Notes" and "Stock Market Annual Reset Term" are service marks of
Merrill Lynch and Co., Inc.
"Oil Index/SM/" is a registered service mark of the American Stock
Exchange, Inc.
<PAGE>
Item 1. Description of Registrant's Notes to be Registered.
--------------------------------------------------
The description of the general terms and provisions of the AMEX Oil
Index/SM/ Stock Market Annual Reset Term/SM/ Notes due December 31, 2000 to be
issued by Merrill Lynch & Co., Inc. (the "Notes") set forth in the Preliminary
Prospectus Supplement and Prospectus dated February 17, 1994, attached hereto as
Exhibit 1 is hereby incorporated by reference and contains certain proposed
terms and provisions. The description of the Notes contained in the Prospectus
Supplement to be filed pursuant to Rule 424(b) under the Securities Act of 1933,
as amended, under Registration Statement Number 33-49947 which will contain the
final terms and provisions of the Notes, including the maturity date of the
Notes, is hereby deemed to be incorporated by reference into this Registration
Statement and to be a part hereof.
Item 2. Exhibits.
--------
99 (A) Preliminary Prospectus Supplement and Prospectus dated February
17, 1994.
99 (B) Form of Note.
99 (C) Copy of Indenture between Merrill Lynch & Co., Inc. and Chemical
Bank (successor by merger to Manufacturers Hanover Trust
Company), dated as of April 1, 1983, as amended and restated, and
Supplemental Indenture thereto, dated as of March 15, 1990./*/
Other securities issued by Merrill Lynch & Co., Inc. are listed on the
American Stock Exchange.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has caused this registration statement to be signed on
its behalf by the undersigned, thereto duly authorized.
MERRILL LYNCH & CO., INC.
By: /s/ Gregory T. Russo
--------------------------
Gregory T. Russo
Secretary
Date:
- --------------
/*/ Exhibit 99(c) is incorporated by reference from Exhibit (3) to
Registrant's Statement on Form 8-A dated July 20, 1992.
2
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
MERRILL LYNCH & CO., INC.
EXHIBITS
TO
FORM 8-A DATED March , 1994
3
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Page No.
- ---------- -------
99(A) Preliminary Prospectus Supplement and Prospectus
dated February 17, 1994.
99(B) Form of Note.
99(C) Copy of Indenture between Merrill Lynch & Co.,
Inc. and Chemical Bank (successor by merger to
Manufacturers Hanover Trust Company), dated as
of April 1, 1983, as amended and restated, and
Supplemental Indenture thereto, dated as of
March 15, 1990./**/
- -------------
/**/ Exhibit 99(c) is incorporated by reference from Exhibit (3) to
Registrant's Registration Statement on Form 8-A dated
July 20, 1992.
4
<PAGE>
EXHIBIT 99.A
Rule No. 424(b)(5)
Registration No. 33-
PRELIMINARY AND SUBJECT TO COMPLETION AND AMENDMENT
ISSUE DATE: FEBRUARY 17, 1994
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED FEBRUARY 17, 1994)
LOGO
$25,000,000
MERRILL LYNCH & CO., INC.
AMEX OIL INDEX SM
STOCK MARKET ANNUAL RESET TERM SM NOTES
DUE DECEMBER 31, 2000 "SMART NOTES SM"
--------------
AMEX Oil Index SM Stock Market Annual Reset Term SM Notes due December 31,
2000 (the "Notes" or "SMART Notes") are being offered hereby. The Notes are
being issued in denominations of $1,000 and integral multiples thereof and
will mature and be repayable at 100% of the principal amount thereof on
December 31, 2000. The Notes are not subject to redemption prior to maturity.
Merrill Lynch & Co., Inc. (the "Company") will make interest payments on the
Notes for each calendar year at a rate per annum equal to % (the
"Participation Rate") of the average percentage increase, if any, in the AMEX
Oil Index (as defined herein) as determined in each calendar year from the
Starting Annual Value to the Ending Average Value as further described herein
(the "Average Percent Change"). Annual payments will in no event be less than
the Minimum Annual Payment of $20 per $1,000 principal amount of Notes on a
per annum basis (2% per annum).
The "Starting Annual Value" applicable to the determination of the amount
payable in a calendar year will equal the closing value of the AMEX Oil Index
on the last AMEX Business Day in the immediately preceding calendar year;
provided, however, the "Starting Annual Value" applicable to the December 31,
1994 payment date will equal (the closing value of the AMEX Oil Index on
the date the Notes are priced for initial offering to the public). The "Ending
Average Value" applicable to the determination of the amount payable in a
calendar year will equal the arithmetic average (mean) of the Quarterly Values
of the AMEX Oil Index for each calendar quarter during such year; provided,
however, the Ending Average Value for 1994 will equal the arithmetic average
(mean) of the Quarterly Values of the AMEX Oil Index for the calendar quarters
ending in June, September and December of 1994. Interest payments will be
payable on June 30 and December 31 of each year, commencing June 30, 1994 as
described below.
For information as to the calculation of the amount payable in any calendar
year, the calculation of the AMEX Oil Index and certain tax consequences to
beneficial owners of the Notes (including the characterization of the interest
payments for Federal tax purposes), see "Description of Notes", "The AMEX Oil
Index", and "Certain United States Federal Income Tax Considerations" in this
Prospectus Supplement. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "SPECIAL CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT.
Ownership of the Notes will be maintained only in book-entry form by or
through the Securities Depository. Beneficial owners of the Notes will not
have the right to receive physical certificates evidencing their ownership
except under the limited circumstances described herein.
Application will be made to list the Notes on the American Stock Exchange.
--------------
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1)(2) DISCOUNT(1) COMPANY(2)(3)
- --------------------------------------------------------------------------------
- -
<S> <C> <C> <C>
Per Note............................... 100% 2% 98%
- --------------------------------------------------------------------------------
- -
Total.................................. $ $ $
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The "Price to Public" and "Underwriting Discount" for any single
transaction to purchase $3,000,000 aggregate principal amount of Notes or
more will be 98.6% and .6%, respectively.
(2) Plus accrued interest, if any, at a rate equal to the Minimum Annual
Payment rate, from the date of original issuance.
(3) Before deduction of expenses payable by the Company.
--------------
The Notes are offered by the Underwriter, subject to prior sale, when, as
and if issued by the Company and accepted by the Underwriter and subject to
certain other conditions. The Underwriter reserves the right to reject orders
in whole or in part. It is expected that delivery of the Notes will be made in
New York, New York on or about March , 1994.
This Prospectus Supplement and the accompanying Prospectus may be used by
Merrill Lynch, Pierce, Fenner & Smith Incorporated in connection with offers
and sales related to market-making transactions in the Notes. Merrill Lynch,
Pierce, Fenner & Smith Incorporated may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of sale.
--------------
MERRILL LYNCH & CO.
--------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH , 1994
SM"SMART Notes" and "Stock Market Annual Reset Term" are service marks of
Merrill Lynch & Co., Inc.
"Oil IndexSM" is a registered service mark of the American Stock Exchange,
Inc.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Commissioner of Insurance of The State of North Carolina has not approved
or disapproved the offering of the Notes made hereby nor has the Commissioner
passed upon the accuracy or adequacy of this Prospectus Supplement or
Prospectus.
S-2
<PAGE>
SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus.
Issuer................ Merrill Lynch & Co., Inc.
Securities Offered.... $25,000,000 aggregate principal amount of AMEX Oil
Index Stock Market Annual Reset Term Notes due December
31, 2000. The Notes are to be issued as a series of
Senior Debt Securities under the Senior Indenture
described herein.
Listing............... Application will be made to list the Notes on the
American Stock Exchange.
Denominations......... $1,000 and integral multiples thereof.
Price to Public....... 100% for purchases of Notes in any single transaction
of less than $3,000,000, and 98.6% for purchases of
Notes in any single transaction of $3,000,000 aggregate
principal amount of Notes or more.
Maturity.............. December 31, 2000.
Interest Payments..... For each full calendar year, the Company will pay an
amount equal to the following for each $1,000 principal
amount of Notes:
$1,000 X Average Percent Change X Participation Rate
provided, however, that the per annum amount payable as
a result of the foregoing for the Notes will not be
less than the Minimum Annual Payment of $20 per $1,000
principal amount of Notes on a per annum basis (2% per
annum). The Participation Rate equals %.
The "Average Percent Change" applicable to the
determination of the amount payable in a year will
equal:
Ending Average Value - Starting Annual Value
Starting Annual Value
The "Starting Annual Value" applicable to the
determination of the amount payable in a calendar year
will equal the closing value of the AMEX Oil Index on
the last AMEX Business Day in the immediately preceding
calendar year as determined by State Street Bank and
Trust Company (the "Calculation Agent"); provided,
however, the "Starting Annual Value" applicable to the
December 31, 1994 payment date will equal (the
closing value of the AMEX Oil Index on the date the
Notes are priced for initial offering to the public).
The "Ending Average Value" applicable to the
determination of the amount payable in a calendar
S-3
<PAGE>
year will equal the arithmetic average (mean) of the
Quarterly Values of the AMEX Oil Index for each
calendar quarter during such year as determined by the
Calculation Agent; provided, however, the Ending
Average Value for 1994 will equal the arithmetic
average (mean) of the Quarterly Values of the AMEX Oil
Index for the calendar quarters ending in June,
September and December of 1994. The "Quarterly Value"
for any of the first three calendar quarters in a
calendar year will be the closing value of the AMEX Oil
Index on the last scheduled AMEX Business Day in any
such calendar quarter; provided, however, that if a
Market Disruption Event has occurred on such last
scheduled AMEX Business Day in such calendar quarter,
the Quarterly Value for such calendar quarter will be
the closing value of the AMEX Oil Index on the next
succeeding scheduled AMEX Business Day regardless of
whether a Market Disruption Event occurs on such day.
The "Quarterly Value" for the fourth calendar quarter
in a calendar year will be the closing value of the
AMEX Oil Index on the seventh scheduled AMEX Business
Day preceding the end of such calendar quarter;
provided, however, that if a Market Disruption Event
has occurred on such seventh scheduled AMEX Business
Day, the Quarterly Value for such calendar quarter will
be the closing value of the AMEX Oil Index on the sixth
scheduled AMEX Business Day preceding the end of such
calendar quarter regardless of whether a Market
Disruption Event occurs on such day. The Calculation
Agent will determine scheduled AMEX Business Days. See
"Description of Notes--Interest Payments".
Interest Payment Payments on the Notes will be made semiannually on June
Dates................. 30 and December 31 of each year as described below
("June Payment Dates" and "December Payment Dates",
respectively), commencing June 30, 1994. For each
$1,000 principal amount of the Notes, the Company will
pay half of the Minimum Annual Payment for each
calendar year on the June Payment Date, and will pay
the balance of the annual amount payable on the Notes
for such year on the December Payment Date.
The amount payable on the June Payment Date in 1994
will be prorated as described herein. The amount
payable on the December Payment Date in 1994 that is in
excess of the Minimum Annual Payment applicable to 1994
for the Notes, if any, will be prorated as provided
herein. See "Description of Notes--Interest Payment
Dates" in this Prospectus Supplement.
AMEX Oil Index........ The "Oil Index" is a price weighted stock index
calculated, published and disseminated by the American
Stock Exchange (the "AMEX") that measures the composite
price performance of selected common stocks of widely-
held corporations engaged in various segments of the
oil industry (the "AMEX Oil Index"). The Oil Index was
originally published by the AMEX as the Oil and Gas
Index. In September, 1984 the AMEX changed the Oil and
Gas Index from a market-weighted index to a price-
weighted index and deleted all companies engaged
exclusively in gas exploration and production
activities. The Oil and Gas Index was then renamed the
Oil Index. The calculation of the value of the AMEX Oil
Index is currently
S-4
<PAGE>
based on the relative value of the aggregate market
price of the common stocks of sixteen companies engaged
in various segments of the oil industry. The AMEX may
from time to time, with approval of the Securities and
Exchange Commission, add companies to, or delete
companies from, the AMEX Oil Index to fulfill the
above-stated intention of providing an indication of
price movements of common stock of corporations engaged
in various segments of the oil industry. See "The AMEX
Oil Index" in this Prospectus Supplement.
Special The Notes are subject to certain special
Considerations........ considerations. If the Ending Average Value applicable
to a December Payment Date does not exceed the Starting
Annual Value applicable to such December Payment Date
by more than approximately %, beneficial owners of
the Notes will receive only the Minimum Annual Payment
for that year, even if the value of the AMEX Oil Index
at some point between the determination of the
applicable Starting Annual Value and the determination
of the applicable Ending Average Value exceeded such
Starting Annual Value by more than approximately %.
The annual amount payable on the Notes in each calendar
year based on the AMEX Oil Index is limited to the
Participation Rate multiplied by the percentage
increase, if any, between the Starting Annual Value and
the Ending Average Value for such year. There will be
less time for the AMEX Oil Index to vary during the
time between the determination of the Starting Annual
Value and the Ending Average Value applicable to
calculating the amounts payable on the December 31,
1994 payment date than the times separating the
determination of such values for purposes of
calculating amounts payable on subsequent December
Payment Dates.
A beneficial owner of the Notes may receive interest
payments only equal to the Minimum Annual Payment for
each calendar year, and such interest payments are
below what the Company would pay as interest as of the
date hereof if the Company issued non-callable senior
debt securities with a similar maturity as that of the
Notes. The return of principal of the Notes at maturity
and the payment of the Minimum Annual Payment are not
expected to reflect the full opportunity costs implied
by inflation or other factors relating to the time
value of money.
The amount payable on the Notes based on the AMEX Oil
Index will not produce the same return as if stocks
underlying the AMEX Oil Index were purchased and held
for a similar period because of the following: (i) the
AMEX Oil Index does not reflect the payment of
dividends on the stocks underlying it, (ii) the annual
amount payable is limited to the Participation Rate
multiplied by the percentage increase in the AMEX Oil
Index during any relevant period, subject to the
Minimum Annual Payment, (iii) the Ending Average Value
may not reflect the full percentage increase in the
AMEX Oil Index during any relevant period because it is
an average of the AMEX Oil Index at various points in
time and (iv) the amounts payable on the Notes do not
reflect changes in the AMEX Oil Index for the period
between the determination of the Ending Average Value
and the determination of the next succeeding Starting
Annual Value.
S-5
<PAGE>
There can be no assurance as to how the Notes will
trade in the secondary market or whether such market
will be liquid. The price at which a beneficial owner
will be able to sell Notes prior to maturity may be at
a discount, which could be substantial, from the
principal amount thereof, if, among other things, the
AMEX Oil Index at such time (or, if subsequent to the
end of the first calendar quarter in a year, the
estimated Ending Average Value if calculated at such
time) is not sufficiently above the Starting Annual
Value applicable to the following December Payment
Date. It is expected that the secondary market for the
Notes will be affected by the creditworthiness of the
Company and by a number of other factors, including the
relative level of the AMEX Oil Index, changes in U.S.
interest rates, the volatility of the AMEX Oil Index,
the time remaining to the maturity of the Notes and to
the next succeeding December Payment Date and changes
in dividend rates in the United States generally. See
"Special Considerations" in this Prospectus Supplement.
It is suggested that prospective investors who consider
purchasing the Notes should reach an investment
decision only after carefully considering the
suitability of the Notes in the light of their
particular circumstances.
Certain United States
Federal Income Tax
Considerations........
There are no regulations (except the OID Regulations
and the 1991 Proposed Regulations as described below),
published rulings or judicial decisions involving the
characterization, for United States Federal income tax
purposes, of securities with terms substantially the
same as the Notes. However, Brown & Wood, counsel to
the Company, has advised the Company that, although the
matter is not free from doubt, under current law, each
Note should be treated as a debt instrument of the
Company for United States Federal income tax purposes.
Under general principles of current United States
Federal income tax law, payments of interest on a Note
generally would be taxable to a U.S. Holder (as defined
in "Certain United States Federal Income Tax
Considerations" herein) as ordinary interest income at
the time such payments are accrued or are received (in
accordance with the U.S. Holder's regular method of tax
accounting).
Final Treasury regulations issued on January 27, 1994
(the "OID Regulations") would not by their terms apply
to the Notes, because the OID Regulations are effective
only for debt instruments issued on or after April 4,
1994. However, taxpayers may rely on the OID
Regulations for debt instruments issued after December
21, 1992. Under the OID Regulations, each Note should
qualify as a "variable rate debt instrument" and, under
such circumstances, a U.S. Holder would include in
income all interest payments on a Note as ordinary
interest at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular
method of tax accounting).
Alternatively, if the Notes were treated as contingent
payment debt obligations, then proposed Treasury
regulations issued in 1991 (the "1991 Proposed
Regulations"), which contain a proposed retroactive
effective date of February 20, 1991, would apply to the
Notes if such regulations
S-6
<PAGE>
were ultimately adopted in their current form. Such
application of the 1991 Proposed Regulations would
require a U.S. Holder to bifurcate a Note into several
different instruments, one consisting of the fixed
payments on the Note and the others consisting of the
contingent payments on the Note based on the AMEX Oil
Index. Such treatment would require a U.S. Holder to
include in income, as ordinary interest, original issue
discount with respect to the fixed payments and to
recognize capital gain or loss with respect to the
contingent payments. It should be noted, however, that
proposed Treasury regulations are not binding upon
either the Internal Revenue Service or taxpayers prior
to becoming effective as temporary or final
regulations. An investor should carefully consider the
United States Federal income tax consequences of
investing in the Notes and consult their tax advisor
before making such an investment. See "Certain United
States Federal Income Tax Considerations" in this
Prospectus Supplement.
S-7
<PAGE>
SPECIAL CONSIDERATIONS
INTEREST PAYMENTS
If the Ending Average Value applicable to a December Payment Date does not
exceed the Starting Annual Value applicable to such December Payment Date by
more than approximately %, beneficial owners of the Notes will receive only
the Minimum Annual Payment on such December Payment Date, even if the value of
the AMEX Oil Index at some point between the determination of the applicable
Starting Annual Value and the determination of the applicable Ending Average
Value exceeded such Starting Annual Value by more than approximately %. The
annual amount payable on the Notes based on the AMEX Oil Index is limited to
the Participation Rate multiplied by the percentage increase, if any, between
the Starting Annual Value and the Ending Average Value for such year. There
will be less time for the AMEX Oil Index to vary during the time between the
determination of the Starting Annual Value and the Ending Average Value
applicable to calculating the amounts payable on the December 31, 1994 payment
date than the times separating the determination of such values for purposes of
calculating amounts payable on other December Payment Dates. Although the
payment on the December 31, 1994 payment date will be prorated as described
under "Description of the Notes--Interest Payment Dates", the amount payable on
the December 31, 1994 payment date if annualized will not be less than the
Minimum Annual Payment.
