<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
- ------------------- ------------------------------
Nikkei Stock Index 300 Call American Stock Exchange
Warrants, Expiring
January , 1997
Securities to be registered pursuant to Section 12(g) of the Act:
None
- -------------------------------------------------------------------
(Title of class)
<PAGE>
Item 1. Description of Registrant's Notes to be Registered.
--------------------------------------------------
The description of the general terms and provisions of the Nikkei
Stock Index 300 Call Warrants, Expiring January , 1997 to be issued by Merrill
Lynch & Co., Inc. (the "Warrants") set forth in the Preliminary Prospectus
Supplement dated January 6, 1995, and the Prospectus dated March 24, 1994,
attached hereto as Exhibit 99(a) is hereby incorporated by reference and
contains certain proposed terms and provisions. The description of the Warrants
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-
52647, which will contain the final terms and provisions of the Warrants,
including the expiration date, 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 dated
January 6, 1995, and Prospectus dated March
24, 1994.
99(b) Form of Global Call Warrant (attached as
Exhibit A to Exhibit 99(c) hereto).
99(c) Form of Call Warrant Agreement between
Merrill Lynch & Co., Inc. and Citibank, N.A.,
as Warrant Agent.
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: January 27, 1995
2
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
MERRILL LYNCH & CO., INC.
EXHIBITS
TO
FORM 8-A DATED JANUARY 27, 1995
Commission File No. 1-7182
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Page No.
- ---------- -------
99(a) Preliminary Prospectus
Supplement dated January 6, 1995,
and Prospectus dated March 24, 1994.
99(b) Form of Global Call Warrant
(attached as Exhibit A to
Exhibit 99(c) hereto).
99(c) Form of Call Warrant Agreement
between Merrill Lynch & Co., Inc. and
Citibank, N.A., as Warrant Agent.
<PAGE>
EXHIBIT 99(a)
SUBJECT TO COMPLETION
ISSUE DATE: JANUARY 6, 1995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 24, 1994)
LOGO
MERRILL LYNCH & CO., INC.
1,000,000 NIKKEI STOCK INDEX 300* CALL WARRANTS
1,000,000 NIKKEI STOCK INDEX 300 PUT WARRANTS
ALL EXPIRING JANUARY , 1997
---------------
Each Nikkei Stock Index 300 Call Warrant, Expiring January , 1997 (the
"Call Warrants") will entitle the beneficial owner thereof to receive from
Merrill Lynch & Co., Inc. (the "Company") upon exercise (including automatic
exercise) an amount in U.S. dollars computed by reference to increases in the
Nikkei Stock Index 300 (the "Index"). Such amount (the "Call Cash Settlement
Value") will equal the product, if positive, of $50 multiplied by the Call
Percentage Change in the Index. The "Call Percentage Change" will equal (i)
the Index Spot Price minus the Index Strike Price, divided by (ii) the Index
Strike Price. Each Nikkei Stock Index 300 Put Warrant, Expiring January ,
1997 (the "Put Warrants", and together with the Call Warrants, the "Warrants")
will entitle the beneficial owner thereof to receive from the Company upon
exercise (including automatic exercise) an amount in U.S. dollars computed by
reference to decreases in the Index. Such amount (the "Put Cash Settlement
Value", and together with the Call Cash Settlement Value, the "Cash Settlement
Value") will equal the product, if positive, of $50 multiplied by the Put
Percentage Change in the Index. The "Put Percentage Change" will equal (i) the
Index Strike Price minus the Index Spot Price, divided by (ii) the Index
Strike Price. The Cash Settlement Value cannot be less than zero. The Index
Strike Price will equal the closing value of the Index in Tokyo on the date
the Warrants are priced for initial offering to the public and the Index Spot
Price will be determined upon exercise as more fully described herein.
The Warrants will be exercisable at the option of the beneficial owner from
the date of delivery of the Warrants until 1:00 p.m., New York City time, on
the second New York Business Day immediately preceding the earlier of their
expiration on January , 1997 (the "Expiration Date"), cancellation, or the
date of their earlier expiration upon delisting from, or permanent suspension
of trading on, the American Stock Exchange (the "AMEX") unless the Warrants
are simultaneously accepted for trading pursuant to the rules of another Self-
Regulatory Organization (as defined herein). Any Warrant not exercised at or
before 1:00 p.m., New York City time, on the second New York Business Day
immediately preceding the Expiration Date or the date of their earlier
expiration will be deemed automatically exercised on the first New York
Business Day preceding the Expiration Date or, in the case of early
expiration, on the New York Business Day immediately preceding the Early
Expiration Date (as defined herein). A beneficial owner may exercise no fewer
than 100 Put Warrants or 100 Call Warrants at any one time, except in the case
of automatic exercise. The valuation of and payment for any exercised Warrant
(including automatic exercise) may be postponed as a result of the occurrence
of certain events. See "Description of the Warrants". The Warrants will be in
book-entry form and, accordingly, no beneficial owner of Warrants will be
entitled to receive a certificate representing such Warrants.
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK OF EXPIRING
WORTHLESS. INVESTORS THEREFORE SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF
THE PURCHASE PRICE OF THEIR WARRANTS, AND ARE ADVISED TO CAREFULLY CONSIDER
THE INFORMATION UNDER "RISK FACTORS RELATING TO THE WARRANTS", "DESCRIPTION OF
THE WARRANTS", "DESCRIPTION OF THE WARRANTS--DELISTING OF THE WARRANTS", "THE
INDEX" AND "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS CONCERNING THE
WARRANTS".
Prior to issuance, the Warrants will have been approved for listing on the
AMEX under the symbol "NKC.WS" for the Call Warrants and "NKP.WS" for the Put
Warrants, subject to official notice of issuance.
---------------
THESE WARRANTS 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.
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT COMPANY(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Call Warrant.......................... $ $ $
- --------------------------------------------------------------------------------
Total Call Warrants....................... $ $ $
- --------------------------------------------------------------------------------
Per Put Warrant........................... $ $ $
- --------------------------------------------------------------------------------
Total Put Warrants........................ $ $ $
</TABLE>
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- -------------------------------------------------------------------------------
(1) Before deducting expenses payable by the Company.
---------------
The Warrants are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter, 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 Warrants will be made on or about
January , 1995.
This Prospectus Supplement and related Prospectus may be used by the
Underwriter in connection with offers and sales related to market-making
transactions in the Warrants. The Underwriter 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 January , 1995.
* The use of, and reference to, the term "Nikkei Stock Index 300" herein has
been consented to by Nihon Keizai Shimbum, Inc.
<PAGE>
IN CONNECTION WITH THE OFFERING OF THE WARRANTS, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE WARRANTS 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 THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The information below is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus.
THE OFFERING
Warrants Offered.............. 1,000,000 Nikkei Stock Index 300 Call Warrants,
Expiring January , 1997 (the "Call Warrants")
and 1,000,000 Nikkei Stock Index 300 Put War-
rants, Expiring January , 1997 (the "Put War-
rants", and together with the Call Warrants,
the "Warrants").
Call Cash Settlement Value.... Each Call Warrant will entitle the beneficial
owner thereof to receive from the Company the
cash value ("Call Cash Settlement Value") in
U.S. dollars of the following amount, if posi-
tive:
Call Percentage Change X $50
Call Percentage Change........ The Call Percentage Change will equal the fol-
lowing amount:
Index Spot Price-Index Strike Price
-----------------------------------
Index Strike Price
Put Cash Settlement Value..... Each Put Warrant will entitle the beneficial
owner thereof to receive from the Company the
cash value ("Put Cash Settlement Value") in
U.S. dollars of the following amount, if posi-
tive:
Put Percentage Change X $50
Put Percentage Change......... The Put Percentage Change will equal the fol-
lowing amount:
Index Strike Price-Index Spot Price
-----------------------------------
Index Strike Price
Closing Index Value........... For any Index Calculation Day, the closing
value of the Index on such date.
Index Spot Price.............. The Closing Index Value on the Valuation Date
relating to an Exercise Date.
Index Strike Price............ The Closing Index Value on the date the War-
rants are priced by the Company for initial
offering to the public.
Index......................... The Nikkei Stock Index 300 (the "Index") is a
market capitalization-weighted stock index de-
signed, calculated, published and presently
disseminated by Nihon Keizai Shimbum, Inc.
("NKS"). NKS commenced publication of the In-
dex on October 8, 1993, and has calculated the
historical value of the Index from October 8,
1993 back through October 1, 1982.
S-3
<PAGE>
The Index is being used by the Company with the
consent of NKS. The Index measures the aggre-
gate market value of 300 selected stocks trad-
ing on the Tokyo Stock Exchange (the "TSE")
and is designed to represent as equally as
possible each of thirty-six industry sectors.
The Index value for October 1, 1982 was set at
a value of 100.00.
As of January 5, 1995, the total capitalization
of each of the component stocks of the Index
ranged from approximately U.S. $77.9 billion
to U.S. $930.6 million, with the median being
U.S. $3.9 billion.
Stocks that constitute the Index may be changed
or substituted by NKS based on certain crite-
ria. See "The Index" herein. NKS is under no
obligation to continue the calculation and the
dissemination of the Index. If NKS or any
third party discontinues publication of the
Index or any Successor Index, Merrill Lynch,
Pierce, Fenner & Smith Incorporated
("MLPF&S"), as Calculation Agent, shall deter-
mine for the remaining term of the Warrants
the applicable Cash Settlement Value based on
the formula and method used in calculating the
Index in effect on the date the Index or any
Successor Index was last published. See "Risk
Factors Relating to the Warrants" herein.
Index Symbol on reporting
services operated by
Bloomberg, L.P. ............. NEY
Warrant Agent................. Citibank, N.A.
Calculation Agent............. Merrill Lynch, Pierce, Fenner & Smith Incorpo-
rated
Exercise of Warrants.......... Warrants will be exercisable at the option of
the beneficial owner from the date of delivery
of the Warrants until 1:00 p.m., New York City
time, on the second New York Business Day, as
hereinafter defined, immediately preceding
their expiration (whether on January , 1997
or on the date of earlier expiration). See
"Description of the Warrants--Exercise and
Settlement of Warrants". The Warrants are also
subject to automatic exercise in the event
they cease to be traded pursuant to the rules
of a Self-Regulatory Organization, as de-
scribed under "Description of the Warrants--
Automatic Exercise" and cancellation if the
Calculation Agent determines that an Extraor-
dinary Event has occurred and is continuing as
described under "Description of the Warrants--
Extraordinary Events and Market Disruption
Events". Any Warrant not exercised at or be-
fore 1:00 p.m., New York City time, on the
second New York Business Day immediately pre-
ceding the Expiration Date or the date of
their earlier expiration will be deemed auto-
matically exercised on the first New York
Business Day immediately pre-
S-4
<PAGE>
ceding the Expiration Date or, in the case of
early expiration, on the New York Business Day
immediately preceding the Early Expiration
Date.
A beneficial owner may exercise no fewer than
100 Call Warrants and no fewer than 100 Put
Warrants at any one time, except in the case
of automatic exercise. See "Description of the
Warrants--Minimum Exercise Amount". All exer-
cises of Warrants (other than on the Expira-
tion Date or an Early Expiration Date) are
subject, at the Company's option, to the limi-
tation that not more than 20% of either the
Call Warrants or the Put Warrants originally
issued may be exercised on any Exercise Date
and not more than 10% of either the Call War-
rants or the Put Warrants originally issued
may be exercised by or on behalf of any bene-
ficial owner, either individually or in con-
cert with any other beneficial owner, on any
Exercise Date, other than automatic exercise.
See "Description of the Warrants--Maximum Ex-
ercise Amount" herein.
Form.......................... The Warrants will be in book-entry form and,
accordingly, no beneficial owner of Warrants
will be entitled to receive a certificate rep-
resenting such Warrants. See "Description of
the Warrants--Book-Entry Procedures and Set-
tlement".
Determination of Cash
Settlement Value of The Cash Settlement Value of a Warrant will be
Warrants..................... determined on the Valuation Date relating to
the Exercise Date for such Warrant. Except in
the case of automatic exercise, the "Exercise
Date" will be (i) the New York Business Day on
which the Warrant Agent receives irrevocable
notice of exercise and delivery of the War-
rants in book-entry form if such notice and
Warrants are received by 1:00 p.m., New York
City time, or (ii) the first New York Business
Day following the day such notice is received
and Warrants are delivered if such notice and
Warrants are received after 1:00 p.m., New
York City time. In the case of automatic exer-
cise, the "Exercise Date" will be the first
New York Business Day immediately preceding
the Expiration Date, or, in the case of auto-
matic exercise upon early expiration, the New
York Business Day immediately preceding the
Early Expiration Date. The "Valuation Date"
with respect to the exercise of a Warrant will
be the first Index Calculation Day following
the relevant Exercise Date, subject to post-
ponement upon the occurrence of a Market Dis-
ruption Event or an Extraordinary Event. As
used herein, "Index Calculation Day" means any
day on which the TSE is open for trading and
the Index or a Successor Index, if any, is
calculated and published. See
S-5
<PAGE>
"Description of the Warrants--Exercise and
Settlement of Warrants". If the Company deter-
mines that an Extraordinary Event has occurred
and is continuing, and if the Extraordinary
Event is expected by the Company to continue,
the Company may immediately cancel the War-
rants and each Warrant shall be exercised on
the date of such cancellation, and the Holder
of each such Warrant will receive, in lieu of
the Cash Settlement Value of such Warrant, the
Alternative Settlement Amount determined by
the Calculation Agent. See "Description of the
Warrants--Extraordinary Events and Market Dis-
ruption Events".
Listing....................... Prior to issuance, the Warrants will have been
approved for listing on the American Stock Ex-
change under the symbol "NKC.WS" for the Call
Warrants and "NKP.WS" for the Put Warrants,
subject to official notice of issuance.
Certain Risk Factors.......... The Warrants involve a high degree of risk, in-
cluding the risk of expiring worthless. If a
Call Warrant is not exercised, and at expira-
tion the Index Spot Price is less than the In-
dex Strike Price, the Call Warrant will expire
worthless. If a Put Warrant is not exercised,
and at expiration the Index Spot Price is
greater than the Index Strike Price, the Put
Warrant will expire worthless. INVESTORS
THEREFORE SHOULD BE PREPARED TO SUSTAIN A TO-
TAL LOSS OF THE PURCHASE PRICE OF THEIR WAR-
RANTS.
The underlying stocks that constitute the Index
have been issued by Japanese companies. In-
vestments in securities indexed to the value
of Japanese equity securities involve certain
risks associated with the Japanese securities
markets, including the risks of volatility in
such markets, government intervention in such
markets, cross-shareholdings in Japanese com-
panies, a lack of public information about
Japanese companies and accounting and finan-
cial standards that differ from those applica-
ble to certain U.S. companies.
Securities prices in Japan are subject to po-
litical, economic, financial and social fac-
tors that apply in Japan. These factors could
negatively affect the Japanese securities mar-
kets. Moreover, the Japanese economy may dif-
fer favorably or unfavorably from the U.S.
economy in such respects as growth of gross
national product, rate of inflation, capital
reinvestment, resources and self-sufficiency.
The stocks underlying the Index are traded on
the TSE. The TSE has adopted certain measures
intended to prevent any extreme short-term
price fluctuation resulting from order imbal-
ances. As a result, variations in the Index
may be limited by price limitations on, or by
suspension of trading in, individual stocks
which comprise the Index which may, in turn,
S-6
<PAGE>
adversely affect the value of the Warrants or
result in a Market Disruption Event. See "De-
scription of the Warrants--Extraordinary
Events and Market Disruption Events".
It is not possible to predict the price at
which the Warrants will trade in the secondary
market or whether such market will be liquid
or illiquid. To the extent Warrants are exer-
cised, the number of Warrants outstanding will
decrease, which may result in a decrease in
the liquidity of the Warrants. The trading
value of a Warrant is expected to be dependent
upon the Index Strike Price and also upon a
number of complex interrelated factors, in-
cluding the value of the Index, the volatility
of the Index, the time remaining to the expi-
ration of the Warrants, the dividend rates on
the stocks underlying the Index, Japanese
yen/U.S. dollar exchange rates and the inter-
est rates in Japan and the United States.
All exercises of Warrants (other than on auto-
matic exercise) are subject, at the Company's
option, to the limitation that not more than
20% of either the Call Warrants or the Put
Warrants originally issued may be exercised on
any Exercise Date and not more than 10% of ei-
ther the Call Warrants or the Put Warrants
originally issued may be exercised by or on
behalf of any beneficial owner, either indi-
vidually or in concert with any other benefi-
cial owner, on any Exercise Date. Thus, bene-
ficial owners of Warrants may under certain
circumstances be prevented from exercising all
of their Call Warrants and/or Put Warrants on
a single Exercise Date. See "Description of
the Warrants--Maximum Exercise Amount". As a
result of any such postponed exercise,
beneficial owners will receive a Cash Settle-
ment Value determined as of a date later than
the otherwise applicable Valuation Date. In
any such case, as a result of any such post-
ponement, the Cash Settlement Value actually
received by beneficial owners may be lower
than the otherwise applicable Cash Settlement
Value if the Valuation Date of the Call War-
rants and/or the Put Warrants had not been
postponed.
Except for cases of automatic exercise, a bene-
ficial owner must tender at least 100 Call
Warrants or 100 Put Warrants at any one time
in order to exercise Warrants. Thus, except in
such cases, beneficial owners with fewer than
100 Call Warrants or 100 Put Warrants, as the
case may be, will need either to sell their
Warrants or to purchase additional Warrants,
incurring transaction costs in either case, in
order to realize proceeds from their invest-
ment. At any time that a beneficial owner must
purchase additional Warrants in order to have
the minimum number of Warrants necessary to
elect to exercise, such beneficial owner will
be subject to the secondary market for War-
rants at the time of any such purchase, in-
cluding the risk that there may be a limited
number of the appropriate Warrants available
in such market at such time
S-7
<PAGE>
and the other factors affecting the secondary
market discussed above. Furthermore, such ben-
eficial owners incur the risk that there may
be differences between the trading value of
the Warrants and the Cash Settlement Value of
the Warrants.
In the event that the Warrants are delisted
from, or permanently suspended from trading
on, the American Stock Exchange (the "AMEX")
and the Warrants are not simultaneously ac-
cepted for trading pursuant to the rules of
another self-regulatory organization that are
filed with the Securities and Exchange Commis-
sion under the Securities Exchange Act of
1934, as amended, such Warrants not previously
exercised will expire on the date such
delisting or trading suspension becomes effec-
tive (the "Early Expiration Date") and will be
deemed automatically exercised on the New York
Business Day immediately preceding the Early
Expiration Date. At the time of such automatic
exercise, the Warrants may be out-of-the-money
so that the Cash Settlement Value will equal
zero.
There will be a time lag between the time a
beneficial owner gives instructions to exer-
cise and the time the Index Spot Price relat-
ing to such exercise is determined. The delay
will, at a minimum, amount to almost an entire
day and could be much longer (e.g., an exer-
cise notice received by the Warrant Agent af-
ter 1:00 p.m. on Friday would generally result
in the Index Spot Price being determined the
following Tuesday).
The Index is calculated on the basis of price
quotations for stocks underlying the Index
from the TSE. There will be a time difference
between New York City time and the local time
in Tokyo. To the extent that the AMEX is
closed while the TSE is open, significant
movements in the value of the Index may take
place which will not be reflected in the last
sale price of a Warrant on the AMEX.
The initial public offering price of the War-
rants is in excess of the price a commercial
user of options on the Index might pay for
comparable options involving significantly
greater notional amounts (i.e., the dollar
amounts used to calculate amounts payable on
options).
The Warrants are not standardized stock index
options of the type issued by the Options
Clearing Corporation (the "OCC"), a clearing
agency regulated by the Securities and Ex-
change Commission. Purchasers of Warrants must
look solely to the Company for performance of
its obligations to pay the Cash Settlement
Value or Alternative Settlement Amount on the
exercise of Warrants. Further, the market for
the Warrants is not expected to be generally
as liquid as the market for OCC standardized
options.
S-8
<PAGE>
The Calculation Agent is an affiliate of the
Company, and, under certain circumstances,
conflicts of interest may arise. See "Descrip-
tion of the Warrants--Cash Settlement Value".
Investors are advised to carefully consider the
foregoing risk factors, and the risks, poten-
tial conflicts of interest and other matters
discussed under "Risk Factors Relating to the
Warrants", "Description of the Warrants", "The
Index" and "Certain United States Federal In-
come Tax Considerations Concerning the War-
rants", prior to purchasing the Warrants.
Investors in Warrants.........
The AMEX requires that Warrants be sold only to
investors with options approved accounts and
that its members and member organizations and
registered employees thereof make certain
suitability determinations before recommending
transactions in Warrants. It is suggested that
investors considering purchasing Warrants be
experienced with respect to options and option
transactions and understand the risks of for-
eign stock index transactions and reach an in-
vestment decision only after carefully consid-
ering the suitability of the Warrants in light
of their particular circumstances and the in-
formation set forth in this Prospectus Supple-
ment and the accompanying Prospectus. Warrants
are not suitable for persons solely dependent
upon a fixed income, for individual retirement
plan accounts or for accounts under the Uni-
form Gift to Minors Act. INVESTORS SHOULD BE
PREPARED TO SUSTAIN A TOTAL LOSS OF THE PUR-
CHASE PRICE OF THEIR WARRANTS.
S-9
<PAGE>
CERTAIN IMPORTANT INFORMATION CONCERNING THE WARRANTS
A beneficial owner will receive a cash payment upon exercise only if the
Warrants have a Cash Settlement Value in excess of zero on the relevant
Valuation Date. At issuance, the Cash Settlement Value of the Warrants will
equal zero. The Call Warrants will be "in-the-money" (i.e., their Cash
Settlement Value will exceed zero) on the relevant Valuation Date only if, as
of such date, the value of the Index increases from the date of this Prospectus
Supplement so that the Index Spot Price is above the Index Strike Price. The
Put Warrants will be "in-the-money" on the relevant Valuation Date only if, as
of such date, the value of the Index decreases so that the Index Spot Price is
below the Index Strike Price. An increase in the level of the Index from the
date of this Prospectus Supplement will result in a greater Cash Settlement
Value for the Call Warrants, and a decrease in the level of the Index from the
date of this Prospectus Supplement will result in a lesser or zero Cash
Settlement Value for the Call Warrants. A decrease in the level of the Index
will result in a greater Cash Settlement Value for the Put Warrants, and an
increase in the level of the Index from the date of this Prospectus Supplement
will result in a lesser or zero Cash Settlement Value for the Put Warrants. If
a Call Warrant is not exercised prior to its expiration and, on the Valuation
Date with respect to its expiration, the value of the Index is less than or
equal to the Index Strike Price, the Call Warrant will expire worthless and the
beneficial owner will have sustained a total loss of the purchase price of such
Call Warrant. Conversely, if a Put Warrant is not exercised prior to its
expiration and, on the Valuation Date with respect to its expiration, the value
of the Index is greater than or equal to the Index Strike Price, the Put
Warrant will expire worthless and the beneficial owner will have sustained a
total loss of the purchase price of such Put Warrant. Investors therefore
should be prepared to sustain a total loss of the purchase price of their
Warrants.
RISK FACTORS RELATING TO THE WARRANTS
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK OF EXPIRING
WORTHLESS. INVESTORS THEREFORE SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF
THE PURCHASE PRICE OF THEIR WARRANTS. IT IS SUGGESTED THAT INVESTORS
CONSIDERING PURCHASING THE WARRANTS BE EXPERIENCED WITH RESPECT TO OPTIONS AND
OPTION TRANSACTIONS AND UNDERSTAND THE RISKS OF FOREIGN STOCK INDEX
TRANSACTIONS AND REACH AN INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING
ALL OF THE RISK FACTORS SET FORTH IN THIS SECTION OF THIS PROSPECTUS
SUPPLEMENT, THE SUITABILITY OF THE WARRANTS IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES AND ALL THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS
SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS.
