<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 33-65135
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 2, 1996)
5,661,119 STRYPES/SM/
[LOGO OF MERRILL MERRILL LYNCH & CO., INC. [LOGO OF IMC
LYNCH & CO., INC. 6 1/4% STRYPES/SM/ DUE JULY 1, 2001 GLOBAL INC.
APPEARS HERE] PAYABLE WITH SHARES OF COMMON STOCK OF APPEARS HERE]
IMC GLOBAL INC.
(OR CASH WITH AN EQUAL VALUE)
--------------
The issue price of each Structured Yield Product Exchangeable for Stock/SM/,
6 1/4% STRYPES/SM/ Due July 1, 2001 (each, a "STRYPES") of Merrill Lynch & Co.,
Inc. (the "Company") being offered hereby is $38.25, which amount is equal to
the last sale price of the common stock, par value $1.00 per share (the "IMC
Common Stock" ), of IMC Global Inc., a Delaware corporation ("IMC"), on July
2, 1996, as reported on the New York Stock Exchange (the "Initial Price"). The
STRYPES will mature on July 1, 2001 (the "Maturity Date"). Interest on the
STRYPES, at the rate of 6 1/4% of the issue price per annum, is payable in
cash quarterly in arrears on January 1, April 1, July 1 and October 1,
beginning October 1, 1996. The STRYPES are not subject to redemption or any
sinking fund. The STRYPES will be unsecured obligations of the Company ranking
pari passu with all of its other unsecured and unsubordinated indebtedness. In
addition, the STRYPES will not restrict the Company's ability to incur
additional indebtedness ranking senior to, or pari passu with, the STRYPES.
See "Supplemental Description of the STRYPES--Ranking."
On the Maturity Date, the Company will pay and discharge each STRYPES by
delivering to the holder thereof a percentage of each type of Reference
Property (subject to the Company's right to deliver, with respect to all, but
not less than all, Reference Property deliverable on the Maturity Date, cash
with an equal value) determined in accordance with the following formula: (a)
if the Reference Property Value (as defined herein) is greater than or equal
to $46.28 (the "Threshold Appreciation Price"), 82.65% of each type of
Reference Property, (b) if the Reference Property Value is less than the
Threshold Appreciation Price but is greater than the Initial Price, a
percentage of each type of Reference Property, allocated as proportionately as
practicable, so that the aggregate value thereof is equal to the Initial Price
and (c) if the Reference Property Value is less than or equal to the Initial
Price, 100% of each type of Reference Property. The term "Reference Property"
shall mean initially one share of IMC Common Stock and shall be subject to
adjustment from time to time prior to the Maturity Date to reflect the
addition or substitution of any cash, securities and/or other property
resulting from the application of the adjustment provisions described herein.
AS DESCRIBED HEREIN, THE REFERENCE PROPERTY VALUE WILL REPRESENT A
DETERMINATION OF THE VALUE OF THE REFERENCE PROPERTY IMMEDIATELY PRIOR TO THE
MATURITY DATE. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE AMOUNT
RECEIVABLE BY HOLDERS OF THE STRYPES ON THE MATURITY DATE WILL BE EQUAL TO OR
GREATER THAN THE ISSUE PRICE OF THE STRYPES. IF THE REFERENCE PROPERTY VALUE
IS LESS THAN THE INITIAL PRICE, SUCH AMOUNT RECEIVABLE ON THE MATURITY DATE
WILL BE LESS THAN THE ISSUE PRICE PAID FOR THE STRYPES, IN WHICH CASE AN
INVESTMENT IN THE STRYPES WILL RESULT IN A LOSS. See "Supplemental Description
of the STRYPES."
Reference is made to the accompanying prospectus of IMC covering the shares
of IMC Common Stock (including the preferred stock purchase rights associated
therewith) which may be received by a holder of the STRYPES on the Maturity
Date. IMC is not affiliated with the Company, will not receive any of the
proceeds from the sale of the STRYPES and will have no obligations with
respect to the STRYPES.
SEE "RISK FACTORS" BEGINNING ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE STRYPES.
For a discussion of certain United States Federal income tax consequences
for holders of the STRYPES, see "Certain United States Federal Income Tax
Considerations."