Beneficial owners of the Notes will receive total annual payments equal to
not less than the Minimum Annual Payment, and will be repaid 100% of the
principal amount of the Notes at maturity. Beneficial owners of Notes may
receive interest payments with respect to the Notes equal to only the Minimum
Annual Payment for each year, and such interest payments are below what the
Company would pay as interest as of the date hereof if the Company issued non-
callable senior debt securities with a similar maturity as that of the Notes.
The payment of additional amounts on the Notes is subject to the conditions
described under "Description of Notes--Interest Payments". The return of
principal of the Notes at maturity and the payment of the Minimum Annual
Payment are not expected to reflect the full opportunity costs implied by
inflation or other factors relating to the time value of money.
The amount payable on the Notes based on the AMEX Oil Index will not produce
the same return as if the stocks underlying the AMEX Oil Index were purchased
and held for a similar period because of the following: (i) the AMEX Oil Index
does not reflect the payment of dividends on the stocks underlying it, (ii) the
annual amount payable is limited to the Participation Rate multiplied by the
percentage increase in the AMEX Oil Index during any relevant period, subject
to the Minimum Annual Payment, (iii) the Ending Average Value may not reflect
the full percentage increase in the AMEX Oil Index during any relevant period
because it is an average of the AMEX Oil Index at various points in time and
(iv) the amounts payable on the Notes do not reflect changes in the AMEX Oil
Index for the period between the determination of an Ending Average Value and
the determination of the next succeeding Starting Annual Value.
The Indenture provides that the Indenture and the Notes will be governed by
and construed in accordance with the laws of the state of New York. Under
present New York law, the maximum rate of interest is 25% per annum on a simple
interest basis. This limit may not apply to Notes in which $2,500,000 or more
has been invested. While the company believes that New York law would be given
effect by a state or federal court sitting outside of New York, state laws
frequently regulate the amount of interest that may be charged to and paid by a
borrower (including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company has covenanted for the benefit of the
beneficial owners of the Notes, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a beneficial owner of the Notes.
TRADING
Application will be made to list the Notes on the American Stock Exchange.
There can be no assurance as to how the Notes will trade in the secondary
market or whether such market will be liquid. It is expected
S-8
<PAGE>
that the secondary market for the Notes (including prices in such market) will
likely be affected by the creditworthiness of the Company and by a number of
other factors. It is possible to view the Notes as the economic equivalent of a
debt obligation plus a series of cash settlement options; however, the Notes
may trade in the secondary market at a discount from the aggregate value of
such economic components, if such economic components were valued and capable
of being traded separately.
The trading values of the Notes may be affected by a number of interrelated
factors, including those listed below. The following is the expected
theoretical effect on the trading value of the Notes of each of the factors
listed below. The following discussion of each separate factor generally
assumes that all other factors are held constant, although the actual
interrelationship between certain of such factors is complex.
Relative Level of the AMEX Oil Index. The trading value of the Notes is
expected to depend significantly on the extent of the excess of the expected
Ending Average Value for a calendar year over the Starting Annual Value
applicable to such calendar year. If, however, Notes are sold at a time when
the AMEX Oil Index (or the estimated Ending Average Value if such value were
calculated at such time) exceeds the Starting Annual Value, the sale price may
nevertheless be at a discount from the amount expected to be payable to the
beneficial owner if such excess were to prevail until the next December Payment
Date. Furthermore, the price at which a beneficial owner will be able to sell
Notes prior to a December Payment Date may be at a discount, which could be
substantial, from the principal amount thereof, if, at such time, the AMEX Oil
Index is below, equal to or not sufficiently above the Annual Starting Value
applicable to such December Payment Date. The level of the AMEX Oil Index will
depend on the prices of the stocks underlying such Index which, in turn, will
be affected by factors affecting the oil industry, see "The AMEX Oil Index--Oil
Industry Sector".
Volatility of the AMEX Oil Index. If the volatility of the AMEX Oil Index
increases, the trading value of the Notes is expected to increase. If the
volatility of the AMEX Oil Index decreases, the trading value of the Notes is
expected to decrease.
U.S. Interest Rates. In general, if U.S. interest rates increase, the value
of the Notes is expected to decrease. If U.S. interest rates decrease, the
value of the Notes is generally expected to increase. Interest rates may also
affect the U.S. economy, and, in turn, the level of the AMEX Oil Index. Rising
interest rates may lower the level of the AMEX Oil Index and, thus, the value
of the Notes. Falling interest rates may increase the level of the AMEX Oil
Index and, thus, may increase the value of the Notes.
Time Remaining to December Payment Dates. The Notes may trade at a value
above that which may be inferred from the level of U.S. interest rates and the
AMEX Oil Index. This difference will reflect a "time premium" due to
expectations concerning the level of the AMEX Oil Index during the period prior
to each December Payment Date. As the time remaining to each December Payment
Date decreases, however, this time premium may decrease, thus decreasing the
trading value of the Notes.
Time Remaining to Maturity. As the number of remaining December Payment Dates
decreases, the cumulative value of all the annual rights to receive an amount
that reflects participation in the payments in excess of the Minimum Annual
Payment will decrease, thus decreasing the value of the Notes.
Dividend Rates. A number of complex relationships between the relative values
of the Notes and dividend rates are likely to exist. If dividend rates on the
stocks comprising the AMEX Oil Index increase, the value of the annual right to
receive an amount that reflects participation in the average appreciation of
the AMEX Oil Index above the Starting Annual Value is expected to decrease.
Consequently the value of the Notes is expected to decrease. Conversely, if
dividend rates on the stocks comprising the AMEX Oil Index decrease, the value
of the annual right to receive such an amount is expected to increase and,
therefore, the value of the Notes is expected to increase. In general, however,
because the majority of issuers of stocks underlying the AMEX Oil Index are
organized in the United States, rising U.S. corporate dividend rates
S-9
<PAGE>
may increase the AMEX Oil Index and, in turn, increase the value of the Notes.
Conversely, falling U.S. dividend rates may decrease the AMEX Oil Index and, in
turn, decrease the value of the Notes.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the Notes
should reach an investment decision only after carefully considering the
suitability of the Notes in light of their particular circumstances. Investors
should also consider the tax consequences of investing in the Notes. See
"Certain United States Federal Income Tax Considerations" in this Prospectus
Supplement.
DESCRIPTION OF NOTES
GENERAL
The Notes are to be issued as a series of Senior Debt Securities under the
Senior Indenture, dated as of April 1, 1983, as amended and restated, which is
more fully described in the accompanying Prospectus. The Notes will mature, and
the principal of the Notes will be repayable at par, on December 31, 2000.
The Notes are not subject to redemption prior to maturity by the Company or
at the option of any beneficial owner. Upon the occurrence of an Event of
Default with respect to the Notes, however, beneficial owners of the Notes or
the Senior Debt Trustee may accelerate the maturity of the Notes, as described
under "Description of Notes--Events of Default and Acceleration" in this
Prospectus Supplement and "Description of Debt Securities--General--Events of
Default" in the accompanying Prospectus.
The Notes are to be issued in denominations of $1,000 and integral multiples
thereof.
INTEREST PAYMENTS
For each full calendar year, the Company will pay interest in an amount equal
to the following for each $1,000 principal amount of Notes:
$1,000 X Average Percent Change X Participation Rate
provided, however, that the per annum amount payable as a result of the
foregoing on the Notes will not be less than the Minimum Annual Payment of $20
per $1,000 principal amount of Notes on a per annum basis (2% per annum). The
Participation Rate equals %.
The "Average Percent Change" applicable to the determination of the amount
payable in any calendar year will equal:
Ending Average Value - Starting Annual Value
Starting Annual Value
The "Starting Annual Value" applicable to the determination of the amount
payable in a calendar year will equal the closing value of the AMEX Oil Index
on the last AMEX Business Day in the immediately preceding calendar year as
determined by State Street Bank and Trust Company (the "Calculation Agent");
provided, however, the "Starting Annual Value" applicable to the December 31,
1994 payment date will equal (the closing value of the AMEX Oil Index on
the date the Notes are priced for initial offering to the public). The "Ending
Average Value" applicable to the determination of the amount payable in a
calendar year will equal the arithmetic average (mean) of the Quarterly Values
of the AMEX Oil Index for each calendar quarter during such year as determined
by the Calculation Agent; provided, however, the Ending Average Value for 1994
will equal the arithmetic average (mean) of the Quarterly Values for the AMEX
Oil Index for the calendar quarters ending in June, September and December of
1994. The "Quarterly Value" for any of the first three calendar quarters in a
calendar year will be the closing value of the AMEX Oil Index on the last
scheduled AMEX Business Day in any such calendar quarter; provided, however,
that if a Market Disruption Event has occurred on such last scheduled AMEX
Business Day in such calendar quarter, the
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<PAGE>
Quarterly Value for such calendar quarter will be the closing value of the AMEX
Oil Index on the next succeeding scheduled AMEX Business Day regardless of
whether a Market Disruption Event occurs on such day. The "Quarterly Value" for
the fourth calendar quarter in a calendar year will be the closing value of the
AMEX Oil Index on the seventh scheduled AMEX Business Day preceding the end of
such calendar quarter; provided, however, that if a Market Disruption Event has
occurred on such seventh scheduled AMEX Business Day, the Quarterly Value for
such calendar quarter will be the closing value of the AMEX Oil Index on the
sixth scheduled AMEX Business Day preceding the end of such calendar quarter
regardless of whether a Market Disruption Event occurs on such day. The
Calculation Agent will determine scheduled AMEX Business Days.
If the Ending Average Value applicable to such December Payment Date does not
exceed the Annual Starting Value by more than approximately %, beneficial
owners of the Notes will receive only the Minimum Annual Payment on such
December Payment Date, even if the value of the AMEX Oil Index at some point
between the determination of the applicable Starting Annual Value and the
determination of the applicable Ending Average Value exceeded such Starting
Annual Value by more than approximately %.
Any day on which a Starting Annual Value or a closing value of the AMEX Oil
Index for a calendar quarter is required to be calculated is referred to herein
as a "Calculation Day". An "AMEX Business Day" is a day on which the American
Stock Exchange is open for trading. All determinations made by the Calculation
Agent shall be at the sole discretion of the Calculation Agent and, in the
absence of manifest error, shall be conclusive for all purposes and binding on
the Company and beneficial owners of the Notes. All percentages resulting from
any calculation on the Notes will be rounded to the nearest one hundred-
thousandth of a percentage point, with five one millionths of a percentage
point rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to
9.87655% (or .0987655)), and all dollar amounts used in or resulting from such
calculation will be rounded to the nearest cent (with one-half cent being
rounded upwards).
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENT
If at any time the method of calculating the AMEX Oil Index, or the value
thereof, is changed in a material respect, or if the AMEX Oil Index is in any
other way modified so that such index does not, in the opinion of the
Calculation Agent, fairly represent the value of the AMEX Oil Index had such
changes or modifications not been made, then, from and after such time, the
Calculation Agent shall, at the close of business in New York, New York, on
each Calculation Day, make such adjustments as, in the good faith judgment of
the Calculation Agent, may be necessary in order to arrive at a calculation of
a value of a stock index comparable to the AMEX Oil Index as if such changes or
modifications had not been made, and calculate such closing value with
reference to the AMEX Oil Index, as adjusted. Accordingly, if the method of
calculating the AMEX Oil Index is modified so that the value of such index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such index in order to arrive at a value of the AMEX Oil Index as if it had not
been modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted
or promulgated by the New York Stock Exchange, the American Stock Exchange,
or the Securities and Exchange Commission of similar scope as determined by
the Calculation Agent) on trading during significant market fluctuations
shall be considered "material" for purposes of this definition), in each
case, during the last half hour of trading in any of the component stocks,
or depository receipts representing such stocks, included in the AMEX Oil
Index on any national securities exchange in the United States, or
(ii) the suspension or material limitation, in each case during the last
half hour of trading (whether by reason of movements in price exceeding
levels permitted by the relevant exchange or otherwise), in
S-11
<PAGE>
(A) futures contracts related to the AMEX Oil Index which are traded on any
exchange or board of trade in the United States (B) option contracts
related to the AMEX Oil Index which are traded on the American Stock
Exchange.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange. As of the date of this Prospectus Supplement, futures
contracts related to the AMEX Oil Index are not traded on any exchange or board
of trade in the United States.
INTEREST PAYMENT DATES
The Company will make semiannual interest payments on the Notes on June 30
and December 31 of each year ("June Payment Dates" and "December Payment
Dates", respectively), except as provided below, commencing June 30, 1994, to
the persons in whose names the Notes are registered on the immediately
preceding June 29 or December 30. For each Note, the Company will pay half of
the Minimum Annual Payment for each calendar year on the June Payment Date, and
will pay the balance of the annual amount payable on such Note for such year on
the December Payment Date. The amount payable on the June Payment Date in 1994
will equal $10 per $1,000 principal amount of Notes prorated based on the ratio
of the number of days from and including the original issuance date of the
Notes to but excluding such June Payment Date, computed on the basis of a year
consisting of 360 days of twelve 30-day months, divided by 180.
The amount payable, if any, on the December Payment Date in 1994 that is in
excess of the Minimum Annual Payment for 1994 for the Notes will be prorated
based on the ratio of the number of days from and including the date the Notes
are issued to but excluding such December Payment Date, computed on the basis
of a year consisting of 360 days of twelve 30-day months, divided by 360.
Notwithstanding the foregoing, if it is known at least three Business Days
prior to December 31 that December 31 will not be a Business Day, the amount
payable by the Company with respect to a December Payment Date for the Notes
will be made on the Business Day immediately preceding such December 31 to the
persons in whose names the Notes are registered on the second Business Day
immediately preceding such December 31.
UNAVAILABILITY OF THE AMEX OIL INDEX
If the AMEX discontinues publication of the AMEX Oil Index and the AMEX or
another entity publishes a successor or substitute index that the Calculation
Agent determines, in its sole discretion, to be comparable to the AMEX Oil
Index (any such index being referred to hereinafter as a "Successor Index"),
then, upon the Calculation Agent's notification of such determination to the
Trustee and the Company, the Calculation Agent will substitute the Successor
Index as calculated by the AMEX or such other entity for the AMEX Oil Index and
calculate the annual amount payable as described above under "Interest
Payments". Upon any selection by the Calculation Agent of a Successor Index,
the Company shall cause notice thereof to be given to Holders of the Notes.
If the AMEX discontinues publication of the AMEX Oil Index and a Successor
Index is not selected by the Calculation Agent or is no longer published on any
of the Calculation Days, the value to be substituted for the AMEX Oil Index for
any such Calculation Day used to calculate the annual amount payable will be a
value computed by the Calculation Agent for each Calculation Day in accordance
with the procedures last used to calculate the AMEX Oil Index prior to any such
discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the AMEX Oil Index such Successor Index
or value shall be substituted for the AMEX Oil Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the AMEX Oil Index prior to the
period during which the amount payable with respect to any year is to be
determined and the Calculation Agent determines that no
S-12
<PAGE>
Successor Index is available at such time, then on each AMEX Business Day until
the earlier to occur of (i) the determination of the amount payable with
respect to such year or (ii) a determination by the Calculation Agent that a
Successor Index is available, the Calculation Agent shall determine the value
that would be used in computing the amount payable with respect to such year as
described in the preceding paragraph as if such day were a Calculation Day. The
Calculation Agent will cause notice of each such value to be published not less
often than once each month in the Wall Street Journal (or another newspaper of
general circulation), and arrange for information with respect to such values
to be made available by telephone. Notwithstanding these alternative
arrangements, discontinuance of the publication of the AMEX Oil Index may
adversely affect trading in the Notes.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Notes shall have occurred and
be continuing, the amount payable to a beneficial owner of a Note upon any
acceleration permitted by the Notes, will equal: (i) the principal amount
thereof, plus (ii) an additional amount, if any, of interest calculated as
though the date of early repayment were a December Payment Date and prorated
through such date of early repayment in the same manner as the amount payable
on the December Payment Date in 1994 was prorated, see "Description of Notes--
Interest Payment Dates". If Quarterly Values have been calculated prior to the
early redemption date for the calendar year in which such early redemption date
occurs, such Quarterly Values shall be averaged with the value of the AMEX Oil
Index determined with respect to such date of early redemption. If no Quarterly
Values have been calculated prior to the early redemption date for the calendar
year in which the early redemption date occurs, the Ending Average Value for
such calendar year will be the value of the AMEX Oil Index determined with
respect to such date of early redemption. The Minimum Supplemental Redemption
Amount with respect to any such early redemption date will be an amount equal
to the interest which would have accrued on the Notes from and including
January 1 in the calendar year in which such early redemption date occurs, or
the date of issuance of the Notes if such early redemption date occurs in 1994,
to but excluding the date of early redemption at an annualized rate of 2%,
calculated on a semiannual bond equivalent basis. If a bankruptcy proceeding is
commenced in respect of the Company, the claim of the beneficial owner of a
Note may be limited, under Section 502(b)(2) of Title 11 of the United States
Code, to the principal amount of the Note plus an additional amount, if any, of
contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the Notes.
In case of default in payment at the maturity date of the Notes (whether at
their stated maturity or upon acceleration), from and after the maturity date
the Notes shall bear interest, payable upon demand of the Holders thereof, at
the rate of % per annum (to the extent that payment of such interest shall be
legally enforceable) on the unpaid amount due and payable on such date in
accordance with the terms of the Notes to the date payment of such amount has
been made or duly provided for.
NOTE DEPOSITORY
Upon issuance, all Notes will be represented by fully registered global
securities (the "Global Securities"). Each such Global Security will be
deposited with, or on behalf of, The Depository Trust Company, as Securities
Depository, registered in the name of the Securities Depository or a nominee
thereof. Unless and until it is exchanged in whole or in part for Securities in
definitive form, no Global Security may be transferred except as a whole by the
Securities Depository to a nominee of such Securities Depository or by a
nominee of such Securities Depository to such Securities Depository or another
nominee of such Securities Depository or by such Securities Depository or any
such nominee to a successor of such Securities Depository or a nominee of such
successor.
The Securities Depository has advised the Company as follows: The Securities
Depository is a limited-purpose trust company organized under the Banking Law
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act
S-13
<PAGE>
of 1934, as amended. The Securities Depository was created to hold securities
of its participants ("Participants") and to facilitate the clearance and
settlement of securities transactions among its Participants in such securities
through electronic book-entry changes in accounts of the Participants, thereby
eliminating the need for physical movement of securities certificates. The
Securities Depository's Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other organizations.