Underlying Stocks. The underlying stocks that constitute the Index have been
issued by Japanese companies. If a Successor Index is substituted for the
Index, such Successor Index would also be based upon stocks issued by Japanese
companies. Investments in securities indexed to the value of Japanese equity
securities involve certain risks. The Japanese securities markets may be more
volatile than U.S. or other securities markets and may be affected by market
developments in different ways than U.S. or other securities markets. Direct or
indirect government intervention to stabilize the Japanese securities markets
and cross-shareholdings in Japanese companies may affect prices and volume of
trading of Japanese equity securities. There is generally less publicly
available information about Japanese companies than about U.S. companies that
are subject to the reporting requirements of the U.S. Securities and Exchange
Commission. Also, Japanese companies are subject to accounting, auditing and
financial reporting standards and requirements that differ from those to which
U.S. reporting companies are subject.
The Tokyo Stock Exchange (the "TSE") has adopted certain measures intended to
prevent any extreme short-term price fluctuation resulting from order
imbalances. These include daily price floors and ceilings intended to prevent
extreme fluctuations in individual stock prices. Any stock listed on the TSE
cannot be traded at a price outside of these limits which are stated in
absolute Japanese yen limits, and not percentage limits, from the closing price
of the stock on the previous day. In addition, when there is a major order
imbalance in a listed stock, the TSE posts a "special bid quote" or a "special
asked quote" for that stock at a specified higher or lower price level than the
stock's last sale price in order to solicit counter orders and
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balance supply and demand for the stock. Investors should also be aware that
the TSE may suspend the trading of individual stocks in certain limited and
extraordinary circumstances including, for example, unusual trading activity in
that stock. As a result, variations in the Index may be limited by price
limitations on, or by suspension of trading in, individual stocks which
comprise the Index which may, in turn, adversely affect the value of the
Warrants or result in a Market Disruption Event. See "Description of the
Warrants--Extraordinary Events and Market Disruption Events".
Important Considerations Relating to Japan. Securities prices in Japan are
subject to political, economic, financial and social factors that apply in
Japan. These factors (including the possibility that recent or future changes
in the Japanese government's economic and fiscal policies, the possible
imposition of, or changes in, currency exchange laws or other Japanese laws or
restrictions applicable to Japanese companies or investments in Japanese equity
securities and the possibility of fluctuations in the rate of exchange between
currencies) could negatively affect the Japanese securities markets. Moreover,
the Japanese economy may differ favorably or unfavorably from the U.S. economy
in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources and self-sufficiency.
Offering Price of Warrants. The initial public offering price of the Warrants
is in excess of the price a commercial user of or dealer in options on the
Index might pay for comparable options involving significantly larger amounts.
Exercise of Warrants. A beneficial owner may incur transaction costs in
connection with any exercise of Warrants. To the extent Warrants are exercised,
including Warrants exercised by the Underwriter or any of its affiliates, the
number of Warrants outstanding will decrease, which may result in a decrease in
the liquidity of the Warrants.
Certain Factors Affecting the Value of the Warrants. The Cash Settlement
Value of the Warrants at any time prior to expiration is typically expected to
be less than the Warrants' trading value at that time. The difference between
the trading value and the Cash Settlement Value will reflect a number of
factors, including a "time value" for the Warrants. The "time value" of the
Warrants will depend upon the length of the period remaining to expiration,
among other factors. The expiration date of the Warrants will be accelerated
should the Warrants be delisted or should their trading on the AMEX be
suspended permanently unless the Warrants simultaneously are accepted for
trading pursuant to the rules of another Self-Regulatory Organization. Any such
acceleration would result in the total loss of any otherwise remaining "time
value", and could occur when the Warrants are out-of-the-money, thus resulting
in total loss of the purchase price of the Warrants. See "Description of the
Warrants--Delisting of the Warrants". Before exercising or selling Warrants,
beneficial owners should carefully consider the trading value of the Warrants,
the value of the Index at the time, the time remaining to expiration and the
probable range of Cash Settlement Values and any related transaction costs.
Investors should also consider factors affecting the economy of Japan. See
"The Index" below and "Important Considerations Relating to Japan" above.
It is possible that the trading value of a Call Warrant may decline even if
there is an increase in the value of the Index and that the trading value of a
Put Warrant may decline even if there is a decrease in the value of the Index.
There can be no assurance as to how the Warrants will trade in the secondary
market or whether such market will be liquid. The trading value of a Warrant is
expected to be dependent on the value of the Index Strike Price and also upon a
number of complex interrelated factors, including those listed below. The
expected theoretical effect on the trading value of a Warrant of each of the
factors listed below, assuming in each case that all other factors are held
constant, is as follows:
(1) The Index. If the value of the Index increases, the trading value of
a Call Warrant is expected to increase and the trading value of a Put
Warrant is expected to decrease. If the value of the Index
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decreases, the trading value of a Call Warrant is expected to decrease and
the trading value of a Put Warrant is expected to increase.
(2) The volatility of the Index. If the volatility of the Index
increases, the trading value of a Warrant is expected to increase. If such
volatility decreases, the trading value of a Warrant is expected to
decrease.
(3) The time remaining to the Expiration Date of the Warrants. An index
warrant is a "wasting asset," meaning that as the time remaining to the
Expiration Date decreases, the trading value of a Warrant is expected to
decrease.
(4) Interest rates in Japan and the United States. In general, if U.S.
interest rates increase, the trading value of the Warrants is expected to
decrease. If U.S. interest rates decrease, the trading value of the
Warrants is expected to increase. If interest rates in Japan increase, the
trading value of a Call Warrant is expected to increase and the trading
value of a Put Warrant is expected to decrease. If interest rates in Japan
decrease, the trading value of a Call Warrant is expected to decrease and
the trading value of a Put Warrant is expected to increase. Changes in
Japanese interest rates may affect the economy of Japan and, in turn, the
Index, and the trading value of the Warrants.
(5) Dividend rates in Japan. If dividend rates on the common stocks
underlying the Index increase, the trading value of a Call Warrant is
expected to decrease and the trading value of a Put Warrant is expected to
increase. If dividend rates on the common stocks underlying the Index
decrease, the trading value of a Call Warrant is expected to increase and
the trading value of a Put Warrant is expected to decrease. Changes in the
dividend rates on the common stocks underlying the Index may directly
affect the value of the Index and therefore the value of the Warrants as
described above.
(6) Japanese yen/U.S. dollar exchange rates. The Cash Settlement Value is
based on a given level of the Index and will not be affected by changes in
the Japanese yen/U.S. dollar exchange rate. However, a number of economic
factors, including the Japanese yen/U.S. dollar exchange rate, could affect
the value of the Underlying Stocks and, therefore, the value of the Index.
As noted above, these hypothetical scenarios are based on the assumption that
all other factors are held constant. In reality, it is unlikely that only one
factor would change in isolation, because changes in one factor usually cause,
or result from, changes in others. Some of the factors referred to above are,
in turn, influenced by the political and economic factors discussed above.
Minimum Exercise Amount. Except for cases of automatic exercise, a beneficial
owner must tender at least 100 Call Warrants or 100 Put Warrants at any one
time in order to exercise Warrants. Thus, except in cases of automatic
exercise, beneficial owners with fewer than 100 Call Warrants or 100 Put
Warrants will need either to sell their Warrants or to purchase additional
Warrants, incurring transaction costs in either case, in order to realize
proceeds from their investment. At any time that a beneficial owner must
purchase additional Warrants in order to have the minimum number of Warrants
necessary to elect to exercise, such beneficial owner will be subject to the
secondary market for Warrants at the time of any such purchase, including the
risk that there may be a limited number of the appropriate Warrants available
in such market at such time and the other factors affecting the secondary
market discussed above. Furthermore, such beneficial owners incur the risk that
there may be differences between the trading value of the Warrants and the Cash
Settlement Value of such Warrants.
Maximum Exercise Amount. All exercises of Warrants (other than on automatic
exercise) are subject, at the Company's option, to the limitation that not more
than 20% of the Call Warrants and not more than 20% of the Put Warrants
originally issued may be exercised on any Exercise Date and not more than 10%
of the Call Warrants and not more than 10% of the Put Warrants originally
issued may be exercised by or on behalf of any beneficial owner, either
individually or in concert with any other beneficial owner, on any Exercise
Date. If any New York Business Day would otherwise, under the terms of the
Warrant Agreement, be the Exercise Date in respect to more than 20% of the Call
Warrants or more than 20% of the Put Warrants originally issued, then at the
Company's election 20% of the Call Warrants and/or 20% of the Put Warrants,
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as the case may be, originally issued (provided, however, that no more than 10%
of the Call Warrants and no more than 10% of the Put Warrants originally issued
shall be exercised for the account of any beneficial owner) shall be exercised
on such Exercise Date (selected by the Warrant Agent on a pro rata basis, but
if, as a result of such pro rata selection, any beneficial owner of Warrants
would be deemed to have exercised less than 100 Call Warrants or 100 Put
Warrants, as the case may be, the Warrant Agent shall first select an
additional amount of such beneficial owner's Warrants so that no beneficial
owner shall be deemed to have exercised less than 100 Warrants), and the
remainder of such Warrants (the "Remaining Warrants") shall be deemed exercised
on the following New York Business Day subject to successive applications of
this provision; provided that any Remaining Warrants which were exercised on a
prior Exercise Date shall be deemed exercised before any other Warrants
exercised on a subsequent Exercise Date. As a result of any such postponed
exercise, beneficial owners will receive a Cash Settlement Value determined as
of a date later than the otherwise applicable Valuation Date. In any such case,
as a result of any such postponement, the Cash Settlement Value actually
received by beneficial owners may be lower than the otherwise applicable Cash
Settlement Value if the Valuation Date of the Warrants had not been postponed.
Time Lag After Exercise Instructions Given. In the case of any exercise of
Warrants, there will be a time lag between the time a beneficial owner gives
instructions to exercise and the time the Index Spot Price relating to such
exercise is determined. Therefore, a beneficial owner will not be able to
determine, at the time of exercise of a Warrant, the Index Spot Price that will
be used in calculating the Cash Settlement Value of such Warrant (and will thus
be unable to determine such Cash Settlement Value). The delay will, at a
minimum, amount to almost an entire day and could be much longer (e.g., an
exercise notice received by the Warrant Agent after 1:00 p.m. Friday would
generally result in the Index Spot Price being determined the following
Tuesday). Any downward movement, in the case of Call Warrants, or any upward
movement, in the Case of Put Warrants, in the level of the Index between the
time a beneficial owner of a Warrant exercises a Warrant and the time the Index
Spot Price for such exercise is determined will result in such beneficial owner
receiving a Cash Settlement Value that is less than the Cash Settlement Value
anticipated by such beneficial owner based on the closing level of the Index
most recently reported prior to exercise. A beneficial owner that has not
exercised a Warrant prior to the second New York Business Day preceding the
Expiration Date will, pursuant to the provision for automatic exercise, have
the Index Spot Price with respect to such Warrant determined on the Index
Business Day following the deemed exercise day. The value of the Index may
change significantly during any such period, and such movements could adversely
affect the Cash Settlement Value of the Warrants being exercised.
Further delay may occur if a Market Disruption Event or Extraordinary Event
has occurred, in which case the Cash Settlement Value in respect of exercised
Warrants will be calculated as of the next succeeding Index Business Day on
which there is no Market Disruption Event or Extraordinary Event. If the
Calculation Agent determines that on a Valuation Date a Market Disruption Event
or Extraordinary Event has occurred, the Valuation Date shall be postponed to
the first succeeding Index Business Day on which no Market Disruption Event or
Extraordinary Event occurs; provided that, if the Valuation Date has not
occurred on or prior to the fifth Index Business Day following an Exercise Date
because of Market Disruption Events, such fifth Index Business Day shall be the
Valuation Date regardless of whether a Market Disruption Event has occurred on
such day; provided further, however, that if an Extraordinary Event has
occurred and is continuing, and if the Extraordinary Event is expected by the
Company to continue, the Company may immediately cancel the Warrants as
described below under "Description of the Warrants--Extraordinary Events and
Market Disruption Events". During any period of delay due to a Market
Disruption Event or Extraordinary Event, the value of the Index may change
significantly, and such change may adversely affect the amount paid on any
Warrants exercised during such period.
Time Difference. The Index is calculated on the basis of price quotations for
stocks underlying the Index from the TSE. There will be a time difference
between New York City time and the local time in Tokyo. To the extent that the
AMEX is closed while the TSE is open, significant movements in the value of the
Index may take place which will not be reflected in the last sale price of a
Warrant on the AMEX.
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Automatic Exercise of the Warrants upon Delisting. In the event that the
Warrants are delisted from, or permanently suspended from trading on, the AMEX
and the Warrants are not simultaneously accepted for trading pursuant to the
rules of another self-regulatory organization (a "Self-Regulatory
Organization") that are filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, such Warrants not previously
exercised will expire on the date such delisting or trading suspension becomes
effective and will be deemed automatically exercised on the New York Business
Day immediately preceding the date of such early expiration. At the applicable
Valuation Date with respect to such automatic exercise, the Warrants may be
out-of-the-money so that the Cash Settlement Value would equal zero.
Warrants Not Standardized Options Issued by the Options Clearing
Corporation. The Warrants are not standardized stock index options of the type
issued by the Options Clearing Corporation (the "OCC"), a clearing agency
regulated by the Securities and Exchange Commission. For example, unlike
purchasers of OCC standardized options who have the credit benefits of
guarantees and margin and collateral deposits by OCC clearing members to
protect the OCC from a clearing member's failure, purchasers of Warrants must
look solely to the Company for performance of its obligations to pay the Cash
Settlement Value or Alternative Settlement Amount on the exercise of Warrants.
Further, the market for the Warrants is not expected to be generally as liquid
as the market for OCC standardized options.
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated debt. However, given that the
Company is a holding company, the right of the Company, and hence the right of
creditors of the Company (including beneficial owners of the Warrants), 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 Merrill
Lynch, Pierce, Fenner & Smith Incorporated, to the Company are restricted by
net capital requirements under the Securities Exchange Act of 1934, as amended,
and under rules of certain exchanges and other regulatory bodies.
General Risk Considerations. Options and warrants provide opportunities for
investment and pose risks to investors as a result of fluctuations in the value
of the underlying investment. In general, certain of the risks associated with
the Warrants are similar to those generally applicable to other options or
warrants of private corporate issuers. However, unlike options or warrants on
equities or debt securities, which are traded primarily on the basis of the
value of a single underlying security, the trading value of a Warrant is likely
to reflect primarily the extent of the appreciation, if any, in the case of
Call Warrants, or the depreciation, in the case of Put Warrants, of the Index.
The purchaser of a Warrant may lose his entire investment. This risk reflects
the nature of a Warrant as an asset which tends to decline in value over time
and which may, depending on the relative value of the Index, be worthless when
it expires. Assuming all other factors are held constant, the more a Warrant is
out-of-the-money and the shorter its remaining term to expiration, the greater
the risk that a purchaser of the Warrant will lose all of his investment. This
means that the purchaser of a Warrant who does not sell it in the secondary
market or exercise it prior to expiration will necessarily lose his entire
investment in the Warrant if it expires when the Index Spot Price is less than
or equal to, in the case of Call Warrants, or greater than or equal to, in the
case of Put Warrants, the Index Strike Price.
The fact that Warrants may become valueless upon expiration means that, in
order to recover and realize a return upon his investment, a purchaser of a
Warrant must generally be correct about the direction, timing and magnitude of
anticipated changes in the value of the Index. If the value of the Index does
not increase in the case of a Call Warrant or decrease in the case of a Put
Warrant to an extent sufficient to cover an investor's cost of a Warrant (i.e.,
the purchase price plus transaction costs, if any) before the Warrant expires,
the investor will lose all or a part of his investment in the Warrant upon
expiration. The Cash Settlement Value
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is based on a given level of the Index and will not be affected by changes in
the Japanese yen/U.S. dollar exchange rate. However, a number of economic
factors, including the Japanese yen/U.S. dollar exchange rate, could affect the
value of the Underlying Stocks and, therefore, the value of the Index.
The AMEX requires that Warrants be sold only to investors with options
approved accounts and that its members and member organizations and registered
employees thereof make certain suitability determinations before recommending
transactions in Warrants. It is suggested that investors considering purchasing
Warrants be experienced with respect to options and option transactions and
understand the risks of foreign stock index transactions and reach an
investment decision only after carefully considering, with their advisers, the
suitability of the Warrants in light of their particular circumstances.
Warrants are not suitable for persons solely dependent upon a fixed income, for
individual retirement plan accounts or for accounts under the Uniform Gift to
Minors Act. INVESTORS SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE
PURCHASE PRICE OF THEIR WARRANTS.
In the event that the Index is not published by Nihon Keizai Shimbum, Inc.
("NKS") but is published by another party acceptable to the Calculation Agent,
then the Index Spot Price for any date thereafter will be determined based on
the closing level of the Index as published by such third party. If NKS or any
third party discontinues publication of the Index and publishes a successor or
substitute index that the Calculation Agent determines, in its sole discretion,
to be comparable to the Index (any such index being a "Successor Index"), then
the Index Spot Price for any date thereafter will be determined by the
Calculation Agent on behalf of the Company based on the closing level of the
Successor Index on such date. If NKS or any third party makes a material change
in the formula for, or the method of calculating, the Index or any Successor
Index, the Calculation Agent shall make such calculations as may be required to
determine the applicable Cash Settlement Value using the formula and method of
calculating the Index or any Successor Index as in effect prior to such change
or modification. If NKS and/or any third party discontinues publication of the
Index and/or any Successor Index, the Calculation Agent will determine the
applicable Cash Settlement Value based on the formula and method used in
calculating the Index or any Successor Index as in effect on the date the Index
or such Successor Index was last published.
The Underwriter and its affiliates may from time to time engage in
transactions involving the Underlying Stocks for their proprietary accounts and
for other accounts under their management, which may influence the value of
such Underlying Stocks and therefore the value of the Warrants. The Underwriter
and its affiliates will also be the writers of the hedge of the Company's
obligations under the Warrants and will be obligated to pay to the Company upon
exercise of Warrants an amount equal to the value of the exercised Warrants.
See "Use of Proceeds" in the Prospectus and herein. Accordingly, under certain
circumstances, conflicts of interest may arise between the Underwriter's
responsibilities as Calculation Agent with respect to the Warrants and its
obligations under its hedge and its status as a subsidiary of the Company.
Under certain circumstances, the duties of the Underwriter as Calculation Agent
in determining the existence of Extraordinary Events and Market Disruption
Events could conflict with the interests of the Underwriter as an affiliate of
the issuer of the Warrants, Merrill Lynch & Co., Inc., and with the interests
of the beneficial owners of the Warrants.
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RECENT DEVELOPMENTS
The following summary of certain consolidated financial information
concerning the Company was derived from, and is qualified in its entirety by
reference to, the condensed consolidated financial statements and data
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994; see "Documents Incorporated by Reference". Such condensed
consolidated financial statements are unaudited; however, in the opinion of
management of the Company, all adjustments (consisting only of normal
recurring accruals and a non-recurring charge related to the Company's
decision not to occupy certain office space in 1993) necessary for a fair
statement of the results of operations have been included.
<TABLE>
<CAPTION>
Income Statement Information NINE MONTHS ENDED
- ---------------------------- ------------------------------
SEPTEMBER 24, SEPTEMBER 30,
1993 1994
------------------------------
(IN THOUSANDS, EXCEPT RATIOS)
------------------------------
<S> <C> <C>
Revenues........................................ $ 12,062,041 $ 13,749,334
Net revenues(/1/)............................... $ 7,800,233 $ 7,531,792
Earnings before income taxes and cumulative
effect of change in accounting principle....... $ 1,827,528 $ 1,474,392
Cumulative effect of change in accounting prin-
ciple(/2/)..................................... $ (35,420) $ --
Net earnings.................................... $ 1,011,700 $ 855,147
Ratio of earnings to fixed charges(/3/)......... 1.4 1.2
<CAPTION>
Balance Sheet Information DECEMBER 31, SEPTEMBER 30,
- ------------------------- 1993 1994
------------------------------
(IN THOUSANDS)
------------------------------
<S> <C> <C>
Total assets(/4/)............................... $ 152,910,362 $ 168,394,906
Long-term borrowings(/5/)....................... $ 13,468,900 $ 15,847,957
Stockholders' equity............................ $ 5,485,913 $ 5,704,751
</TABLE>
- --------
Notes--
(1) Net revenues are revenues net of interest expense.
(2) Net earnings for 1993 have been reduced by $35,420,000 for the adoption of
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits".
(3) 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.
(4) On January 1, 1994, the Company adopted Financial Accounting Standards
Board Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts," which increased assets and liabilities at September 30, 1994
by approximately $12,000,000,000.
(5) 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 30, 1994,
$362,240,000 of bank loans and $13,599,697,000 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 30, 1994, cash deposits for securities loaned and securities
sold under agreements to repurchase amounted to $2,128,231,000 and
$56,635,531,000, respectively. From October 1, 1994 to December 30, 1994,
long-term borrowings, net of new issuances and resales, decreased in the
amount of approximately $1,032,739,000.
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<PAGE>
RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1994
Financial markets, strong throughout 1993 and the first six weeks of 1994,
weakened as a result of rising interest rates, unsettled currency markets,
volatile stock and bond markets, and investor caution. The broad market
decline, initially triggered by an increase in short-term interest rates in
February 1994 by the Federal Reserve, continued during the remainder of the
period ended September 30, 1994. As a result, volumes in institutional and
retail investor business activities decreased industrywide. These conditions
affected the Company's 1994 third quarter results. Net earnings were $231.6
million in the 1994 third quarter, down 8% from the 1994 second quarter and 36%
from the 1993 third quarter. Net revenues in the 1994 third quarter were $2,302
million, down 4% from the 1994 second quarter and 13% from the 1993 third
quarter, while non-interest expenses were $1,913 million, down 3% from the 1994
second quarter and 4% from the 1993 third quarter.
For the first nine months of 1994, net earnings were $855.1 million, down
$156.6 million (15%) from $1,011.7 million reported in last year's record nine-
month period. Net earnings for the 1993 nine-month period included a $35.4
million cumulative effect charge (net of $25.1 million of applicable income tax
benefits) related to the adoption of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits". Earnings
before the cumulative effect of the change in accounting principle decreased
18% from $1,047.1 million reported in the comparable 1993 period. Earnings per
common share for the first nine months of 1994 were $3.98 primary and $3.97
fully diluted versus $4.45 primary and $4.42 fully diluted ($4.61 primary and
$4.58 fully diluted, before the 1993 cumulative effect charge) in the prior
year's period. As previously reported, 1993 nine-month results included a non-
recurring pretax lease charge totaling $103.0 million ($59.7 million after
income taxes) related to the Company's decision not to occupy certain office
space at its World Financial Center Headquarters ("Headquarters") facility. An
agreement to sublet this space was entered into in the 1993 fourth quarter.
Total revenues increased 14% from the 1993 nine-month period to $13,749
million. Net revenues (revenues after interest expense) decreased 3% to $7,532
million for the first nine months of 1994.
Commission revenues increased 7% from the 1993 nine-month period to $2,232
million on the strength of higher mutual fund, commodity, and listed securities
transactions commissions. Mutual fund commissions benefited from increased
distribution fees and redemption fees earned on mutual funds sold in prior
periods. Sales of third-party mutual funds were up from a year ago; however,
transactions in such funds declined during the 1994 second and third quarters
relative to the 1994 first quarter. Sales of mutual funds managed by the
Company have increased from the 1993 nine-month period. Commissions on listed
securities benefited from higher trading volume. Other commission revenues
advanced principally as a result of higher revenues from commodity transactions
partially offset by lower commissions from money market instruments.
Interest and dividend revenues for the first nine months of 1994 rose 38% to
$6,956 million. Interest expense, which includes dividend expense, increased
46% to $6,218 million. Net interest profit decreased 7% to $738 million due
primarily to an increase in short-term interest rates and a general flattening
of the yield curve, which is the difference between short-term and long-term
interest rates. As a result, interest spreads declined, while financing and
hedging costs increased from the comparable 1993 period.