The IMC Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "IGL." The STRYPES have been approved for listing on the NYSE,
subject to official notice of issuance.
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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 SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per STRYPES.............................. $38.25 $1.15 $37.10
- --------------------------------------------------------------------------------
Total(4)................................. $216,537,802 $6,510,287 $210,027,515
- --------------------------------------------------------------------------------
</TABLE>
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(1) Plus accrued interest, if any, from July 9, 1996 to the date of delivery.
(2) The Company, IMC and GVI Holdings, Inc. have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company.
(4) The Company has granted the Underwriter an option for 30 days to purchase
up to an additional 849,167 STRYPES at the initial public offering price
per STRYPES, less the underwriting discount, solely to cover over-
allotments. If such over-allotment option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$249,018,440, $7,486,829 and $241,531,611, respectively. See
"Underwriting."
--------------
The STRYPES are offered by the Underwriter, subject to prior sale, when, as
and if issued to and accepted by the Underwriter, and subject to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the STRYPES will be made in New York, New York, on or about July
9, 1996.
This Prospectus may be used by the Underwriter in connection with offers and
sales related to market-making transactions in the STRYPES. 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.
- -------
/SM/Service mark of Merrill Lynch & Co., Inc.
--------------
MERRILL LYNCH & CO.
--------------
The date of this Prospectus Supplement is July 2, 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE STRYPES AND
THE IMC COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF
INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
S-2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the information
included and incorporated by reference in the accompanying Prospectus (the
"ML&Co. Prospectus") and by the more detailed information included elsewhere in
this Prospectus Supplement. Unless otherwise indicated, the information
contained in this Prospectus Supplement assumes that the Underwriter's over-
allotment option is not exercised. Unless the context otherwise requires, the
following summary assumes that on the Maturity Date the Reference Property
consists only of shares of IMC Common Stock (including the preferred stock
purchase rights associated therewith).
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
on a global basis. Its principal subsidiary, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), is one of the largest securities firms in the
world.
IMC GLOBAL INC.
IMC is one of the world's leading producers of crop nutrients for the
international agricultural community and is one of the largest distributors in
the United States of crop nutrients and related products through its retail and
wholesale distribution networks. IMC mines, processes and distributes potash in
the United States and Canada, and is a joint venture partner in IMC-Agrico
Company, a leading producer, marketer and distributor of phosphate crop
nutrients and a leading producer and marketer of animal feed ingredients. IMC's
retail distribution network, which extends principally to corn and soybean
farmers in the Midwestern and Southeastern United States, is one of the largest
distributors of crop nutrients and related products in the United States. IMC
also manufactures nitrogen-based and other high-value crop nutrients which are
marketed on a wholesale basis principally in the Midwestern and Southeastern
United States. In addition, IMC sells specialty lawn and garden, turf, and
nursery products on a national basis and ice-melter products in the Midwest and
Eastern snow-belt states.
Reference is made to the accompanying prospectus of IMC (the "IMC
Prospectus") covering the shares of IMC Common Stock (including the preferred
stock purchase rights associated therewith) which may be received by a holder
of STRYPES on the Maturity Date. IMC is not affiliated with the Company, will
not receive any of the proceeds from the sale of the STRYPES and will have no
obligations with respect to the STRYPES. THE IMC PROSPECTUS IS BEING ATTACHED
HERETO AND DELIVERED TO PROSPECTIVE PURCHASERS OF STRYPES TOGETHER WITH THIS
PROSPECTUS SUPPLEMENT AND THE ML&CO. PROSPECTUS FOR CONVENIENCE OF REFERENCE
ONLY. THE IMC PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS
SUPPLEMENT OR THE ML&CO. PROSPECTUS, NOR IS IT INCORPORATED BY REFERENCE HEREIN
OR THEREIN.