The Securities Depository is owned by a number of Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. The Underwriter (as hereinafter
defined) is a Participant. Access to the Securities Depository book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Purchases of Notes must be made by or through Participants, which will
receive a credit on the records of the Securities Depository. The ownership
interest of each actual purchaser of each Note ("Beneficial Owner") is in turn
to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Securities
Depository of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained
by the Securities Depository (with respect to interests of Participants) and on
the records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
So long as the Securities Depository, or its nominee, is the registered owner
of a Global Security, the Securities Depository or its nominee, as the case may
be, will be considered the sole owner or Holder of the Notes represented by
such Global Security for all purposes under the Senior Indenture. Except as
provided below, Beneficial Owners in a Global Security will not be entitled to
have the Notes represented by such Global Securities registered in their names,
will not receive or be entitled to receive physical delivery of the Notes in
definitive registered form and will not be considered the owners or Holders
thereof under the Senior Indenture. Accordingly, each Person owning a
beneficial interest in a Global Security must rely on the procedures of the
Securities Depository and, if such Person is not a Participant, on the
procedures of the Participant through which such Person owns its interest, to
exercise any rights of a Holder under the Senior Indenture. The Company
understands that under existing industry practices, in the event that the
Company requests any action of Holders or that an owner of a beneficial
interest in such a Global Security desires to give or take any action which a
Holder is entitled to give or take under the Senior Indenture, the Securities
Depository would authorize the Participants holding the relevant beneficial
interests to give or take such action, and such Participants would authorize
Beneficial Owners owning through such Participants to give or take such action
or would otherwise act upon the instructions of beneficial owners. Conveyance
of notices and other communications by the Securities Depository to
Participants, by Participants to Indirect Participants, and by Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Payment of the principal of, and amounts payable on any June Payment Date or
December Payment Date with respect to Notes registered in the name of the
Securities Depository or its nominee, will be made to the Securities Depository
or its nominee, as the case may be, as the Holder of the Global Securities
representing such Notes. None of the Company, the Trustee or any other agent of
the Company or agent of the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests or for supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that the
Securities Depository, upon receipt of any payment of principal or amounts
payable on any June Payment Date or December Payment Date in respect of a
Global Security, will credit the accounts of the Participants with payment in
amounts proportionate to
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<PAGE>
their respective holdings in principal amount of beneficial interest in such
Global Security as shown on the records of the Securities Depository. The
Company also expects that payments by Participants to Beneficial Owners will
be governed by standing customer instructions and customary practices, as is
now the case with securities held for the accounts of customers in bearer form
or registered in "street name", and will be the responsibility of such
Participants.
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed
by the Company within 60 days, (y) the Company executes and delivers to the
Trustee a Company Order to the effect that the Global Securities shall be
exchangeable or (z) an Event of Default has occurred and is continuing with
respect to the Notes, the Global Securities will be exchangeable for Notes in
definitive form of like tenor and of an equal aggregate principal amount, in
denominations of $1,000 and integral multiples thereof. Such definitive Notes
shall be registered in such name or names as the Securities Depository shall
instruct the Trustee. It is expected that such instructions may be based upon
directions received by the Securities Depository from Participants with
respect to ownership of beneficial interests in such Global Securities.
THE AMEX OIL INDEX
GENERAL
The AMEX Oil Index is a price-weighted stock index (i.e., an Underlying
Stock's weight in the index is based on its price per share rather than the
total market capitalization of the issuer) calculated, published and
disseminated by the AMEX that measures the composite price performance of
selected common stocks of widely-held corporations involved in various
segments of the oil industry. The AMEX Oil Index was originally published by
the AMEX as the Oil and Gas Index. In September, 1984 the AMEX changed the Oil
and Gas Index from a market-weighted index to a price-weighted index and
deleted all companies engaged exclusively in gas exploration and production
activities. The Oil and Gas Index was then renamed the Oil Index. The
calculation of the value of the AMEX Oil Index is currently based on the
relative value of the aggregate market price of the common stocks of sixteen
companies engaged in various segments of the oil industry. The following table
sets forth the component stocks (each an "Underlying Stock") which are
currently included in the AMEX Oil Index and the weight of each component
stock as of February 15, 1994. Each weight indicated below represents the per
share price of the corresponding component stock expressed as a percentage of
a constant divisor. The weights indicated below are dependent on the share
prices of the component stocks and will vary as such share prices vary.
<TABLE>
<CAPTION>
COMPANY NAME WEIGHT(1)
------------ ---------
<S> <C>
Amerada Hess Corporation........................................ 5.11%
Amoco Corporation............................................... 5.90%
Atlantic Richfield Company...................................... 11.77%
British Petroleum Company p.l.c................................. 7.19%
Chevron Corporation............................................. 9.81%
E.I. du Pont de Nemours and Company............................. 5.94%
Exxon Corporation............................................... 7.24%
Kerr-McGee Corporation.......................................... 5.04%
Mobil Corporation............................................... 8.90%
Occidental Petroleum Corporation................................ 2.03%
Oryx Energy Company............................................. 2.03%
Phillips Petroleum Corporation.................................. 3.17%
Royal Dutch Petroleum Co........................................ 11.93%
Sun Company, Inc................................................ 3.40%
Texaco Inc...................................................... 7.30%
Unocal Corporation.............................................. 3.15%
-------
Total....................................................... 100.00%
</TABLE>
--------
(1) Weights for the respective AMEX Oil Index companies are
given as of February 15, 1994 and are subject to change by
the AMEX based on market prices of the component stocks.
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<PAGE>
The AMEX may from time to time, with approval of the Securities and Exchange
Commission (the "SEC"), add companies to, or delete companies from, the AMEX
Oil Index to fulfill the above-stated intention of providing an indication of
price movements of common stock of corporations engaged in various segments of
the oil industry. The level of the AMEX Oil Index is calculated once per day
using last sale prices only (i.e., not special "bid quotes" or special "ask
quotes" which are used in connection with other stock indices). The level of
the AMEX Oil Index is disseminated via the Consolidated Tape Authority Network-
B (commonly referred to as the "AMEX Tape"). The AMEX Tape Symbol for the AMEX
Oil Index is "XOI".
COMPUTATION OF THE AMEX OIL INDEX
The AMEX currently computes the AMEX Oil Index as of a particular time as
follows:
(1) the market price of one share of each component stock is determined
as of such time;
(2) the market prices of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) the aggregate market price (as determined under clause (2) above) is
divided by the number of component stocks comprising the AMEX Oil Index at
such time (currently 16); and
(4) the quotient (as determined under clause (3) above) is divided by
3.47873982 (the "Divisor").
While the AMEX currently employs the above methodology to calculate the AMEX
Oil Index, no assurance can be given that the AMEX will not modify or change
such methodology in a manner that may affect the amounts payable on any
December Payment Date to beneficial owners of the Notes.
In order to maintain continuity in the level of the AMEX Oil Index in the
event of certain changes due to non-market factors affecting the Underlying
Stocks, such as the addition or deletion of stocks, substitution of stocks,
stock dividends, stock splits or distributions of assets to stockholders, the
Divisor used in calculating the AMEX Oil Index is adjusted in a manner designed
to prevent any instantaneous change or discontinuity in the level of the AMEX
Oil Index. Thereafter, the Divisor remains at the new value until a further
adjustment is necessary as the result of another change. As a result of each
such change affecting any component stock, the Divisor is adjusted in such a
way that the level of the AMEX Oil Index immediately after such change will
equal the level of the AMEX Oil Index immediately prior to the change.
Component stocks may be deleted or added by the AMEX with approval of the
SEC. However, to maintain continuity in the AMEX Oil Index, the policy of the
AMEX is generally not to alter the composition of the component stocks except
when a component Stock is deleted due to (i) bankruptcy of the issuer, (ii)
merger of the issuer with, or acquisition of the issuer by, another company,
(iii) delisting of such stock, or (iv) failure of such stock to meet, upon
periodic review by the AMEX, market value and trading volume criteria
established by the AMEX (as such may change from time to time). Upon deletion
of a stock from the component stocks, the AMEX may select a suitable
replacement for such deleted component stock. The policy of the AMEX is to
announce any such change in advance via distribution of an information
circular.
The use of and reference to the AMEX Oil Index in connection with the
Securities has been consented to by the AMEX, the publisher of the AMEX Oil
Index and, in connection with such consent, the AMEX has requested that the
following information appear in this Prospectus Supplement. The AMEX is under
no obligation to continue the calculation and dissemination of the AMEX Oil
Index. The Notes are not sponsored, endorsed, sold or promoted by the AMEX. No
inference should be drawn from the information contained in this Prospectus
Supplement that the AMEX makes any representation or warranty, implied or
express, to the Company, beneficial owners of the Notes or any member of the
public regarding the advisability of investing in securities generally or in
the Notes in particular or the ability of the AMEX Oil Index to track general
stock market performance. The AMEX has no obligation to take the needs of the
Company or beneficial owners of the Notes into consideration in determining,
composing or calculating the AMEX Oil Index. The AMEX is not responsible for,
and has not participated in the determination or
S-16
<PAGE>
calculation of the equation by which the Notes with respect to the annual
payments will be determined. The AMEX has no obligation or liability in
connection with the administration, marketing or trading of the Notes. The AMEX
disclaims all responsibility for any errors or omissions in the calculation and
dissemination of the AMEX Oil Index or the manner in which such index is
applied in determining the annual payments with respect to the Notes.
None of the Company, the Calculation Agent, the Underwriter nor the Trustee
accepts any responsibility for the calculation, maintenance or publication of
the AMEX Oil Index or any Successor Index.
HISTORICAL DATA ON THE AMEX OIL INDEX
The following hypothetical table sets forth the AMEX Oil Index Starting
Annual Value for each year from 1985 through 1993 as reported by the AMEX and
the AMEX Oil Index Ending Average Value for each such year. The table also sets
forth (i) the average percent change between such values for each year, and
(ii) the per annum interest that would have been paid on the Notes for each
such year assuming the Notes were outstanding during such year and such values
were deemed a Starting Annual Value and an Ending Average Value, respectively.
THE HYPOTHETICAL TABLE ASSUMES A MINIMUM ANNUAL PAYMENT OF $20 PER $1,000
PRINCIPAL AMOUNT (2% PER ANNUM) AND A PARTICIPATION RATE OF 80% (THE ACTUAL
PARTICIPATION RATE WILL BE DETERMINED ON THE DATE THAT THE NOTES ARE PRICED BY
THE COMPANY FOR INITIAL OFFERING TO THE PUBLIC). The historical experience of
the AMEX Oil Index should not be taken as an indication of future performance,
and no assurance can be given that the AMEX Oil Index values, during any year
in which the Notes are outstanding, will increase sufficiently to result in a
payment in excess of the Minimum Annual Payment.
HYPOTHETICAL ANNUAL AMEX OIL INDEX SMART NOTES PAYMENTS
<TABLE>
<CAPTION>
AMEX AMEX
OIL OIL AMEX HYPOTHETICAL
INDEX INDEX OIL ANNUAL
STARTING ENDING INDEX SMART
ANNUAL AVERAGE AVERAGE % NOTE
VALUE (1) VALUE (2) CHANGE PAYMENTS(3)
--------- --------- --------- ------------
YEAR
----
<S> <C> <C> <C> <C>
1985........................... 118.22 132.94 12.45% $ 99.61
1986........................... 133.69 138.14 3.33% $ 26.63
1987........................... 150.88 191.10 26.66% $213.26
1988........................... 161.88 176.03 8.74% $ 69.93
1989........................... 179.53 218.25 21.57% $172.54
1990........................... 245.94 243.51 -0.99% $ 20.00
1991........................... 249.56 231.37 -7.29% $ 20.00
1992........................... 236.13 234.52 -0.68% $ 20.00
1993........................... 229.13 256.38 11.89% $ 95.14
Average........................ $ 81.90
</TABLE>
- --------
(1) Closing AMEX Oil Index value on the last business day of the preceding
calendar year. Source: AMEX.
(2) Arithmetic average of the closing values of the AMEX Oil Index value on the
last AMEX Business Day of each calendar quarter during such calendar year;
however, with respect to the fourth quarter of each year, the seventh AMEX
Business Day prior to the end of such year was used for purposes of
calculating the Ending Average Value.
(3) The above hypothetical table assumes a Minimum Annual Payment of $20 per
$1,000 principal amount (2% per annum) and a Participation Rate of 80% (the
actual Participation Rate will be determined on the date that the Notes are
priced by the Company for initial offering to the public). The table does
not reflect gains or losses in the market value of SMART Notes which may
occur in secondary market trading.
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<PAGE>
The following table sets forth the highest and lowest daily closing value of
the AMEX Oil Index for each quarter or partial quarter, as the case may be, in
the period from December 1984 through February 15, 1994, as well as the closing
level of the AMEX Oil Index as of the end of each such quarter or partial
quarter, as the case may be. These historical data on the AMEX Oil Index are
not any indication of the future performance of the AMEX Oil Index.
<TABLE>
<CAPTION>
DAILY CLOSING LEVELS
----------------------
HIGHEST LOWEST CLOSING
------- ------ -------
<C> <S> <C> <C> <C>
1984:
4th Quarter...................................... 128.22 116.69 118.22
1985:
1st Quarter...................................... 132.19 113.00 131.88
2nd Quarter...................................... 139.88 127.69 132.59
3rd Quarter...................................... 135.97 126.63 133.41
4th Quarter...................................... 143.53 125.63 133.69
1986:
1st Quarter...................................... 136.06 117.69 124.66
2nd Quarter...................................... 137.31 122.81 130.75
3rd Quarter...................................... 153.25 120.69 143.25
4th Quarter...................................... 154.13 139.50 150.88
1987:
1st Quarter...................................... 195.56 150.88 190.19
2nd Quarter...................................... 211.47 182.00 209.81
3rd Quarter...................................... 221.72 194.16 204.97
4th Quarter...................................... 209.72 139.16 161.88
1988:
1st Quarter...................................... 182.66 156.91 179.41
2nd Quarter...................................... 191.63 173.06 174.06
3rd Quarter...................................... 180.38 163.59 170.44
4th Quarter...................................... 181.97 167.50 179.53
1989:
1st Quarter...................................... 204.03 178.03 199.25
2nd Quarter...................................... 211.41 198.88 204.44
3rd Quarter...................................... 231.78 204.44 225.47
4th Quarter...................................... 249.22 213.69 245.94
1990:
1st Quarter...................................... 251.25 228.63 244.53
2nd Quarter...................................... 252.34 232.19 239.59
3rd Quarter...................................... 276.53 236.94 251.59
4th Quarter...................................... 254.94 234.97 240.56
1991:
1st Quarter...................................... 257.16 227.50 246.69
2nd Quarter...................................... 260.81 235.31 238.03
3rd Quarter...................................... 255.53 234.28 249.72
4th Quarter...................................... 259.94 218.03 236.13
1992:
1st Quarter...................................... 240.22 211.47 212.66
2nd Quarter...................................... 248.81 209.25 227.44
3rd Quarter...................................... 243.66 233.66 241.56
4th Quarter...................................... 242.63 220.81 229.13
1993:
1st Quarter...................................... 255.25 220.28 252.72
2nd Quarter...................................... 264.28 249.53 252.97
3rd Quarter...................................... 270.09 244.53 268.06
4th Quarter...................................... 272.72 245.25 252.78
1994:
1st Quarter (through February 15, 1994).......... 270.03 252.34 261.59
</TABLE>
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<PAGE>
The following graph sets forth the historical performance of the AMEX Oil
Index at the end of each quarter or partial quarter, as the case may be, from
December 1984 through February 15, 1994. PAST MOVEMENTS OF THE AMEX OIL INDEX
ARE NOT NECESSARILY INDICATIVE OF THE FUTURE AMEX OIL INDEX VALUES. The closing
value of the AMEX Oil Index on February 15, 1994 was 261.59.
QUARTERLY CLOSING VALUES OF AMEX OIL INDEX (JANUARY 1985 - FEBRUARY 15, 1994)
[Graphic #1 Appears Here]
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<PAGE>
OIL INDUSTRY SECTOR
The oil industry is subject to varying degrees of regulatory, political and
economic risk which may affect the price of the stocks of the companies engaged
in the industry. Such risks depend on a number of factors including the
countries in which a particular company conducts its activities, evolving
levels of governmental regulation, and litigation with respect to environmental
and other matters. All segments of the oil industry are competitive, including
manufacturing, distribution and marketing of petroleum products and
petrochemicals. In addition, the oil industry competes with other industries in
supplying the energy needs of various types of consumers. Refining margins (the
difference between the price of products and the price of crude oil) and
marketing margins (the difference between the wholesale and retail price of
petroleum products) also affect companies engaged in the oil industry.
The profitability of companies engaged in the oil industry is directly
affected by the worldwide price of oil and related petroleum products which, in
turn, depends upon the worldwide demand for oil and related petroleum products.
Crude oil supplies are currently abundant relative to worldwide demand.
Worldwide demand for crude oil has remained weak for the past several years due
to slow growth and, in some cases, recessionary conditions in the world's
principal industrialized economies. The worldwide supply of crude oil, however,
is high due to, among other things, overproduction by The Organization of
Petroleum Exporting Countries ("OPEC") and new North Sea output.
Environmental regulation is a significant factor affecting profitability of
companies engaged in the oil industry. In the U.S., companies engaged in the
oil industry are subject to substantial environmental regulations by federal,
state, and local authorities. Federal regulations include the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(often referred to as CERCLA or Superfund), the Superfund Amendments and
Reauthorizations Act of 1986, and the Resource Conservation Recovery Act of
1976.
In the United States and elsewhere, various laws and regulations are either
now in force, in standby status or under consideration, with respect to such
matters as price controls, crude oil and refined product allocations, refined
product specifications, environmental, health and safety regulations,
retroactive and prospective tax increases, cancellation of contract rights,
expropriation of property, divestiture of certain operations, foreign exchange
rate restrictions as to the convertibility of currencies, tariffs and other
international trade restrictions. Other regulations such as the U.S. Federal
Clean Air Act Amendments of 1990 may have a substantial impact on companies
engaged in the oil industry despite the fact that they do not impose direct
regulations. Finally, regional regulations like those proposed by California's
South Coast Air Quality Management District may have substantial effects on the
oil industry as well.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth in full below is the opinion of Brown & Wood, counsel to the
Company, as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the Notes. Such opinion is based upon
laws, regulations, rulings and decisions now in effect (or, in the case of
certain regulations, in proposed form), all of which are subject to change
(including changes in effective dates) or possible differing interpretations.
The discussion below deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the Notes should consult their own
tax advisors concerning the application of United States Federal income tax
laws to their particular situations as well as any consequences of the
purchase, ownership and disposition of the Notes arising under the laws of any
other taxing jurisdiction.
S-20
<PAGE>
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate or trust the income of which is
subject to United States Federal income taxation regardless of its source or
(iv) any other person whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business. As used
herein, the term "non-U.S. Holder" means a holder of a Note that is not a U.S.
Holder.
GENERAL
There are no regulations (except the Treasury Regulations as described
below), published rulings or judicial decisions involving the
characterization, for United States Federal income tax purposes, of securities
with terms substantially the same as the Notes. However, although the matter
is not free from doubt, under current law, each Note should be treated as a
debt instrument of the Company for United States Federal income tax purposes.