Principal transactions revenues decreased 16% from the 1993 nine-month period
to $1,881 million as a result of rising interest rates and lower volumes. For
the first nine months of 1994, fixed-income and foreign exchange trading
revenues, in the aggregate, decreased 16% to $1,432 million. Lower revenues
from corporate bonds and preferred stock, non-U.S. governments and agencies
securities, foreign exchange trading, and money market instruments, were
partially offset by higher revenues from swaps and derivatives, municipal
securities, mortgage-backed securities, and U.S. Government and agency
securities. Equity and commodity trading revenues, in the aggregate, declined
16% to $449 million as lower trading revenues and a loss in convertible
securities were partially offset by higher revenues from trading in commodities
and foreign equities.
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Investment banking revenues totaled $1,012 million, down 23% in the 1994
nine-month period. Underwriting activity was slow as domestic volume
industrywide declined 29% from the comparable 1993 period. Lower underwriting
revenues were reported in most categories, including equities, corporate bonds
and preferred stock, convertible securities, and municipal bonds. Strategic
services revenues, which include merger and acquisition fees and advisory fees,
benefited from increased merger and acquisition advisory assignments in various
industries.
Asset management and portfolio service fees increased 15% to $1,308 million
principally as a result of growth in stock and bond fund assets under
management. Other revenues rose 63% from the 1993 nine-month period to $360
million due to net realized investment gains in the 1994 period, compared with
net investment losses in the comparable 1993 period.
Non-interest expenses increased 1% over the corresponding 1993 period to
$6,057 million (3% excluding the non-recurring pretax lease charge of $103.0
million). Compensation and benefits expense, which represented approximately
63% of non-interest expenses, was virtually unchanged from the 1993 nine-month
period. Higher salary and benefit expenses related to an increase in the number
of full-time employees were offset by lower levels of variable compensation.
Compensation and benefits expense, as a percentage of net revenues, was 50.8%
in the first nine months of 1994, compared with 49.2% in the corresponding 1993
period.
Occupancy costs decreased 28% from the corresponding 1993 period (7%
excluding the non-recurring pretax lease charge of $103.0 million), benefiting
from continued relocation of support staff to lower cost facilities and reduced
space requirements at the Headquarters facility. Other facilities-related
costs, which include communications and equipment rental expense and
depreciation and amortization expense, rose 11% primarily due to the increased
use of market data and news services, and higher depreciation expense from the
acquisition of technology-related equipment.
Advertising and market development expenses rose 8% from the 1993 nine-month
period as a result of increased travel costs related to international business
activity and higher recognition program costs. These expenses were partially
offset by reductions in advertising costs. Professional fees were up 37% from
the year-ago period due primarily to increased system consulting fees related
to technology improvements. Brokerage, clearing, and exchange fees were up 22%
from last year's nine-month period reflecting increased clearinghouse fees
related to risk management activities in volatile markets and higher commodity
trading volume. Other expenses advanced 6% due, in part, to increased
provisions related to various business activities.
Income tax expense totaled $619 million for the first nine months of 1994,
down 21% from the year earlier period due primarily to lower profitability. The
effective tax rate for the 1994 nine-month period was 42.0% versus 42.7% in the
comparable 1993 period.
CERTAIN BALANCE SHEET INFORMATION AS OF SEPTEMBER 30, 1994
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its market-making,
investment banking, and derivative structuring activities. 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 in, extending credit, underwriting, and trading in
investment grade instruments.
At September 30, 1994, the fair value of long and short non-investment grade
trading inventories amounted to $3,271 million and $496 million, respectively,
and in the aggregate (i.e., the sum of long and short trading inventories)
represented 4.2% of aggregate consolidated trading inventories.
S-18
<PAGE>
At September 30, 1994, the carrying value of the extensions of credit
provided to corporations entering into leveraged transactions aggregated $283
million (excluding unutilized revolving lines of credit and other lending
commitments of $131 million) consisting primarily of senior term and
subordinated financings to 37 medium-sized corporations. At September 30, 1994,
the Company had no bridge loans outstanding. 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 consideration of economic, market, and credit conditions.
Subsequent to September 30, 1994, the Company assigned $116 million of a
$126 million commitment to third parties. As part of this transaction, a $38
million loan receivable was repaid. The Company has also funded $7 million of
its remaining $10 million commitment. Direct equity investments made in
conjunction with the Company's investment and merchant banking activities
aggregated $284 million at September 30, 1994, representing investments in 81
enterprises. Equity investments in privately-held corporations for which sale
is restricted by government or contractual requirements are carried at the
lower of cost or estimated net realizable value. At September 30, 1994, the
Company held interests in partnerships, totalling $98 million (recorded on the
cost basis), that invest in highly leveraged transactions and non-investment
grade securities. Prior to September 30, 1994, the Company had a co-investment
arrangement to enter into direct equity investments. At September 30, 1994, the
additional co-investment commitments were $7 million. At September 30, 1994,
the Company also committed to invest an additional $74 million in partnerships
that invest in leveraged transactions. Subsequent to quarter-end, the Company
committed to provide up to $52 million of financing to a non-investment grade
counterparty of which $45 million has been funded.
The Company's insurance subsidiaries hold non-investment grade securities. At
September 30, 1994, non-investment grade insurance investments were $386
million, representing 6.4% of total insurance investments. At September 30,
1994, non-investment grade securities of insurance subsidiaries were classified
as trading or available-for-sale and were carried at fair value.
At September 30, 1994, the largest non-investment grade concentration
consisted of various issues of a Latin American sovereign totalling $271
million, of which $74 million represented on-balance-sheet hedges for off-
balance-sheet instruments. No single industry sector accounted for more than
15% of total non-investment grade positions. At September 30, 1994, the Company
held an aggregate carrying value of $254 million in debt and equity securities
of issuers in various stages of bankruptcy proceedings. Approximately 59% of
this amount resulted from the Company's market-making activities.
S-19
<PAGE>
DESCRIPTION OF THE WARRANTS
GENERAL
An aggregate of 1,000,000 Nikkei Stock Index 300 Call Warrants, Expiring
January , 1997 (the "Call Warrants") and 1,000,000 Nikkei Stock Index 300 Put
Warrants, Expiring January , 1997 (the "Put Warrants", and together with the
Call Warrants, the "Warrants") will be issued. The Call Warrants will be issued
under a Warrant Agreement (the "Call Warrant Agreement"), to be dated as of
January , 1995, between the Company and Citibank, N.A., as Warrant Agent (the
"Warrant Agent"). The Put Warrants will be issued under a Warrant Agreement
(the "Put Warrant Agreement", and together with the Call Warrant Agreement, the
"Warrant Agreements"), to be dated January , 1995, between the Company and the
Warrant Agent. The following statements with respect to the Warrants are
summaries of the detailed provisions of the Warrant Agreements, the form of
which is filed as an exhibit to the Registration Statement relating to the
Warrants. Wherever particular provisions of the Warrant Agreements or terms
defined therein are referred to, such provisions or definitions are
incorporated by reference as a part of the statements made, and the statements
are qualified in their entirety by such reference.
A Warrant will not require, or entitle, a beneficial owner to sell or
purchase any shares of any stock underlying the Index or any Successor Index or
any other securities to or from the Company. The Company will make only a U.S.
dollar cash settlement, if any, upon exercise of a Warrant. A beneficial owner
will not receive any interest on any Cash Settlement Value or Alternative
Settlement Amount and the Warrants will not entitle the beneficial owners
thereof to any of the rights of holders of any underlying stock or other
securities.
"Holder" means the person in whose name a certificate representing a Warrant
is registered in the records of the Warrant Agent.
The Warrants will be exercisable commencing on the date of delivery of the
Warrants, as set forth under "Exercise of Warrants". The Warrants will expire
on January , 1997 (the "Expiration Date") or may expire on an earlier date as
described under "Automatic Exercise". Warrants not exercised at or prior to
1:00 p.m., New York City time, on the second New York Business Day immediately
preceding the Expiration Date or earlier expiration will be deemed
automatically exercised on the first New York Business Day preceding the
Expiration Date or, in the case of early expiration, on the New York Business
Day immediately preceding the Early Expiration Date. Warrants cancelled upon
the occurrence and continuation of an Extraordinary Event shall be exercised as
described below under "Extraordinary Events and Market Disruption Events". The
term "New York Business Day", as used herein, means any day other than a
Saturday or a Sunday or a day on which commercial banks in The City of New York
are required or authorized by law or executive order to be closed, and "Index
Business Day" means any day on which the TSE is open for trading.
The Warrants will be unsecured contractual obligations of the Company and
will rank on a parity with the Company's other unsecured contractual
obligations and with the Company's unsecured and unsubordinated debt. However,
given that the Company is a holding company, the right of the Company, and
hence the right of creditors of the Company (including beneficial owners of the
Warrants), 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
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), to the Company
are restricted by net capital requirements under the Securities Exchange Act of
1934, as amended, and under rules of certain exchanges and other regulatory
bodies.
S-20
<PAGE>
CASH SETTLEMENT VALUE
The Cash Settlement Value of an exercised Call Warrant is an amount stated in
U.S. dollars that results from the following formula:
Call Percentage Change X $50
The "Call Percentage Change" will equal the following amount:
Index Spot Price-Index Strike Price
-----------------------------------
Index Strike Price
The Cash Settlement Value of an exercised Put Warrant is an amount stated in
U.S. dollars that results from the following formula:
Put Percentage Change X $50
The "Put Percentage Change" will equal the following amount:
Index Strike Price-Index Spot Price
-----------------------------------
Index Strike Price
The "Index Spot Price" relating to any Exercise Date will be determined by
MLPF&S (the "Calculation Agent") and will equal the Closing Index Value on the
Valuation Date relating to such Exercise Date.
The "Index Strike Price" will equal the closing Index value on the date the
Warrants are priced by the Company for initial offering to the public.
The "Index" means the Nikkei Stock Index 300, as presently calculated and
disseminated by NKS, except as otherwise provided herein. See "Description of
the Warrants--The Index".
The Cash Settlement Value will be rounded, if necessary, to the nearest cent
(with one-half cent being rounded upwards).
Set forth below are illustrations of the Cash Settlement Values for both Call
and Put Warrants at exercise based upon various hypothetical percentage changes
in the value of the Index. The Index Percentage Change on Valuation Date column
indicates the percentage increase or decrease in the value of the Index Spot
Price as compared to the Index Strike Price at the time of exercise. The actual
Cash Settlement Value of a Warrant will depend entirely on the actual Index
Strike Price and actual Index Spot Price Percentage Change on the applicable
Valuation Date relating to the Exercise Date. The illustrative Cash Settlement
Values in the table do not reflect any "time value" for a Warrant, which may be
reflected in trading value, and are not necessarily indicative of potential
profit or loss, which are also affected by purchase price and transaction
costs.
<TABLE>
<CAPTION>
INDEX PERCENTAGE CALL WARRANT PUT WARRANT
CHANGE ON CASH SETTLEMENT CASH SETTLEMENT
VALUATION DATE VALUE VALUE
---------------- --------------- ---------------
<S> <C> <C>
50% increase................................. $25.00 $0.00
45% increase................................. 22.50 0.00
40% increase................................. 20.00 0.00
35% increase................................. 17.50 0.00
30% increase................................. 15.00 0.00
25% increase................................. 12.50 0.00
20% increase................................. 10.00 0.00
15% increase................................. 7.50 0.00
10% increase................................. 5.00 0.00
5% increase.................................. 2.50 0.00
No change.................................... 0.00 0.00
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
INDEX PERCENTAGE CALL WARRANT PUT WARRANT
CHANGE ON CASH SETTLEMENT CASH SETTLEMENT
VALUATION DATE VALUE VALUE
---------------- --------------- ---------------
<S> <C> <C>
5% decrease................................. $ 0.00 $ 2.50
10% decrease................................. 0.00 5.00
15% decrease................................. 0.00 7.50
20% decrease................................. 0.00 10.00
25% decrease................................. 0.00 12.50
30% decrease................................. 0.00 15.00
35% decrease................................. 0.00 17.50
40% decrease................................. 0.00 20.00
45% decrease................................. 0.00 22.50
50% decrease................................. 0.00 25.00
</TABLE>
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Upon issuance, all Call Warrants and all Put Warrants held will be
represented by one registered global Warrant for each of the Call Warrants and
Put Warrants (each, a "Global Warrant"). Each Global Warrant will be deposited
with, or on behalf of, The Depository Trust Company, as Securities Depository
(the "Securities Depository" or "DTC"), and registered in the name of the
Securities Depository or a nominee thereof. Unless and until each Global
Warrant is exchanged in whole or in part for Warrants in definitive form in the
limited circumstances described below, each such Global Warrant may not 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. Morgan Guaranty Trust
Company of New York, Brussels office, as operator for the Euroclear System
("Euroclear") and Cedel, societe anonyme ("Cedel") will hold interests in the
Global Warrant on behalf of their participants through the facilities of DTC.
The Securities Depository has advised the Company as follows: The Securities
Depository is a limited-purpose trust company organized under the Banking Laws
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 of 1934, as amended. The Securities Depository was
created to hold securities of its 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 (including the Underwriter), banks, trust companies,
clearing corporations, and certain other organizations, some of whom (and/or
their representatives) own the Securities Depository. 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. Persons who are
not participants may beneficially own securities held by the Securities
Depository only through participants.
Ownership of beneficial interests in the Warrants will be limited to persons
that have accounts with the Securities Depository ("Agent Members") or persons
that may hold interests through Agent Members. The Securities Depository has
advised the Company that upon the issuance of a Global Warrant representing
either the Call or Put Warrants, the Securities Depository will credit, on its
book-entry registration and transfer system, the Agent Members' accounts with
the respective number of Warrants represented by such Global Warrant. Ownership
of beneficial interests in a Global Warrant 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 Agent Members) and
on the records of Agent Members (with respect to interests of persons held
through Agent Members). The laws of some states may require that certain
purchasers of
S-22
<PAGE>
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 a Global Warrant.
So long as the Securities Depository, or its nominee, is the registered owner
of each Global Warrant, the Securities Depository or its nominee, as the case
may be, will be considered the sole owner or Holder of the Warrants represented
by each such Global Warrant for all purposes under each Warrant Agreement.
Except as provided below, owners of beneficial interests in a Global Warrant
will not be entitled to have the Warrants represented by such Global Warrant
registered in their names, will not receive or be entitled to receive physical
delivery of such Warrants in definitive form and will not be considered the
owners or Holders thereof under the applicable Warrant Agreement. Accordingly,
each person owning a beneficial interest in a Global Warrant must rely on the
procedures of the Securities Depository and, if such person is not an Agent
Member, on the procedures of the Agent Member through which such person owns
its interest, to exercise any rights of a beneficial owner under the applicable
Warrant Agreement. 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 a Global Warrant desires to give or take
any action which a beneficial owner is entitled to give or take under the
applicable Warrant Agreement, the Securities Depository would authorize the
Agent Members holding the relevant beneficial interests to give or take such
action, and such Agent Members would authorize beneficial owners owning through
such Agent Members to give or take such action or would otherwise act upon the
instructions of beneficial owners through them.
The Cash Settlement Value payable upon exercise of Warrants registered in the
name of the Securities Depository or its nominee will be paid by the Warrant
Agent to the Agent Members or, in the case of automatic exercise, to the
Securities Depository. None of the Company, the Warrant Agent or any other
agent of the Company or agent of the Warrant Agent 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 Warrant Agent, upon the receipt of any payment of the Cash Settlement
Value in respect of any portion of a Global Warrant, will pay the relevant
Agent Member in an amount proportionate to its beneficial interest in such
Global Warrant being exercised and that such Agent Member will credit the
accounts of the beneficial owners of such Warrants. The Company expects that
the Securities Depository, in the case of automatic exercise, upon receipt of
any payment of the Cash Settlement Value in respect of all or any portion of
each Global Warrant, will credit the accounts of the Agent Members with payment
in amounts proportionate to their respective beneficial interests in the
portion of such Global Warrant so exercised, as shown on the records of the
Securities Depository. The Company also expects that payments by Agent Members
to owners of beneficial interests in a Global Warrant 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 Agent Members. It is
suggested that purchasers of Warrants with accounts at more than one brokerage
firm effect transactions in the Warrants, including exercises, only through the
brokerage firm or firms which hold that purchaser's Warrants.
If the Securities Depository is at any time unwilling or unable to continue
as depository and a successor Securities Depository is not appointed by the
Company within 90 days or if the Company is subject to certain events in
bankruptcy, insolvency or reorganization, the Company will issue Warrants in
definitive form in exchange for each Global Warrant. In addition, the Company
may at any time determine not to have the Warrants represented by the Global
Warrants and, in such event, will issue Warrants in definitive form in exchange
for the Global Warrants. In any such instance, an owner of a beneficial
interest in a Global Warrant will be entitled to have a number of Warrants
equivalent to such beneficial interest registered in its name and will be
entitled to physical delivery of such Warrants in definitive form.
Cedel and Euroclear. Beneficial owners may hold their interests in Warrants
through Cedel or Euroclear if they are participants of such systems, or
indirectly through organizations which are participants in such systems. Cedel
and Euroclear will hold omnibus positions on behalf of their participants
through the
S-23
<PAGE>
facilities of DTC. All securities in Cedel or Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts.
Exercises of Warrants by persons holding through Cedel or Euroclear
participants will be effected through DTC, in accordance with DTC rules, on
behalf of the relevant European international clearing system by its
depositary; however, such transactions will require delivery of exercise
instructions to the relevant European international clearing system by the
participant in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the exercise meets its requirements,
deliver instructions to its depositary to take action to effect its exercise of
the Warrants on its behalf by delivering Warrants through DTC and receiving
payment in accordance with its normal procedures for next-day funds settlement.
Payments with respect to the Warrants held through Cedel or Euroclear will be
credited to the cash accounts of Cedel participants or Euroclear participants
in accordance with the relevant system's rules and procedures, to the extent
received by its depositary. See "Exercise and Settlement of Warrants" herein.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel participants through electronic book-entry changes in accounts of Cedel
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 28 currencies,
including U.S. dollars. Cedel provides to its participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depository, Cedel is subject to regulation by the Luxembourg Monetary
Institute. Cedel participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and include an
affiliate of the Underwriter. Indirect access to Cedel is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Cedel participant, either directly
or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
in the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 27 currencies, including U.S.
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements of cross-market
transfers with DTC described above. The Euroclear System is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the
"Euroclear Operator") under contract with Euroclear Clearance System S.C., a
Belgium cooperative corporation (the "Cooperative"). Morgan Guaranty Trust
Company of New York ("Morgan") is a member bank of the United States Federal
Reserve System. All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
participants. Euroclear participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and include an affiliate of the Underwriter. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear participant, either directly or
indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipt of payments with
respect to securities in the Euroclear System. All securities
S-24
<PAGE>
in the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
participants and has no record of or relationship with persons holding through
Euroclear participants.
All information herein on Cedel and Euroclear is derived from Cedel or
Euroclear, as the case may be, and reflects the policies of such organizations;
such policies are subject to change without notice.
EXERCISE AND SETTLEMENT OF WARRANTS
The Warrants will be exercisable commencing on the date of delivery of the
Warrants, subject to postponement upon the occurrence of an Extraordinary Event
or a Market Disruption Event as described under "Extraordinary Events and
Market Disruption Events" herein, and will expire on January , 1997 (the
"Expiration Date"). Warrants not exercised (including by reason of any such
postponed exercise) at or before 1:00 p.m., New York City time, on the earlier
of (i) the second New York Business Day immediately preceding the Expiration
Date and (ii) the Early Expiration Date, will be automatically exercised as
described under "Automatic Exercise" below, subject to earlier cancellation as
described below under "Extraordinary Events and Market Disruption Events". See
"Minimum Exercise Amount" and "Maximum Exercise Amount" below.
A beneficial owner may exercise the Warrants on any New York Business Day
during the period from the date of delivery of the Warrants until 1:00 p.m.,
New York City time, on the earlier of (i) the second New York Business Day
immediately preceding the Expiration Date and (ii) the Early Expiration Date,
by causing (x) such Warrants to be transferred free to the Warrant Agent on the
records of DTC and (y) a duly completed and executed Exercise Notice to be
delivered by an Agent Member on behalf of the beneficial owner to the Warrant
Agent. Forms of Exercise Notice may be obtained from the Warrant Agent at the
Warrant Agent's Office. The Warrant Agent's telephone number and facsimile
transmission number for this purpose are (201) 262-5444 and (201) 262-7521,
respectively.
In the case of Warrants held through the facilities of Cedel or Euroclear, a
beneficial owner may exercise such Warrants on any New York Business Day during
the period from , 1995 until 1:00 p.m., New York City time, on the
earlier of (i) the second New York Business Day immediately preceding the
Expiration Date and (ii) the Early Expiration Date by causing (x) such Warrants
to be transferred to the Warrant Agent, by giving appropriate instructions to
the participant holding such Warrants in either the Cedel or Euroclear system,
as the case may be, and (y) a duly completed and executed Exercise Notice to be
delivered on behalf of the beneficial owner by Cedel, in the case of Warrants
held through Cedel, or such participant, in the case of Warrants held through
Euroclear, to the Warrant Agent. Forms of Exercise Notice for Warrants held
through the facilities of either Cedel or Euroclear may be obtained from the
Warrant Agent at the Warrant Agent's Office or from Cedel or Euroclear.
Except for Warrants subject to automatic exercise or held through the
facilities of Cedel or Euroclear, the "Exercise Date" for a Warrant will be (i)
the New York Business Day on which the Warrant Agent receives the Warrant and
Exercise Notice in proper form with respect to such Warrant, if received at or
prior to 1:00 p.m., New York City time, on such day, or (ii) if the Warrant
Agent receives such Warrant and Exercise Notice after 1:00 p.m., New York City
time, on a New York Business Day, then the first New York Business Day
following such New York Business Day.
In the case of Warrants held through the facilities of Cedel or Euroclear,
except for Warrants subject to automatic exercise, the "Exercise Date" for a
Warrant will be (i) the New York Business Day on which the Warrant Agent
receives the Exercise Notice in proper form with respect to such Warrant if
such Exercise Notice is received at or prior to 1:00 p.m., New York City time,
on such day, provided that the Warrant is received by the Warrant Agent by 1:00
p.m., New York City time, on the Valuation Date, or (ii) if the Warrant Agent
receives such Exercise Notice after 1:00 p.m., New York City time, on a New
York Business
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<PAGE>
Day, then the first New York Business Day following such New York Business Day,
provided that the Warrant is received by 1:00 p.m., New York City time, on the
Valuation Date relating to exercises of Warrants on such succeeding New York
Business Day. In the event that the Warrant is received after 1:00 p.m., New
York City time, on the Valuation Date, then the Exercise Date for such Warrants
will be the first New York Business Day following the day on which such
Warrants are received or, if such day is not a New York Business Day, the next
succeeding New York Business Day. In the case of Warrants held through the
facilities of Cedel or Euroclear, in order to ensure proper exercise on a given
New York Business Day, participants in Cedel or Euroclear must submit exercise
instructions to Cedel or Euroclear, as the case may be, by 10:00 a.m.,
Luxembourg time, in the case of Cedel and by 10:00 a.m., Brussels time (by
telex), or 11:00 a.m., Brussels time (by EUCLID), in the case of Euroclear. In
addition, in the case of book-entry exercises by means of the Euroclear System,
(i) participants must also transmit, by facsimile (facsimile number (201) 262-
7521), to the Warrant Agent a copy of the Exercise Notice submitted to
Euroclear by 1:00 p.m., New York City time, on the desired Exercise Date and
(ii) Euroclear must confirm by telex to the Warrant Agent by 9:00 a.m., New
York City time, on the Valuation Date, that the Warrants will be received by
the Warrant Agent on such date; provided, that if such telex communication is
received after 9:00 a.m., New York City time, on the Valuation Date, the
Company will be entitled to direct the Warrant Agent to reject the related
Exercise Notice or waive the requirement for timely delivery of such telex
communication.
To ensure that an Exercise Notice and the related Warrants will be delivered
to the Warrant Agent before 1:00 p.m., New York City time, on a given New York
Business Day, a beneficial owner may need to give exercise instructions to his
broker or other intermediary substantially earlier than 1:00 p.m., New York
City time, on such day. Different brokerage firms may have different cut-off
times for accepting and implementing exercise instructions from their
customers. Therefore, beneficial owners should consult with their brokers and
other intermediaries, if applicable, as to applicable cut-off times and other
exercise mechanics.