THE STRYPES
OFFERING.................... 5,661,119 STRYPES
ISSUE PRICE................. $38.25 per STRYPES
MATURITY DATE............... July 1, 2001
INTEREST RATE............... 6 1/4% of the issue price per annum, or $.5977 per
STRYPES per quarter, payable in cash quarterly in
arrears
INTEREST PAYMENT DATES...... January 1, April 1, July 1 and October 1,
beginning October 1, 1996
S-3
<PAGE>
PAYMENT AT MATURITY......... On the Maturity Date, the Company will pay and
discharge each STRYPES by delivering to the holder
thereof a percentage of each type of Reference
Property (subject to the Company's right to
deliver, with respect to all, but not less than
all, Reference Property deliverable on the
Maturity Date, cash with an equal value)
determined in accordance with the following
formula: (a) if the Reference Property Value (as
defined herein) is greater than or equal to $46.28
(the "Threshold Appreciation Price"), 82.65% of
each type of Reference Property, (b) if the
Reference Property Value is less than the
Threshold Appreciation Price but is greater than
$38.25 (the "Initial Price"), a percentage of each
type of Reference Property, allocated as
proportionately as practicable, so that the
aggregate value thereof is equal to the Initial
Price and (c) if the Reference Property Value is
less than or equal to the Initial Price, 100% of
each type of Reference Property. The term
"Reference Property" shall mean initially one
share of IMC Common Stock and shall be subject to
adjustment from time to time prior to the Maturity
Date to reflect the addition or substitution of
any cash, securities and/or other property
resulting from the application of the adjustment
provisions described herein. AS DESCRIBED HEREIN,
THE REFERENCE PROPERTY VALUE WILL REPRESENT A
DETERMINATION OF THE VALUE OF THE REFERENCE
PROPERTY IMMEDIATELY PRIOR TO THE MATURITY DATE.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE
AMOUNT RECEIVABLE BY HOLDERS OF THE STRYPES ON THE
MATURITY DATE WILL BE EQUAL TO OR GREATER THAN THE
ISSUE PRICE OF THE STRYPES. IF THE REFERENCE
PROPERTY VALUE IS LESS THAN THE INITIAL PRICE,
SUCH AMOUNT RECEIVABLE ON THE MATURITY DATE WILL
BE LESS THAN THE ISSUE PRICE PAID FOR THE STRYPES,
IN WHICH CASE AN INVESTMENT IN THE STRYPES WILL
RESULT IN A LOSS. See "Supplemental Description of
the STRYPES--General."
NO REDEMPTION, SINKING FUND
OR PAYMENT PRIOR TO
MATURITY...................
The STRYPES are not subject to redemption by the
Company prior to the Maturity Date and do not
contain any sinking fund or other mandatory
redemption provisions. The STRYPES are not subject
to payment prior to the Maturity Date at the
option of the holder.
RANKING..................... The STRYPES will be unsecured obligations of the
Company ranking pari passu with all of its other
unsecured and unsubordinated indebtedness. See
"Supplemental Description of the STRYPES--Ranking"
herein and "Description of the STRYPES--Ranking"
in the ML&Co. Prospectus.
RELATIONSHIP TO IMC COMMON
STOCK......................
The STRYPES will bear interest at 6 1/4% of the
issue price per annum, a yield substantially in
excess of the .84% dividend yield of IMC Common
Stock based on the last sale price of the IMC
Common Stock on July 2, 1996, as reported on the
NYSE, and the recent $.08 per share quarterly
dividend paid on the IMC Common
S-4
<PAGE>
Stock. However, the opportunity for equity
appreciation afforded by an investment in the
STRYPES is less than the opportunity for equity
appreciation afforded by a direct investment in
the IMC Common Stock because the amount receivable
by a holder of a STRYPES on the Maturity Date will
only exceed the issue price of such STRYPES if the
Reference Property Value exceeds the Threshold
Appreciation Price (which represents an
appreciation of 21% over the Initial Price).
Moreover, holders of the STRYPES will only be
entitled to receive on the Maturity Date 82.65%
(the percentage equal to the Initial Price divided
by the Threshold Appreciation Price) of any
appreciation of the value of Reference Property in
excess of the Threshold Appreciation Price.
Holders of the STRYPES will not be entitled to any
rights with respect to the Reference Property
(including, without limitation, voting rights and
rights to receive any dividends, interest or other
distributions in respect thereof) unless and until
such time, if any, as the Company shall have
delivered the Reference Property for STRYPES on
the Maturity Date, and unless the applicable
record date, if any, for the exercise of such
rights occurs after such delivery. See "Risk
Factors--Limitations on Opportunity for Equity
Appreciation" and "--No Stockholder's Rights."