The discussion below is based upon the assumption that each Note will be
treated as a debt instrument of the Company for United States Federal income
tax purposes. If the Notes are not in fact treated as debt instruments of the
Company for United States Federal income tax purposes, then the United States
Federal income tax treatment of the purchase, ownership and disposition of the
Notes could differ from the treatment discussed below with the result that the
timing and character of income, gain or loss recognized on a Note could differ
from the timing and character of income, gain or loss recognized on a Note had
the Notes in fact been treated as debt instruments of the Company for United
States Federal income tax purposes.
U.S. HOLDERS
Under general principles of current United States Federal income tax law,
payments of interest on a debt instrument generally will be taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or
are received (in accordance with the U.S. Holder's regular method of tax
accounting). Under these principles, the Minimum Annual Payments generally
would be taxable to a U.S. Holder as ordinary interest income on the
respective dates that the Minimum Annual Payments are accrued or are received
(in accordance with the U.S. Holder's regular method of tax accounting). Any
amounts payable with respect to a Note based upon the AMEX Oil Index in excess
of the Minimum Annual Payments (the "Supplemental Interest Payments") would be
treated as contingent interest and generally would be includible in income by
a U.S. Holder as ordinary interest on the respective dates that the
Supplemental Interest Payments are accrued (i.e., determined) or are received
(in accordance with the U.S. Holder's regular method of tax accounting). Upon
the sale, exchange or retirement of a Note, a U.S. Holder generally would
recognize taxable gain or loss in an amount equal to the difference between
the amount realized on the sale, exchange or retirement and such U.S. Holder's
tax basis in the Note. A U.S. Holder's tax basis in a Note generally will
equal such U.S. Holder's initial investment in the Note. Such gain or loss
generally would be long-term capital gain or loss if the Note were held by the
U.S. Holder for more than one year (subject to the market discount rules, as
discussed below).
On January 27, 1994, the Internal Revenue Service ("IRS") issued final
Treasury regulations (the "OID Regulations") under the original issue discount
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
which replaced certain proposed Treasury regulations that were issued on
December 21, 1992 dealing with debt instruments issued with original issue
discount. The OID Regulations would apply to debt instruments issued on or
after April 4, 1994; therefore by their terms they would not apply to the
Notes. Nevertheless, taxpayers may rely on the OID Regulations for debt
instruments issued after December 21, 1992.
Under the OID Regulations, if a debt instrument qualifies as a "variable
rate debt instrument," then a special set of rules would apply to the debt
instrument whereby all "qualified stated interest" payments on the debt
instrument generally would be taxable to a U.S. Holder as ordinary interest
income in accordance with
S-21
<PAGE>
the U.S. Holder's regular method of tax accounting. In general, a debt
instrument would qualify as a "variable rate debt instrument" under the OID
Regulations (and would therefore not be treated as a contingent payment debt
obligation) if (a) its issue price does not exceed the total noncontingent
principal payments provided for under the terms of the debt instrument by more
than a specified de minimis amount and (b) it provides for stated interest,
paid or compounded at least annually, at current values of a single objective
rate. In general, an "objective rate" is a rate which is determined using a
single fixed formula and which is based upon either the yield or changes in
the price of one or more items of actively traded personal property.
Although the matter is not free from doubt, each Note should qualify as a
"variable rate debt instrument" under the OID Regulations since each Note
provides for $1,000 principal payable at maturity and each Note provides for
stated interest at a single objective rate, payable at least annually. The
stated interest on each Note would be an objective rate since such rate is
determined using a single fixed formula (a per annum rate equal to % of the
average percentage increase, if any, in the AMEX Oil Index as measured each
year by the increase, if any, from the applicable Starting Annual Value to the
applicable Ending Average Value) and is based upon changes in the price of
more than one item of actively traded personal property (e.g., the stocks
comprising the AMEX Oil Index). In addition, the stated interest on each Note
should be a current value of such objective rate since the Starting Annual
Value applicable to the determination of the amount payable in a particular
year is generally equal to the closing value of the AMEX Oil Index on the last
scheduled AMEX Business Day in the immediately preceding year and because the
Ending Average Value applicable to the determination of the amount payable in
a particular year generally will equal the arithmetic average (mean) of the
Quarterly Values of the AMEX Oil Index for each calendar quarter during such
year. Despite the foregoing, prospective investors in the Notes should be
aware that because the Supplemental Interest Payments are determined by
reference to the "average" percentage change in the AMEX Oil Index each year,
it is possible that, under the OID Regulations, the Notes would not be treated
as providing of stated interest at "current values" of a single objective rate
and, therefore, may not qualify as "variable rate debt instruments" under the
OID Regulations. As noted above, each Note provides for stated interest
payable at a minimum rate of 2% per annum (i.e., the Minimum Annual Payments).
Under the OID Regulations, the Minimum Annual Payments would not affect the
qualification of the Notes as "variable rate debt instruments".
If a debt instrument qualifies as a "variable rate debt instrument" under
the OID Regulations and if the debt instrument provides for stated interest at
a single objective rate throughout the term thereof, then any stated interest
on the debt instrument which is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually will constitute
"qualified stated interest" and will be taxed accordingly. Since the stated
interest on each Note is unconditionally payable semiannually, such stated
interest on the Notes would constitute "qualified stated interest" under the
OID Regulations. A debt instrument that qualifies as a "variable rate debt
instrument" under the OID Regulations and that provides for stated interest,
unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually, at a single objective rate throughout the term
thereof would also generally not be treated as having been issued with
original issue discount unless the debt instrument is issued at a "true"
discount. A U.S. Holder would generally be required to include original issue
discount on a "variable rate debt instrument" arising from "true discount" in
income as ordinary interest as it accrues over the term of the debt instrument
under a constant yield method, regardless of such U.S. Holder's regular method
of tax accounting. A debt instrument that qualifies as a "variable rate debt
instrument" under the OID Regulations and that provides for stated interest,
unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually, at a single objective rate throughout the term
thereof would only be issued at a "true" discount to the extent that the debt
instrument's stated principal amount exceeds its issue price, if such excess
equals or exceeds a de minimis amount (generally 1/4 of 1% of the debt
instrument's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date). The issue price of an
issue of debt instruments, where a substantial amount of the debt instruments
in the issue are issued for money, equals the first price at which a
substantial amount of such debt instruments has
S-22
<PAGE>
been sold. The stated redemption price at maturity of a debt instrument is the
sum of all payments provided by the debt instrument other than "qualified
stated interest" payments. Thus, assuming that the Notes qualify as "variable
rate debt instruments" under the OID Regulations, the Notes would not be
treated as having been issued with original issue discount and all payments of
interest on a Note would be taxable to a U.S. Holder as ordinary interest
income in accordance with the U.S. Holder's regular method of tax accounting.
As previously noted, it is possible that the Notes may not qualify as
"variable rate debt instruments" under the OID Regulations and could possibly
be treated as contingent payment debt obligations. It is not entirely clear
under current law how the Notes would be taxed if they were treated as
contingent payment debt obligations. As noted above, under general principles
of current United States Federal income tax law, the Minimum Annual Payments
would be includible in income by a U.S. Holder as ordinary interest on the
respective dates that the Minimum Annual Payments are accrued or are received
(in accordance with the U.S. Holder's regular method of tax accounting). Under
these same principles, the Supplemental Interest Payments would be treated as
contingent interest and generally would be includible in income by a U.S.
Holder as ordinary interest on the respective dates that the Supplemental
Interest Payments are accrued (i.e., determined) or are received.
However, in 1991, the Treasury Department issued proposed regulations (the
"1991 Proposed Regulations" and, together with the OID Regulations, the
"Treasury Regulations") under the original issue discount provisions of the
Code concerning contingent payment debt obligations which, if applicable to the
Notes, would bifurcate a Note into a debt instrument and a series of rights to
payments based upon the value of the AMEX Oil Index. The 1991 Proposed
Regulations were not replaced by the OID Regulations and contain a retroactive
effective date of February 20, 1991. Thus, if the Notes were treated as
contingent payment debt obligations and if the 1991 Proposed Regulations are
ultimately adopted in their current form, then the 1991 Proposed Regulations
would apply to the Notes and such application of the 1991 Proposed Regulations
would cause the timing and character of income, gain or loss reported on a Note
to differ from the timing and character of income, gain or loss reported on a
Note had the 1991 Proposed Regulations not applied.
The 1991 Proposed Regulations would treat a Note as consisting of two
separate instruments: (i) the fixed payments (i.e., the debt instrument),
consisting of the right to receive the Note principal amount and the Minimum
Annual Payments (the "Fixed Payments"), and (ii) the contingent payments (i.e.,
the series of rights based upon the AMEX Oil Index), consisting of the annual
right to receive an amount based upon the AMEX Oil Index in excess of the
Minimum Annual Payments (the "Contingent Payments"). A Note's original issue
price would be allocated between the Fixed Payments and the Contingent Payments
in accordance with their relative fair market values.
Under the 1991 Proposed Regulations, the Fixed Payments would be treated, for
United States Federal income tax purposes, as a separate debt obligation issued
at an original issue discount. If the 1991 Proposed Regulations were applied to
the Notes, the Minimum Annual Payments would be taxable to a U.S. Holder of a
Note as ordinary interest income on the respective dates that the Minimum
Annual Payments are accrued or are received (in accordance with the U.S.
Holder's regular method of tax accounting). A U.S. Holder (whether a cash or
accrual method taxpayer) would also be required to include original issue
discount on a Note in gross income (using a constant yield method) over the
Note's term in advance of receipt of the cash payments attributable to such
income. The original issue discount required to be included in income with
respect to a Note would be equal to the difference between the Note's principal
amount (i.e., $1,000) and the amount of the Note's original issue price
allocated to the Fixed Payments. If the Notes were treated as contingent
payment debt obligations and if 1991 Proposed Regulations are ultimately
adopted in their current form and, thus, are applied to the Notes, then the
amount of original issue discount on a Note would be $ per $1,000 principal
amount. Under the 1991 Proposed Regulations, a U.S. Holder that disposes of a
Note prior to its maturity generally would recognize taxable gain or loss, with
respect to the Fixed Payments, in an amount equal to the difference (if any)
between the portion of the sales proceeds allocated to such Fixed Payments (in
accordance with the relative fair market values of the Fixed Payments and the
S-23
<PAGE>
Contingent Payments as determined on the date of disposition) and such U.S.
Holder's adjusted tax basis in the Fixed Payments. A U.S. Holder's adjusted tax
basis in the Fixed Payments would equal the portion of such U.S. Holder's
initial investment in the Note that is allocated to the Fixed Payments (in
accordance with the relative fair market values of the Fixed Payments and the
Contingent Payments), increased by the amount of original issue discount
previously included in income by such U.S. Holder with respect to the Fixed
Payments.
Under the 1991 Proposed Regulations, the Contingent Payments would be treated
separately from the Fixed Payments and taxed "in accordance with their economic
substance". Although the matter is not free from doubt, if the 1991 Proposed
Regulations were applied to the Notes, under an "economic substance" analysis,
the Contingent Payments would most likely be treated as a series of separate
sequential "unlisted" cash settlement options (each an "Index Right") on the
AMEX Oil Index (as opposed to being treated as a single option) that are
"equity" options for purposes of Code section 1256 (which includes the Code's
mark-to-market rules). Accordingly, a U.S. Holder would recognize taxable gain
or loss with respect to each Index Right only upon its sale, exchange,
expiration or payment on the relevant December Payment Date. The amount of gain
or loss recognized by a U.S. Holder with respect to each Index Right generally
would be measured by the difference between the amount realized with respect to
the Index Right and the U.S. Holder's tax basis in the Index Right. A U.S.
Holder's aggregate tax basis in the Index Rights generally would be the portion
of the U.S. Holder's initial investment in the Note that is allocated to the
Contingent Payments (in accordance with the relative fair market values of the
Fixed Payments and the Contingent Payments), and, although the matter is not
free from doubt, it is likely that the U.S. Holder's aggregate tax basis in the
Index Rights would be allocated among the individual Index Rights in accordance
with their relative fair market values as determined on the Note's issue date.
Such gain or loss on the Index Rights generally would be long-term capital gain
or loss if the Note were held by the U.S. Holder for more than one year.
Although the Commodity Futures Trading Commission ("CFTC") has not designated
a contract market for a contract based on the AMEX Oil Index and thus, if the
1991 Proposed Regulations were applied to the Notes, each Index Right would
most likely be treated as an unlisted "equity" option for purposes of Code
section 1256, it is possible that the IRS could conclude that the AMEX Oil
Index meets the requirements of law for such a designation by the CFTC and may
assert that the Index Rights should be treated as listed options that are
nonequity options subject to Code section 1256 (i.e., "listed nonequity
options"). Specifically, if the IRS were to conclude that the Index Rights
should be treated as "nonequity" options, for purposes of Code section 1256, on
the basis that the AMEX Oil Index meets the requirements of law for a
designation by the CFTC of a contract market for a contract based on the AMEX
Oil Index, the IRS could also take the position that the Index Rights should be
treated as "listed" options based on the fact that the Index Rights are part of
a Note which is "listed" or, alternatively, because there exist listed options
based on the AMEX Oil Index. Although it is possible that if the 1991 Proposed
Regulations were applied to the Notes and if the IRS were to conclude that the
AMEX Oil Index meets the requirements of law for a designation by the CFTC of a
contract market for a contract based on the AMEX Oil Index the Index Rights
could be treated as "listed nonequity options", it is not clear that Code
section 1256 and the 1991 Proposed Regulations contemplate such a result.
Moreover, while the Notes are listed on the AMEX, each Index Right cannot be
separately traded and is not separately listed. Additionally, there are
differences between the Index Rights and options on the AMEX Oil Index that are
actually traded which means that there is no public trading market from which
to draw a market price for purposes of marking the Index Rights to market.
If the 1991 Proposed Regulations were applied to the Notes and if the Index
Rights were treated as "listed nonequity options", each Index Right generally
would be marked to market under Code section 1256, i.e., treated as if it were
sold for its fair market value on the last business day of the U.S. Holder's
taxable year. Any resulting gain or loss would be treated as 60 percent long-
term and 40 percent short-term capital gain or loss. Additionally, gain or loss
realized on the sale, exchange, expiration or payment at maturity of an Index
Right would be treated as 60 percent long-term and 40 percent short-term
capital gain or loss. Prospective investors in the Notes should consult their
own tax advisors as to the proper treatment of the
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<PAGE>
Index Rights under the 1991 Proposed Regulations in the event that the 1991
Proposed Regulations are applied to the Notes.
There is no assurance that the 1991 Proposed Regulations will be adopted or,
if adopted, adopted in their current form. In addition, on January 19, 1993,
the Treasury Department issued proposed regulations (the "1993 Proposed
Regulations"), concerning contingent payment debt obligations, which would have
replaced the 1991 Proposed Regulations and which would have provided for a set
of rules with respect to the timing and character of income recognition on
contingent payment debt obligations that differ from the rules contained in the
1991 Proposed Regulations with respect to the timing and character of income
recognition on contingent payment debt obligations. The 1993 Proposed
Regulations, which would have applied to debt instruments issued 60 days or
more after the date the 1993 Proposed Regulations became final, generally
provided for several alternative timing methods which would have required
annual interest accruals to reflect either a market yield for the debt
instrument, determined as of the issue date, or a reasonable estimate of the
performance of contingencies. The amount of interest deemed to accrue in a
taxable year pursuant to such methods would have been currently includible in
income by a U.S. Holder, with subsequent adjustments to the extent that the
estimate of income was incorrect. In addition, under the 1993 Proposed
Regulations, any gain recognized by a U.S. Holder on the sale, exchange or
retirement of a contingent payment debt obligation would have been treated
entirely as ordinary interest income and any loss recognized on the sale,
exchange or retirement of a contingent payment debt obligation would have been
treated entirely as a capital loss. However, on January 22, 1993, the United
States Government's Office of Management and Budget announced that certain
proposed regulations which had not yet been published in the Federal Register,
including the 1993 Proposed Regulations, had been withdrawn. It is unclear
whether the 1993 Proposed Regulations will be re-proposed or, if re-proposed,
what effect, if any, such regulations would have on the Notes. Based upon the
foregoing, the continued viability of the 1991 Proposed Regulations is
uncertain. It should also be noted that proposed Treasury regulations are not
binding upon either the IRS or taxpayers prior to becoming effective as
temporary or final regulations. Prospective investors in the Notes are urged to
consult their own tax advisors regarding the application of the Treasury
Regulations to their investment in the Notes, if any, and the effect of
possible changes to the Treasury Regulations.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder purchases a Note for an amount that is less than the Note's
issue price, the amount of the difference will be treated as "market discount",
unless such difference is less than a specified de minimis amount (generally
1/4 of 1% of the Note's stated principal amount multiplied by the number of
complete years to its maturity from its issue date).
Under the market discount rules, a U.S. Holder will be required to treat any
gain realized on the sale, exchange, retirement or other disposition of a Note
as ordinary income to the extent of the lesser of (i) the amount of such
realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Note at the time of
such disposition. Market discount will be considered to accrue ratably during
the period from the date of acquisition to the Note's maturity, unless the U.S.
Holder elects to accrue market discount on the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the Note's maturity or its
earlier disposition in a taxable transaction, because a current deduction is
only allowed to the extent the interest expense exceeds an allocable portion of
the market discount. A U.S. Holder may elect to include market discount in
income currently as it accrues (on either a ratable or semiannual compounding
basis), in which case the rules described above regarding the treatment as
ordinary income of gain upon the disposition of the Note and regarding the
deferral of interest deductions will not apply. Generally, such currently
included market discount is treated as ordinary interest for United States
Federal income tax purposes and a U.S. Holder would increase its tax basis in
the Note by the amount of any such currently included market discount.
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<PAGE>
If a U.S. Holder purchases a Note for an amount that is greater than its
stated principal amount, such U.S. Holder will be considered to have purchased
the Note with "amortizable bond premium" equal in amount to such excess. A U.S.
Holder may elect to amortize such premium using a constant yield method over
the remaining term of the Note and may offset interest otherwise required to be
included in respect of the Note during any taxable year by the amortized amount
of such excess for the taxable year. Such election, if made, would apply to all
debt instruments held by the U.S. Holder at the beginning of the taxable year
to which such election applies and to all debt instruments acquired by such
U.S. Holder thereafter. Such election would also be irrevocable once made,
unless the U.S. Holder making such an election obtains the express consent of
the IRS to revoke such election.