Except in the case of Warrants subject to automatic exercise and for Warrants
that upon exercise will entitle the Holder thereof to receive an Alternative
Settlement Amount in lieu of the Cash Settlement Amount, if on any Valuation
Date the Cash Settlement Amount for any Warrants would be zero, then the
attempted exercise of any such Warrants will be void and of no effect. Such
Warrants will be transferred back to the Agent Member that submitted them free
on the records of DTC and, in any such case, such beneficial owner will be
permitted to re-exercise such Warrants prior to the Expiration Date or the
Early Expiration Date, as the case may be.
The "Valuation Date" for a Warrant will be the first Index Calculation Day
following the applicable Exercise Date, subject to postponement upon the
occurrence of an Extraordinary Event or a Market Disruption Event as described
below under "Extraordinary Events and Market Disruption Events" or as a result
of the exercise of a number of Warrants exceeding the limits on exercise
described below under "Maximum Exercise Amount". NKS will calculate the Index
once on each Index Calculation Day based upon the most recent official closing
prices of each of the Underlying Stocks as reported by the TSE. "Index
Calculation Day" means any day on which the TSE is open for trading and the
Index or a Successor Index, if any, is calculated and published. Due to time
differences, trading on the TSE occurs when the AMEX is closed for business.
The following is an illustration of the timing of an Exercise Date and the
ensuing Valuation Date, assuming (i) that all relevant dates are New York
Business Days and Index Calculation Days, (ii) the absence of any intervening
Extraordinary Event or Market Disruption Event and (iii) the number of
exercised Warrants does not exceed the maximum permissible amount. If the
Warrant Agent receives a beneficial owner's Warrants and Exercise Notice in
proper form at or prior to 1:00 p.m., New York City time, on Wednesday,
February 8, 1995, the Exercise Date for such Warrants will be February 8 and
the Valuation Date for such Warrants will be Thursday, February 9, 1995 (except
that in the case of Warrants held through the facilities of Cedel or Euroclear,
the Warrants must be received by 1:00 p.m., New York City time, on the
Valuation Date; if such Warrants are received after such time, then the
Exercise Date for such Warrants will be the day on which such Warrants are
received or, if such day is not a New York Business Day, the next succeeding
New York Business Day, and the Valuation Date for such Warrants will be the
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first Index Calculation Day following such Exercise Date). The Index Spot Price
used to determine the Cash Settlement Value of such Warrants will be the
closing level of the Index on February 9 (i.e., the level of the Index
calculated using values for the Underlying Stocks as of the close of the TSE on
February 9 (assuming such day is an Index Business Day), which, because of time
differences, will occur at 1:00 a.m., New York City time, on February 9 (or
2:00 a.m., New York City time, during the months in which Eastern Daylight
Savings Time is in effect)).
Following receipt of Warrants and the related Exercise Notice in proper form,
the Warrant Agent will, not later than 5:00 p.m., New York City time, on the
applicable Valuation Date (or, if such Valuation Date is not a New York
Business Day, on the next succeeding New York Business Day which is an Index
Calculation Day) (i) obtain the Index Spot Price from the Calculation Agent
(which will be the level of the Index on such Valuation Date), (ii) determine
the Cash Settlement Value of such Warrants and (iii) advise the Company of the
aggregate Cash Settlement Value of the exercised Warrants. The Company will be
required to make available to the Warrant Agent, no later than 3:00 p.m., New
York City time, on the fourth New York Business Day following the Valuation
Date (or, if the Valuation Date is not a New York Business Day, on the fourth
New York Business Day following the New York Business Day next succeeding the
Valuation Date), funds in an amount sufficient to pay such aggregate Cash
Settlement Value. If the Company has made such funds available by such time,
the Warrant Agent will thereafter be responsible for making funds available to
each appropriate Agent Member (including Citibank, N.A. and Morgan as
custodians for Cedel and Euroclear, respectively, who, in turn, will disburse
payments to Cedel and Euroclear, as the case may be, who will be responsible
for disbursing such payments to each of their respective participants, who, in
turn, will be responsible for disbursing payments to the beneficial owner it
represents), and such Participant will be responsible for disbursing such
payments to the beneficial owner it represents and to each brokerage firm for
which it acts as agent. Each such brokerage firm will be responsible for
disbursing funds to the beneficial owners it represents.
The "Closing Index Value" for any Valuation Date will equal the closing value
in Tokyo of the Index on such date.
"Calculation Agent" means MLPF&S or, in lieu thereof, another firm selected
by the Company to perform the functions of the Calculation Agent in connection
with the Warrants. The Calculation Agent is obligated to carry out its duties
and functions as Calculation Agent in good faith and using its reasonable
judgment. However, MLPF&S, in its capacity as Calculation Agent, will have no
obligation to take the interests of the Company or the beneficial owners into
consideration in the event it determines, composes or calculates the Cash
Settlement Value or Alternative Settlement Amount. The Calculation Agent and
its affiliates may from time to time engage in transactions involving the
Underlying Stocks for their proprietary accounts and for other accounts under
their management, which may influence the value of such Underlying Stocks. The
Calculation Agent and its affiliates will also be the writers of the hedge of
the Company's obligations under the Warrants and will be obligated to pay to
the Company upon exercise of the Warrants an amount equal to the value of the
Warrants. Accordingly, under certain circumstances, conflicts of interest may
arise between the Calculation Agent's responsibilities as Calculation Agent
with respect to the Warrants and its obligations under its hedge and its status
as a subsidiary of the Company. In addition, because the Calculation Agent is
an affiliate of the Company, certain conflicts of interest may arise in
connection with the Calculation Agent performing its role as Calculation Agent.
The Calculation Agent, as a registered broker-dealer, is required to maintain
policies and procedures regarding the handling and use of confidential
proprietary information, and such policies and procedures will be in effect
throughout the term of the Warrants to restrict the use of information relating
to any calculation of the Cash Settlement Value prior to its dissemination.
AUTOMATIC EXERCISE
In the event that the Warrants are delisted from, or permanently suspended
from trading on, the AMEX and the Warrants are not simultaneously accepted for
trading pursuant to the rules of another self-regulatory
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organization whose rules are filed with the Securities and Exchange Commission
(a "Self-Regulatory Organization") under the Securities Exchange Act of 1934,
as amended, Warrants not previously exercised will expire on the date such
delisting or trading suspension becomes effective (an "Early Expiration Date")
and the Warrants will be deemed automatically exercised on the New York
Business Day immediately preceding such Early Expiration Date, and the Cash
Settlement Value, if any (determined as provided under "Exercise and Settlement
of Warrants"), of such automatically exercised Warrants will be paid on the
fifth New York Business Day following such Early Expiration Date. Settlement
shall otherwise occur as described under "Book-Entry Procedures and Settlement"
and "Exercise and Settlement of Warrants". The Company will notify Holders as
soon as practicable of such delisting or trading suspension. The Company will
agree in the Warrant Agreement that it will not seek delisting of the Warrants
or suspension of their trading on the AMEX.
In the event the Warrants are canceled by the Company because of the
continuance of an Extraordinary Event as described under "Extraordinary Events
and Market Disruption Events" below, Warrants not previously exercised shall be
automatically exercised on the basis that the Valuation Date for such Warrants
shall be the Calculation Date, and the Cash Settlement Value or Alternative
Settlement Amount, as the case may be, of such automatically exercised Warrants
will be paid on the fourth New York Business Day following such Valuation Date.
Settlement shall otherwise occur as described under "Book-Entry Procedures and
Settlement" and "Exercise and Settlement of Warrants".
All Warrants for which the Warrant Agent has not received a valid Exercise
Notice at or prior to 1:00 p.m., New York City time, on the second New York
Business Day immediately preceding the Expiration Date, or for which the
Warrant Agent has received a valid Exercise Notice but with respect to which
timely delivery of the relevant Warrants has not been made, together with any
Warrants the Valuation Date for which has at such time been postponed as
described under "Extraordinary Events and Market Disruption Events" below, will
be automatically exercised on the first New York Business Day preceding the
Expiration Date. Settlement shall otherwise occur as described under "Book-
Entry Procedures and Settlement" and "Exercise and Settlement of Warrants".
MINIMUM EXERCISE AMOUNT
No fewer than 100 Call Warrants or 100 Put Warrants may be exercised by a
beneficial owner at any one time, except in the case of automatic exercise or
exercise upon cancellation of the Warrants as described under "Extraordinary
Events and Market Disruption Events" below. Accordingly, except in the case of
automatic exercise of the Warrants or upon cancellation of the Warrants,
beneficial owners with fewer than 100 Call Warrants or 100 Put Warrants, as the
case may be, will need either to sell their Warrants or to purchase additional
Warrants, thereby incurring transaction costs, in order to realize proceeds
from their investment. Warrants held through one Agent Member (including
participants in Cedel or Euroclear) may not be combined with Warrants held
through another Agent Member in order to satisfy the minimum exercise
requirement.
MAXIMUM EXERCISE AMOUNT
All exercises of Warrants (other than on automatic exercise) are subject, at
the Company's option, to the limitation that not more than 20% of the Call
Warrants or more than 20% of the Put Warrants, as the case may be, originally
issued (provided, however, that no more than 10% of the Call Warrants or more
than 10% of the Put Warrants, as the case may be, originally issued shall be
exercised for the account of any beneficial owner) may be exercised on any
Exercise Date and not more than 10% of the Call Warrants or more than 10% of
the Put Warrants, as the case may be, originally issued may be exercised by or
on behalf of any beneficial owner, either individually or in concert with any
other beneficial owner, on any Exercise Date. If any New York Business Day
would otherwise, under the terms of the Warrant Agreement, be the Exercise Date
in respect to more than 20% of the Call Warrants or more than 20% of the Put
Warrants, as the case may be, originally issued, then at the Company's
election, 20% of the Call Warrants or 20% of the
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Put Warrants, as the case may be, originally issued (provided, however, that no
more than 10% of either the Call Warrants or the Put Warrants originally issued
shall be exercised for the account of any beneficial owner) shall be deemed
exercised on such Exercise Date (selected by the Warrant Agent on a pro rata
basis, but if, as a result of such pro rata selection, any beneficial owner of
Warrants would be deemed to have exercised less than 100 Warrants, then the
Warrant Agent shall first select an additional amount of such beneficial
owner's Warrants so that no beneficial owner shall be deemed to have exercised
less than 100 Warrants), and the remainder of such warrants (the "Remaining
Warrants") shall be deemed exercised on the following New York Business Day
(subject to successive applications of this provision); provided that any
Remaining Warrants for which an Exercise Notice was delivered on a given
Exercise Date shall be deemed exercised before any other Warrants for which an
Exercise Notice was delivered on a later Exercise Date. If any beneficial owner
attempts to exercise more than 10% of the Call Warrants or 10% of the Put
Warrants originally issued, as the case may be, on any New York Business Day,
then, at the Company's election, 10% of such Call Warrants or such Put
Warrants, as the case may be, shall be deemed exercised on such New York
Business Day and the remainder shall be deemed exercised on the following New
York Business Day (subject to successive applications of this provision). As a
result of any postponed exercise as described above, such beneficial owners
will receive a Cash Settlement Value determined as of a date later than the
otherwise applicable Valuation Date. In any such case, as a result of any such
postponement, the Cash Settlement Value actually received by such beneficial
owners may be lower than the otherwise applicable Cash Settlement Value if the
Valuation Date of the Warrants had not been postponed.
SUCCESSOR INDEX
If NKS discontinues publication of the Index and NKS or another entity
publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to the Index (any such
index being referred to herein as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Warrant Agent and
the Company, the Calculation Agent will substitute the Successor Index as
calculated by NKS or such other entity for the Index and calculate the Cash
Settlement Value upon an exercise as described above. Upon any selection by the
Calculation Agent of a Successor Index, the Company shall promptly give notice
to the beneficial owners by publication in a United States newspaper with a
national circulation (currently expected to be The Wall Street Journal), within
three New York Business Days of such selection.
If NKS discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any Valuation
Date, the value to be substituted for the Index for any Valuation Date used to
calculate the Cash Settlement Value upon exercise will be a value computed by
the Calculation Agent on each Valuation Date in accordance with the procedures
last used to calculate the Index prior to such discontinuance.
If a Successor Index is selected or the Calculation Agent calculates a value
as a substitute for the Index, such Successor Index or value shall be
substituted for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event or Extraordinary Event exists.
If at any time the method of calculating the Index or any Successor Index, as
the case may be, or the value thereof, is changed in a material respect, or if
the 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 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 Valuation Date, 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 Index or any Successor Index, as the
case may be, as if such changes or modifications had not been made, and
calculate such Closing Index Value with reference to the Index or any Successor
Index, as the case may be, as adjusted. Accordingly, if the method of
calculating the Index or any Successor Index, as the case may be, is modified
so that the value of such Index or such Successor Index is a
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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), the Calculation Agent shall adjust the
Index in order to arrive at a value of the Index or such Successor Index as if
it had not been modified (e.g., as if such split had not occurred).
EXTRAORDINARY EVENTS AND MARKET DISRUPTION EVENTS
Extraordinary Events. The Warrant Agreements will provide that if the
Calculation Agent determines that an Extraordinary Event has occurred and is
continuing on the Index Business Day with respect to which the Index Spot Price
on a Valuation Date is to be determined (the "Applicable Index Business Day"),
then the Cash Settlement Value in respect of an exercise shall be calculated on
the basis that the Valuation Date shall be the next Index Calculation Day
following an Applicable Index Business Day on which there is no Extraordinary
Event or Market Disruption Event; provided that if the Valuation Date has not
occurred on or prior to the Expiration Date or the Early Expiration Date, the
Holders will receive the Alternative Settlement Amount in lieu of the Cash
Settlement Value which shall be calculated as if the Warrants had been
cancelled on the Expiration Date or the Early Expiration Date, as the case may
be. The Company shall promptly give notice to the beneficial owners by
publication in a United States newspaper with a national circulation (currently
expected to be The Wall Street Journal), if an Extraordinary Event shall have
occurred.
"Extraordinary Event" means any of the following events:
(i) a suspension or absence of trading on the TSE of all the Underlying
Stocks which then comprise the Index or a Successor Index;
(ii) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or any other U.S. or non-
U.S. governmental authority that would make it unlawful for the Company to
perform any of its obligations under the Warrant Agreements or the
Warrants; or
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crises (including, without limitation, natural
calamities that in the opinion of the Calculation Agent may materially and
adversely affect the economy of Japan or the trading of securities
generally on the TSE) that has or will have a material adverse effect on
the ability of the Company to perform its obligations under the Warrants or
to modify the hedge of its position with respect to the Index.
For the purposes of determining whether an Extraordinary Event has occurred:
(1) a limitation on the hours or number of days of trading on the TSE will not
constitute an Extraordinary Event if it results from an announced change in the
regular business hours of the TSE and (2) an "absence of trading" on the TSE
will not include any time when the TSE itself is closed for trading under
ordinary circumstances.
The Company is not aware of any circumstances that have arisen since the
inception of the Index that could have constituted an Extraordinary Event, and
based on the information currently available to the Company, the Company is not
aware of any circumstances that would have constituted an Extraordinary Event
during the ten years prior to the inception of the Index, except that on
January 7, 1989 trading was suspended due to the death of the Emperor of Japan.
The existence of such circumstances, however, is not necessarily indicative of
the likelihood of such circumstances arising or not arising in the future. See
"The Index--The Tokyo Stock Exchange" herein.
If the Calculation Agent determines that an Extraordinary Event has occurred
and is continuing, and if the Extraordinary Event is expected by the
Calculation Agent to continue, the Company may immediately cancel all
outstanding Warrants by notifying the Warrant Agent of such cancellation (the
date such notice is given being the "Cancellation Date"), and each beneficial
owner's rights under the Warrants and the Warrant Agreement shall thereupon
cease; provided that each Warrant shall be automatically exercised on the basis
that the Valuation Date for such Warrant shall be the Cancellation Date and the
beneficial owner of each such Warrant will receive, in lieu of the Cash
Settlement Value of such Warrant, an amount (the "Alternative Settlement
Amount"), determined by the Calculation Agent, which is the greater of (i) the
average of the last sale prices, as available, of the Warrants on the AMEX (or
any successor securities exchange on which the
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Warrants are listed) on the 30 trading days preceding the date on which such
Extraordinary Event was declared; provided that, if the Warrants were not
traded on the AMEX (or such successor securities exchange) on at least 20 of
such trading days, no effect will be given to this clause (i) for the purpose
of determining the Alternative Settlement Amount, and (ii) the amount "X"
calculated using the formula set forth below:
T A
X = I + [ --- X --- ]
2 B
where
I = The Cash Settlement Value of the Warrants determined as described under
"Cash Settlement Value" above, but subject to the following modifications:
(1) if the Cancellation Date for such Warrants is a date on which the
Index or a Successor Index is calculated and published, for the purpose of
determining such Cash Settlement Value, the Index Spot Price will be
determined as of such Cancellation Date except that, if the Index Spot
Price as of such day is less than 90% of the Index Spot Price as of the
immediately preceding Index Calculation Day, then the Index Spot Price will
be deemed to be 90% of the Index Spot Price on such preceding Index
Calculation Day; or
(2) if the Cancellation Date for such Warrants is a date on which the
Index or a Successor Index is not calculated or published, for the purpose
of determining such Cash Settlement Value, the Index Spot Price will be
deemed to be the lesser of (i) the Index Spot Price as of the first Index
Calculation Day immediately preceding the Cancellation Date except that, if
the Index Spot Price as of such day is less than 90% of the Index Spot
Price as of the second Index Calculation Day immediately preceding such
Cancellation Date, 90% of the Index Spot Price as of such second Index
Calculation Day and (ii) the arithmetic average of four amounts, being (a)
the Index Spot Price at each of the three successive Index Calculation Days
immediately preceding the Cancellation Date and (b) the Index Spot Price at
the next Index Calculation Day, provided that if an Extraordinary Event
described in clause (i) of the definition of Extraordinary Event continues
for 30 consecutive days immediately following such Cancellation Date, then
the Calculation Agent shall calculate an amount which, in its reasonable
opinion, fairly reflects the value of the Underlying Stocks on the Index
Calculation Day immediately following such Cancellation Date which, subject
to approval by the Company (such approval not to be unreasonably withheld),
shall for purposes of calculating the amount under this clause (2)(ii) be
treated as the figure arrived at under clause (2)(ii)(b) above;
T = U.S.$ , the initial offering price per Call Warrant, in the case of
Call Warrants; T = U.S.$ , the initial offering price per Put Warrant, in the
case of Put Warrants;
A = the total number of days from but excluding the Cancellation Date for
such Warrants to and including the Expiration Date; and
B = the total number of days from but excluding the date the Warrants were
initially sold to and including the Expiration Date.
For the purposes of determining "I" in the above formula, in the event that
the Calculation Agent and the Company are required to have, but have not, after
good faith consultation with each other and within five days following the
first day upon which such Alternative Settlement Amount may be calculated in
accordance with the above formula, agreed upon a figure under clause (2)(ii)(b)
which fairly reflects the value of the Underlying Stocks on the Cancellation
Date, then the Calculation Agent shall promptly nominate a third party, subject
to approval by the Company (such approval not to be unreasonably withheld), to
determine such figure and calculate the Alternative Settlement Amount in
accordance with the above formula. Such party shall act as an independent
expert and not as an agent of the Company or the Calculation Agent, and its
calculation and determination of the Alternative Settlement Amount shall,
absent manifest
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error, be final and binding on the Company, the Warrant Agent, the Calculation
Agent and the Holders. Any such calculations will be made available to Holders
for inspection at the Warrant Agent's Office. Neither the Company nor such
third party shall have any responsibility for good faith errors or omissions
in calculating the Alternative Settlement Amount. Under certain circumstances,
the duties of MLPF&S as Calculation Agent in determining the existence of
Extraordinary Events could conflict with the interests of MLPF&S as an
affiliate of the issuer of the Warrants, Merrill Lynch & Co., Inc.
Market Disruption Events. If the Calculation Agent determines that on a
Valuation Date a Market Disruption Event has occurred and is continuing, the
Valuation Date shall be postponed to the first succeeding Index Business Day
on which no Market Disruption Event occurs; provided that, if the Valuation
Date has not occurred on or prior to the fifth Index Business Day following an
Exercise Date because of Market Disruption Events, such fifth Index Business
Day shall be the Valuation Date regardless of whether a Market Disruption
Event has occurred on such day.
"Market Disruption Event" means with respect to any Index Business Day the
occurrence or existence during the one-half hour period that ends at the
determination of the Closing Index Value for such Index Business Day of:
(i) a suspension, material limitation or absence of trading on the TSE of
20% or more of the Underlying Stocks which then comprise the Index or a
Successor Index during the one-half hour period preceding the close of
trading on the applicable exchange; or
(ii) the suspension or material limitation on the Singapore International
Monetary Exchange, Ltd. (the "SIMEX"), the Osaka Securities Exchange (the
"OSE") or any other major futures or securities market of trading in
futures or options contracts related to the Index or a Successor Index
during the one-half hour period preceding the close of trading on the
applicable exchange.
For the purposes of determining whether a Market Disruption Event has
occurred: (i) a limitation on the hours 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, (ii) a decision to
permanently discontinue trading in the relevant futures or options contract
will not constitute a Market Disruption Event, (iii) a suspension in trading
in a futures or options contract on the Index by a major securities market by
reason of (a) a price change violating limits set by such securities market,
(b) an imbalance of orders relating to such contracts or (c) a disparity in
bid and ask quotes relating to such contracts will constitute a suspension or
material limitation of trading in futures or options contracts related to the
Index, (iv) an absence of trading on the TSE will not include any time when
the TSE is closed for trading under ordinary circumstances, and (v) the
occurrence of an Extraordinary Event described in Clause (i) of Extraordinary
Event will not constitute, and will supersede the occurrence of, a Market
Disruption Event. Under certain circumstances, the duties of MLPF&S as
Calculation Agent in determining the existence of Market Disruption Events
could conflict with the interests of MLPF&S as an affiliate of the issuer of
the Warrants, Merrill Lynch & Co., Inc.
To the Company's knowledge, no circumstances have arisen since the inception
of the Index that could have constituted a Market Disruption Event. However,
most recently, on January 31 and February 1 of 1994, prices for futures
contracts for the Nikkei Stock Index 225 reached price limits imposed by the
OSE, which would have been a Market Disruption Event if such limits had been
reached with respect to futures contracts for the Index. Futures contracts for
the Index were not traded at that time. Given that the Nikkei Stock Index 225
and the Index are comprised of stocks which trade on the TSE and that many of
the stocks in the Index are also in the Nikkei Stock Index 225, it is possible
that prices for the futures contracts for the two indexes would have increased
in a similar manner. The existence or non-existence of such circumstances,
however, is not necessarily indicative of the likelihood of such circumstances
arising or not arising in the future.
LISTING OF THE WARRANTS
Prior to issuance, the Warrants will have been approved for listing on the
AMEX, subject to official notice of issuance. The AMEX will expect to cease
trading the Warrants on such Exchange as of the close of business on the
Expiration Date.
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MODIFICATION
The Warrant Agreements and the terms of the Warrants may be amended by the
Company and the Warrant Agent without the consent of the beneficial owners of
any Warrants for the purpose of curing any ambiguity, or of curing, correcting
or supplementing any defective or inconsistent provision contained therein, or
in any other manner which the Company may deem necessary or desirable and which
will not materially and adversely affect the interests of the beneficial owners
of the Warrants.
The Company and the Warrant Agent also may modify or amend the Warrant
Agreements and the terms of the Warrants, with the consent of the beneficial
owners of not less than a majority in number of the then outstanding Warrants
affected, provided that no such modification or amendment that changes the
Index Strike Price so as to adversely affect the beneficial owner, shortens the
period of time during which the Warrants may be exercised or otherwise
materially and adversely affects the exercise rights of the beneficial owners
of the Warrants or reduces the percentage of the number of outstanding
Warrants, the consent of whose beneficial owners is required for modification
or amendment of such Warrant Agreement or the terms of such Warrants may be
made without the consent of the beneficial owners of Warrants affected thereby.