TRADING PRICES.............. The trading prices of the STRYPES in the secondary
market will be directly affected by the trading
prices of the IMC Common Stock in the secondary
market. It is impossible to predict whether the
price of IMC Common Stock will rise or fall. In
addition, any market that develops for the STRYPES
is likely to influence the market for IMC Common
Stock. For example, the price of IMC Common Stock
could be depressed by investors' anticipation of
the potential distribution into the market of
substantial amounts of IMC Common Stock on the
Maturity Date, by possible sales of IMC Common
Stock by investors who view the STRYPES as a more
attractive means of equity participation in IMC,
and by hedging or arbitrage trading activity that
may develop involving the STRYPES and the IMC
Common Stock. See "Risk Factors--Factors Affecting
Trading Prices" and "--Impact of the STRYPES on
the Market for IMC Common Stock."
DILUTION.................... The Reference Property (or the amount of cash)
that holders of the STRYPES are entitled to
receive upon payment and discharge on the Maturity
Date will not be adjusted for certain events, such
as offerings of IMC Common Stock for cash or in
connection with acquisitions. IMC is not
restricted from issuing additional IMC Common
Stock during the term of the STRYPES and has no
obligation to consider the interests of holders of
STRYPES for any reason. Additional issuances of
shares of IMC Common Stock may materially and
adversely affect the price of IMC Common Stock
and, because of the relationship of the percentage
of the Reference Property (or cash amount) to be
received upon payment and
S-5
<PAGE>
discharge to the price of the IMC Common Stock,
such other events may adversely affect the trading
price of the STRYPES. See "Risk Factors--Dilution
of IMC Common Stock."
PURCHASE AGREEMENT WITH
GVI HOLDINGS, INC..........
Pursuant to an agreement (the "Purchase
Agreement") among the Company, Merrill Lynch
Mortgage Capital Inc., a wholly owned subsidiary
of the Company (the "ML&Co. Subsidiary"), and GVI
Holdings, Inc. ("GVI"), a wholly-owned subsidiary
of Great American Management and Investment, Inc.,
GVI is obligated to deliver to the ML&Co.
Subsidiary immediately prior to the Maturity Date
the Reference Property required by the Company to
pay and discharge all of the STRYPES. In lieu of
delivering the Reference Property immediately
prior to the Maturity Date, GVI has the right to
satisfy its obligation under the Purchase
Agreement by delivering at such time cash in an
amount equal to the value of such Reference
Property immediately prior to the Maturity Date.
Such right, if exercised by GVI, must be exercised
with respect to all of the Reference Property
deliverable pursuant to the Purchase Agreement.
Under the Purchase Agreement, the Company has
agreed to pay and discharge the STRYPES by
delivering to the holders thereof on the Maturity
Date the form of consideration that the ML&Co.
Subsidiary receives from GVI. The consideration to
be paid by the ML&Co. Subsidiary under the
Purchase Agreement is $153,382,017 in the
aggregate, and is payable to GVI on or about July
9, 1996. No other consideration is payable by the
ML&Co. Subsidiary to GVI in connection with its
acquisition of the Reference Property pursuant to
the Purchase Agreement or the performance of the
Purchase Agreement by GVI.
GVI has no obligations with respect to the STRYPES
or amounts to be paid to holders thereof,
including any obligation to take the needs of the
Company or of holders of the STRYPES into
consideration in determining whether to deliver
the Reference Property or cash or for any other
reason. The Purchase Agreement among the Company,
the ML&Co. Subsidiary and GVI is a commercial
transaction and does not create any rights in, or
for the benefit of, any holder of STRYPES. See
"Certain Arrangements with GVI."
CERTAIN UNITED STATES
FEDERAL INCOME TAX
CONSIDERATIONS.............. Prospective investors in the STRYPES should be
aware that there exists uncertainty concerning the
proper United States Federal income tax
characterization and treatment of the STRYPES.
Accordingly, prospective investors should consider
the tax consequences of investing in the STRYPES.
See "Risk Factors--Tax Matters" and "Certain
United States Federal Income Tax Considerations."