Prospective investors in the Notes should be aware, however, that the
application of the market discount and bond premium rules to the Notes may
differ from the application discussed above in the event that the 1991 Proposed
Regulations are applied to the Notes.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal or interest (including original issue discount, if
any) on a Note, unless such non-U.S. Holder is a direct or indirect 10% or
greater shareholder of the Company, a controlled foreign corporation related to
the Company or a bank receiving interest described in section 881(c)(3)(A) of
the Code. However, income allocable to non-U.S. Holders generally will be
subject to annual tax reporting on IRS Form 1042S. For a non-U.S. Holder to
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding
Agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
that (i) is signed by the beneficial owner of the Note under penalties of
perjury, (ii) certifies that such owner is not a U.S. Holder and (iii) provides
the name and address of the beneficial owner. The statement may be made on an
IRS Form W-8 or a substantially similar form, and the beneficial owner must
inform the Withholding Agent of any change in the information on the statement
within 30 days of such change. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However,
in such case, the signed statement must be accompanied by a copy of the IRS
Form W-8 or the substitute form provided by the beneficial owner to the
organization or institution. The Treasury Department is considering
implementation of further certification requirements aimed at determining
whether the issuer of a debt obligation is related to holders thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its own tax
advisor in this regard.
Under current law, a Note will not be includible in the estate of a non-U.S.
Holder unless the individual is a direct or indirect 10% or greater shareholder
of the Company or, at the time of such individual's death, payments in respect
of such Note would have been effectively connected with the conduct by such
individual of a trade or business in the United States. Under the 1991 Proposed
Regulations, however, a portion of a Note equal to the fair market value of the
Contingent Payments may be includible in the gross estate of a nonresident
alien individual for United States Federal estate tax purposes.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to
S-26
<PAGE>
the IRS, unless the U.S. Holder is an exempt recipient or establishes an
exemption. Compliance with the identification procedures described in the
preceding section would establish an exemption from backup withholding for
those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be
reported by the broker to the IRS, unless either (i) the broker determines that
the seller is an exempt recipient or (ii) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's non-U.S. status would be made normally on an IRS Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used as described under
"Use of Proceeds" in the attached Prospectus and to hedge market risks
affecting the Company's obligations to make payments under the Notes. The
Company does not intend to confine its hedging activities to any particular
domestic or foreign exchanges.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of the Underwriting Agreement and a
Terms Agreement, to purchase from the Company $25,000,000 aggregate principal
amount of Notes. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Notes if any are
purchased.
The Underwriter has advised the Company that it proposes initially to offer
the Notes to the public at the offering price set forth on the cover page of
this Prospectus Supplement. The Underwriter may sell Notes to any dealer at a
discount and such discount allowed to any dealer will not be in excess of 75%
of the discount to be received by the Underwriter. After the initial public
offering, the public offering price and discount may be changed.
The underwriting of the Notes will conform to the requirements set forth in
the applicable sections of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company and for the
Underwriter by Brown & Wood, New York, New York.
S-27
<PAGE>
PROSPECTUS
LOGO
MERRILL LYNCH & CO., INC.
DEBT SECURITIES AND WARRANTS
Merrill Lynch & Co., Inc. (the "Company") intends to sell from time to time
up to $728,015,546 aggregate principal amount (or net proceeds in the case of
warrants and in the case of securities issued at an original issue discount),
or its equivalent in such foreign currencies or units of two or more
currencies, based on the applicable exchange rate at the time of offering, as
shall be designated by the Company at the time of offering, of its senior debt
securities ("Senior Debt Securities"), subordinated debt securities
("Subordinated Debt Securities" and, together with the Senior Debt Securities,
the "Debt Securities"), warrants to purchase Debt Securities ("Debt Warrants");
warrants entitling the holders thereof to receive from the Company an amount in
cash determined by reference to decreases or increases in the level of a
specified stock or security index or the value of a portfolio of specified
stocks or other securities which may be based on U.S. or foreign stocks or
securities or a combination thereof (the "Index Warrants") and warrants to
receive from the Company the cash value in U.S. dollars of the right to
purchase ("Currency Call Warrants") or to sell ("Currency Put Warrants" and,
together with the Currency Call Warrants, the "Currency Warrants") such foreign
currencies or units of two or more currencies as shall be designated by the
Company at the time of offering. The Debt Securities, Debt Warrants, Index
Warrants and Currency Warrants, which are collectively called the "Securities",
may be offered either jointly or separately and will be offered to the public
on terms determined by market conditions at the time of sale and set forth in a
prospectus supplement.
The Securities will be unsecured and, except in the case of Subordinated Debt
Securities, will rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The Subordinated Debt Securities will be
subordinated to all existing and future Senior Indebtedness of the Company.
Each issue of Securities may vary, where applicable, as to aggregate
principal amount, maturity date, public offering or purchase price, interest
rate or rates, if any, and timing of payments thereof, provision for
redemption, sinking fund requirements, if any, exercise provisions, currencies
of denomination or currencies otherwise applicable thereto and any other
variable terms and method of distribution. The accompanying Prospectus
Supplement (the "Prospectus Supplement") sets forth the specific terms with
regard to the Securities in respect of which this Prospectus is being
delivered.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Securities may be sold directly or through Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") as agent or may be
offered and reoffered through, or through underwriting syndicates managed or
co-managed by, one or more of the following: MLPF&S; Bear, Stearns & Co. Inc.;
Donaldson, Lufkin & Jenrette Securities Corporation; The First Boston
Corporation; Goldman, Sachs & Co.; Kidder, Peabody & Co. Incorporated; Lehman
Brothers Inc.; Morgan Stanley & Co. Incorporated; Nomura Securities
International, Inc.; PaineWebber Incorporated; and Salomon Brothers Inc, or
directly to purchasers by the Company. The Company has entered into agreements
with such firms with respect to the Securities providing for agency sales of
the Securities through MLPF&S or the purchase and offering from time to time by
one or more of such firms, either alone or with the several members of any
syndicate formed by them. Additional agreements respecting the distribution of
the Securities may be entered into from time to time by the Company. Securities
may not be sold without delivery of a Prospectus Supplement describing such
issue of Securities and the method and terms of offering thereof.
----------------
The date of this Prospectus is February 17, 1994.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Reports, proxy and information
statements and other information concerning the Company may also be inspected
at the offices of the New York Stock Exchange, the American Stock Exchange, the
Midwest Stock Exchange and the Pacific Stock Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 25,
1992, Quarterly Reports on Form 10-Q for the quarters ending March 26, 1993,
June 25, 1993 and September 24, 1993, and Current Reports on Form 8-K dated
January 25, 1993, January 26, 1993, January 28, 1993, February 1, 1993,
February 22, 1993, March 1, 1993, March 19, 1993, April 13, 1993, April 15,
1993, April 22, 1993, April 27, 1993, April 29, 1993, June 24, 1993, June 28,
1993, July 7, 1993, July 13, 1993, July 27, 1993, September 8, 1993, September
13, 1993, September 23, 1993, October 7, 1993, October 11, 1993, October 15,
1993, October 27, 1993, December 17, 1993, December 22, 1993, December 27,
1993, December 30, 1993, January 20, 1994, January 24, 1994, January 27, 1994
and February 3, 1994, filed pursuant to Section 13 of the Exchange Act, are
hereby incorporated by reference into this Prospectus.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
(WITHOUT EXHIBITS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE)
OF ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO MR. GREGORY T. RUSSO, SECRETARY,
MERRILL LYNCH & CO., INC., 100 CHURCH STREET, 12TH FLOOR, NEW YORK, NEW YORK
10080-6512; TELEPHONE NUMBER (212) 602-8435.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, insurance and related services.
Its principal subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), is one of the largest securities firms in the world. MLPF&S is a
broker in securities, options contracts, commodity and financial futures
contracts and selected insurance products, a dealer in options and in corporate
and municipal securities and an investment banking firm. Merrill Lynch Asset
Management manages mutual funds and provides investment advisory services.
Merrill Lynch Government Securities Inc. is a primary dealer in obligations
issued by the U.S. Government or agencies thereof or guaranteed or insured by
Federal agencies. Other subsidiaries provide financial services outside the
United States similar to those of MLPF&S and are engaged in such other
activities as international banking, lending and providing other investment and
financing services. The Company's insurance underwriting and marketing
operations consist of the underwriting of life insurance and annuity products
through subsidiaries of Merrill Lynch Insurance Group, Inc., and the sale of
life insurance and annuities through Merrill Lynch Life Agency Inc. and other
life insurance agencies associated with MLPF&S.
The principal executive office of the Company is located at World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281; its telephone
number is (212) 449-1000.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Securities
for general corporate purposes. Such uses may include the funding of
investments in, or extensions of credit to, its subsidiaries, the funding of
assets held by the Company or its subsidiaries, including securities
inventories, customer receivables and loans (including business loans, home
equity loans and loans in connection with investment banking-related merger and
acquisition activities) and the lengthening of the average maturity of the
Company's borrowings (including the refunding of maturing indebtedness). The
precise amount and timing of investments in, and extensions of credit to, its
subsidiaries will depend upon their funding requirements and the availability
of other funds to the Company and its subsidiaries. A substantial portion of
the proceeds from the sale of any Currency Warrants or Index Warrants may be
used to hedge market risks with respect to such Warrants. Pending such
applications, the net proceeds will be temporarily invested or applied to the
reduction of short-term indebtedness. Management of the Company expects that it
will, on a recurrent basis, engage in additional financings as the need arises
to finance the growth of the Company or to lengthen the average maturity of its
borrowings. To the extent that Securities being purchased for resale by MLPF&S
are not resold, the aggregate proceeds to the Company and its subsidiaries
would be reduced.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary consolidated financial information was derived from,
and is qualified in its entirety by reference to, the financial statements and
other information and data contained in the Company's Annual Report on Form
10-K for the year ended December 25, 1992 and Current Report on Form 8-K dated
January 24, 1994. See "Incorporation of Certain Documents by Reference". The
Current Report on Form 8-K, dated January 24, 1994 (which includes unaudited
preliminary financial information for the year ended December 31, 1993) and
the other documents incorporated herein by reference will be superseded by the
Company's Annual Report on Form 10-K for the year ended December 31, 1993. In
the opinion of management of the Company, all adjustments (consisting only of
normal recurring accruals, a non-recurring pretax charge of $103 million and a
change in accounting principles described below) necessary for a fair
statement of the 1993 results of operations have been included. The year-end
results include 52 weeks for 1989, 1990, 1991 and 1992 and 53 weeks for 1993.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general
market conditions, the liquidity of secondary markets, the level and
volatility of interest rates and currency values, the valuation of securities
positions, competitive conditions, and the size, number and timing of
transactions. In periods of unfavorable market activity, profitability can be
adversely affected because certain expenses remain relatively fixed. As a
result, net earnings and revenues can vary significantly from period to
period.
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY IN DECEMBER
--------------------------------------------------------------
1989 1990 1991 1992 1993
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Revenues................ $11,273,223 $11,147,229 $12,352,812 $ 13,412,668 $16,588,177
Net Revenues............ $ 5,902,195 $ 5,783,329 $ 7,246,468 $ 8,577,401 $10,558,230
Earnings (loss) before
income taxes,
discontinued operations
and cumulative effect
of changes in
accounting
principles(1).......... $ (158,386) $ 282,328 $ 1,017,418 $ 1,621,389 $ 2,424,808
Discontinued operations
(net of income
taxes)(1).............. $ 3,981 -- -- -- --
Cumulative effect of
changes in accounting
principles (net of
applicable income
taxes)(1).............. -- -- -- $ (58,580) $ (35,420)
Net earnings (loss)(1).. $ (213,385) $ 191,856 $ 696,117 $ 893,825 $ 1,358,939
Ratio of earnings to
fixed charges(2)....... -- 1.1 1.2 1.3 --
Total assets(3)......... $63,942,263 $68,129,527 $86,259,343 $107,024,173 --
Long-term
borrowings(3)(4)....... $ 6,897,109 $ 6,341,559 $ 7,964,424 $ 10,871,100 --
Stockholders' equity(3). $ 3,151,343 $ 3,225,430 $ 3,818,088 $ 4,569,104 --
</TABLE>
- --------
(1) Net loss for 1989 includes an after-tax reduction of $395,000,000
($470,000,000 before income taxes) resulting from a provision for the
costs of divesting certain nonstrategic product lines and business
activities, consolidating and relocating selected retail and support
facilities and downsizing certain other operations. Results for 1989 have
been restated to reflect the effects of discontinued operations related to
the sale of the Company's real estate brokerage, relocation and related
services subsidiary, Fine Homes International, L.P. ("FHI"), in the third
quarter of 1989. Discontinued operations include the results of FHI's
operations through September 15, 1989 (the date of final disposition) and
the loss on disposal in 1989. Net earnings for 1992 have been reduced by
$58,580,000 to reflect the effects of the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions" and SFAS No. 109,
"Accounting for Income Taxes." Net earnings for 1993 have been reduced by
$35,420,000 to reflect the effects of the adoption of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
(2) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings from continuing operations before income
taxes and fixed charges. "Fixed charges" consists of interest costs and
that portion of rentals estimated to be representative of the interest
factor. The ratio of earnings to fixed charges for 1988 was 1.2. In 1989,
fixed charges exceeded pretax earnings before fixed charges by
$187,564,000.
(3) Balance sheet information as of December 31, 1993 is not available as of
the date of this Prospectus. At September 24, 1993, total assets, long-
term borrowings and stockholders' equity were $147,611,339,000,
$13,027,015,000 and $5,573,236,000, respectively.
(4) To finance its diverse activities, the Company and certain of its
subsidiaries borrow substantial amounts of short-term funds on a regular
basis. Although the amount of short-term borrowings significantly varies
with the level of general business activity, on September 24, 1993,
$336,151,000 of bank loans and $12,916,972,000 of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
September 24, 1993, cash deposits for securities loaned and securities
sold under agreements to repurchase amounted to $3,267,169,000 and
$52,771,145,000, respectively. From September 25, 1993 to February 11,
1994, long-term borrowings, net of repayments and repurchases, increased
in the amount of approximately $1,344,228,000.
4
<PAGE>
FISCAL YEAR 1993
Net earnings for 1993 were a record $1,358.9 million, an increase of $465.1
million (52%) above the $893.8 million reported for 1992. Results for 1993
include a non-recurring pretax lease charge in the first quarter totaling
$103.0 million ($59.7 million after income taxes) related to the Company's
decision not to occupy certain space at its World Financial Center Headquarters
facility. The 1993 results also reflect the early adoption of Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits." The cumulative effect of this change in accounting
principle reduced 1993 net earnings by $35.4 million. Revenues after interest
expense ("net revenues") reached a record $10,558 million, up 23% over the
$8,577 million reported in 1992. Total 1993 revenues advanced 24% to $16,588
million versus $13,413 million for the prior year.
Commission revenues increased 19% in 1993 to $2,894 million due primarily to
the continued growth of listed securities transactions, increases in sales of
mutual funds and higher revenues from other commission categories. Commissions
on listed securities benefited from higher trading volume and increases in
average market prices. Mutual fund commissions benefited from increased sales
of front-end funds. Strong 1992 sales led to an increase in 1993 distribution
fees for deferred-charge funds, however, redemption fees declined from 1992 due
to lower levels of redemptions. Interest and dividend revenues in 1993 were
$7,099 million, up 22% from 1992. Interest expense (including dividend expense)
rose 25% in 1993 to $6,030 million. As a result, in 1993 net interest and
dividend profit advanced 10% to $1,069 million, compared to the $971 million
reported in 1992. This increase in net interest and dividend profit resulted
from the expansion of collateralized borrowing and lending activities, the
increased use of interest-free funds due to a larger equity base, and reduced
funding costs due to lower interest rates and improved credit ratings.
Principal transactions revenues rose to record levels in 1993, up 35% to
$2,920 million from the $2,166 million reported in 1992. Fixed-income and
foreign exchange revenues, in the aggregate, increased on higher revenues from
swaps and derivatives, corporate bonds and preferred stocks, and non-U.S.
governments and agencies. These advances were somewhat offset by lower revenues
from foreign exchange. In addition, 1993 mortgage-backed securities principal
transactions revenues were essentially break-even; however, net revenues,
including related hedges and net interest, were positive, although
significantly below 1992 levels. Equity trading revenues increased primarily
due to higher volume and prices in over-the-counter and foreign equity markets.
Investment banking revenues increased 23% to a record $1,831 million from the
$1,484 million reported a year ago. Underwriting revenues benefited from the
low interest rate environment, as corporations refinanced higher interest-
bearing debt with lower rate issuances, or raised capital through equity
offerings. Investor demand remained strong for equity and high-yield bond
underwritings which offer the potential for higher returns compared with other
investment alternatives. Asset management and portfolio service fees were also
a record, advancing 24% to $1,558 million from the $1,253 million reported last
year. Increased fees earned from asset management activities, the Merrill Lynch
Consults(R) portfolio management service and other fee-based portfolio services
businesses contributed to these favorable results. Asset management fees
increased from 1992 due primarily to asset growth in stock and bond funds.
Merrill Lynch Consults revenue increased due to the growth in the number of
accounts and higher asset levels. Other revenues rose 1% to $285 million due to
higher equity access fees generated from increased home equity loan activity,
partially offset by net investment losses related primarily to provisions for
merchant banking activities.
Non-interest expenses totaled $8,133 million, up 17% from the $6,956 million
in 1992. Excluding the 1993 first quarter non-recurring lease charge totaling
$103.0 million, non-interest expenses were up 15%. Compensation and benefits
expense, which represented approximately 65% of total non-interest expenses,
increased 20% from 1992 due to higher production-related compensation and
increases in incentive compensation linked to the Company's improved
profitability and return on common equity. Nevertheless, compensation and
benefits expense, as a percentage of net revenues, declined to 49.8% from 50.9%
in 1992. Facilities-related costs, including occupancy, communications and
equipment rental, and depreciation and amortization, increased 13% from 1992
(3% excluding the non-recurring lease charge). Advertising and market
development expenses increased 25% reflecting higher sales promotion and
recognition program costs for Financial Consultants that are tied to increased
business activity. In addition, travel costs were up as the
5
<PAGE>
increase in business volume required additional domestic and international
travel, while favorable markets contributed to the expansion of certain
discretionary national and local advertising campaigns. Professional fees
increased 13% due to technology upgrades which required the use of system and
management consultants, as well as higher employment agency fees. Brokerage,
clearing and exchange fees were up 1% as a result of increased trading volume,
while other expenses increased 5% principally as a result of additions to loss
provisions related to litigation and claims.
Income tax expense was $1,030 million versus $669 million in the prior year
as the effective rate in 1993 rose to 42.5%, compared with 41.3% a year ago.
The higher effective tax rate in 1993 related to the increase in the Federal
statutory rate from 34% in 1992 to 35% in 1993 due to legislation raising
corporate income tax rates retroactive to January 1, 1993.
The Company's Board of Directors declared a two-for-one common stock split
effected in the form of a 100% stock dividend paid November 24, 1993 to
stockholders of record on October 22, 1993.
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its businesses.