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 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 Alternative Settlement Amount with
respect to all unexercised Warrants, according to their tenor, and the due and
punctual performance and observance of all of the covenants and conditions of
the Warrant Agreements and of the Warrants to be performed by the Company.
THE INDEX
Unless otherwise stated, all information herein on the Index is derived from
NKS or other publicly available sources. Such information reflects the policies
of NKS as stated in such sources and such policies are subject to change by
NKS. NKS is under no obligation to continue to publish the Index and may
discontinue publication of the Index at any time. NKS is under no obligation to
continue to publish the Index and may discontinue publication of the Index at
any time.
The Nikkei Stock Index 300 is an index calculated, published and disseminated
by NKS, and measures the composite price performance of stocks of 300 Japanese
companies. All 300 stocks are listed in the First Section of the TSE. Stocks
listed in the First Section are among the most actively traded stocks on the
TSE. Publication of the Nikkei Stock Index 300 began on October 8, 1993.
The Nikkei Stock Index 300 is a market capitalization-weighted index which is
calculated by (i) multiplying the per share price of each stock included in the
Nikkei Stock Index 300 by the number of outstanding shares (excluding shares
held by the Japanese Government), (ii) calculating the sum of all these
products (such sum being hereinafter referred to as the "Aggregate Market
Price"), (iii) dividing the Aggregate Market Price by the Base Aggregate Market
Price (i.e., the Aggregate Market Price as of October 1, 1982, as calculated by
NKS) and (iv) multiplying the result by 100. Because of such capitalization-
weighting, movements in share prices of companies with relatively larger market
capitalization will have a greater effect on the level of the entire Nikkei
Stock Index 300 than will movements in share prices of companies with
relatively smaller market capitalization.
Although the Nikkei Stock Index 300 was first published in October 1993, NKS
has calculated values for the Nikkei Stock Index 300 for the period from
October 1, 1982 through October 8, 1993. The stocks
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included in the Nikkei Stock Index 300 (such stocks being hereinafter referred
to as the "Underlying Stocks") were selected from a reference group of stocks
which were selected by excluding stocks listed in the First Section of the TSE
that have relatively low market liquidity or extremely poor financial results.
The Underlying Stocks were selected from this reference group by (i) selecting
from the remaining stocks in this reference group the stocks with the largest
aggregate market value in each of 36 industrial sectors and (ii) selecting
additional stocks (with priority within each industrial sector given to the
stock with the largest aggregate market value) so that the selection ratios
(i.e., the ratio of the aggregate market value of the included stocks to that
of the stocks in the reference group) with respect to all 36 industry sectors
will be as nearly equal as possible and the total number of companies with
stocks included in the Nikkei Stock Index 300 will be 300.
In order to maintain continuity in the level of the Nikkei Stock Index 300,
the Nikkei Stock Index 300 will be reviewed annually by NKS and the Underlying
Stocks may be replaced, if necessary, in accordance with the
"deletion/addition" rules. The "deletion/addition" rules provide generally for
the deletion of a stock from the Nikkei Stock Index 300 if such stock is no
longer included in the reference group or if the aggregate market value of such
stock is low relative to other stocks in the relevant industry sector. Stocks
deleted pursuant to the "deletion/addition" rules will be replaced by stocks
included in the reference group which have relatively high aggregate market
values. In addition, stocks may be added or deleted from time to time for
extraordinary reasons.
All disclosure contained in this Prospectus Supplement regarding the Nikkei
Stock Index 300, or its publisher is derived from publicly available
information. All copyrights and other intellectual property rights relating to
the Index are owned by NKS. NKS has no relationship with the Company or the
Warrants; it does not sponsor, endorse, authorize, sell or promote the
Warrants, and has no obligation or liability in connection with the
administration, marketing or tradings of the Warrants.
HISTORICAL DATA ON THE INDEX
The following table sets forth the closing level of the Index at the end of
each month, in the period from January 1989 through December 1994. All
historical data presented in the following table relating to periods prior to
October 8, 1993 (the date NKS commenced the daily calculation and public
dissemination of the Index) is presented as if the Index had existed during
such periods, based on the Underlying Stocks contained in the Index as of
October 8, 1993, and such closing levels have been calculated hypothetically on
the same basis that the Index is calculated. All historical data presented in
the following table relating to periods after September 1993 are based on
actual data from the Index. These historical data on the Index are not
necessarily indicative of the future performance of the Index or what the value
of the Warrants may be. Any historical upward or downward trend in the closing
level of the Index during any period set forth below is not any indication that
the Index is more or less likely to decline at any time during the term of the
Warrants.
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1989:
January..................................................... 465.05
February.................................................... 463.39
March....................................................... 467.53
April....................................................... 468.55
May......................................................... 478.09
June........................................................ 458.54
July........................................................ 494.97
August...................................................... 483.64
September................................................... 494.67
October..................................................... 493.60
November.................................................... 519.11
December.................................................... 521.28
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1990:
January..................................................... 493.66
February.................................................... 458.18
March....................................................... 395.83
April....................................................... 400.28
May......................................................... 439.67
June........................................................ 417.76
July........................................................ 398.77
August...................................................... 351.89
September................................................... 283.76
October..................................................... 332.99
November.................................................... 294.24
December.................................................... 310.32
1991:
January..................................................... 305.35
February.................................................... 352.18
March....................................................... 347.60
April....................................................... 344.08
May......................................................... 342.82
June........................................................ 315.19
July........................................................ 325.92
August...................................................... 303.60
September................................................... 322.64
October..................................................... 329.24
November.................................................... 301.51
December.................................................... 300.23
1992:
January..................................................... 288.95
February.................................................... 276.17
March....................................................... 254.18
April....................................................... 242.84
May......................................................... 251.22
June........................................................ 226.03
July........................................................ 222.39
August...................................................... 249.29
September................................................... 235.83
October..................................................... 231.23
November.................................................... 239.82
December.................................................... 237.58
1993:
January..................................................... 236.67
February.................................................... 234.07
March....................................................... 262.94
April....................................................... 298.52
May......................................................... 295.79
June........................................................ 283.39
July........................................................ 298.27
August...................................................... 305.09
September................................................... 293.04
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
October..................................................... 299.62
November.................................................... 254.54
December.................................................... 267.06
1994:
January..................................................... 302.15
February.................................................... 302.23
March....................................................... 285.73
April....................................................... 293.10
May......................................................... 307.79
June........................................................ 304.62
July........................................................ 297.16
August...................................................... 299.25
September................................................... 288.39
October..................................................... 290.50
November.................................................... 280.08
December.................................................... 287.17
</TABLE>
The following graph sets forth the historical performance of the Index at the
end of each month from January 1989 through December 1994 and the value of the
Index on January 5, 1995. PAST MOVEMENTS OF THE INDEX ARE NOT NECESSARILY
INDICATIVE OF THE FUTURE INDEX VALUES. The January 5, 1995 closing level of the
Index was 285.05.
[GRAPHIC APPEARS HERE]
Source: Prepared by the Company from data obtained from NKS.
S-36
<PAGE>
THE TOKYO STOCK EXCHANGE
The TSE is one of the world's largest securities exchanges in terms of market
capitalization. TSE is a two-way, continuous pure auction market. Trading hours
are currently from 9:00 a.m. to 11:00 a.m. and from 1:00 p.m. to 3:00 p.m.,
Tokyo time, Monday through Friday.
Due to the time zone difference, on any normal trading day the TSE will close
prior to the opening of business in New York City on the same calendar day.
Therefore, the closing level of the Index on such trading day will generally be
available in the United States by the opening of business on the same calendar
day.
The TSE has adopted certain measures intended to prevent any extreme short-
term price fluctuation resulting from order imbalances. These include daily
price floors and ceilings intended to prevent extreme fluctuations in
individual stock prices. Any stock listed on the TSE cannot be traded at a
price outside of these limits which are stated in absolute Japanese yen, and
not percentage, limits from the closing price of the stock on the previous day.
In addition, when there is a major order imbalance in a listed stock, the TSE
posts a "special bid quote" or a "special asked quote" for that stock at a
specified higher or lower price level than the stock's last sale price in order
to solicit counter orders and balance supply and demand for the stock.
Investors should also be aware that the TSE may suspend the trading of
individual stocks in certain limited and extraordinary circumstances including,
for example, unusual trading activity in that stock. As a result, variations in
the Index may be limited by price limitations on, or by suspension of trading
in, individual stocks which comprise the Index which may, in turn, adversely
affect the value of the Warrants or result in a Market Disruption Event. See
"Description of the Warrants--Extraordinary Events and Market Disruption
Events".
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS CONCERNING THE WARRANTS
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 a Warrant. Such opinion is based upon
laws, regulations, rulings and decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or possible differing
interpretations. The following discussion of certain United States Federal
income tax consequences to beneficial owners of the Warrants applies only to a
person who holds a Warrant as a capital asset and does not purport to address
the United States Federal income tax consequences to special classes of
investors including persons who are securities, currencies or options dealers,
or persons who may hold the Warrants as part of an integrated transaction
(e.g., as part of a hedge or straddle for tax purposes). Prospective purchasers
of Warrants are urged to consult their own tax advisors as to the application
of the United States Federal income tax laws to their particular situations as
well as any consequences of the purchase, ownership and disposition of the
Warrants arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Warrant
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 Warrant is effectively
connected with the conduct of a United States trade or business. As used
herein, the term "non-U.S. Holder" means a beneficial owner of a Warrant that
is not a U.S. Holder.
Although there is no authority directly dealing with instruments such as the
Warrants, pursuant to Revenue Ruling 94-63, each Warrant should be treated as a
"non-equity" option for purposes of Section 1256 of the Internal Revenue Code
of 1986, as amended (the "Code"), which must be "marked-to-market".
Accordingly, a U.S. Holder of a Warrant should be required to treat such
Warrant as if sold for its fair market value on the last business day of each
of the U.S. Holder's taxable years (assuming that the U.S. Holder has
S-37
<PAGE>
not previously disposed of the Warrant) and should be required to recognize
taxable gain or loss for each such taxable year in an amount equal to the
difference between the fair market value of the Warrant on the last business
day of each such taxable year and such U.S. Holder's adjusted tax basis in the
Warrant. Thus, a U.S. Holder of a Warrant may incur United States Federal
income tax liability on an annual basis in respect of any increase in the value
of a Warrant without a corresponding receipt of cash. In addition, a U.S.
Holder should be required to recognize taxable gain or loss upon the sale,
exchange, exercise or expiration of the Warrant in an amount equal to the
difference between the amount realized upon such sale, exchange, exercise or
expiration and the U.S. Holder's adjusted tax basis in such Warrant. For these
purposes, a U.S. Holder's adjusted tax basis in a Warrant would equal such U.S.
Holder's initial investment in the Warrant, increased or decreased by any net
gain or loss recognized by the U.S. Holder in respect of the Warrant in prior
taxable years. Any gain or loss recognized by a U.S. Holder in accordance with
the preceding rules would generally be treated as 60 percent long-term capital
gain or loss and 40 percent short-term capital gain or loss.
NON-U.S. HOLDERS
In general, gains realized on the sale, exchange or exercise of a Warrant by
a non-U.S. Holder will not be subject to United States Federal income or
withholding tax in respect of such amounts, assuming the income is not
effectively connected with a United States trade or business of 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, the fair market value of a Warrant may be includible in
the estate of an individual non-U.S. Holder for United States Federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Individual non-U.S. Holders should consult their own tax advisors concerning
the United States Federal estate tax consequences, if any, of investing in the
Warrants.
BACKUP WITHHOLDING
A beneficial owner of a Warrant will be subject to backup withholding at the
rate of 31 percent with respect to the gross proceeds upon a sale or exercise
of a Warrant if such beneficial owner fails to supply an accurate taxpayer
identification number (or fails to comply with certain other requirements) and
does not establish, when required, that it is an exempt recipient or a non-U.S.
Holder. Any amount withheld under the backup withholding rules would be allowed
as a refund or a credit against the beneficial owner's United States Federal
income tax provided the required information is furnished to the IRS.
USE OF PROCEEDS
A substantial portion of the proceeds from the sale of the Warrants may be
used to hedge market risks with respect to the payment at expiration of the
Warrants. The Company does not intend to confine its hedging activities to any
particular domestic or foreign exchanges.
S-38
<PAGE>
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 all of the Warrants offered
hereby. The Underwriting Agreement and Terms Agreement provide that the
Underwriter will purchase all the Warrants if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
all or part of the Warrants directly to the public at the offering prices set
forth on the cover page of this Prospectus Supplement and to certain dealers at
such prices less a concession not in excess of $ per Call Warrant and $ per
Put Warrant. After the initial public offering, the public offering prices and
concessions may be changed.
An affiliate of the Underwriter will receive a fee from the Company for
assisting the Company in arranging hedging of the Company's currency risks with
respect to the Warrants.
The underwriting of the Warrants 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 THE WARRANTS
The validity of the Warrants will be passed upon for the Company and for the
Underwriter by Brown & Wood, New York, New York.
S-39
<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 $8,043,015,546 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 a payment or
delivery determined by reference to decreases or increases in the level of an
index or portfolio based on one or more equity or debt securities (including
the price or yield of such securities), any statistical measure of economic or
financial performance (including any consumer price, currency or mortgage
index) or the price or value of any commodity 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 March 24, 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
Chicago 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,
February 3, 1994, March 9, 1994 and March 24, 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
worldwide. 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, a distributor of selected insurance products, a dealer in
options and in corporate and municipal securities and an investment banking
firm. 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 or instrumentalities. Merrill Lynch Capital
Services, Inc. and Merrill Lynch Derivative Products, Inc. are the Company's
primary derivative subsidiaries which enter into interest rate and currency
swaps and other derivative transactions. Merrill Lynch Asset Management, L.P.
manages mutual funds and provides investment advisory services. 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. Pending such applications,
the net proceeds will be temporarily invested or applied to the reduction of
short-term indebtedness. 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. 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
March 9, 1994. See "Incorporation of Certain Documents by Reference." The
Current Report on Form 8-K, dated March 9, 1994 (which includes the audited
financial statements for the Company for its 1993 fiscal year and other
supplementary information) 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. 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 1.4
Total assets............ $63,942,263 $68,129,527 $86,259,343 $107,024,173 $152,910,362
Long-term borrowings(3). $ 6,897,109 $ 6,341,559 $ 7,964,424 $ 10,871,100 $ 13,468,900
Stockholders' equity(4). $ 3,151,343 $ 3,225,430 $ 3,818,088 $ 4,569,104 $ 5,485,913
</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. In 1989, fixed charges exceeded pretax earnings before fixed
charges by $187,564,000.
(3) 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 December 31, 1993,
$972,159,000 of bank loans and $14,895,540,000 of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
December 31, 1993, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $1,047,059,000 and
$56,418,148,000, respectively. From December 31, 1993 to March 17, 1994,
long-term borrowings, net of repayments and repurchases, increased in the
amount of approximately $1,341,543,000.
(4) Stockholders' equity for 1993 has been increased by $21,355,000 to reflect
the effects of the adoption of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
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 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 increased 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 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 increase in
business volume required additional domestic and international travel, while
favorable markets
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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. All share and per share data
presented herein have been restated to reflect the common stock split.
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 business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its market-making,
investment banking and derivative structuring activities. 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. At December 31, 1993, the fair value of long and
short non-investment grade trading inventories amounted to $3,129 million and
$214 million, respectively, and in the aggregate (i.e., the sum of long and
short trading inventories), represented 4.6% of aggregate consolidated trading
inventories.
At December 31, 1993, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $435 million
(excluding unutilized revolving lines of credit and other lending commitments
of $49 million), consisting primarily of senior term and subordinated
financings to 42 medium-sized corporations. At December 31, 1993, the Company
had no bridge loans outstanding. 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 aggregated $276 million at December 31, 1993, representing
investments in 82 enterprises. Equity investments in privately held
corporations for which sale is restricted by government or contractual
requirements are carried at the lower of cost or net realizable value. At
December 31, 1993, the Company held interests in partnerships, totaling $92
million that invest in highly leveraged transactions and non-investment grade
securities. Subsequent to December 31, 1993, the Company increased its
partnership interests by $15 million. The Company has a co-investment
arrangement to enter into direct equity investments. At December 31, 1993, the
additional co-investment commitments were $49 million. The Company also has
committed to invest an additional $19 million in partnerships that invest in
leveraged transactions. Subsequent to year-end, the Company increased its
partnership commitments by up to $50 million.
The Company's insurance subsidiaries hold non-investment grade securities. At
December 31, 1993, non-investment grade insurance investments were $458
million, representing 5.8% of the total insurance investments. At December 31,
1993, non-investment grade securities of insurance subsidiaries were classified
as trading or available-for-sale in accordance with Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." At December 31, 1993, these investment securities were
carried at fair value.
At December 31, 1993, the largest non-investment grade concentration
consisted of various issues of a Latin American sovereign totaling $341
million, of which $146 million represented on-balance sheet hedges. No one
industry sector accounted for more than 15% of total non-investment grade
positions. At December 31, 1993, the Company held an aggregate carrying value
of $393 million in debt and equity securities of issuers who were in various
stages of bankruptcy proceedings. Approximately 59% of this amount resulted
from the Company's market-making activities.
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DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities are to be issued under an indenture (the "Chemical 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 or issued under an indenture (the "Chase Indenture"), dated as of
October 1, 1993 between the Company and The Chase Manhattan Bank, N.A. as
trustee (each, a "Senior Debt Trustee"). The Chemical Indenture and the Chase
Indenture are referred to herein as the "Senior Indentures". 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 Indentures 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 Indentures, the Subordinated
Indenture and any Subsequent Indentures (whether senior or subordinated) are
referred to herein as the "Indentures"; and the Senior Debt Trustees, 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 Indentures 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
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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 under the
Indentures 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 Indentures provide 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 Indentures) 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 Indentures provide 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 Indentures 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 Indentures provide 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 Indentures 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
December 31, 1993, a total of approximately $30.2 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, the
number of such Debt Warrants issued with each such Debt Security, and the
Indenture under which the Debt Securities will be issued; (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.
12
<PAGE>
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") or call warrants (the "Index Call
Warrants"). The Index Warrants will entitle the holders to receive from the
Company a payment or delivery, subject to applicable law, 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 an index or portfolio based on
one or more equity or debt securities (including the price or yield of such
securities), any statistical measure of economic or financial performance
(including any consumer price, currency or mortgage index) or the price or
value of any commodity or any combination thereof (the "Index"). Unless
otherwise specified in the accompanying Prospectus Supplement, payments, if
any, upon exercise (or deemed exercise) of the Index Warrants will be made in
U.S. dollars. The Index Warrants will be offered on terms to be determined at
the time of sale. The amount of Index Warrants offered by this Prospectus,
other than those Index Warrants which will entitle the holders to receive a
payment from the Company determined by reference to increases or decreases in
the level of a specified stock or security index or the value of a portfolio of
specified stocks or other securities, is currently limited to $8,300,000,000.
This amount may be increased by the Company without the consent of
Warrantholders.
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; (iv) whether the Index Warrants will
be deemed exercised as of a specified date or whether the Index Warrants may be
exercised during a period and 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 payment or delivery, if
any, to be made in connection with the exercise or deemed exercise of such
Index Warrants (the "Settlement Value"), (b) the minimum payment or delivery,
if any, to be made upon expiration of such Index Warrants (the "Minimum
Expiration Value"), (c) the payment or delivery to be made 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, commodities or rates are
expressed in a foreign currency, the method of converting amounts in the
relevant foreign currency or currencies into U.S. dollars (or such
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<PAGE>
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 payment or delivery, if any, to be made 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 payment or delivery, if any, will be
made 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 book-entry form; (xviii) if such Index Warrants are not issued in book-
entry form, the place or places at which payment or delivery 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
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.
Unless otherwise provided in the Prospectus Supplement, each Index Warrant
will entitle Index Warrantholders to receive from the Company upon exercise the
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, a payment or
delivery equal to the greater of the applicable 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 payment or delivery upon cancellation of
the Index Warrants by the Company, upon
14
<PAGE>
the occurrence of specified events. In addition, if so specified in the
Prospectus Supplement, following the occurrence of an extraordinary event, the
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 related Prospectus Supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or such
earlier date that may be specified. Upon such automatic exercise, Index
Warrantholders will be entitled to receive a payment or delivery equal to the
Settlement Value of the Index Warrants, except that holders of Index Warrants
having a Minimum Expiration Value will be entitled to receive a payment or
delivery equal to the greater of such Settlement Value and the applicable
Minimum Expiration Value. The Minimum Expiration Value may be either a
predetermined payment or delivery or a payment or delivery 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 or
delivery 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 payment or delivery on cancellation specified in such
Prospectus Supplement. The payment or delivery on cancellation may be either a
predetermined payment or delivery or a payment or delivery 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 or delivery of the Settlement Value, Minimum Expiration Value or
cancellation payment or delivery (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.
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. 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.
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
15
<PAGE>
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 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 Settlement Value or
the payment or delivery to be made 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 payment or delivery to be made 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.
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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 or
delivery 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
the Company's obligations in respect of the payment or delivery of the
Settlement Value (or any Minimum Expiration Value or cancellation payment or
delivery, 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 or delivery for, its Index Warrants.
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
17
<PAGE>
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 Current Report
on Form 8-K dated March 9, 1994, 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 five years in the
period ended December 31, 1993 included in this Prospectus and the Selected
Financial Data under the captions "Operating Results", "Financial Position" and
"Common Share Data" for (i) each of the five years in the period ended December
25, 1992 included in the 1992 Annual Report to Stockholders of the Company and
(ii) each of the five years in the period ended December 31, 1993 included in
the Current Report on Form 8-K dated March 9, 1994 of the Company, and
incorporated by reference herein, has been derived from consolidated financial
statements audited by Deloitte & Touche, as set forth in their reports
incorporated by reference herein. Such 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 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.
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<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
INFORMATION 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.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................................. S-3
Certain Important Information Concerning the Warrants..................... S-10
Risk Factors Relating to the Warrants..................................... S-10
Recent Developments....................................................... S-16
Description of the Warrants............................................... S-20
The Index................................................................. S-33
Certain United States Federal Income Tax Considerations Concerning the
Warrants................................................................. S-37
Use of Proceeds........................................................... S-38
Underwriting.............................................................. S-39
Validity of the Warrants.................................................. S-39
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...................................................... 17
Experts................................................................... 18
</TABLE>
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LOGO
MERRILL LYNCH & CO., INC.
1,000,000 NIKKEI STOCK INDEX 300 CALL WARRANTS
1,000,000 NIKKEI STOCK INDEX 300 PUT WARRANTS
ALL EXPIRING JANUARY , 1997
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
JANUARY , 1995
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<PAGE>
GRAPHICS APPENDIX LIST
DESCRIPTION OF GRAPHIC
- -------------------------------------------------------------------------------
The graph sets forth the month-end values of the Index
from January 1989 through December 1994, and the value of
the Index on January 5, 1995. The vertical axis denotes
the range of values of the Index from 100 to 600, in
increments of 100; the horizontal axis denotes the time
period, in increments of four months, beginning with
January 1989 and ending with September 1994.