S-6
<PAGE>
GLOBAL NOTES................ Upon issuance, all STRYPES will be represented by
one or more global securities deposited with, and
registered in the name of, The Depository Trust
Company, as Securities Depository (the "Securities
Depository"), or a nominee thereof. As a result,
the Securities Depository, or its nominee, will be
considered the sole owner of the STRYPES under the
Indenture (as defined herein). Ownership interests
of actual purchasers of STRYPES will be recorded
on the records of participants in the Securities
Depository. See "Description of the STRYPES--
Securities Depository" in the ML&Co. Prospectus.
USE OF PROCEEDS............. The net proceeds to the Company from the sale of
the STRYPES are expected to be $210,027,515,
$153,382,017 of which will be used to purchase an
obligation of the ML&Co. Subsidiary and the
remainder of which will be used for general
corporate purposes. The ML&Co. Subsidiary will use
a portion of the consideration that it receives
from the Company to pay to GVI the consideration
due under the Purchase Agreement.
S-7
<PAGE>
RISK FACTORS
Prospective purchasers should read carefully this entire Prospectus
Supplement and the ML&Co. Prospectus and should consider, among other things,
the factors set forth below and under "Risk Factors" in the IMC Prospectus.
Unless the context otherwise requires, the following discussion assumes that on
the Maturity Date the Reference Property consists only of shares of IMC Common
Stock (including the preferred stock purchase rights associated therewith).
COMPARISON TO OTHER DEBT SECURITIES; RELATIONSHIP TO IMC COMMON STOCK
The terms of the STRYPES differ from those of ordinary debt securities in
that the value of the Reference Property (or, pursuant to the option of the
Company, the amount of cash) that a holder of a STRYPES will receive on the
Maturity Date is not fixed, but is based on the Reference Property Value (see
"Supplemental Description of the STRYPES"). THERE CAN BE NO ASSURANCE THAT SUCH
AMOUNT RECEIVABLE BY THE HOLDER ON THE MATURITY DATE WILL BE EQUAL TO OR
GREATER THAN THE ISSUE PRICE OF THE STRYPES. IF THE REFERENCE PROPERTY VALUE IS
LESS THAN THE INITIAL PRICE, SUCH AMOUNT RECEIVABLE ON THE MATURITY DATE WILL
BE LESS THAN THE ISSUE PRICE PAID FOR THE STRYPES, IN WHICH CASE AN INVESTMENT
IN STRYPES WILL RESULT IN A LOSS. ACCORDINGLY, A HOLDER OF STRYPES ASSUMES THE
RISK THAT THE MARKET VALUE OF THE REFERENCE PROPERTY MAY DECLINE, AND THAT SUCH
DECLINE COULD BE SUBSTANTIAL. THE IMC PROSPECTUS COVERS THE SHARES OF IMC
COMMON STOCK (INCLUDING THE PREFERRED STOCK PURCHASE RIGHTS ASSOCIATED
THEREWITH) WHICH MAY BE RECEIVED BY A HOLDER OF THE STRYPES ON THE MATURITY
DATE.
LIMITATION ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an investment in the
STRYPES is less than the opportunity for equity appreciation afforded by a
direct investment in the IMC Common Stock because the amount receivable by a
holder of a STRYPES on the Maturity Date will only exceed the issue price of
such STRYPES if the Reference Property Value exceeds the Threshold Appreciation
Price (which represents an appreciation of 21% over the Initial Price).
Moreover, holders of the STRYPES will only be entitled to receive on the
Maturity Date 82.65% (the percentage equal to the Initial Price divided by the
Threshold Appreciation Price) of any appreciation of the value of the Reference
Property in excess of the Threshold Appreciation Price. See "Supplemental
Description of the STRYPES." Because the price of the Reference Property is
subject to market fluctuations, the value of the Reference Property (or,
pursuant to the option of the Company, the amount of cash) received by a holder
of a STRYPES on the Maturity Date, determined as described herein, may be more
or less than the issue price of the STRYPES.
FACTORS AFFECTING TRADING PRICES
The trading prices of the STRYPES in the secondary market will be directly
affected by the trading prices of the IMC Common Stock in the secondary market.