In the normal course of its investment banking, trading and insurance
activities, the Company underwrites, purchases, sells and makes markets in
high-yield securities and other non-investment grade securities. Additionally,
the Company provides financing and advisory services to corporations entering
into leveraged transactions. These activities are subject to risks related to
the creditworthiness of the issuers and the liquidity of the market for such
securities, in addition to the usual risks associated with investing, extending
credit, underwriting and trading in investment grade instruments.
Information concerning the Company's positions in high-yield securities and
investments in highly leveraged transactions as of December 31, 1993 is not
available as of the date of this Prospectus. At September 24, 1993, the
carrying value of extensions of credit provided to corporations entering into
leveraged transactions aggregated $496 million (excluding unutilized revolving
lines of credit and other lending commitments of $72 million), consisting
primarily of senior term and subordinated financings to 44 medium-sized
corporations. At September 24, 1993, the Company had one bridge loan
outstanding, totaling $70 million, which has since been repaid. Loans to highly
leveraged corporations are carried at unpaid principal balance less a reserve
for estimated losses. The allowance for loan losses is estimated based on a
review of each loan, and considerations of economic, market and credit
conditions. Direct equity investments made in conjunction with the Company's
investment and merchant banking activities, which are generally recorded at the
lower of cost or estimated net realizable value, aggregated $306 million at
September 24, 1993, representing investments in 85 enterprises. At September
24, 1993, the Company held interests in partnerships, totaling $85 million
(recorded on the cost basis), that invest in highly leveraged transactions and
non-investment grade securities. The Company has a co-investment arrangement to
enter into direct equity investments. At September 24, 1993, the additional co-
investment commitments were $81 million. The Company also has committed to
invest an additional $14 million in partnerships that invest in leveraged
transactions.
As a market-maker, the Company holds trading positions in non-investment
grade securities. At September 24, 1993, the fair value of long and short non-
investment grade trading positions amounted to $2,065 million and $236 million,
respectively, and in aggregate (i.e., the sum of long and short trading
positions), represented 3.6% of aggregate consolidated trading positions.
Investments of the Company's insurance subsidiaries, which are carried at
amortized cost, include non-investment grade securities. At September 24, 1993,
$492 million or 6.0% of the aggregate carrying value of such investments were
non-investment grade.
As of September 24, 1993, the largest non-investment grade holdings related
to a single issuer totaled $158 million. No one industry sector represented
more than 16% of total non-investment grade positions. At September 24, 1993,
the Company held an aggregate carrying value of $294 million in securities of
issuers who were in various stages of bankruptcy proceedings or in default.
Approximately 46% of this amount resulted from the Company's market-making
activities in such securities.
6
<PAGE>
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities are to be issued under an indenture (the "Senior Indenture"), dated
as of April 1, 1983, as amended and restated, between the Company and Chemical
Bank (successor by merger to Manufacturers Hanover Trust Company), as trustee
(the "Senior Debt Trustee"). The Subordinated Debt Securities are to be issued
under an indenture (the "Subordinated Indenture"), dated as of August 1, 1991,
between the Company and Chemical Bank (successor by merger to Manufacturers
Hanover Trust Company), as trustee (the "Subordinated Debt Trustee"). The
Senior Debt Securities and Subordinated Debt Securities may also be issued
under one or more other indentures (each, a "Subsequent Indenture") and have
one or more other trustees (each, a "Subsequent Trustee"). Any Subsequent
Indenture relating to Senior Debt Securities will have terms and conditions
identical in all material respects to the above-referenced Senior Indenture
and any Subsequent Indenture relating to Subordinated Debt Securities will
have terms and conditions identical in all material respects to the above-
referenced Subordinated Indenture, including, but not limited to, the
applicable terms and conditions described below. Any Subsequent Indenture
relating to a series of Debt Securities, and the trustee with respect thereto,
will be identified in the applicable Prospectus Supplement. The Senior
Indenture, the Subordinated Indenture and any Subsequent Indentures (whether
senior or subordinated) are referred to herein as the "Indentures"; and the
Senior Debt Trustee, the Subordinated Debt Trustee and any Subsequent Trustees
are referred to herein as the "Trustees". A copy of each Indenture is filed
(or, in the case of a Subsequent Indenture, will be filed) as an exhibit to
the registration statements relating to the Securities (collectively, the
"Registration Statement"). The following summaries of certain provisions of
the Indentures do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the respective
Indentures, including the definitions therein of certain terms.
GENERAL
Each Indenture provides that Debt Securities (Senior Debt Securities in the
case of the Senior Indenture or a Subsequent Indenture for Senior Debt
Securities, and Subordinated Debt Securities in the case of the Subordinated
Indenture or a Subsequent Indenture for Subordinated Debt Securities) may be
issued thereunder, without limitation as to aggregate principal amount, in one
or more series, by the Company from time to time upon satisfaction of certain
conditions precedent, including the delivery by the Company to the applicable
Trustee of a resolution of the Board of Directors, or the Executive Committee
thereof, of the Company which fixes or provides for the establishment of terms
of such Debt Securities, including: (1) the aggregate principal amount of such
Debt Securities and whether there is any limit upon the aggregate principal
amount of such Debt Securities that may be subsequently issued; (2) the date
on which such Debt Securities will mature; (3) the principal amount payable
with respect to such Debt Securities whether at maturity or upon earlier
acceleration, and whether such principal amount will be determined with
reference to an index, formula or other method; (4) the rate or rates per
annum (which may be fixed or variable) at which such Debt Securities will bear
interest, if any; (5) the dates on which such interest, if any, will be
payable; (6) the provisions for redemption of such Debt Securities, if any,
the redemption price and any remarketing arrangements relating thereto; (7)
the sinking fund requirements, if any, with respect to such Debt Securities;
(8) whether such Debt Securities are denominated or provide for payment in
United States dollars or a foreign currency or units of two or more of such
foreign currencies; (9) the form (registered or bearer or both) in which such
Debt Securities may be issued and any restrictions applicable to the exchange
of one form for another and to the offer, sale and delivery of such Debt
Securities in either form; (10) whether and under what circumstances the
Company will pay additional amounts ("Additional Amounts") in respect of such
Debt Securities held by a person who is not a U.S. person (as defined in the
Prospectus Supplement, as applicable) in respect of specified taxes,
assessments or other governmental charges and whether the Company has the
option to redeem the affected Debt Securities rather than pay such Additional
Amounts; (11) whether such Debt Securities are to be issued in global form;
(12) the title of the Debt Securities and the series of which such Debt
Securities shall be a part; and (13) the denominations of such Debt
Securities. Reference is made to the Prospectus Supplement for the terms of
the Debt Securities being offered thereby, including whether such Debt
Securities are Senior Debt Securities or Subordinated Debt Securities. Debt
Securities may also be issued
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under the Indenture upon the exercise of Debt Warrants. See "Description of
Debt Warrants". Nothing in the Indentures or in the terms of the Debt
Securities will prohibit the issuance of securities representing subordinated
indebtedness that is senior or junior to the Subordinated Debt Securities.
The Debt Securities will be issued, to the extent provided in the Prospectus
Supplement, in fully registered form without coupons, and/or in bearer form
with or without coupons, and in denominations set forth in the Prospectus
Supplement. No service charge will be made for any registration of transfer of
registered Debt Securities or exchange of Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection therewith. Each Indenture provides
that Debt Securities issued thereunder may be issued in global form. If any
series of Debt Securities is issuable in global form, the applicable
Prospectus Supplement will describe the circumstances, if any, under which
beneficial owners of interest in any such global Debt Securities may exchange
such interests for Debt Securities of such series and of like tenor and
principal amount in any authorized form and denomination. Principal of, and
any premium, Additional Amounts and interest on, a global Debt Security will
be payable in the manner described in the applicable Prospectus Supplement.
The provisions of the Indentures described above provide the Company with
the ability, in addition to the ability to issue Debt Securities with terms
different from those of Debt Securities previously issued, to "reopen" a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series.
The Senior Debt Securities will be unsecured and will rank pari passu with
all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities will be unsecured and will be subordinated to all
existing and future Senior Indebtedness (as defined below) of the Company.
Since the Company is a holding company, the right of the Company, and hence
the right of creditors of the Company (including the Holders of the Debt
Securities), to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent that claims of the Company itself as a creditor of the subsidiary may
be recognized. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to the Company are restricted by net capital
requirements under the Securities Exchange Act of 1934 and under rules of
certain exchanges and other regulatory bodies.
Principal and interest, premium and Additional Amounts, if any, will be
payable in the manner, at the places and subject to the restrictions set forth
in the applicable Indenture, the Debt Securities and the Prospectus Supplement
relating thereto, provided that payment of any interest and any Additional
Amounts may be made at the option of the Company by check mailed to the
holders of registered Debt Securities at their registered addresses.
Debt Securities may be presented for exchange, and registered Debt
Securities may be presented for transfer, in the manner, at the places and
subject to the restrictions set forth in the applicable Indenture, the Debt
Securities and the Prospectus Supplement relating thereto. Debt Securities in
bearer form and the coupons, if any, pertaining thereto will be transferable
by delivery. No service charge will be made for any transfer or exchange of
Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation, and
the Company may sell, lease or convey all or substantially all of its assets
to any corporation, provided that (i) the corporation (if other than the
Company) formed by or resulting from any such consolidation or merger or which
shall have received such assets shall be a corporation organized and existing
under the laws of the United States of America or a state thereof and shall
assume payment of the principal of, and any premium, Additional Amounts or
interest on, the Debt Securities and the performance and observance of all of
the covenants and conditions of the Indentures to be performed or observed by
the Company, and (ii) the Company or such successor corporation, as the case
may be, shall not immediately thereafter be in default under the Indentures.
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MODIFICATION AND WAIVER
Modification and amendment of each Indenture may be effected by the Company
and the applicable Trustee with the consent of the Holders of 66 2/3% in
principal amount of the Outstanding Debt Securities of each series issued
pursuant to such Indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby, (a) change the Stated Maturity of,
or any installment of interest or Additional Amounts on, any Debt Security or
any premium payable on the redemption thereof, or change the Redemption Price;
(b) reduce the principal amount of, or the interest or Additional Amounts
payable on, any Debt Security or reduce the amount of principal which could be
declared due and payable prior to the Stated Maturity; (c) change the place or
currency of any payment of principal of, or any premium, interest or Additional
Amounts on, any Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security; (e) reduce
the percentage in principal amount of the Outstanding Debt Securities of any
series, the consent of whose Holders is required to modify or amend such
Indenture; or (f) modify the foregoing requirements or reduce the percentage of
Outstanding Debt Securities necessary to waive any past default to less than a
majority. No modification or amendment of the Subordinated Indenture or any
Subsequent Indenture for Subordinated Debt Securities may adversely affect the
rights of any Holder of Senior Indebtedness without the consent of such Holder.
Except with respect to certain fundamental provisions, the Holders of at least
a majority in principal amount of Outstanding Debt Securities of any series
may, with respect to such series, waive past defaults under the applicable
Indenture and waive compliance by the Company with certain provisions of such
Indenture.
EVENTS OF DEFAULT
Under each Indenture, the following will be Events of Default with respect to
Debt Securities of any series issued thereunder: (a) default in the payment of
any interest or Additional Amounts upon any Debt Security of that series when
due, continued for 30 days; (b) default in the payment of any principal of or
premium, if any, on any Debt Security of that series when due; (c) default in
the deposit of any sinking fund payment, when due, in respect of any Debt
Security of that series; (d) default in the performance of any other covenant
of the Company contained in such Indenture for the benefit of such series or in
the Debt Securities of such series, continued for 60 days after written notice
as provided in such Indenture; (e) certain events in bankruptcy, insolvency or
reorganization; and (f) any other Event of Default provided with respect to
Debt Securities of that series. The applicable Trustee or the Holders of 25% in
principal amount of the Outstanding Debt Securities of that series may declare
the principal amount (or such lesser amount as may be provided for in the Debt
Securities of that series) of all Outstanding Debt Securities of that series
and the interest accrued thereon and Additional Amounts payable in respect
thereof, if any, to be due and payable immediately if an Event of Default with
respect to Debt Securities of such series shall occur and be continuing at the
time of declaration. At any time after a declaration of acceleration has been
made with respect to Debt Securities of any series but before a judgment or
decree for payment of money due has been obtained by the applicable Trustee,
the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series may rescind any declaration of acceleration and its
consequences, if all payments due (other than those due as a result of
acceleration) have been made and all Events of Default have been remedied or
waived. Any Event of Default with respect to Debt Securities of any series may
be waived by the Holders of a majority in principal amount of all Outstanding
Debt Securities of that series, except in a case of failure to pay principal of
or premium, if any, or interest or Additional Amounts, if any, on any Debt
Security of that series for which payment had not been subsequently made or in
respect of a covenant or provision which cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security of such series
affected.
The Holders of a majority in principal amount of the Outstanding Debt
Securities of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee or exercising any
trust or power conferred on such Trustee with respect to Debt Securities of
such series, provided that such direction shall not be in conflict with any
rule of law or the applicable Indenture. Before
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proceeding to exercise any right or power under an Indenture at the direction
of such Holders, the applicable Trustee shall be entitled to receive from such
Holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
The Company will be required to furnish to each Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the
applicable Indenture.
SPECIAL TERMS RELATING TO THE SENIOR DEBT SECURITIES
LIMITATIONS UPON LIENS
The Senior Indenture provides that the Company may not, and may not permit
any Subsidiary to, create, assume, incur or permit to exist any indebtedness
for borrowed money secured by a pledge, lien or other encumbrance (except for
certain liens specifically permitted by the Senior Indenture) on the Voting
Stock owned directly or indirectly by the Company of any Subsidiary (other than
a Subsidiary which, at the time of incurrence of such secured indebtedness, has
a net worth of less than $3,000,000) without making effective provision whereby
the Outstanding Senior Debt Securities will be secured equally and ratably with
such secured indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Senior Indenture provides that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indenture to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which are owned directly or indirectly by the Company). In
addition, the Senior Indenture provides that the Company may not permit MLPF&S
to (i) merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or (ii) convey or transfer its properties and assets substantially
as an entirety, except to one or more Controlled Subsidiaries.
SPECIAL TERMS RELATING TO THE SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Company resulting from any
dissolution, winding up, liquidation or reorganization, payments on
Subordinated Debt Securities are to be subordinated to the extent provided in
the Subordinated Indenture in right of payment to the prior payment in full of
all Senior Indebtedness, but the obligation of the Company to make payments on
the Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default in
the payment of any principal, premium, interest, Additional Amounts or sinking
fund of or on any Senior Indebtedness. Holders of Subordinated Debt Securities
will be subrogated to the rights of holders of Senior Indebtedness to the
extent of payments made on Senior Indebtedness upon any distribution of assets
in any such proceedings out of the distributive shares of Subordinated Debt
Securities. By reason of such subordination, in the event of a distribution of
assets upon insolvency, certain creditors of the Company may recover more,
ratably, than Holders of Subordinated Debt Securities.
Senior Indebtedness is defined in the Subordinated Indenture as the principal
of, premium, if any, and unpaid interest on (a) indebtedness of the Company
(including indebtedness of others guaranteed by the Company), other than the
Subordinated Debt Securities, whether outstanding on the date of execution of
the Subordinated Indenture or thereafter created, incurred, assumed or
guaranteed, (i) for money owing to banks, (ii) for money borrowed from sources
other than banks or (iii) in connection with the acquisition by the Company or
a subsidiary of assets of any kind except in the ordinary course of business,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such indebtedness is not superior
in right of payment to the Subordinated Debt Securities, and (b) renewals,
extensions, modifications and refundings of any such indebtedness. As of
September 24, 1993, a total of approximately $27.0 billion of the Company's
indebtedness would have been Senior Indebtedness as so defined.
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DESCRIPTION OF DEBT WARRANTS
The Company may issue, together with Debt Securities, Currency Warrants or
Index Warrants or separately, Debt Warrants for the purchase of Debt
Securities. The Debt Warrants are to be issued under Debt Warrant Agreements
(each a "Debt Warrant Agreement") to be entered into between the Company and a
bank or trust company, as Debt Warrant Agent (the "Debt Warrant Agent"), all as
shall be set forth in the Prospectus Supplement relating to Debt Warrants being
offered thereby. A copy of the form of Debt Warrant Agreement, including the
form of Warrant Certificates representing the Debt Warrants (the "Debt Warrant
Certificates"), reflecting the alternative provisions to be included in the
Debt Warrant Agreements that will be entered into with respect to particular
offerings of Debt Warrants, is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Debt Warrant
Agreement and the Debt Warrant Certificates do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Debt Warrant Agreement and the Debt Warrant Certificates,
respectively, including the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (1) the designation, aggregate principal amount, price at which such
principal amount may be purchased upon exercise and terms of the Debt
Securities purchasable upon exercise of such Debt Warrants, including whether
such Debt Securities are Senior Debt Securities or Subordinated Debt
Securities, and the procedures and conditions relating to the exercise of such
Debt Warrants; (2) the designation and terms of any related Debt Securities
with which such Debt Warrants are issued, including whether such Debt
Securities are Senior Debt Securities or Subordinated Debt Securities, and the
number of such Debt Warrants issued with each such Debt Security; (3) the date,
if any, on and after which such Debt Warrants and the related Debt Securities
will be separately transferable; (4) the date on which the right to exercise
such Debt Warrants shall commence and the date on which such right shall expire
(the "Expiration Date"); (5) if the Debt Securities purchasable upon exercise
of such Debt Warrants are original issue discount Debt Securities, a discussion
of Federal income tax considerations applicable thereto; and (6) whether the
Debt Warrants represented by the Debt Warrant Certificates will be issued in
registered or bearer form, and, if registered, where they may be transferred
and registered.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and Debt Warrants may be exercised at
the corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement. Prior to the exercise of their Debt
Warrants, holders of Debt Warrants will not have any of the rights of Holders
of the Debt Securities purchasable upon such exercise and will not be entitled
to payments of principal of, and any premium, Additional Amounts or interest
on, the Debt Securities purchasable upon such exercise.
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle the Holder to purchase for cash such principal
amount of Debt Securities at such exercise price as shall in each case be set
forth in, or be determinable as set forth in, the Prospectus Supplement
relating to the Debt Warrants offered thereby. Debt Warrants may be exercised
at any time up to the close of business on the Expiration Date set forth in the
Prospectus Supplement relating to the Debt Warrants offered thereby. After the
close of business on the Expiration Date, unexercised Debt Warrants will become
void.
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, the Company will, as soon as practicable, forward the
Debt Securities purchasable
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upon such exercise. If less than all of the Debt Warrants represented by such
Debt Warrant Certificate are exercised, a new Debt Warrant Certificate will be
issued for the remaining amount of Debt Warrants.