<PAGE>
EXHIBIT 99(c)
MERRILL LYNCH & CO., INC.
and
CITIBANK, N.A., as Warrant Agent
____________________
WARRANT AGREEMENT
dated as of January , 1995
____________________
NIKKEI STOCK INDEX 300 CALL WARRANTS
EXPIRING JANUARY , 1997
<PAGE>
TABLE OF CONTENTS
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Page
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PARTIES.................................................................... 1
RECITALS................................................................... 1
ARTICLE I
ISSUANCE, FORM, EXECUTION,
DELIVERY AND REGISTRATION OF WARRANTS
SECTION 1.01. Issuance of Warrants; Book Entry
Procedures; Successor Depository........ 1
SECTION 1.02. Form, Execution and Delivery of Global
Warrant Certificate..................... 3
SECTION 1.03. Global Warrant Certificate............... 4
SECTION 1.04. Registration of Transfers and Exchanges.. 4
SECTION 1.05. Warrant Certificates..................... 5
ARTICLE II
DURATION AND EXERCISE OF WARRANTS
SECTION 2.01. Duration of Warrants; Minimum Exercise
Amounts; Notice of Exercise............ 8
SECTION 2.02. Exercise and Delivery of Warrants....... 10
SECTION 2.03. Automatic Exercise of the Warrants...... 12
SECTION 2.04. Extraordinary Events and Market
Disruption Events...................... 14
SECTION 2.05. Covenant of the Company................. 18
SECTION 2.06. Return of Global Warrant Certificate.... 18
SECTION 2.07. Return of Money Held Unclaimed for Two
Years.................................. 18
SECTION 2.08. Designation of Agent for Receipt of
Notice................................. 18
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS
SECTION 3.01. Holder of Warrant May Enforce Rights.... 19
SECTION 3.02. Merger, Consolidation, Sale, Transfer or
Conveyance............................. 19
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ARTICLE IV
CANCELLATION OF WARRANTS
SECTION 4.01. Cancellation of Warrants................. 20
SECTION 4.02. Treatment of Holders..................... 20
ARTICLE V
CONCERNING THE WARRANT AGENT
SECTION 5.01. Warrant Agent............................ 20
SECTION 5.02. Conditions of Warrant Agent's
Obligations............................. 21
SECTION 5.03. Resignation and Appointment of
Successor............................... 23
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Amendment............................... 24
SECTION 6.02. Notices and Demands to the Company and
Warrant Agent.......................... 25
SECTION 6.03. Addresses for Notices................... 25
SECTION 6.04. Notices to Holders...................... 26
SECTION 6.05. Applicable Law.......................... 26
SECTION 6.06. Obtaining of Governmental Approvals..... 26
SECTION 6.07. Persons Having Rights Under Warrant
Agreement.............................. 26
SECTION 6.08. Headings................................ 26
SECTION 6.09. Counterparts............................ 27
SECTION 6.10. Inspection of Agreement................. 27
SIGNATURES.................................................. 27
EXHIBIT A - Form of Global Warrant Certificate
EXHIBIT B - Form of Irrevocable Notice of Exercise
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WARRANT AGREEMENT
THIS AGREEMENT, dated as of January , 1995, between MERRILL LYNCH &
CO., INC., a corporation duly organized and existing under the laws of the State
of Delaware (the "Company"), and CITIBANK, N.A., a national banking association
duly incorporated and existing under the laws of the United States, as Warrant
Agent (the "Warrant Agent"),
W I T N E S S E T H T H A T :
WHEREAS, the Company proposes to sell warrants (the "Warrants" or,
individually, a "Warrant") representing the right to receive from the Company
the Cash Settlement Value (as defined herein) in U.S. dollars computed by
reference to increases in the value of the Nikkei Stock Index 300 (the "Index");
and
WHEREAS, the Company wishes the Warrant Agent to act on behalf of the
Company in connection with the issuance, transfer and exercise of the Warrants,
and wishes to set forth herein, among other things, the provisions of the
Warrants and the terms and conditions on which they may be issued, transferred,
exercised and cancelled;
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION,
DELIVERY AND REGISTRATION OF WARRANTS
SECTION 1.01. Issuance of Warrants; Book Entry Procedures; Successor
------------------------------------------------------
Depository. (a) The Warrants shall initially be represented by a single
- ----------
certificate (the "Global Warrant Certificate"). Each Warrant shall represent
the right, subject to the provisions contained herein and in the Global Warrant
Certificate, to receive the Cash Settlement Value, if any, (as defined in
paragraph (e) of Section 2.02) of such Warrant. In no event shall Holders (as
defined in Section 4.02) be entitled to receive any interest on any Cash
Settlement Value (unless the Company shall default in the payment of such Cash
Settlement Value). Beneficial owners of interests in the Global Warrant
Certificate shall not be entitled to receive definitive Warrants evidencing the
Warrants; provided, however, that if (i) the Depository (as defined in Section
1.01(b)) is at any time unwilling or unable to continue as Depository for the
Warrants and a successor Depository is not appointed by the Company within 90
days, or (ii) the Company shall be adjudged bankrupt or insolvent or make an
assignment for the benefit of its creditors
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or institute proceedings to be adjudicated bankrupt or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a petition or answer
or consent seeking reorganization under applicable law, or shall consent to the
filing of any such petition, or shall consent to the appointment of a receiver
or custodian of all or any substantial part of its property, or shall admit in
writing its inability to pay or meet its debts as they mature, or if a receiver
or custodian of it or all or any substantial part of its property shall be
appointed, or if any public officer shall have taken charge or control of the
Company or of its property or affairs, for the purpose of rehabilitation,
conservation or liquidation, the Company will issue Warrants in definitive form
in exchange for the Global Warrant Certificate. In addition, the Company may at
any time determine not to have the Warrants represented by a Global Warrant
Certificate and, in such event, will issue Warrants in definitive form in
exchange for the Global Warrant Certificate. In either instance, and in
accordance with the provisions of this Agreement, each beneficial owner of an
interest in the Global Warrant Certificate will be entitled to have a number of
Warrants equivalent to such owner's beneficial interest in the Global Warrant
Certificate registered in its name and will be entitled to physical delivery of
such Warrants in definitive form by the Depository Participant (as defined in
Section 1.01(c)) through which such owner's beneficial interest is reflected.
The provisions of Section 1.05 shall apply only if, and when, Warrants in
definitive form ("Warrant Certificates") are issued hereunder. Unless the
context shall otherwise require, all references in this Agreement to the Global
Warrant Certificate shall include the Warrant Certificates in the event that
Warrant Certificates are issued.
(b) The Global Warrant Certificate shall be deposited with the
Depository or its agent (the term "Depository", as used herein, initially refers
to The Depository Trust Company and includes any successor depository selected
by the Company as provided in Section 1.01(d)) for credit to the accounts of the
Depository Participants as shown on the records of the Depository from time to
time.
(c) The Global Warrant Certificate will initially be registered in the
name of a nominee of the Depository selected by the Company for the Warrants.
The Warrant holdings of Depository Participants will be recorded on the books of
the Depository. The holdings of customers of Depository Participants will be
reflected on the books and records of such Depository Participants and will not
be known to the Warrant Agent, the Company or to the Depository. "Depository
Participants" include securities brokers and dealers, banks and trust companies,
clearing organizations and certain other organizations which are participants in
the Depository's system. The Global Warrant Certificate will be held by the
Depository or its agent.
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(d) The Company may from time to time select a new entity to act as
Depository and, if such selection is made, the Company shall promptly give the
Warrant Agent notice to such effect identifying the new Depository, and the
Global Warrant Certificate shall be delivered to the Warrant Agent and shall be
transferred to the new Depository as provided in Section 1.04 as promptly as
possible. Appropriate changes may be made in the Global Warrant Certificate,
the notice of exercise and the related notices delivered in connection with an
exercise of Warrants to reflect the selection of the new Depository.
SECTION 1.02. Form, Execution and Delivery of Global Warrant
----------------------------------------------
Certificate. The Global Warrant Certificate shall be in registered form and
- -----------
substantially in the form set forth in Exhibit A hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Agreement. The Global Warrant Certificate may have imprinted
or otherwise reproduced thereon such letters, numbers or other marks of
identification or designation and such legends or endorsements as the officers
of the Company executing the same may approve (execution thereof to be
conclusive evidence of such approval) and are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed or of the Depository,
or to conform to usage. The Global Warrant Certificate shall be signed on
behalf of the Company by its President, Chairman of the Board, officer serving
as Chief Financial Officer, Treasurer, any Executive Vice President or any Vice
President, manually or by facsimile signature, and a facsimile of its corporate
seal shall be impressed, imprinted or engraved thereon, which shall be attested
by its Secretary or any Assistant Secretary, either manually or by facsimile
signature. Typographical and other minor errors or defects in any such
reproduction of the seal or any such signature shall not affect the validity or
enforceability of the Global Warrant Certificate that has been duly
authenticated and delivered by the Warrant Agent.
In case any officer of the Company who shall have signed the Global
Warrant Certificate either manually or by facsimile signature shall cease to be
such officer before the Global Warrant Certificate so signed shall have been
authenticated and delivered by the Warrant Agent to the Company or delivered by
the Company, such Global Warrant Certificate nevertheless may be authenticated
and delivered as though the person who signed such Global Warrant Certificate
had not ceased to be such officer of the Company; and the Global Warrant
Certificate may be signed on behalf of the Company by such persons as, at the
actual date of the execution of such Global Warrant Certificate, shall be the
proper officers of the Company,
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although at the date of the execution of this Agreement any such person was not
such officer.
SECTION 1.03. Global Warrant Certificate . A Global Warrant
--------------------------
Certificate relating to Warrants originally issued may be executed
by the Company and delivered to the Warrant Agent on or after the date of
execution of this Agreement. The Warrant Agent is authorized, upon receipt of
the Global Warrant Certificate from the Company, duly executed on behalf of the
Company, to authenticate such Global Warrant Certificate. The Global Warrant
Certificate shall be manually authenticated and dated the date of its
authentication by the Warrant Agent and shall not be valid for any purpose
unless so authenticated. The Warrant Agent shall authenticate and deliver the
Global Warrant Certificate to or upon the written order of the Company.
SECTION 1.04. Registration of Transfers and Exchanges. Except as
---------------------------------------
otherwise provided herein or in the Global Warrant Certificate, the Warrant
Agent shall from time to time register the transfer of the Global Warrant
Certificate in the records of the Warrant Agent only to the Depository, to a
nominee of the Depository, to a successor Depository, or to a nominee of a
successor Depository, upon surrender of such Global Warrant Certificate, duly
endorsed and accompanied by a written instrument or instruments of transfer in
form satisfactory to the Warrant Agent and the Company, duly signed by the
registered Holder thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. Upon any such registration of transfer, the
Company shall execute and the Warrant Agent shall authenticate and deliver in
the name of the designated transferee a new Global Warrant Certificate of like
tenor and evidencing a like number of Unexercised Warrants as evidenced by the
Global Warrant Certificate at the time of such registration of transfer.
The Global Warrant Certificate may be transferred as provided above at
the option of the Holder thereof when surrendered to the Warrant Agent at its
office or agency maintained for the purpose of transferring and exercising any
of the Warrants, which shall be south of Chambers Street in the Borough of
Manhattan, The City of New York (the "Warrant Agent Office"), and which is, on
the date of this Agreement, 111 Wall Street, New York, New York 10043
Attention: Corporate Trust Services, or at the office of any successor Warrant
Agent as provided in Section 5.03, in exchange for another Global Warrant
Certificate of like tenor and representing a like number of Unexercised
Warrants. At any time, "Unexercised Warrants" shall mean all Warrants which
have not been exercised pursuant to Article II herein.
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SECTION 1.05. Warrant Certificates. Any Warrant Certificates issued
--------------------
in accordance with Section 1.01(a) shall be in registered form substantially in
the form set forth in Exhibit A hereto, with such appropriate insertions,
omissions, substitutions and other variations as are necessary or desirable for
individual Warrant Certificates, and may represent any integral multiple of
Warrants. The Warrant Certificates may have imprinted or otherwise reproduced
thereon such letters, numbers or other marks of identification or designation
and such legends or endorsements as the officers of the Company executing the
same may approve (execution thereof to be conclusive evidence of such approval)
and are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed or of the Depository, or to conform to usage. Warrant
Certificates shall be signed on behalf of the Company upon the same conditions,
in substantially the same manner and with the same effect as the Global Warrant
Certificate.
Each Warrant Certificate, when so signed on behalf of the Company,
shall be delivered to the Warrant Agent, which shall manually authenticate and
deliver the same to or upon the written order of the Company. Each Warrant
Certificate shall be dated the date of its authentication.
No Warrant Certificate shall be valid for any purpose, and no Warrant
evidenced thereby shall be exercisable, until such Warrant Certificate has been
authenticated by the manual signature of the Warrant Agent. Such signature by
the Warrant Agent upon any Warrant Certificate executed by the Company shall be
conclusive evidence that the Warrant Certificate so authenticated has been duly
issued hereunder.
Warrant Certificates delivered in exchange for the Global Warrant
Certificate shall be registered in such names and addresses (including tax
identification numbers) and in such denominations as shall be requested in
writing by the Depository or its nominee in whose name the Global Warrant
Certificate is registered, upon written certification to the Company and the
Warrant Agent in form satisfactory to each of them of a beneficial ownership
interest in the Global Warrant Certificate.
The Company shall cause to be kept at an office of the Warrant Agent
in The City of New York a register (the register maintained in such office and
in any other office or agency maintained by or on behalf of the Company for such
purpose being herein sometimes collectively referred to as the "Warrant
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Warrant Certificates and the
transfer of Warrant Certificates. The Warrant Agent is hereby appointed
"Warrant Registrar" for the
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purpose of registering Warrant Certificates and the transfer of Warrant
Certificates as herein provided.
Upon surrender for registration of a transfer of a Warrant Certificate
at an office or agency of the Company maintained for such purpose, the Company
shall execute, and the Warrant Agent shall authenticate and deliver, in the name
of the designated transferee or transferees, one or more new Warrant
Certificates of any authorized denominations and representing Warrants of a like
aggregate number.
At the option of the Holder, Warrant Certificates may be exchanged for
other Warrant Certificates of any authorized denominations and representing
Warrants of a like aggregate number, upon surrender of the Warrant Certificates
to be exchanged at such office or agency. Whenever any Warrant Certificates are
so surrendered for exchange, the Company shall execute, and the Warrant Agent
shall authenticate and deliver, the Warrant Certificates which the Holder making
the exchange is entitled to receive.
All Warrant Certificates issued upon any registration of a transfer or
an exchange of Warrant Certificates shall be the valid obligations of the
Company, evidencing the same obligations of the Company, and entitled to the
same benefits under this Warrant Agreement, as the Warrant Certificates
surrendered upon such registration of a transfer or an exchange.
Every Warrant Certificate presented or surrendered for registration of
a transfer or for an exchange shall (if so required by the Company or the
Warrant Agent) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Warrant Registrar duly
executed, by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of a transfer or
an exchange of Warrant Certificates, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of a transfer or an exchange of Warrant
Certificates.
If any mutilated Warrant Certificate is surrendered to the Warrant
Agent, the Company shall execute and the Warrant Agent shall authenticate and
deliver in exchange therefor a new Warrant Certificate of like tenor
representing Warrants of a like number and bearing a number not
contemporaneously outstanding.
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If there shall be delivered by a Holder to the Company and the Warrant
Agent (i) evidence to their satisfaction of the destruction, loss or theft of
any Warrant Certificate, (ii) such security or indemnity as may be required by
them to save each of them and any agent of either of them harmless and (iii)
funds sufficient to cover any cost or expense to the Company (including any fees
charged by the Warrant Agent) relating to the issuance of a new Warrant
Certificate, then, in the absence of notice to the Company or the Warrant Agent
that such Warrant Certificate has been acquired by a bona fide purchaser, the
Company shall execute and upon its request the Warrant Agent shall authenticate
and deliver, in lieu of any such destroyed, lost or stolen Warrant Certificate,
a new Warrant Certificate of like tenor representing Warrants of a like number
and bearing a number not contemporaneously outstanding.
In case the Warrants evidenced by any such mutilated, destroyed, lost
or stolen Warrant Certificate have been exercised, or have been or are about to
be deemed to be exercised, the Company in its discretion may, instead of issuing
a new Warrant Certificate, treat the same as if it had received written
irrevocable notice of exercise in good form in respect thereof, as provided
herein.
Every new Warrant Certificate issued pursuant to this Section 1.05 in
lieu of any destroyed, lost or stolen Warrant Certificate shall constitute an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Warrant Certificate shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Warrant Agreement
equally and proportionately with any and all other Warrant Certificates duly
issued hereunder.
The provisions of this Section 1.05 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Warrant
Certificates.
Prior to due presentment of a Warrant Certificate for registration of
transfer, the Company, the Warrant Agent and any agent of the Company or the
Warrant Agent may treat the person in whose name such Warrant Certificate is
registered as the owner of such Warrant Certificate for all purposes hereunder
whatsoever, whether or not such Warrant Certificate has been transferred and
neither the Company, the Warrant Agent nor any agent of the Company or the
Warrant Agent shall be affected by notice to the contrary.
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All Warrant Certificates surrendered for exercise, registration of
transfer or exchange shall, if surrendered to any person other than the Warrant
Agent, be delivered to the Warrant Agent and shall be promptly cancelled by it.
The Company may at any time deliver to the Warrant Agent for cancellation any
Warrant Certificates previously authenticated and delivered hereunder which the
Company may have acquired in any manner whatsoever, and all Warrant Certificates
so delivered shall be promptly cancelled by the Warrant Agent. No Warrant
Certificates shall be authenticated in lieu of or in exchange for any Warrant
Certificates cancelled as provided in this Section 1.05, except as expressly
permitted by this Warrant Agreement. All cancelled Warrant Certificates held by
the Warrant Agent shall be disposed of as directed by the Company.
ARTICLE II
DURATION AND EXERCISE OF WARRANTS
SECTION 2.01. Duration of Warrants; Minimum Exercise Amounts; Notice
------------------------------------------------------
of Exercise. (a) Subject to the limitations described herein, each Warrant
- -----------
evidenced by the Global Warrant Certificate may be irrevocably exercised at the
option of the Holder in whole but not in part on any New York Business Day from
its date of issuance (i.e., the date of initial settlement with respect to the
initial sales of Warrants) until 1:00 P.M., New York City time, on the second
New York Business Day immediately preceding the Expiration Date (as defined
below in Section 2.03). Except in the case of automatic exercise, each Warrant
evidenced by the Global Warrant Certificate may be exercised by written notice
to the Warrant Agent from a Depository Participant acting on behalf of the
beneficial owner of such Warrant and upon receipt by the Warrant Agent through
delivery of such Warrant free on the records of the Depository to the Warrant
Agent's Depository Participant Account (entitled Citibank, N.A. Corporate Trust
Warrant Agent Account, No. 2659, or such other account of the Warrant Agent at
the Depository as the Warrant Agent shall designate in writing to the Company
and to the Depository (the "Warrant Account")) ("Proper Delivery"); provided,
however, that notices of exercise are subject to rejection by the Warrant Agent
as provided herein. As used herein, "Index Calculation Day" means any day on
which the Tokyo Stock Exchange (the "TSE") is open for trading and the Index or
any Successor Index is calculated and published. "Index Business Day" means any
day on which the TSE is open for trading. "Successor Index" means a substitute
index that the Calculation Agent determines, in its sole discretion, to be
comparable to the Index.
(b) No fewer than 100 Warrants may be exercised by or on behalf of
any one beneficial owner at any one time, except that
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no such minimum exercise amount shall apply in the case of automatic exercise
pursuant to Section 2.03 hereof on the Expiration Date or upon Cancellation of
the Warrants pursuant to Section 2.04 hereof. Irrevocable notice of exercise to
the Warrant Agent shall be in the form set forth in Exhibit B hereto, or such
other form as the Company and Warrant Agent may approve, and shall be sent to
the Warrant Agent in writing (which shall include facsimile transmissions) at
its address as set forth in such form of notice or at such other address as the
Warrant Agent may specify from time to time. As used herein, "New York Business
Day" means any day other than a Saturday or a Sunday or a day on which
commercial banks in The City of New York are required or authorized by law or
executive order to be closed. Except as provided in Section 2.02(b), the
Warrant Agent shall be entitled to rely conclusively on any notice of exercise
received by it with no duty of inquiry by the Warrant Agent.
(c) All exercises of Warrants (other than on automatic exercise) are
subject, at the Company's option, to the limitation that not more than 20% of
the Warrants originally issued (provided, however, that no more than 10% of the
Warrants originally issued shall be exercised for the account of any beneficial
owner) may be exercised on any Exercise Date and not more than 10% of the
Warrants originally issued may be exercised by or on behalf of any beneficial
owner, either individually or in concert with any other beneficial owner, on any
Exercise Date. If any New York Business Day would otherwise, under the terms of
the Warrant Agreement, be the Exercise Date in respect to more than 20% of the
Warrants originally issued, then at the Company's election, 20% of the Warrants
originally issued (provided, however, that no more than 10% of the Warrants
originally issued shall be exercised for the account of any beneficial owner)
shall be deemed exercised on such Exercise Date (selected by the Warrant Agent
on a pro rata basis, but if, as a result of such pro rata selection, any
beneficial owners of Warrants would be deemed to have exercised less than 100
Warrants, then the Warrant Agent shall first select an additional amount of such
beneficial owner's Warrants so that no beneficial owner shall be deemed to have
exercised less than 100 Warrants), and the remainder of such warrants (the
"Remaining Warrants") shall be deemed exercised on the following New York
Business Day (subject to successive applications of this provision); provided
that any Remaining Warrants for which an Exercise Notice was delivered on a
given Exercise Date shall be deemed exercised before any other Warrants for
which an Exercise Notice was delivered on a later Exercise Date. Any election
made by the Company hereunder shall be made telephonically and confirmed in
writing no later than 5:00 P.M. on the succeeding New York Business Day
following the Valuation Date on which the Company receives notice that in excess
of 20% of the Warrants originally issued, or more than 10% of the Warrants
originally issued for the account of any beneficial owner have been exercised.
The "Valuation Date" for a Warrant
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will be the first day that is both a New York Business Day and an Index
Calculation Day following the applicable Exercise Date, subject to postponement
upon the occurrence of an Extraordinary Event or a Market Disruption Event as
described in Section 2.04 below or as a result of the exercise of a number of
Warrants exceeding the limits on exercise describe above.
SECTION 2.02. Exercise and Delivery of Warrants. (a) Except for
---------------------------------
Warrants subject to automatic exercise or held through the facilities of Cedel
or Euroclear, the "Exercise Date" for a Warrant will be (i) the New York
Business Day on which the Warrant Agent receives the Warrant and Exercise Notice
in proper form with respect to such Warrant, if received at or prior to 1:00
P.M., New York City time, on such day, or (ii) if the Warrant Agent receives
such Warrant and Exercise Notice after 1:00 P.M., New York City time, on a New
York Business Day, then the first New York Business Day following such New York
Business Day.
In the case of Warrants held through the facilities of Cedel or
Euroclear, except for Warrants subject to automatic exercise, the "Exercise
Date" for a Warrant will be (i) the New York Business Day on which the Warrant
Agent receives the Exercise Notice in proper form with respect to such Warrant
if such Exercise Notice is received at or prior to 1:00 P.M., New York City
time, on such day, provided that the Warrant is received by the Warrant Agent by
1:00 P.M., New York City time, on the Valuation Date, or (ii) if the Warrant
Agent receives such Exercise Notice after 1:00 P.M., New York City time, on a
New York Business Day, then the first New York Business Day following such New
York Business Day, provided that the Warrant is received by 1:00 P.M., New York
City time, on the Valuation Date relating to exercises of Warrants on such
succeeding New York Business Day. In the event that the Warrant is received
after 1:00 P.M., New York City time, on the Valuation Date, then the Exercise
Date for such Warrants will be the first New York Business Day following the day
on which such Warrants are received or, if such day is not a New York Business
Day, the next succeeding New York Business Day. In the case of Warrants held
through the facilities of Cedel or Euroclear, in order to ensure proper exercise
on a given New York Business Day, participants in Cedel or Euroclear must submit
exercise instructions to Cedel or Euroclear, as the case may be, by 10:00 A.M.,
Luxembourg time, in the case of Cedel and by 10:00 A.M., Brussels time (by
telex), or 11:00 A.M., Brussels time (by EUCLID), in the case of Euroclear. In
addition, in the case of book-entry exercises by means of the Euroclear System,
(i) participants must also transmit, by facsimile (facsimile number (201) 262-
7521), to the Warrant Agent a copy of the Exercise Notice submitted to Euroclear
by 1:00 P.M., New York City time, on the desired Exercise Date and (ii)
Euroclear must confirm by telex to the Warrant Agent by 9:00 A.M., New York City
time, on the Valuation Date, that the
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Warrants will be received by the Warrant Agent on such date; provided, that if
such telex communication is received after 9:00 A.M., New York City time, on the
Valuation Date, the Company will be entitled to direct the Warrant Agent to
reject the related Exercise Notice or waive the requirement for timely delivery
of such telex communication.