It is impossible to predict whether the price of IMC Common Stock will rise or
fall. Trading prices of IMC Common Stock will be influenced by IMC's operating
results and prospects, by complex and interrelated political, economic,
financial and other factors and market conditions that can affect the capital
markets generally, the market segment of which IMC is a part, the NYSE (on
which the IMC Common Stock is traded), including the level of, and fluctuations
in, the trading prices of stocks generally and sales of substantial amounts of
IMC Common Stock in the market subsequent to the offering of the STRYPES or the
perception that such sales could occur, and by other events that are difficult
to predict and are beyond the Company's control.
IMPACT OF STRYPES ON THE MARKET FOR IMC COMMON STOCK
It is not possible to predict accurately how or whether the STRYPES will
trade in the secondary market or whether such market will be liquid. Any market
that develops for the STRYPES is likely to influence and be influenced by the
market for IMC Common Stock. For example, the price of IMC Common Stock could
become more volatile and could be depressed by investors' anticipation of the
potential distribution into the market of substantial amounts of IMC Common
Stock on the Maturity Date, by possible sales of IMC Common Stock by investors
who view the STRYPES as a more attractive means of equity participation in IMC,
and by hedging or arbitrage trading activity that may develop involving the
STRYPES and the IMC
S-8
<PAGE>
Common Stock. In addition, if the Underwriter's over-allotment option is not
exercised in full, GVI will continue to own shares of the IMC Common Stock that
are not subject to the Purchase Agreement. GVI is not precluded from selling
any such shares of IMC Common Stock, either pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), or by exercising its
registration rights. Any such sales could have an adverse effect on the market
price of IMC Common Stock and/or the STRYPES and could affect the percentage of
the Reference Property (or cash amount) that a holder of a STRYPES will receive
on the Maturity Date.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how the STRYPES will trade in the secondary
market or whether such market will be liquid or illiquid. The STRYPES are novel
securities and there is currently no secondary market for the STRYPES. The
STRYPES have been approved for listing on the NYSE, subject to official notice
of issuance. However there can be no assurance that an active trading market
for the STRYPES will develop, that such listing will provide the holders of the
STRYPES with liquidity of investment, or that the STRYPES will not later be
delisted or that trading of the STRYPES on the NYSE will not be suspended. In
the event of a delisting or suspension of trading on the NYSE, the Company will
apply for listing of the STRYPES on another national securities exchange or for
quotation on another trading market. If the STRYPES are not listed or traded on
any securities exchange or trading market, or if trading of the STRYPES is
suspended, pricing information for the STRYPES may be more difficult to obtain
and the liquidity of the STRYPES may be adversely affected.
NO STOCKHOLDER'S RIGHTS
Holders of the STRYPES will not be entitled to any rights with respect to the
Reference Property (including, without limitation, voting rights and rights to
receive any dividends, interest or other distributions in respect thereof)
unless and until such time, if any, as the Company shall have delivered the
Reference Property for STRYPES on the Maturity Date, and unless the applicable
record date, if any, for the exercise of such rights occurs after such
delivery. For example, in the event that an amendment is proposed to the
Restated Certificate of Incorporation of IMC and the record date for
determining the stockholders of record entitled to vote on such amendment
occurs prior to such delivery, holders of the STRYPES will not be entitled to
vote on such amendment.
NO AFFILIATION BETWEEN THE COMPANY AND IMC
The Company has no affiliation with IMC, and IMC has no obligations with
respect to the STRYPES or amounts to be paid to holders thereof, including any
obligation to take the needs of the Company or of holders of the STRYPES into
consideration for any reason. IMC will not receive any of the proceeds of the
offering of the STRYPES made hereby and is not responsible for, and has not
participated in, the determination of the timing of, prices for or quantities
of the STRYPES to be issued, or the determination or calculation of the amount
receivable by holders of the STRYPES on the Maturity Date. IMC is not involved
with the administration or trading of the STRYPES and has no obligations with
respect to the amount receivable by holders of the STRYPES on the Maturity
Date.