DESCRIPTION OF CURRENCY WARRANTS
The Company may issue, together with Debt Securities, Debt Warrants or Index
Warrants or separately, Currency Warrants either in the form of Currency Put
Warrants entitling the Holders thereof to receive from the Company the cash
settlement value in U.S. dollars of the right to sell a specified amount of a
specified foreign currency or currency units for a specified amount of U.S.
dollars, or in the form of Currency Call Warrants entitling the Holders thereof
to receive from the Company the cash settlement value in U.S. dollars of the
right to purchase a specified amount of a specified foreign currency or units
of two or more currencies for a specified amount of U.S. dollars. The Currency
Warrants are to be issued under a Currency Put Warrant Agreement or a Currency
Call Warrant Agreement, as applicable (each a "Currency Warrant Agreement"), to
be entered into between the Company and a bank or trust company, as Currency
Warrant Agent (the "Currency Warrant Agent"), all as shall be set forth in the
applicable Prospectus Supplement. Copies of the forms of Currency Put Warrant
Agreement and Currency Call Warrant Agreement, including the forms of global
Warrant Certificates representing the Currency Put Warrants and Currency Call
Warrants (the "Currency Warrant Certificates"), reflecting the provisions to be
included in the Currency Warrant Agreements that will be entered into with
respect to particular offerings of Currency Warrants, are filed as exhibits to
the Registration Statement. The following summaries of certain provisions of
the Currency Warrant Agreements and the Currency Warrant Certificates do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Currency Warrant Agreements and the
Currency Warrant Certificates, respectively, including the definitions therein
of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Currency
Warrants offered thereby, the Currency Warrant Agreement relating to such
Currency Warrants and the Currency Warrant Certificates representing such
Currency Warrants, including the following: (1) whether such Currency Warrants
shall be Currency Put Warrants, Currency Call Warrants, or both; (2) the
formula for determining the cash settlement value of each Currency Warrant; (3)
the procedures and conditions relating to the exercise of such Currency
Warrants; (4) the circumstances which will cause the Currency Warrants to be
deemed to be automatically exercised; (5) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; and (6) the date on which the right to exercise such Currency
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"), provided that the commencement date and the Expiration Date
may be the same date.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
the Currency Warrants will be issued in the form of global Currency Warrant
Certificates, registered in the name of a depository or its nominee. Beneficial
owners will not be entitled to receive definitive certificates representing
Currency Warrants. Ownership of a Currency Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains a
beneficial owner's account. In turn, the total number of Currency Warrants held
by an individual brokerage firm for its clients will be maintained on the
records of the depository in the name of such brokerage firm or its agent.
Transfer of ownership of any Currency Warrant will be effected only through the
selling beneficial owner's brokerage firm.
EXERCISE OF CURRENCY WARRANTS
Each Currency Warrant will entitle the Holder to the cash settlement value of
such Currency Warrant on the applicable Exercise Date, in each case as such
terms will be defined in the applicable Prospectus Supplement. If a Currency
Warrant has more than one exercise date and is not exercised prior to 1:30
P.M., New York City time, on the fifth New York Business Day preceding the
Expiration Date, Currency Warrants will be deemed automatically exercised.
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LISTING
Each issue of Currency Warrants will be listed on a national securities
exchange, subject only to official notice of issuance, as a condition of sale
of any such Currency Warrants. In the event that the Currency Warrants are
delisted from, or permanently suspended from trading on, such exchange, the
Expiration Date for such Currency Warrants will be the date such delisting or
trading suspension becomes effective and Currency Warrants not previously
exercised will be deemed automatically exercised on such Expiration Date. The
applicable Currency Warrant Agreement will contain a covenant of the Company
not to seek delisting of the Currency Warrants, or suspension of their trading,
on such exchange.
DESCRIPTION OF INDEX WARRANTS
The Company may issue from time to time Index Warrants consisting of put
warrants (the "Index Put Warrants") and call warrants (the "Index Call
Warrants"). The Index Warrants will entitle the holders to receive from the
Company an amount in cash determined by reference to decreases (in the case of
Index Put Warrants) or to increases (in the case of Index Call Warrants) in the
level of a specified stock or security index or the value of a portfolio of
specified stocks or other securities (the "Index"). The Index may be composed
of U.S. or foreign stocks or securities or a combination thereof (the
"Underlying Securities"). Unless otherwise specified in the accompanying
Prospectus Supplement, payments, if any, on the Index Warrants will be made in
U.S. dollars. An Index Warrant will not require or entitle the holder thereof
(the "Index Warrantholder") to purchase or take delivery of or sell or make
delivery of any securities (including Underlying Securities); nor will the
Company be under any obligation to, nor will it, purchase or take delivery of
or sell or make delivery of any securities (including Underlying Securities)
from or to Index Warrantholders pursuant to the Index Warrants. The Index
Warrants will be offered on terms to be determined at the time of sale.
GENERAL
The applicable Prospectus Supplement will describe the Index Warrant
Agreement or Index Warrant Trust Indenture (each as defined below), as the case
may be, relating to the Index Warrants being offered thereby and the terms of
such Index Warrants, including, without limitation: (i) whether the Index
Warrants to be issued will be Index Put Warrants, Index Call Warrants or both;
(ii) the aggregate number and initial public offering price or purchase price;
(iii) the Index for such Index Warrants, which may be based on U.S. or foreign
stocks or securities or a combination thereof and may be a preexisting U.S. or
foreign stock or security index compiled and published by a third party or a
portfolio of Underlying Securities selected by the Company in connection with
the issuance of such Index Warrants, and certain information regarding such
Index and the Underlying Securities; (iv) the date on which the right to
exercise such Index Warrants commences and the date on which such right
expires; (v) the manner in which such Index Warrants may be exercised and any
restrictions on, or other special provisions relating to, the exercise of such
Index Warrants; (vi) the minimum number, if any, of such Index Warrants
exercisable at any one time; (vii) the maximum number, if any, of such Index
Warrants that may, subject to the Company's election, be exercised by all Index
Warrantholders (or by any person or entity) on any day; (viii) any provisions
permitting an Index Warrantholder to condition an exercise notice on the
absence of certain specified changes in the level of the applicable Index after
the exercise date, any provisions permitting the Company to suspend exercise of
such Index Warrants based on market conditions or other circumstances and any
other special provision relating to the exercise of such Index Warrants; (ix)
any provisions for the automatic exercise of such Index Warrants other than at
expiration; (x) any provisions permitting the Company to cancel such Index
Warrants upon the occurrence of certain events; (xi) any additional
circumstances which would constitute an Event of Default with respect to such
Index Warrants; (xii) the method of determining (a) the amount (the "Cash
Settlement Value") payable in connection with the exercise or deemed exercise
of such Index Warrants, (b) the minimum value, if any, payable upon expiration
of such Index Warrants (the "Minimum Expiration Value"), (c) the
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amount payable upon the exercise of any right which the Company may have to
cancel such Index Warrants and (d) the value of the Index; (xiii) in the case
of Index Warrants relating to an Index for which the trading prices of
Underlying Securities are expressed in a foreign currency, the method of
converting amounts in the relevant foreign currency or currencies into U.S.
dollars (or such other currency or composite currency in which the Index
Warrants are payable); (xiv) the method of providing for a substitute index or
otherwise determining the amount payable in connection with the exercise of
such Index Warrants if the Index changes or ceases to be made available by its
publisher; (xv) the time or times at which amounts will be payable in respect
of such Index Warrants following exercise or deemed exercise; (xvi) the
national securities exchange on which such Index Warrants will be listed, if
any; (xvii) any provisions for issuing such Index Warrants in other than global
form; (xviii) if such Index Warrants are not issued in book-entry form, the
place or places at which payment of the Cash Settlement Value, amount payable
on cancellation, if any, and the Minimum Expiration Value, if any, of such
Index Warrants is to be made by the Company; (xix) certain U.S. federal income
tax consequences relating to such Index Warrants; and (xx) other specific
provisions.
Except as otherwise provided in the applicable Prospectus Supplement, each
issue of Index Warrants will contain the terms set forth below.
The Index Warrants which are issued without a Minimum Expiration Value will
be issued under one or more index warrant agreements (each, an "Index Warrant
Agreement") to be entered into between the Company and a bank or trust company,
as warrant agent (the "Index Warrant Agent"), all as described in the
Prospectus Supplement relating to such Index Warrants. The Index Warrant Agent
will act solely as the agent of the Company under the applicable Index Warrant
Agreement and will not assume any obligation or relationship of agency or trust
for or with any Index Warrantholders. A single bank or trust company may act as
Index Warrant Agent for more than one issue of Index Warrants.
The Index Warrants which are issued with a Minimum Expiration Value will be
issued under one or more index warrant trust indentures (each an "Index Warrant
Trust Indenture") to be entered into between the Company and a corporation (or
other person permitted to so act by the Trust Indenture Act of 1939, as amended
from time to time (the "Trust Indenture Act")), to act as trustee (the "Index
Warrant Trustee"), all as described in the Prospectus Supplement relative to
such Index Warrants. Any Index Warrant Trust Indenture will be qualified under
the Trust Indenture Act. To the extent allowed by the Trust Indenture Act, a
single qualified corporation may act as Index Warrant Trustee for more than one
issue of Index Warrants.
Forms of Index Warrant Agreement and Index Warrant Trust Indenture and the
respective global Index Warrant Certificates related thereto are filed as
exhibits to the Registration Statement. The summaries herein of certain
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global Index Warrant Certificates do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global Index Warrant Certificates, respectively.
The Company will have the right to "reopen" a previous issue of Index
Warrants and to issue additional Index Warrants of such issue without the
consent of any Index Warrantholder.
The Index Warrants involve a high degree of risk, including the risk that the
Index Warrants will expire worthless except for the Minimum Expiration Value,
if any, of such Index Warrants. Investors should therefore be prepared to
sustain a total loss of the purchase price of the Index Warrants (except for
the Minimum Expiration Value, if applicable). Investors who consider purchasing
Index Warrants should be experienced with respect to options and option
transactions and reach an investment decision only after carefully considering,
with their advisers, the suitability of the Index Warrants in light of their
particular circumstances and the information set forth below and under
"Description of Index Warrants" as well as additional information contained in
the Prospectus Supplement relating to such Index Warrants.
14
<PAGE>
Unless otherwise provided in the Prospectus Supplement, each Index Warrant
will entitle Index Warrantholders to receive from the Company upon exercise the
Cash Settlement Value of such Index Warrant. Certain Index Warrants issued
pursuant to an Index Warrant Trust Indenture will, if specified in the
Prospectus Supplement, entitle the Index Warrantholder to receive from the
Company, under certain circumstances specified in the Prospectus Supplement, an
amount equal to the greater of the applicable Cash Settlement Value and a
Minimum Expiration Value of such Index Warrants. In addition, certain Index
Warrants will, if specified in the Prospectus Supplement, entitle Index
Warrantholders to receive from the Company a certain amount upon cancellation
of the Index Warrants by the Company, upon the occurrence of specified events.
In addition, if so specified in the Prospectus Supplement, following the
occurrence of an extraordinary event, the Cash Settlement Value of an Index
Warrant may, at the option of the Company, be determined on a different basis,
including in connection with automatic exercise at expiration.
Unless otherwise specified in the Prospectus Supplement, the Index will be an
established, broadly-based index related to a major domestic or foreign equity
or security trading market or based upon a portfolio of specified stocks or
other securities, and the Cash Settlement Value (and, if applicable, the
Minimum Expiration Value or amount payable on cancellation) of the Index
Warrants will be payable in U.S. dollars.
An Index Warrant will be settled only in cash, and accordingly, will not
require or entitle an Index Warrantholder to sell, make delivery, purchase or
take delivery of any shares of any Underlying Securities or any other
securities, nor will the Company be under any obligation to, nor will it,
purchase or take delivery of or sell or make delivery of any securities
(including Underlying Securities) from or to Index Warrantholders pursuant to
the Index Warrants. The Index Warrantholders will not receive any interest on
any Cash Settlement Value, Minimum Expiration Value or amount payable on
cancellation of the Index Warrants and the Index Warrants will not entitle the
Index Warrantholders to any of the rights of holders of any Underlying
Securities.
Unless otherwise specified in the related Prospectus Supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration. Upon
such automatic exercise, Index Warrantholders will be entitled to receive the
Cash Settlement Value of the Index Warrants, except that holders of Index
Warrants having a Minimum Expiration Value will be entitled to receive an
amount equal to the greater of such Cash Settlement Value and the applicable
Minimum Expiration Value. The Minimum Expiration Value may be either a fixed
amount or an amount that varies during the term of the Index Warrants in
accordance with a schedule or formula. Any Minimum Expiration Value applicable
to an issue of Index Warrants, as well as any additional circumstances
resulting in the automatic exercise of such Index Warrants, will be specified
in the related Prospectus Supplement.
If so specified in the Prospectus Supplement, the Index Warrants may be
canceled by the Company, or the exercise or valuation of, or payment for, such
Index Warrants may be delayed or postponed upon the occurrence of an
extraordinary event. Any extraordinary events relating to an issue of Index
Warrants will be set forth in the related Prospectus Supplement. Upon
cancellation, the related Index Warrantholders will be entitled to receive only
the applicable amount payable on cancellation specified in such Prospectus
Supplement. The amount payable on cancellation may be either a fixed amount or
an amount that varies during the term of the Index Warrants in accordance with
a schedule or formula.
If the Company defaults with respect to any of its obligations under Index
Warrants which are issued with a Minimum Expiration Value pursuant to an Index
Warrant Trust Indenture, such default may be waived by the Index Warrantholders
of a majority in interest of all outstanding Index Warrants, except a default
in the payment of the Cash Settlement Value, Minimum Expiration Value or
cancellation amount (if applicable) on such Index Warrants or in respect of a
covenant or provision of the applicable Index Warrant Trust Indenture which
cannot be modified or amended without the consent of the Index Warrantholder of
each outstanding Index Warrant affected.
15
<PAGE>
The Index Warrants are unsecured contractual obligations of the Company and
will rank pari passu with the Company's other unsecured contractual obligations
and with the Company's unsecured and unsubordinated debt.
Certain special United States federal income tax considerations may be
applicable to instruments such as the Index Warrants. The related Prospectus
Supplement will describe such tax considerations. The summary of United Stated
federal income tax considerations contained in the Prospectus Supplement will
be presented for informational purposes only, however, and will not be intended
as legal or tax advice to prospective purchasers. Prospective purchasers of
Index Warrants are urged to consult their own tax advisors prior to any
acquisition of Index Warrants.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
Index Warrants will be issued in book-entry form and represented by global
Index Warrants, registered in the name of a depository or its nominee. Except
as may otherwise be provided in an applicable Prospectus Supplement, Index
Warrantholders will not be entitled to receive definitive certificates
representing Index Warrants, unless the depository is unwilling or unable to
continue as depository or the Company decides to have the Index Warrants
represented by definitive certificates. A beneficial owner's interest in an
Index Warrant represented by a global Index Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains such
beneficial owner's account. In turn, the total number of Index Warrants held by
an individual brokerage firm or other entity for its clients will be maintained
on the records of the depository in the name of such brokerage firm or other
entity or its agent.
LISTING
Unless otherwise indicated in the Prospectus Supplement, the Index Warrants
will be listed on a national securities exchange as specified in the Prospectus
Supplement. It is expected that such exchange will cease trading an issue of
Index Warrants at the close of business on the related expiration date of such
Index Warrants.
MODIFICATION
Any Index Warrant Agreement or Index Warrant Trust Indenture and the terms of
the related Index Warrants may be amended by the Company and the Index Warrant
Agent or Index Warrant Trustee, as the case may be (which amendment shall take
the form of a supplemental index warrant agreement or supplemental index
warrant trust indenture (collectively referred to as "Supplemental
Agreements")), without the consent of the holders of any Index Warrants, for
the purpose of (i) curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained therein, or of
making any other provisions with respect to matters or questions arising under
the Index Warrant Agreement or Index Warrant Trust Indenture, as the case may
be, which shall not be inconsistent with the provisions thereof or of the Index
Warrants, (ii) evidencing the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
contained in the Index Warrant Agreement or the Index Warrant Trust Indenture,
as the case may be, and the Index Warrants, (iii) appointing a successor
depository, (iv) evidencing and providing for the acceptance of appointment by
a successor Index Warrant Agent or Index Warrant Trustee with respect to the
Index Warrants, as the case may be, (v) adding to the covenants of the Company,
for the benefit of the Index Warrantholders or surrendering any right or power
conferred upon the Company under the Index Warrant Agreement or Index Warrant
Trust Indenture, as the case may be, (vi) issuing Index Warrants in definitive
form, or (vii) amending
16
<PAGE>
the Index Warrant Agreement or Index Warrant Trust Indenture, as the case may
be, in any manner which the Company may deem to be necessary or desirable and
which will not materially and adversely affect the interests of the Index
Warrantholders.
The Company and the Index Warrant Agent may also amend any Index Warrant
Agreement or Index Warrant Trust Indenture, as the case may be, and the terms
of the related Index Warrants (which amendment shall take the form of a
Supplemental Agreement) with the consent of the Index Warrantholders holding
not less than 66 2/3 in number of the then outstanding unexercised Index
Warrants affected by such amendment, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Index
Warrant Agreement or Index Warrant Trust Indenture, as the case may be, or of
modifying in any manner the rights of the Index Warrantholders; provided that
no such amendment that (i) changes the determination of the Cash Settlement
Value or amount payable on cancellation, if any, or Minimum Expiration Value,
if any, of the Index Warrants (or any aspects of such determination) so as to
reduce the amount receivable upon exercise or deemed exercise, (ii) shortens
the period of time during which the Index Warrants may be exercised, or
otherwise materially and adversely affects the exercise rights of the Index
Warrantholders or (iii) reduces the number of outstanding Index Warrants, the
consent of whose holders is required for amendment of the Index Warrant
Agreement, the Index Warrant Trust Indenture or the terms of the related Index
Warrants, may be made without the consent of each Index Warrantholder affected
thereby.
EVENT OF DEFAULT
Certain events in bankruptcy, insolvency or reorganization of the Company
will constitute an Event of Default with respect to Index Warrants having a
Minimum Expiration Value which are issued under an Index Warrant Trust
Indenture. Upon the occurrence of an Event of Default, the holders of 25% of
unexercised Index Warrants may elect to receive a settlement payment for such
unexercised Index Warrants, which will immediately become due to the Index
Warrantholders upon such election in an amount equal to the market value of
such Index Warrants (assuming the Company's ability to satisfy its obligations
under such Index Warrants as they would become due) as of the date the Company
is notified of the intended liquidation, as determined by a nationally
recognized securities broker-dealer unaffiliated with the Company and mutually
selected by the Company and the Index Warrant Trustee.
MERGER, CONSOLIDATION, SALE, LEASE OR OTHER DISPOSITIONS
The Company may consolidate or merge with or into any other corporation and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that (i) the corporation (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall
have received such assets shall be a corporation organized and existing under
the laws of the United States of America or a State thereof and shall assume
payment of the Cash Settlement Value (or any Minimum Expiration Value or
cancellation amount, if applicable) with respect to all the unexercised Index
Warrants and the performance and observance of all of the covenants and
conditions of the Index Warrant Agreement or Index Warrant Trust Indenture, as
the case may be, to be performed or observed by the Company, and (ii) the
Company or such successor corporation, as the case may be, shall not
immediately be in default under the Index Warrant Agreement or Index Warrant
Trust Indenture, as the case may be.