Any notice of exercise received after 1:00 P.M., New York City time,
on the second New York Business Day immediately preceding the Expiration Date
shall be void and of no effect and shall be deemed not to have been delivered.
(b) Following receipt of a written irrevocable notice of exercise in
good form and Proper Delivery of a Warrant, the Warrant Agent shall: (i)
determine whether the notice of exercise has been duly completed and is in
proper form duly executed by the Depository Participant tendering such Warrant
and if the Warrant Agent determines that such notice has not been duly completed
or is not in proper form, or has not been so executed, the Warrant Agent shall
reject such notice of exercise and shall send to the Depository Participant that
executed such notice (at the address specified in such notice) a notice of
rejection in the form included in Exhibit B hereto and shall return the related
Warrant to such Depository Participant by redelivering such Warrant free through
the facilities of the Depository to the account of such Depository Participant;
(ii) notify the Company and the Calculation Agent (as defined in Section
2.02(e)) by 5:00 P.M., New York City time, on the New York Business Day such
notice of exercise and Proper Delivery are received (or deemed to have been
received) of the number of Warrants in respect of which exercise notices, not
rejected pursuant to clause (i) above, and Proper Delivery were received after
1:00 P.M., New York City time, the preceding New York Business Day and at or
prior to 1:00 P.M., New York City time, on such date; (iii) not later than 5:00
P.M., New York City time, on the applicable Valuation Date (or, if such
Valuation Date is not a New York Business Day, on the next succeeding New York
Business Day which is an Index Calculation Day) obtain the Index Spot Price
(which will be level of the Index on such Valuation Date); (iv) determine the
Cash Settlement Value of such Warrants; (v) advise the Company of the aggregate
Cash Settlement Value of the exercised Warrants and send notice of confirmation
of exercise in the form set forth in Exhibit B hereto to such Depository
Participant; and (vi) promptly deliver a copy of such notice of exercise to the
Company if requested by the Company and advise the Company of such other matters
relating to the exercised Warrants as the Company shall reasonably request. Any
notice to be given to the Company by the Warrant Agent pursuant to this Section
2.02 or pursuant to Section 2.03 shall be by telephone and shall be promptly
confirmed in writing. Any notice to be given to the Calculation Agent pursuant
to this Section 2.02 or pursuant to Section 2.03
11
<PAGE>
shall be by facsimile transmission to the address of the Calculation Agent set
forth in Section 6.03.
(c) The Company will make available to the Warrant Agent, no later
than 3:00 P.M., New York City time, on the fourth New York Business Day
following the Valuation Date (the "Settlement Date"), funds in an amount
sufficient to pay such aggregate Cash Settlement Value. Provided that the
Company has made adequate funds available to the Warrant Agent in such manner,
the Warrant Agent will make payment by check to the relevant Depository
Participant, after 3:00 P.M., New York City time, but prior to the close of
business, on such Settlement Date. Any such payment will be in the amount of
the aggregate Cash Settlement Value in respect of exercised Warrants for which
delivery has been accepted by the Warrant Agent.
(d) The Warrant Agent shall cause its records, which may be kept
electronically, to be marked to reduce the number of Warrants evidenced by the
Global Warrant Certificate, by the number of Warrants delivered to the Warrant
Account for which payment has been made, promptly after such delivery and
payment.
(e) Except as provided in Section 2.03, "Cash Settlement Value" of an
exercised Warrant is an amount stated in U.S. dollars that results from the
following formula:
Percentage Change X $50
The "Percentage Change" shall equal the following amount:
Index Spot Price -- Index Strike Price
--------------------------------------
Index Strike Price
The "Index Spot Price" relating to any Exercise Date will be determined by
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Calculation Agent") and
will equal the Closing Index Value on the Valuation Date relating to such
Exercise Date.
The "Index Strike Price" will equal the closing Index value on the
date the Warrants are priced for initial offering to the public.
The Cash Settlement Value will be rounded, if necessary, to the
nearest cent (with one-half cent being rounded upwards).
SECTION 2.03. Automatic Exercise of the Warrants.
----------------------------------
(a) All Warrants for which the Warrant Agent has not received a valid Exercise
Notice at or prior to 1:00 P.M., New York City time or for which the Warrant
Agent has received a valid Exercise Notice but with respect to which timely
delivery of the relevant Warrants has not been made, together with any Warrants
the
12
<PAGE>
Valuation Date for which has at such time been postponed as described under
Section 2.04 of this Agreement, on (i) the second New York Business Day
immediately preceding January , 1997 (the "Expiration Date") or (ii) the close
of business on the New York Business Day on which the Warrants are delisted
from, or permanently suspended from trading on, the American Stock Exchange and
the Warrants are not simultaneously accepted for trading pursuant to the rules
of another Self-Regulatory Organization (as defined in Section 3(a)(26) of the
Securities Exchange Act of 1934 as amended) (the "Early Expiration Date") will
be automatically exercised, without any required delivery of notice of exercise
or delivery of the Warrants from any relevant Depository Participant to the
Warrant Agent. The first New York Business Day preceding such Expiration Date
or Early Expiration Date, as the case may be, shall be the Exercise Date for
such automatically exercised Warrants and the Valuation Date for such Warrants
shall be the Index Calculation Day following such Exercise Date. The Company
will advise the Warrant Agent of the date of any expected delisting or permanent
suspension of trading of the Warrants as soon as is practicable and will
immediately inform the Warrant Agent after the Company has received notice that
such delisting or suspension has occurred and that the Warrants are not accepted
for listing on another Self-Regulatory Organization, but in no event will such
notice be given to the Warrant Agent later than 5:00 P.M., New York City time,
on the New York Business Day preceding the Early Expiration Date.
(b) In the event the Warrants are cancelled by the Company because of
the continuance of an Extraordinary Event as described in Section 2.04 of this
Agreement, Warrants not previously exercised shall be automatically exercised on
the basis that the Valuation Date for such Warrants shall be the Cancellation
Date.
(c) By 5:00 P.M., New York City time, on the second New York Business
Day immediately preceding the Expiration Date the Warrant Agent shall advise the
Company of the number of Unexercised Warrants outstanding after 1:00 P.M., New
York City time, on such New York Business Day. The Warrant Agent shall, on the
New York Business Day following the Exercise Date as determined pursuant to
subsection (a) above, (i) obtain the Index Spot Price from the Calculation Agent
and determine the Cash Settlement Value, if any, in the manner provided in
paragraph (e) of Section 2.02, (ii) advise the Company of the Index Spot Price
and the Cash Settlement Value, if any, of the Unexercised Warrants evidenced by
the Global Warrant Certificate, and (iii) advise the Company of such other
matters relating to the Unexercised Warrants as the Company shall reasonably
request. Provided that the Company has made adequate funds available to the
Warrant Agent in a timely manner which shall, in no event, be later than 3:00
P.M., New York City time, on the fourth New York Business Day following the
Expiration Date, the Warrant Agent
13
<PAGE>
will make its check (or another form of payment in accordance with existing
arrangements between the Warrant Agent and the Depository) available to the
Depository against receipt by the Warrant Agent from the Depository of the
Global Warrant Certificate on the fourth New York Business Day following the
Expiration Date, such check to be in the amount of the aggregate Cash Settlement
Value in respect of the number of Unexercised Warrants evidenced by the Global
Warrant Certificate at the close of business on the Expiration Date. The
Warrant Agent shall promptly cancel the Global Warrant Certificate following its
receipt thereof from the Depository.
(d) The Company will notify the Holders, or will cause such Holders to
be notified, as promptly as is practicable, of any delisting or suspension of
trading of the Warrants.
(e) Notwithstanding the foregoing, no delisting or suspension of
trading shall affect the right of a beneficial owner of an interest in the
Global Warrant Certificate to cause a Depository Participant to exercise the
Warrants or effect an automatic exercise of the Warrants if the Warrants are
simultaneously accepted for trading pursuant to the rules of another Self-
Regulatory Organization (as defined in Section 3(a)(26) of the Securities
Exchange Act of 1934 as amended). If the Warrants are so listed by another
Self-Regulatory Organization, from and after such date all references in this
Section 2.03 shall continue to apply, but each reference to the "American Stock
Exchange" herein shall be deemed to refer to such other Self-Regulatory
Organization.
(f) By 5:00 P.M., New York City time, on the Early Expiration Date the
Warrant Agent shall advise the Company of the number of Unexercised Warrants
outstanding after 1:00 P.M., New York City time, on such Early Expiration Date.
The Warrant Agent shall, on the New York Business Day following the Exercise
Date as determined pursuant to subsection (a) above, (i) obtain the Index Spot
Price from the Calculation Agent and determine the Cash Settlement Value, if
any, in the manner provided in paragraph (e) of Section 2.02, (ii) advise the
Company of the Index Spot Price and the Cash Settlement Value, if any, of the
Unexercised Warrants evidenced by the Global Warrant Certificate, and (iii)
advise the Company of such other matters relating to the Unexercised Warrants as
the Company shall reasonably request. Provided that the Company has made
adequate funds available to the Warrant Agent in a timely manner which shall, in
no event, be later than 3:00 P.M., New York City time, on the fourth New York
Business Day following the Expiration Date, the Warrant Agent will make its
check (or another form of payment in accordance with existing arrangements
between the Warrant Agent and the Depository) available to the Depository
against receipt by the Warrant Agent from the Depository of the Global Warrant
Certificate on the fourth New York Business Day following the
14
<PAGE>
Expiration Date, such check to be in the amount of the aggregate Cash Settlement
Value in respect of the number of Unexercised Warrants evidenced by the Global
Warrant Certificate at the close of business on the Expiration Date. The
Warrant Agent shall promptly cancel the Global Warrant Certificate following its
receipt thereof from the Depository.
SECTION 2.04. Extraordinary Events and Market Disruption Events. (a)
--------------------------------------------------
If the Calculation Agent determines that an Extraordinary Event has occurred and
is continuing on the Index Business Day with respect to which the Index Spot
Price on a Valuation Date is to be determined (the "Applicable Index Business
Day"), then the Cash Settlement Value in respect of an exercise shall be
calculated on the basis that the Valuation Date shall be the next Index
Calculation Day following an Applicable Index Business Day on which there is no
Extraordinary Event or Market Disruption Event; provided that if the Valuation
Date has not occurred on or prior to the Expiration Date or the Early Expiration
Date, the Holders will receive the Alternative Settlement Amount in lieu of the
Cash Settlement Value which shall be calculated as if the Warrants had been
cancelled on the Expiration Date or the Early Expiration Date, as the case may
be. The Company shall promptly give notice to beneficial owners, by publication
in a United States newspaper with a national circulation (currently expected to
be The Wall Street Journal), if an Extraordinary Event shall have occurred.
"Extraordinary Event" means any of the following events:
(i) a suspension or absence of trading on the TSE of all the
Underlying Stocks which then comprise the Index or a Successor Index;
(ii) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or any other U.S. or non-
U.S. governmental authority which would make it unlawful for the Company to
perform any of its obligations under the Warrant Agreement or the Warrants;
or
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crises (including, without limitation, natural
calamities which in the opinion of the Company may materially and adversely
affect the economy of Japan or the trading of securities generally on the
TSE) which has or will have a material adverse effect on the ability of the
Company to perform its obligations under the Warrants or to modify the
hedge of its position with respect to the Index.
15
<PAGE>
For the purposes of determining whether an Extraordinary Event has
occurred: (1) a limitation on the hours or number of days of trading will not
constitute an Extraordinary Event if it results from an announced change in the
regular business hours of the TSE and (2) an "absence of trading" on the TSE
will not include any time when the TSE itself is closed for trading under
ordinary circumstances.
If the Calculation Agent determines that an Extraordinary Event has
occurred and is continuing, and if the Extraordinary Event is expected by the
Calculation Agent to continue, the Company may immediately cancel all
outstanding Warrants by notifying the Warrant Agent of such cancellation (the
date such notice is given being the "Cancellation Date"), and each beneficial
owner's rights under the Warrants and the Warrant Agreement shall thereupon
cease; provided that each Warrant shall be automatically exercised on the basis
that the Valuation Date for such Warrant shall be the Cancellation Date and the
beneficial owner of each such Warrant will receive, in lieu of the Cash
Settlement Value of such Warrant, an amount (the "Alternative Settlement
Amount"), determined by the Calculation Agent, which is the greater of (i) the
average of the last sale prices, as available, of the Warrants on the AMEX (or
any successor securities exchange on which the Warrants are listed) on the 30
trading days preceding the date on which such Extraordinary Event was declared;
provided that, if the Warrants were not traded on the AMEX (or such successor
securities exchange) on at least 20 of such trading days, no effect will be
given to this clause (i) for the purpose of determining the Alternative
Settlement Amount, and (ii) the amount "X" calculated using the formula set
forth below:
X = I + [ T X A ]
--- ---
2 B
where
I = The Cash Settlement Value of the Warrants determined as described under
"Cash Settlement Value" above, but subject to the following modifications:
(1) if the Cancellation Date for such Warrants is a date on which the
Index or a Successor Index is calculated and published, for the purpose of
determining such Cash Settlement Value, the Index Spot Price will be
determined as of such Cancellation Date except that, if the Index Spot
Price as of such day is less than 90% of the Index Spot Price as of the
immediately preceding Index Calculation Day, then the Index Spot Price will
be deemed to be 90% of the Index Spot Price on such preceding Index
Calculation Day; or
16
<PAGE>
(2) if the Cancellation Date for such Warrants is a date on which the
Index or a Successor Index is not calculated or published, for the purpose
of determining such Cash Settlement Value, the Index Spot Price will be
deemed to be the lesser of (i) the Index Spot Price as of the first Index
Calculation Day immediately preceding the Cancellation Date except that, if
the Index Spot Price as of such day is less than 90% of the Index Spot
Price as of the second Index Calculation Day immediately preceding such
Cancellation Date, 90% of the Index Spot Price as of such second Index
Calculation Day and (ii) the arithmetic average of four amounts, being (a)
the Index Spot Price at each of the three successive Index Calculation Days
immediately preceding the Cancellation Date and (b) the Index Spot Price at
the next Index Calculation Day, provided that if an Extraordinary Event
described in clause (i) of the definition of Extraordinary Event continues
for 30 consecutive days immediately following such Cancellation Date, then
the Calculation Agent shall calculate an amount which, in its reasonable
opinion, fairly reflects the value of the Underlying Stocks on the Index
Calculation Day immediately following such Cancellation Date which, subject
to approval by the Company (such approval not to be unreasonably withheld),
shall for purposes of calculating the amount under this clause (2)(ii) be
treated as the figure arrived at under clause (2)(ii)(b);
T = U.S.$ , the initial offering price per Warrant;
A = the total number of days from but excluding the Cancellation Date for
such Warrants to and including the Expiration Date; and
B = the total number of days from but excluding the date the Warrants were
initially sold to and including the Expiration Date.
For the purposes of determining "I" in the above formula, in the event that
the Calculation Agent and the Company are required to have, but have not, after
good faith consultation with each other and within five days following the first
day upon which such Alternative Settlement Amount may be calculated in
accordance with the above formula, agreed upon a figure under clause (2)(ii)(b)
which fairly reflects the value of the Underlying Stocks on the Cancellation
Date, then the Calculation Agent shall promptly nominate a third party, subject
to approval by the Company (such approval not to be unreasonably withheld), to
determine such figure and calculate the Alternative Settlement Amount in
accordance with the above formula. Such party shall act as an independent
expert and not as an agent of the Company or the Calculation Agent, and its
calculation and determination of the Alternative Settlement Amount shall, absent
manifest
17
<PAGE>
error, be final and binding on the Company, the Warrant Agent, the Calculation
Agent and the Holders. Any such calculations will be made available to Holders
for inspection at the Warrant Agent's Office. Neither the Company nor such
third party shall have any responsibility for good faith errors or omissions in
calculating the Alternative Settlement Amount.
(b) If the Calculation Agent determines that on a Valuation Date a Market
Disruption Event has occurred and is continuing, the Valuation Date shall be
postponed to the first succeeding Index Business Day on which no Market
Disruption Event occurs; provided that, if the Valuation Date has not occurred
on or prior to the fifth Index Business Day following an Exercise Date because
of Market Disruption Events, such fifth Index Business Day shall be the
Valuation Date regardless of whether a Market Disruption Event has occurred on
such day.
"Market Disruption Event" means with respect to any Index Business Day the
occurrence or existence during the one-half hour period that ends at the
determination of the Closing Index Value for such Index Business Day of:
(i) a suspension, material limitation or absence of trading on the
TSE of 20% or more of the Underlying Stocks which then compromise the Index
or Successor Index during the one-half hour period preceding the close of
trading on the applicable exchange; or
(ii) the suspension or material limitation on the Singapore
International Monetary Exchange, Ltd. (the "SIMEX), the Osaka Securities
Exchange (the "OSE") or any other major futures or securities market of
trading in futures or options contracts related to the Index or a Successor
Index during the one-half hour period preceding the close of trading on the
applicable exchange.
For the purposes of determining whether a Market Disruption Event has
occurred: (i) a limitation on the hours 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, (ii) a decision to
permanently discontinue trading in the relevant contract will not constitute a
Market Disruption Event, (iii) a suspension in trading in a futures or options
contract on the Index by a major securities market by reason of (a) a price
change violating limits set by such securities market, (b) an imbalance of
orders relating to such contracts or (c) a disparity in bid and ask quotes
relating to such contracts will constitute a suspension or material limitation
of trading in futures or options contracts related to the Index, (iv) an absence
of trading on the TSE will not include any time when the TSE is closed for
trading under ordinary circumstances, and (v) the occurrence of, an
Extraordinary Event
18
<PAGE>
described in Section 2.04(i) will not constitute, and will supersede the
occurrence of, a Market Disruption Event.
(c) With respect to all Warrants as to which the Valuation Date has been
postponed or which have been canceled as described above, the Company shall make
available to the Warrant Agent not later than 3:00 p.m., New York City time, on
the fourth New York Business Day following the date on which the Cash Settlement
Value or Alternative Settlement Amount, as the case may be, has been calculated
(the "Alternative Settlement Date"), funds in an amount equal to the aggregate
Cash Settlement Value or Alternative Settlement Amount, as applicable, of such
Warrants. Subject to such funds having been made available as provided in the
preceding sentence, the Warrant Agent will be responsible for making a payment
to the Depository, after 3:00 p.m., New York City time, but prior to the close
of business on, the Alternative Settlement Date, in an amount equal to the
aggregate Cash Settlement Value or Alternative Settlement Amount of such
exercised Warrants.
SECTION 2.05. Covenant of the Company. The Company covenants, for
-----------------------
the benefit of the Holders, that it will not seek the delisting of the Warrants
from, or suspension of their trading on, the American Stock Exchange.
SECTION 2.06. Return of Global Warrant Certificate. At such time as
------------------------------------
all of the Warrants have been exercised, deemed automatically exercised or
otherwise cancelled, the Warrant Agent shall destroy the cancelled Global
Warrant Certificate unless the Company directs it to return it.
SECTION 2.07. Return of Money Held Unclaimed for Two Years. Any
--------------------------------------------
money deposited with or paid to the Warrant Agent for the payment of the Cash
Settlement Value of any Warrants and not applied but remaining unclaimed for two
years after the date upon which such Cash Settlement Value shall have become due
and payable, shall be repaid by the Warrant Agent to the Company and the Holder
of such Warrants shall thereafter look only to the Company for any payment which
such Holder may be entitled to collect and all liability of the Warrant Agent
with respect to such money shall thereupon cease; provided, however, that the
Warrant Agent, before making any such repayment, may at the expense of the
Company notify the Holders concerned that said money has not been so applied and
remains unclaimed and that after a date named therein any unclaimed balance of
said money then remaining will be returned to the Company.
SECTION 2.08. Designation of Agent for Receipt of Notice. The
------------------------------------------
Company may from time to time designate in writing to the Warrant Agent a
designee for receipt of all notices required to be given by the Warrant Agent
pursuant to this
19
<PAGE>
Article II and all such notices thereafter shall be given in the manner herein
provided by the Warrant Agent to such designee.
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS
SECTION 3.01. Holder of Warrant May Enforce Rights. Notwithstanding
------------------------------------
any of the provisions of this Agreement, any Holder, without the consent of the
Warrant Agent, may, in and for his own behalf, enforce, and may institute and
maintain any suit, action or proceeding against the Company suitable to enforce,
or otherwise in respect of, his right to exercise, and to receive payment for,
his Warrants as provided in the Global Warrant Certificate and in this
Agreement.
SECTION 3.02. Merger, Consolidation, Sale, Transfer or Conveyance.
---------------------------------------------------
The Company may consolidate with, or sell, lease or convey all or substantially
all of its assets to, or merge with or into any other corporation, provided that
in any such case, either the Company shall be the continuing corporation, or the
successor corporation shall be a corporation organized and existing under the
laws of the United States of America or a State thereof and such successor
corporation shall expressly assume the payment of the Cash Settlement Value with
respect to all unexercised Warrants, according to their tenor, and the due and
punctual performance and observance of all of the covenants and conditions of
this Agreement and the Global Warrant Certificate to be performed by the
Company. Such successor or assuming corporation thereupon may cause to be
signed, and may issue either in its own name or in the name of the Company, a
new Global Warrant Certificate representing the Warrants not theretofore
exercised, in exchange and substitution for the Global Warrant Certificate
theretofore issued. Such Global Warrant Certificate shall in all respects have
the same legal rank and benefit under this Agreement as the Global Warrant
Certificate theretofore issued in accordance with the terms of this Agreement as
though such new Global Warrant Certificate had been issued at the date of the
execution hereof. In any case of any such consolidation, merger, sale, lease or
conveyance of substantially all of the assets of the Company, such changes in
phraseology and form (but not in substance) may be made in the new Global
Warrant Certificate as may be appropriate.
The Warrant Agent may receive a written opinion of legal counsel as
conclusive evidence that any such consolidation, merger, sale, lease or
conveyance of substantially all of the assets of the Company complies with the
provisions of this Section 3.02 and that the assumption of this Agreement by the
successor or assuming corporation is effective.
20
<PAGE>
ARTICLE IV
CANCELLATION OF WARRANTS
SECTION 4.01. Cancellation of Warrants. In the event the Company
------------------------
shall purchase or otherwise acquire Warrants, such Warrants may, at the option
of the Company and upon notification to the Warrant Agent, be surrendered free
through a Depository Participant for credit to the Warrant Account and if so
credited the Warrant Agent shall promptly note the cancellation of such Warrants
by notation on the records of the Warrant Agent. No Warrant shall be issued in
lieu of or in exchange for any Warrant which is cancelled as provided herein,
except as otherwise expressly permitted by this Agreement.
SECTION 4.02. Treatment of Holders. The Company, the Warrant Agent
--------------------
and any agent of the Company or the Warrant Agent may deem and treat the person
in whose name the Global Warrant Certificate shall be registered in the records
of the Warrant Agent as the absolute owner of such Global Warrant Certificate
(notwithstanding any notation of ownership or other writing thereon) (the
"Holder") for any purpose and as the person entitled to exercise the rights
represented by the Warrants evidenced hereby, and neither the Company nor the
Warrant Agent, nor any agent of the Company or the Warrant Agent shall be
affected by any notice to the contrary, except that the Warrant Agent and the
Company shall be entitled to rely on and act pursuant to instructions of
Depository Participants as contemplated by Article II of this Agreement. This
Section 4.02 shall be without prejudice to the rights of Holders as described
elsewhere herein.
ARTICLE V
CONCERNING THE WARRANT AGENT
SECTION 5.01. Warrant Agent. (a) The Company hereby appoints
-------------
Citibank, N.A. as Warrant Agent of the Company in respect of the Warrants and
Global Warrant Certificate upon the terms and subject to the conditions set
forth herein and in the Global Warrant Certificate; and Citibank, N.A. hereby
accepts such appointment. The Warrant Agent shall have the powers and authority
granted to and conferred upon it in the Global Warrant Certificate and hereby
and such further powers and authority acceptable to it to act on behalf of the
Company as the Company may hereafter grant to or confer upon it. All of the
terms and provisions with respect to such powers and authority contained in the
Global Warrant Certificate are subject to and governed by the terms and
provisions hereof.