DILUTION OF IMC COMMON STOCK
The Reference Property (or, pursuant to the option of the Company, the amount
of cash) that holders of the STRYPES are entitled to receive on the Maturity
Date is subject to adjustment for certain events arising from, among others, a
merger or consolidation in which IMC is not the surviving or resulting
corporation and the liquidation, dissolution, winding up or bankruptcy of IMC,
as well as stock splits and combinations, stock dividends and certain other
actions of IMC that modify its capital structure. See "Supplemental Description
of the STRYPES--Reference Property Adjustments." Such Reference Property (or
cash amount) to be received by such holders on the Maturity Date will not be
adjusted for other events,
S-9
<PAGE>
such as offerings of IMC Common Stock for cash or in connection with
acquisitions. IMC is not restricted from issuing additional shares of IMC
Common Stock during the term of the STRYPES and has no obligation to consider
the interests of the holders of the STRYPES for any reason. Additional
issuances may materially and adversely affect the price of the IMC Common Stock
and, because of the relationship of the percentage of the Reference Property
(or cash amount) to be received on the Maturity Date to the price of the IMC
Common Stock, such other events may adversely affect the trading price of the
STRYPES.
TAX MATTERS
Because of an absence of authority as to the proper characterization of the
STRYPES, their ultimate tax treatment is uncertain. Accordingly, no assurances
can be given that any particular characterization and treatment of the STRYPES
will be accepted by the Internal Revenue Service ("IRS") or upheld by a court.
However, it is the opinion of Brown & Wood LLP, counsel to the Company, that
the characterization and tax treatment of the STRYPES described herein (and
described in greater detail under "Certain United States Federal Income Tax
Considerations"), while not the only reasonable characterization and tax
treatment, is based on reasonable interpretations of law currently in effect
and, even if successfully challenged by the IRS, will not result in the
imposition of penalties. The Indenture will require that any holder subject to
U.S. Federal income tax include currently in income, for U.S. Federal income
tax purposes, payments denominated as interest that are made with respect to a
STRYPES in accordance with such holder's regular method of tax accounting. The
Indenture also requires the Company and holders to treat each STRYPES for tax
purposes as a unit (a "Unit") consisting of (i) a debt instrument (the "Debt
Instrument") with a fixed principal amount unconditionally payable on the
Maturity Date equal to the issue price of the STRYPES and bearing interest at
the stated interest rate on the STRYPES and (ii) a forward purchase contract
(the "Forward Contract") pursuant to which the holder agrees to use the
principal payment due on the Debt Instrument to purchase on the Maturity Date
the Reference Property which the Company is obligated under the STRYPES to
deliver at that time (subject to the Company's right to deliver cash in lieu of
the Reference Property). The Indenture also requires that upon the acquisition
of a STRYPES and upon a holder's sale or other disposition of a STRYPES prior
to the Maturity Date, the amount paid or realized by the holder be allocated by
the holder between the Debt Instrument and the Forward Contract based upon
their relative fair market values (as determined on the date of acquisition or
disposition). For these purposes, with respect to acquisitions of STRYPES in
connection with the original issuance thereof, the Company and each holder
agrees, pursuant to the terms of the Indenture, to allocate $37.045 of the
entire initial purchase price of a STRYPES (i.e., the issue price of a STRYPES)
to the Debt Instrument and to allocate the remaining $1.205 of the entire
initial purchase price of a STRYPES to the Forward Contract. As a result of
this allocation, the Debt Instrument will be treated as having been issued with
original issue discount for United States Federal income tax purposes. As
previously mentioned, the appropriate character and timing of income, gain or
loss to be recognized on a STRYPES is uncertain and investors should consult
their own tax advisers concerning 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 STRYPES arising under the laws
of any other taxing jurisdiction. The tax consequences of investing in the
STRYPES are described in greater detail under "Certain United States Federal
Income Tax Considerations."
HOLDING COMPANY STRUCTURE
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 STRYPES),
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 Exchange Act
and under rules of certain exchanges and other regulatory bodies.
S-10
<PAGE>
IMC GLOBAL INC.
IMC is one of the world's leading producers of crop nutrients for the
international agricultural community and is one of the largest distributors in
the United States of crop nutrients and related products through its retail
and wholesale distribution networks. IMC mines, processes and distributes
potash in the United States and Canada, and is a joint venture partner in IMC-
Agrico Company, a leading producer, marketer and distributor of phosphate crop
nutrients and a leading producer and marketer of animal feed ingredients.