ENFORCEABILITY OF RIGHTS BY INDEX WARRANTHOLDERS
Any Index Warrantholder may, without the consent of the related Index Warrant
Agent, enforce by appropriate legal action, in and for its own behalf, its
right to exercise, and receive payment for, its Index Warrants.
17
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell Securities (i) through MLPF&S as agent, (ii) to the
public through, or through underwriting syndicates managed by, one or more of
the firms named on the cover page of this Prospectus or (iii) directly to
purchasers. The Prospectus Supplement with respect to the Securities of a
particular series describes the terms of the offering of such Securities,
including the name of the agent or the name or names of any underwriters, the
public offering or purchase price, any discounts and commissions to be allowed
or paid to the agent or underwriters, all other items constituting underwriting
compensation, the discounts and commissions to be allowed or paid to dealers,
if any, and the exchanges, if any, on which the Securities will be listed. Only
the agents or underwriters so named in the Prospectus Supplement are agents or
underwriters in connection with the Securities offered thereby. Under certain
circumstances, the Company may repurchase Securities and reoffer them to the
public as set forth above. The Company may also arrange for repurchases and
resales of such Securities by dealers.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters to solicit offers by certain institutions to purchase Debt
Securities from the Company pursuant to Delayed Delivery Contracts providing
for payment and delivery on the date stated in the Prospectus Supplement. Each
such contract will be for an amount not less than, and, unless the Company
otherwise agrees, the aggregate principal amount of Debt Securities sold
pursuant to such contracts shall not be more than, the respective amounts
stated in the Prospectus Supplement. Institutions with whom such contracts,
when authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions, but shall in all cases be subject to the
approval of the Company. Delayed Delivery Contracts will not be subject to any
conditions except that the purchase by an institution of the Debt Securities
covered thereby shall not at the time of delivery be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject.
The Company has agreed to indemnify the agent and the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933 (the "Act"), or contribute to payments the agent or the
underwriters may be required to make in respect thereof.
The distribution of Securities will conform to the requirements set forth in
the applicable sections of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included or incorporated by
reference in the Company's 1992 Annual Report on Form 10-K and incorporated by
reference in this Prospectus have been audited by Deloitte & Touche,
independent auditors, as stated in their reports incorporated by reference
herein. The information under the caption "Summary Financial Information" for
each of the four years in the period ended December 25, 1992 included in this
Prospectus and the Selected Financial Data under the captions "Operating
Results", "Financial Position" and "Common Share Data" for each of the five
years in the period ended December 25, 1992 included in the 1992 Annual Report
to Stockholders of the Company and incorporated by reference herein have been
derived from consolidated financial statements audited by Deloitte & Touche, as
set forth in their reports incorporated by reference herein. The consolidated
financial statements and related financial statement schedules, such Summary
Financial Information and such Selected Financial Data appearing or
incorporated by reference in this Prospectus and the Registration Statement of
which this Prospectus is a part, have been included or incorporated herein by
reference in reliance upon such reports of Deloitte & Touche given upon their
authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in any of the Quarterly Reports on Form 10-Q which may be incorporated
herein by reference, Deloitte & Touche have applied
18
<PAGE>
limited procedures in accordance with professional standards for a review of
such information. However, as stated in their report included in any such
Quarterly Report on Form 10-Q and incorporated by reference herein, they did
not audit and they do not express an opinion on such interim financial
information. Accordingly, the degree of reliance on their reports on such
information should be restricted in light of the limited nature of the review
procedures applied. Deloitte & Touche are not subject to the liability
provisions of Section 11 of the Act for any such report on unaudited interim
financial information because any such report is not a "report" or a "part" of
the registration statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.
19
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL
UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................... S-3
Special Considerations..................................................... S-8
Description of Notes....................................................... S-10
The AMEX Oil Index......................................................... S-15
Certain United States Federal Income Tax Considerations.................... S-20
Use of Proceeds............................................................ S-27
Underwriting............................................................... S-27
Validity of Notes.......................................................... S-27
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Merrill Lynch & Co., Inc................................................... 3
Use of Proceeds............................................................ 3
Summary Financial Information.............................................. 4
Description of Debt Securities............................................. 7
Description of Debt Warrants............................................... 11
Description of Currency Warrants........................................... 12
Description of Index Warrants.............................................. 13
Plan of Distribution....................................................... 18
Experts.................................................................... 18
</TABLE>
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LOGO
$25,000,000
MERRILL LYNCH & CO., INC.
AMEX OIL INDEX SM
STOCK MARKET ANNUAL
RESET TERM SM NOTES DUE DECEMBER 31, 2000 "SMART NOTES SM"
---------------
PROSPECTUS SUPPLEMENT
---------------
MERRILL LYNCH & CO.
March , 1994
SM "SMART Notes" and "Stock Market Annual Reset Term" are service marks of
Merrill Lynch & Co., Inc.
"Oil Index SM" is a registered service mark of the American Stock Exchange,
Inc.
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<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE
- --------------------------------------------------------------------------------
Graphic No. 1 The graph appearing at S-19 reflects quarter-end
closing values of the AMEX Oil Index from January
1985 through February 15, 1994.
- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT 99.B
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO A NOMINEE OF DTC OR BY DTC OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC TO MERRILL LYNCH & CO., INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
No. R-1
CUSIP _________ $__________
MERRILL LYNCH & CO., INC.
AMEX Oil Index/SM/ Stock Market Annual Reset Term/SM/ Notes
due December 31, 2000
("SMART Notes/SM/")
This Note is one of the Series of AMEX Oil Index Stock Market Annual Reset
Term Notes due December 31, 2000 (the "Notes"). AMEX Oil Index shall initially
mean the Oil Index calculated, published and disseminated by the American Stock
Exchange (the "AMEX"). Merrill Lynch & Co., Inc., a Delaware corporation
(hereinafter called the "Company", which term includes any successor corporation
under the Indenture herein referred to), for value received, hereby promises to
pay to CEDE & CO., or registered assigns, the principal sum of ___________
DOLLARS ($__________) (the "Principal Amount") on December 31, 2000 (the "Stated
Maturity"), and to pay interest thereon in accordance with the provisions below
from March __, 1994, or from the most recent date in respect of which interest
has been paid or duly provided for, until the principal hereof is paid or duly
made available for payment. The Company shall pay interest semiannually on each
June 30 and December 31 ("June Payment Dates" and "December Payment Dates",
respectively) commencing June 30, 1994, as described below, to the persons in
whose names the Notes are registered on the immediately preceding June 29 or
1
<PAGE>
December 30. Notwithstanding the foregoing, if it is known three Business Days
prior to December 31 that December 31 will not be a Business Day, the amount
payable by the Company with respect to such December Payment Date shall be made
on the Business Day immediately preceding such December 31 to the persons in
whose names the Notes are registered on the second Business Day immediately
preceding such December 31 and the amount so paid shall equal an amount as if
interest had accrued through December 31.
Payment of the Principal Amount and interest with respect to this Note
shall be made at the office or agency of the Company maintained for that purpose
in the Borough of Manhattan, The City of New York, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
For each full calendar year, the Company shall pay interest in an amount
equal to the following for each $1,000 principal amount of Notes:
$1,000 X Average Percent Change X ___%
provided, however, that the per annum amount payable as a result of the
foregoing on the Notes shall not be less than the Minimum Annual Payment of $20
per $1,000 principal amount of Notes on a per annum basis (2% per annum). For
each $1,000 principal amount of Notes, the Company shall pay half of the Minimum
Annual Payment for each calendar year on the June Payment Date, and shall pay
the balance of the annual amount payable for such year on the December Payment
Date. The amount payable on the June Payment Date in 1994 shall equal $10 per
$1,000 principal amount of Notes prorated based on the ratio of the number of
days from and including the original issuance date of the Notes to but excluding
such June Payment Date, computed on the basis of a year consisting of 360 days
of twelve 30-day months, divided by 180. The amount payable, if any, on the
December Payment Date in 1994 that is in excess of the Minimum Annual Payment
for 1994 for the Notes shall be prorated based on the ratio of the number of
days from and including the date the Notes are initially issued to but excluding
such December Payment Date, computed on the basis of a year consisting of 360
days of twelve 30-day months, divided by 180.
The "Average Percent Change" applicable to the determination of the amount
payable in any calendar year will equal:
2
<PAGE>
Ending Average Value - Starting Annual Value
--------------------------------------------
Starting Annual Value
The "Starting Annual Value" applicable to the determination of the amount
payable in a calendar year shall equal the closing value of the AMEX Oil Index
on the last AMEX Business Day (as defined herein) in the immediately preceding
calendar year as determined by State Street Bank and Trust Company, or any
successor thereto (the "Calculation Agent"); provided, however, the "Starting
Annual Value" applicable to the December 31, 1994 payment date shall equal
________. The "Ending Average Value" applicable to the determination of the
amount payable in a calendar year shall equal the arithmetic average (mean) of
the Quarterly Values of the AMEX Oil Index for each calendar quarter during such
year as determined by the Calculation Agent; provided, however, the Ending
Average Value for 1994 shall equal the arithmetic average (mean) of the
Quarterly Values of the AMEX Oil Index for the calendar quarters ending in June,
September and December of 1994. The "Quarterly Value" for the first three
calendar quarters in any calendar year shall be the closing value of the AMEX
Oil Index on the last scheduled AMEX Business Day in any such calendar quarter;
provided, however, that if a Market Disruption Event (as defined herein) has
occurred on such last scheduled AMEX Business Day in any such calendar quarter,
the Quarterly Value for such calendar quarter shall be the closing value of the
AMEX Oil Index on the next succeeding scheduled AMEX Business Day regardless of
whether a Market Disruption Event occurs on such day. The "Quarterly Value" for
the fourth calendar quarter in a calendar year shall be the closing value of the
AMEX Oil Index on the seventh scheduled AMEX Business Day preceding the end of
such calendar quarter; provided, however, that if a Market Disruption Event has
occurred on such seventh scheduled AMEX Business Day, the Quarterly Value for
such calendar quarter shall be the closing value of the AMEX Oil Index on the
sixth scheduled AMEX Business Day preceding the end of such calendar quarter
regardless of whether a Market Disruption Event occurs on such day. The
Calculation Agent shall determine scheduled AMEX Business Days.
Any day on which a Starting Annual Value or a closing value of the AMEX Oil
Index for a calendar quarter is required to be calculated is referred to herein
as a "Calculation Day". An "AMEX Business Day" is a day on which the AMEX is
open for trading. All determinations made by the Calculation Agent shall be at
the sole discretion of a the Calculation Agent and, in the absence of manifest
error, shall be conclusive for all purposes and binding on the Company and
Holders of the Notes. All percentages resulting from any calculation on the
Notes shall be
3
<PAGE>
rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% or (.0987655)), and all dollar amounts
used in or resulting from such calculation shall be rounded to the nearest cent
(with one-half cent being rounded upwards).
If at any time the method of calculating the AMEX Oil Index, or the value
thereof, is changed in a material respect, or if the AMEX Oil Index is in any
other way modified so that such index does not, in the opinion of the
Calculation Agent, fairly represent the value of the AMEX Oil Index had such
changes or modifications not been made, then, from and after such time, the
Calculation Agent shall, at the close of business in New York, New York, on each
Calculation Day, make such adjustments as, in the good faith judgment of the
Calculation Agent, may be necessary in order to arrive at a calculation of a
value of a stock index comparable to the AMEX Oil Index as if such changes or
modifications had not been made, and calculate such closing value with reference
to the AMEX Oil Index, as adjusted. Accordingly, if the method of calculating
the AMEX Oil Index is modified so that the value of such index is a fraction or
a multiple of what it would have been if it had not been modified (e.g., due to
a split in the Index), then the Calculation Agent shall adjust such index in
order to arrive at a value of the AMEX Oil Index as if it had not been modified
(e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant
to New York Stock Exchange Rule 80A (or any applicable rule or regulation
enacted or promulgated by the New York Stock Exchange, the American Stock
Exchange, or the Securities and Exchange Commission of similar scope as
determined by the Calculation Agent) on trading during significant market
fluctuations shall be considered "material" for purposes of this
definition), in each case, during the last half hour of trading in any of
the component stocks, or depository receipts representing such stocks,
included in the AMEX Oil Index on any national securities exchange in the
United States, or
(ii) the suspension or material limitation, in each case during the
last half hour of trading (whether by reason of movements in price
exceeding levels permitted by the
4
<PAGE>
relevant exchange or otherwise), in (A) futures contracts related to the
AMEX Oil Index which are traded on any exchange or board of trade in the
United States (B) option contracts related to the AMEX Oil Index which are
traded on the American Stock Exchange.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading shall not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
If the AMEX discontinues publication of the AMEX Oil Index and the AMEX or
another entity publishes a successor or substitute index that the Calculation
Agent determines, in its sole discretion, to be comparable to the AMEX Oil Index
(any such index being referred to hereinafter as a "Successor Index"), then,
upon the Calculation Agent's notification of such determination to the Trustee
and the Company, the Calculation Agent shall substitute the Successor Index as
calculated by the AMEX or such other entity for the AMEX Oil Index and calculate
the annual amount payable as described above. Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be given to Holders of the Notes.
If the AMEX discontinues publication of the AMEX Oil Index and a Successor
Index is not selected by the Calculation Agent or is no longer published on any
of the Calculation Days, the value to be substituted for the AMEX Oil Index for
any such Calculation Day used to calculate the annual amount payable shall be a
value computed by the Calculation Agent for each Calculation Day in accordance
with the procedures last used to calculate the AMEX Oil Index prior to any such
discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the AMEX Oil Index such Successor Index
or value shall be substituted for the AMEX Oil Index for all purposes, including
for purposes of determining whether a Market Disruption exists.
If the AMEX discontinues publication of the AMEX Oil Index prior to the
period during which the amount payable with respect to any year is to be
determined and the Calculation Agent determines that no Successor Index is
available at such time, then on each AMEX Business Day until the earlier to
occur of (i) the determination of the amount payable with respect to such year
or (ii) a determination by the Calculation Agent that a Successor Index is
available, the Calculation Agent shall determine the value that would be used in
computing the amount payable with
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respect to such year as described in the preceding paragraph as if such day were
a Calculation Day. The Calculation Agent shall cause notice of each such value
to be published not less often than once each month in The Wall Street Journal
(or another newspaper of general circulation), and arrange for information with
respect to such values to be made available by telephone.
This Note is one of a duly authorized issue of Securities of the Company,
issued and to be issued under an Indenture, dated as of April 1, 1983, as
amended and restated (herein called the "Indenture"), between the Company and
Chemical Bank (successor by merger to Manufacturers Hanover Trust Company),
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights thereunder of
the Company, the Trustee and the Holders of the Securities, and the terms upon
which the Securities are, and are to be, authenticated and delivered. The
Company hereby covenants for the benefit of Holders of the Notes, to the extent
permitted by law, not to claim voluntarily the benefits of any laws concerning
usurious rates of interest against a Holder of Notes.
The Notes are not subject to redemption by the Company or at the option of
the Holder prior to the Stated Maturity.
If an Event of Default (as defined in the Indenture) with respect to the
Notes shall have occurred and be continuing, the amount payable to a beneficial
owner of a Note upon any acceleration permitted by the Notes, shall equal: (i)
the principal amount thereof, plus (ii) an additional amount, if any, of
interest calculated as though the date of early repayment were a December
Payment Date and prorated through such date of early repayment in the same
manner as the amount payable on the December Payment Date in 1994 was prorated.
If Quarterly Values have been calculated prior to the early redemption date for
the calendar year in which such early redemption date occurs, such Quarterly
Values shall be averaged with the value of the AMEX Oil Index determined with
respect to such date of early redemption. If no Quarterly Values have been
calculated prior to the early redemption date for the calendar year in which the
early redemption date occurs, the Ending Average Value for such calendar year
shall be the value of the AMEX Oil Index determined with respect to such date of
early redemption. The Minimum Supplemental Redemption Amount with respect to
any such early redemption date shall be an amount equal to the interest which
would have accrued on the Notes from and including January 1 in the calendar
year in which such early redemption date occurs, or the date of issuance of the
Notes if such early redemption date occurs in 1994, to but excluding the date of
early redemption at an annualized rate of 2% calculated on a semiannual bond
equivalent basis.
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In case of default in payment at the maturity date of the Notes (whether at
their stated maturity or upon acceleration), from and after the maturity date
the Notes shall bear interest, payable upon demand of the Holders thereof at the
rate of % per annum (to the extent that payment of such interest shall be
legally enforceable) on the unpaid amount due and payable on such date in
accordance with the terms of the Notes to the date payment of such amount has
been made or duly provided for.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66-2/3% in aggregate principal amount of the
Securities at the time Outstanding, as defined in the Indenture, of each series
affected thereby. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all Securities of
each series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Note shall be conclusive and
binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the Principal Amount plus interest with
respect to this Note at the times, places, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations set forth
therein and on the first page hereof, the transfer of this Note may be
registered on the Security Register of the Company, upon surrender of this Note
for registration of transfer at the office or agency of the Company in the
Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by
a written instrument of transfer in form satisfactory to the Company duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, shall be issued to the designated transferee or
transferees.
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The Notes are issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. As provided in the
Indenture and subject to certain limitations set forth therein and on the first
page hereof, the Notes are exchangeable for a like aggregate principal amount of
Notes in authorized denominations, as requested by the Holder surrendering the
same. If (x) DTC is at any time unwilling or unable to continue as Depository
and a successor Depository is not appointed by the Company within 60 days, (y)
the Company executes and delivers to the Trustee a Company Order to the effect
that this Note shall be exchangeable or (z) an Event of Default has occurred and
is continuing with respect to the Notes, this Note shall be exchangeable for
Notes in definitive form of like tenor and of an equal aggregate principal
amount, in denominations of $1,000 and integral multiples thereof. Such
definitive Notes shall be registered in such name or names as DTC shall instruct
the Trustee. If definitive Notes are so delivered, the Company may make such
changes to the form of this Note as are necessary or appropriate to allow for
the issuance of such definitive Notes.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture but not in
this Note shall have the meanings assigned to them in the Indenture.
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Unless the certificate of authentication hereon has been executed by
Chemical Bank, the Trustee under the Indenture, or its successor thereunder, by
the manual signature of one of its authorized officers, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
MERRILL LYNCH & CO., INC.
By:____________________________
Treasurer
[SEAL] Attest:
_____________________
Secretary
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the
series designated therein referred to
in the within-mentioned Indenture.
CHEMICAL BANK, as Trustee
By:________________________
Authorized Officer
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