21
<PAGE>
(b) The Warrant Agent covenants and agrees to maintain offices,
staffed by qualified personnel, with adequate facilities for the discharge of
its responsibilities under this Warrant Agreement, including without limitation
the computation of the Cash Settlement Values and the timely settlement of the
Warrants upon exercise thereof.
SECTION 5.02. Conditions of Warrant Agent's Obligations. The Warrant
-----------------------------------------
Agent accepts its obligations herein set forth upon the terms and conditions
hereof and of the Global Warrant Certificates including the following, to all of
which the Company agrees and to all of which the rights hereunder of the Holders
from time to time of the Warrants shall be subject:
(a) The Company agrees promptly to pay the Warrant Agent the
compensation to be agreed upon with the Company for all services rendered
by the Warrant Agent and to reimburse the Warrant Agent for its reasonable
out-of-pocket expenses (including counsel fees and expenses) incurred by
the Warrant Agent without negligence, bad faith or breach of this Agreement
on its part in connection with the services rendered by it hereunder. The
Company also agrees to indemnify the Warrant Agent for, and to hold it
harmless against, any loss, liability or expense (including reasonable
attorneys' fees and expenses) incurred without negligence, bad faith or
breach of this Agreement on the part of the Warrant Agent, arising out of
or in connection with it acting as such Warrant Agent hereunder or with
respect to the Warrants or the Global Warrant Certificate, as well as the
reasonable costs and expenses of defending against any claim of liability
in the premises.
(b) In acting under this Agreement and in connection with the Global
Warrant Certificate, the Warrant Agent is acting solely as agent of the
Company and does not assume any obligation or relationship of agency or
trust for or with any of the owners or Holders of the Warrants.
(c) The Warrant Agent may consult with counsel satisfactory to it, and
the opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion of such counsel.
(d) The Warrant Agent shall be protected and shall incur no liability
for or in respect of any action taken or omitted or thing suffered by it in
reliance upon any Global Warrant Certificate, notice, direction, consent,
certificate, affidavit, statement or other paper or document reasonably
believed by it to be genuine and to have been presented or signed by the
proper parties.
22
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(e) The Warrant Agent, and its officers, directors and employees, may
become the owner of, or acquire an interest in, any Warrants or other
obligations of the Company, with the same rights that it or they would have
if it were not the Warrant Agent hereunder, and, to the extent permitted by
applicable law, it or they may engage or be interested in any financial or
other transaction with the Company and may act on, or as depositary,
trustee or agent for, any committee or body of Holders of Warrants or other
obligations of the Company as freely as if it were not the Warrant Agent
hereunder.
(f) The Warrant Agent shall not be under any liability for interest on
any monies at any time received by it pursuant to any of the provisions of
this Agreement or of the Global Warrant Certificate nor shall it be
obligated to segregate such monies from other monies held by it, except as
required by law. The Warrant Agent shall not be responsible for advancing
funds on behalf of the Company.
(g) The Warrant Agent shall not be under any responsibility with
respect to the validity or sufficiency of this Agreement or the execution
and delivery hereof (except the due execution and delivery hereof by the
Warrant Agent) or with respect to the validity or execution of the Global
Warrant Certificate (except its authentication thereof).
(h) The recitals contained herein and in the Global Warrant
Certificate (except as to the Warrant Agent's authentication thereon) shall
be taken as the statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of the same.
(i) The Warrant Agent shall be obligated to perform only such duties
as are herein and in the Global Warrant Certificate specifically set forth
and no implied duties or obligations shall be read into this Agreement or
the Global Warrant Certificate against the Warrant Agent. The Warrant
Agent shall not be under any obligation to take any action hereunder likely
to involve it in any expense or liability, the payment of which is not, in
its reasonable opinion, assured to it. The Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company
of the Global Warrant Certificate authenticated by the Warrant Agent and
delivered by it to the Company pursuant to this Agreement or for the
application by the Company of any proceeds. The Warrant Agent shall have
no duty or responsibility in case of any default by the Company in the
performance of its covenants or agreements contained herein or in the
Global Warrant Certificate or in the case of the receipt of any written
demand from a Holder of a
23
<PAGE>
Warrant with respect to such default, except as provided in Section 6.02
hereof, including, without limiting the generality of the foregoing, any
duty or responsibility to initiate or attempt to initiate any proceedings
at law or otherwise or to make any demand upon the Company.
(j) Unless herein or in the Global Warrant Certificate otherwise
specifically provided, any order, certificate, notice, request, direction
or other communication from the Company made or given by the Company under
any provision of this Agreement shall be sufficient if signed by its
President, Chairman of the Board, officer serving as Chief Financial
Officer, Treasurer, any Executive Vice President or any Vice President.
SECTION 5.03. Resignation and Appointment of Successor. (a) The
----------------------------------------
Company agrees, for the benefit of the Holders from time to time of the
Warrants, that there shall at all times be a Warrant Agent hereunder until all
the Warrants are no longer exercisable.
(b) The Warrant Agent may at any time resign as such agent by giving
written notice to the Company of such intention on its part, specifying the date
on which its desired resignation shall become effective, subject to the
appointment of a successor Warrant Agent, and acceptance of such appointment by
such successor Warrant Agent, as hereinafter provided. The Warrant Agent
hereunder may be removed at any time by the filing with it of an instrument in
writing signed by or on behalf of the Company and specifying such removal and
the date when it shall become effective. Such resignation or removal shall take
effect upon the appointment by the Company, as hereinafter provided, of a
successor Warrant Agent (which shall be a banking institution organized under
the laws of the United States of America, or one of the states thereof and
having an office or an agent's office south of Chambers Street in the Borough of
Manhattan, The City of New York) and the acceptance of such appointment by such
successor Warrant Agent. In the event a successor Warrant Agent has not been
appointed and accepted its duties within 90 days of the Warrant Agent's notice
of resignation, the Warrant Agent may apply to any court of competent
jurisdiction for the designation of a successor Warrant Agent. The obligation
of the Company under Section 5.02(a) shall continue to the extent set forth
therein notwithstanding the resignation or removal of the Warrant Agent and
shall survive the termination of this Agreement.
(c) In case at any time the Warrant Agent shall resign, or shall be
removed, or shall become incapable of acting, or shall be adjudged bankrupt or
insolvent, or make an assignment for the benefit of its creditors or consent to
the appointment of a receiver or custodian of all or any substantial part of its
property, or shall admit in writing its inability to pay or meet
24
<PAGE>
its debts as they mature, or if a receiver or custodian of it or all or any
substantial part of its property shall be appointed, or if any public officer
shall have taken charge or control of the Warrant Agent or of its property or
affairs, for the purpose of rehabilitation, conservation or liquidation, a
successor Warrant Agent, qualified as aforesaid, shall be appointed by the
Company by an instrument in writing, filed with the successor Warrant Agent.
Upon the appointment as aforesaid of a successor Warrant Agent and acceptance by
the latter of such appointment, the Warrant Agent so superseded shall cease to
be Warrant Agent hereunder.
(d) Any successor Warrant Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor and to the Company an instrument
accepting such appointment hereunder, and thereupon such successor Warrant
Agent, without any further act, deed or conveyance, shall become vested with all
the authority, rights, powers, trusts, immunities, duties and obligations of
such predecessor with like effect as if originally named as Warrant Agent
hereunder, and such predecessor, upon payment of its charges and disbursements
then unpaid, shall thereupon become obligated to transfer, deliver and pay over,
and such successor Warrant Agent shall be entitled to receive, all monies,
securities and other property on deposit with or held by such predecessor, as
Warrant Agent hereunder.
(e) Any corporation into which the Warrant Agent hereunder may be
merged or converted or any corporation with which the Warrant Agent may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Warrant Agent shall be a party, or any corporation to
which the Warrant Agent shall sell or otherwise transfer all or substantially
all of the corporate trust business of the Warrant Agent, provided that it shall
be qualified as aforesaid, shall be the successor Warrant Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Amendment. (a) This Agreement and the Global Warrant
---------
Certificate may be amended by the Company and the Warrant Agent, without the
consent of the Holder of the Global Warrant Certificate or the beneficial
owners, for the purpose of curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained herein or
therein, for the purpose of appointing a successor Depository in accordance with
paragraph (d) of Section 1.01, for the purpose of issuing Warrants in definitive
form in accordance with paragraph
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<PAGE>
(a) of Section 1.01, or in any other manner which the Company may deem to be
necessary or desirable and which will not materially and adversely affect the
interests of the Holders of the Warrants. Notwithstanding anything in this
Section 6.01 to the contrary, this Agreement may not be amended to provide for
the authentication by the Warrant Agent of one or more Global Warrant
Certificates evidencing in excess of Warrants originally issued unless
and until the Warrant Agent has received notice from the American Stock Exchange
or any successor Self-Regulatory Organization that additional Warrants in excess
of Warrants originally issued have been approved for listing on such
exchange.
(b) The Company and the Warrant Agent may modify or amend this
Agreement and the Global Warrant Certificate, with the consent of the beneficial
owners of not fewer than a majority in number of the then outstanding
Unexercised Warrants affected by such modification or amendment, for any
purpose; provided, however, that no such modification or amendment that changes
the Warrant Strike Price so as to adversely affect the beneficial owners,
shortens the period of time during which the Warrants may be exercised or
otherwise materially and adversely affects the exercise rights of the beneficial
owners or reduces the percentage of the number of outstanding Warrants the
consent of the beneficial owners of which is required for modification or
amendment of this Agreement or the Global Warrant Certificate may be made
without the consent of the beneficial owners of Warrants affected thereby.
SECTION 6.02. Notices and Demands to the Company and Warrant Agent.
----------------------------------------------------
If the Warrant Agent shall receive any notice or demand addressed to the Company
by any Holder pursuant to the provisions of the Global Warrant Certificate, the
Warrant Agent shall promptly forward such notice or demand to the Company.
SECTION 6.03. Addresses for Notices. Any communications from the
---------------------
Company to the Warrant Agent with respect to this Agreement shall be addressed
to Citibank, N.A., 120 Wall Street, New York, NY 10043, (facsimile: (212) 480-
1613) (telephone: (212) 412-6209), Attention: Corporate Trust Services; any
communications from the Warrant Agent to the Company with respect to this
Agreement shall be addressed to Merrill Lynch & Co., Inc., South Tower, World
Financial Center, 225 Liberty Street, New York, NY 10080-6107 (facsimile:
(212) 236-6004) (telephone: (212) 236-6112), Attention: Treasurer (first copy)
and Merrill Lynch & Co., Inc., 100 Church Street, 12th Floor, New York, NY 10007
(facsimile: (212) 602-8436) (telephone: (212) 602-8444), Attention: Corporate
Secretary (second copy); and any communications from the Warrant Agent to the
Calculation Agent with respect to this Agreement shall be addressed to Merrill
Lynch, Pierce, Fenner & Smith, World Financial Center, North Tower, 250 Vesey
Street, New York, NY,
26
<PAGE>
100281 Attention: Steven Bodurtha (facsimile: (212) 449-6576) (telephone:
(212) 449-6577) (or such other address as shall be specified in writing by the
Warrant Agent, the Company or the Calculation Agent, respectively).
SECTION 6.04. Notices to Holders. The Company or the Warrant Agent
------------------
may cause to have notice given to the beneficial owners of interests in the
Global Warrant Certificate by providing the Depository with a form of notice to
be distributed by the Depository to Depository Participants in accordance with
the customs and practices of the Depository.
SECTION 6.05. Applicable Law. The validity, interpretation and
--------------
performance of this Agreement and each Warrant issued hereunder and of the
respective terms and provisions thereof shall be governed by the laws of the
State of New York applicable to agreements made and to be performed in such
State.
SECTION 6.06. Obtaining of Governmental Approvals. The Company will
-----------------------------------
from time to time take all actions which may be necessary to obtain and keep
effective any and all permits, consents and approvals of governmental agencies
and authorities and the American Stock Exchange and securities acts filings
under United States Federal and State laws, which may be or become requisite in
connection with the issuance, sale, trading, transfer or delivery of the
Warrants, the Global Warrant Certificate and the exercise of the Warrants.
SECTION 6.07. Persons Having Rights Under Warrant Agreement. Nothing
---------------------------------------------
in this Agreement expressed or implied and nothing that may be inferred from any
of the provisions hereof is intended, or shall be construed, to confer upon, or
give to, any person or corporation other than the Company, the Warrant Agent,
and the Holders any right, remedy or claim under or by reason of this Agreement
or of any covenant, condition, stipulation, promise or agreement hereof; and all
covenants, conditions, stipulations, promises and agreements in this Agreement
contained shall be for the sole and exclusive benefit of the Company and the
Warrant Agent and their successors and of the registered Holders of the Warrant
Certificate.
SECTION 6.08. Headings. The descriptive headings of the several
--------
Articles and Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
27
<PAGE>
SECTION 6.09. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
SECTION 6.10. Inspection of Agreement. A copy of this Agreement
-----------------------
shall be available at all reasonable times at the principal corporate trust
office of the Warrant Agent, for inspection by the Depository Participants and
the Holders.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
MERRILL LYNCH & CO., INC.
By _________________________
Theresa Lang
Treasurer
CITIBANK, N.A.
By _________________________
Name:
Title:
28
<PAGE>
EXHIBIT A
THIS WARRANT IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT AGREEMENT
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
WARRANTS IN CERTIFICATED FORM, THIS WARRANT 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 WARRANT IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY WARRANT ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS 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. CUSIP No.
GLOBAL WARRANT CERTIFICATE
representing
up to Nikkei Stock Index 300 Call Warrants, Expiring
January , 1997
MERRILL LYNCH & CO., INC.
This certifies that CEDE & Co. or registered assigns is the registered
Holder of Nikkei Stock Index 300 Call Warrants, Expiring January ,
1997 (the "Warrants") or such lesser amount as is indicated in the records of
Citibank, N.A., as Warrant Agent. Each Warrant entitles the beneficial owner
thereof, subject to the provisions contained herein and in the Warrant Agreement
referred to below, to receive from Merrill Lynch & Co., Inc. (the "Company") the
cash settlement value, if any, (the "Cash Settlement Value") specified in
Section 2.02(e) of the Warrant Agreement. The Holder hereof will not be
entitled to any interest on any Cash Settlement Value to which it is otherwise
entitled (unless the Company shall default in the payment of such Cash
Settlement Value). The Warrants may be exercised on any New York Business Day
from their date of issuance until 1:00 P.M., New York City time, on the second
New York Business Day immediately preceding January , 1997 or (ii) the date of
earlier automatic exercise as further described below and as provided in the
Warrant Agreement. Except in the case of automatic exercise, not fewer than 100
Warrants may be exercised
1
<PAGE>
EXHIBIT A
---------
Page 2
by or on behalf of a beneficial owner on any one day. All exercises of Warrants
(other than on automatic exercise) are subject, at the Company's option, to the
limitation that not more than 20% of the Warrants originally issued (provided,
however, that no more than 10% of the Warrants originally issued shall be
exercised for the account of any beneficial owner) may be exercised on any
Exercise Date and not more than 10% of the Warrants originally issued may be
exercised by or on behalf of any beneficial owner, either individually or in
concert with any other beneficial owner, on any Exercise Date. References
herein to "U.S. dollars", "U.S.$" or "$" are to the currency of the United
States of America. The term "New York Business Day", as used herein, means any
day other than a Saturday or Sunday or a day on which commercial banks in The
City of New York are required or authorized by law or executive order to be
closed.
This Global Warrant Certificate is issued under and in accordance with
the Warrant Agreement, dated as of January , 1995 (the "Warrant Agreement"),
between the Company and the Warrant Agent, and is subject to the terms and
provisions contained in the Warrant Agreement, to all of which terms and
provisions all beneficial owners of the Warrants evidenced by this Global
Warrant Certificate and the Holder of this Global Warrant Certificate consent by
acceptance hereof by the Depository (as defined below). Copies of the Warrant
Agreement are on file at the Warrant Agent Office of the Warrant Agent in The
City of New York. Except as provided in the Warrant Agreement, beneficial
owners of the Warrants evidenced by this Global Warrant Certificate will not be
entitled to receive definitive Warrants evidencing their Warrants. Warrants
will be held through a depository selected by the Company which initially is The
Depository Trust Company (the "Depository", which term, as used herein, includes
any successor depository selected by the Company as further provided in the
Warrant Agreement).
Capitalized terms included herein but not defined herein have the same
meaning assigned thereto in the Warrant Agreement.
Subject to the provisions hereof and of the Warrant Agreement, each
Warrant evidenced hereby may be irrevocably exercised at the option of the
Holder in whole but not in part on any New York Business Day from its date of
issuance until 1:00 P.M., New York City time, on the second New York Business
Day immediately preceding the Expiration Date. Except in the case of automatic
exercise, each Warrant evidenced hereby may be exercised by written notice to
the Warrant Agent from a Depository Participant acting on behalf of the
beneficial owner
2
<PAGE>
EXHIBIT A
---------
Page 3
of such Warrant and upon receipt by the Warrant Agent through delivery of such
Warrant free on the records of the Depository to the Warrant Agent's Depository
Participant Account (entitled Citibank, N.A. Corporate Trust Warrant Agent
Account, No. 2659, or such other account of the Warrant Agent at the Depository
as the Warrant Agent shall designate in writing to the Company and to the
Depository (the "Warrant Account")) ("Proper Delivery"); provided, however, that
notices of exercise are subject to rejection by the Warrant Agent as provided
herein.
The Warrant Agent will promptly cause its records to be marked to
reduce the number of Unexercised Warrants evidenced by this Global Warrant
Certificate by the number of Warrants transferred to the Warrant Account from
time to time and for which payment of the Cash Settlement Value is made as
provided above.
All Warrants for which the Warrant Agent has not received a valid
Exercise Notice at or prior to 1:00 P.M., New York City time, on (i) the second
New York Business Day immediately preceding the Expiration Date or (ii) the
close of business on the Early Expiration Date will be automatically exercised,
without any required delivery of notice of exercise or delivery of the Warrants
from any relevant Depository Participant to the Warrant Agent. The first New
York Business Day preceding such Expiration Date or Early Expiration Date, as
the case may be, shall be the Exercise Date for such automatically exercised
Warrants. The Company will advise the Warrant Agent of the date of any expected
delisting or permanent suspension of trading of the Warrants as soon as is
practicable and will immediately inform the Warrant Agent after the Company has
received notice that such delisting or suspension has occurred and that the
Warrants are not accepted for listing on another Self-Regulatory Organization,
but in no event will such notice be given to the Warrant Agent later than 5:00
P.M., New York City time, on the New York Business Day preceding the date that
such delisting or suspension occurs.
The Company, the Warrant Agent and any agent of the Company or the
Warrant Agent may deem and treat the registered owner hereof as the absolute
owner of the Warrants evidenced hereby (notwithstanding any notation of
ownership or other writing hereon) for any purpose and as the person entitled to
exercise the rights represented by the Warrants evidenced hereby, and neither
the Company nor the Warrant Agent nor any agent of the Company or the Warrant
Agent shall be affected by any notice to the contrary, subject to certain
provisions of the Warrant Agreement, except that the Company and the Warrant
Agent shall be
3
<PAGE>
EXHIBIT A
---------
Page 4
entitled to rely on and act pursuant to instructions of Depository Participants
as contemplated herein and in the Warrant Agreement.
Subject to the terms of the Warrant Agreement and certain restrictions
set forth above, upon due presentment for registration of transfer of this
Global Warrant Certificate at the Warrant Agent Office of the Warrant Agent in
New York City, the Company shall execute and the Warrant Agent shall
authenticate and deliver in the name of the designated transferee a new Global
Warrant Certificate of like tenor and evidencing a like number of Unexercised
Warrants as evidenced by this Global Warrant Certificate at the time of such
registration of transfer, which shall be issued to the designated transferee in
exchange for this Global Warrant Certificate, subject to the limitations
provided in the Warrant Agreement, without charge.
This Global Warrant Certificate and the Warrant Agreement are subject
to amendment as provided in the Warrant Agreement.
This Global Warrant Certificate shall not be valid or obligatory for
any purpose until authenticated by the Warrant Agent.
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
This is one of the Warrants
referred to in the within-mentioned
Warrant Agreement:
CITIBANK, N.A. as Warrant Agent
4
<PAGE>
EXHIBIT A
---------
Page 5
By _________________________
Authorized Officer
Date:
5
<PAGE>
EXHIBIT A
---------
Page 6
Form of Transfer of Global Warrant Certificate
Citibank, N.A., as Warrant Agent
Corporate Trust Services
111 Wall Street
New York, New York 10043
, the registered Holder of the Global Warrant Certificate
representing all unexercised Merrill Lynch & Co., Inc. Nikkei Stock Index 300
Call Warrants, Expiring January , 1997, hereby requests the transfer of such
Global Warrant Certificate to
Dated: [NAME OF REGISTERED HOLDER]
By
6
<PAGE>
EXHIBIT B
Form of Irrevocable Notice of Exercise
Citibank, N.A.
as Warrant Agent
c/o Citicorp Data Distribution, Inc.
404 Sette Drive
Paramus, NJ 07652
Attention: Corporate Trust Services Department
(Facsimile: 201-262-7521)
(Telephone: 201-262-5444)
Re: Exercise of Merrill Lynch & Co., Inc.
Nikkei Stock Index 300 Call Warrants
Expiring January , 1997 ("Warrants")
--------------------------------------
1. We refer to the Warrant Agreement dated as of January , 1995
(the "Warrant Agreement") between Merrill Lynch & Co., Inc. (the "Company") and
Citibank, N.A. (the "Warrant Agent"). Capitalized terms used herein and not
otherwise defined shall have the meanings specified in the Warrant Agreement.
On behalf of certain clients, each of whom is exercising no fewer than 100
Warrants and whose Warrants are held in our name, we hereby irrevocably exercise
Warrants (the "Exercised Warrants"). We hereby certify that at the time
this notice is delivered to you, we hold in our name on behalf of each such
client a settled position of Warrants in an amount at least equal to the number
of Warrants that we are hereby exercising on behalf of such client. We hereby
acknowledge that this Irrevocable Notice of Exercise and delivery of the
Exercised Warrants free to the Warrant Account must be received by you by 1:00
P.M., New York City time, on the date hereof in order for the Exercise Date of
the Exercised Warrants to be such New York Business Day and that if this
Irrevocable Notice of Exercise or such Exercised Warrants are received by you
after 1:00 P.M., New York City time, the Exercise Date of the Exercised Warrants
shall be the next succeeding New York Business Day.
2. We hereby certify that we are a participant of The Depository
Trust Company (the "Depository") with the present right to use and receive its
services.
1
<PAGE>
EXHIBIT B
---------
Page 2
3. The Participant will disburse the Cash Settlement Value, if any,
with respect to the Exercised Warrants in accordance with its standard
procedures.
Dated: , 199
[NAME OF DEPOSITARY
PARTICIPANT]
By _________________________
Authorized Signature
[Address]
Telephone:
Facsimile:
Participant
Number:
2
<PAGE>
EXHIBIT B
---------
Page 3
CONFIRMATION OF EXERCISE
We hereby confirm that the total number of Warrants mentioned above
(the "Exercised Warrants") have been exercised at a Index Spot Price of
and that the aggregate Cash Settlement Value of U.S. $ (U.S. $ per
Warrant) will be made available to you in the form of a check four New York
Business Days after the Valuation Date for such Warrants.
Capitalized terms included herein but not defined have the meanings
assigned thereto in the Warrant Agreement, dated as of January , 1995, between
Merrill Lynch & Co., Inc. and Citibank, N.A., as Warrant Agent.
Dated: , 199
Citibank, N.A.
as Warrant Agent
By _________________________
Authorized Officer
NOTICE OF REJECTION
You are hereby notified that [the Irrevocable Notice of Exercise
delivered by you was determined by us not to have been [duly completed] [in
proper form]], in the manner set forth in the Warrant Agreement, dated as of
January , 1995, between Merrill Lynch & Co., Inc. and Citibank, N.A., as
Warrant Agent. Accordingly, we have rejected your Irrevocable Notice of
Exercise as being unsatisfactory as to form.
Dated: , 199
Citibank, N.A.
as Warrant Agent
By _________________________
Authorized Officer
3