IMC's retail distribution network, which extends principally to corn and
soybean farmers in the Midwestern and Southeastern United States, is one of
the largest distributors of crop nutrients and related products in the United
States. IMC also manufactures nitrogen-based and other high-value crop
nutrients which are marketed on a wholesale basis principally in the
Midwestern and Southeastern United States. In addition, IMC sells specialty
lawn and garden, turf, and nursery products on a national basis and ice-melter
products in the Midwest and Eastern snow-belt states.
IMC is subject to the informational requirements of the Exchange Act.
Accordingly, IMC files reports, proxy and information statements and other
information with the Commission. Copies of such material can be inspected and
copied at the public reference facilities maintained by the Commission at the
addresses specified under "Available Information" in the IMC Prospectus.
Reports, proxy and information statements and other information concerning IMC
may also be inspected at the offices of the NYSE.
THE COMPANY IS NOT AFFILIATED WITH IMC, AND IMC HAS NO OBLIGATIONS WITH
RESPECT TO THE STRYPES. THIS PROSPECTUS SUPPLEMENT AND THE ML&CO. PROSPECTUS
RELATE ONLY TO THE STRYPES OFFERED HEREBY AND DO NOT RELATE TO THE IMC COMMON
STOCK. IMC HAS FILED A REGISTRATION STATEMENT ON FORM S-3 WITH THE COMMISSION
COVERING THE SHARES OF IMC COMMON STOCK (INCLUDING THE PREFERRED STOCK
PURCHASE RIGHTS ASSOCIATED THEREWITH) THAT MAY BE RECEIVED BY A HOLDER OF
STRYPES ON THE MATURITY DATE. THE PROSPECTUS OF IMC CONSTITUTING A PART OF
SUCH REGISTRATION STATEMENT INCLUDES INFORMATION RELATING TO IMC AND THE IMC
COMMON STOCK (INCLUDING THE PREFERRED STOCK PURCHASE RIGHTS ASSOCIATED
THEREWITH), AS WELL AS A DISCUSSION OF CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN IMC COMMON STOCK. THE IMC PROSPECTUS IS BEING ATTACHED HERETO
AND DELIVERED TO PROSPECTIVE PURCHASERS OF STRYPES TOGETHER WITH THIS
PROSPECTUS SUPPLEMENT AND THE ML&CO. PROSPECTUS FOR CONVENIENCE OF REFERENCE
ONLY. THE IMC PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS
SUPPLEMENT OR THE ML&CO. PROSPECTUS, NOR IS IT INCORPORATED BY REFERENCE
HEREIN OR THEREIN.
S-11
<PAGE>
PRICE RANGE OF IMC COMMON STOCK AND DIVIDENDS
The IMC Common Stock is listed and traded on the NYSE under the symbol "IGL."
The following table sets forth the high and low sale prices of the IMC Common
Stock for the periods indicated, as reported on the NYSE Composite Tape, and
the cash dividends per share of IMC Common Stock declared and paid during such
periods. Data reflected in the table for periods prior to IMC's 2-for-1 stock
split in November 1995 have been adjusted to reflect such stock split.
<TABLE>
<CAPTION>
DIVIDENDS
PERIOD HIGH LOW PER SHARE
------ ---- --- ---------
<S> <C> <C> <C>
FISCAL YEAR 1995
Quarter ended September 30..................... $22.313 $17.063 $ --
Quarter ended December 31...................... 22.375 18.125 0.05
Quarter ended March 31......................... 26.250 20.625 0.05
Quarter ended June 30.......................... 27.313 22.250 0.05
FISCAL YEAR 1996
Quarter ended September 30..................... 33.313 27.000 0.05
Quarter ended December 31...................... 40.875 30.313 0.08
Quarter ended March 31......................... 43.250 33.625 0.08
Quarter ended June 30.......................... 39.875 32.250 0.08
</TABLE>
As of June 17, 1996, there were approximately 475 record holders of the IMC
Common Stock. On July 2, 1996, the last reported sale price of the IMC Common
Stock on the NYSE was $38.25 per share.
In April 1993, IMC's Board of Directors reduced cash dividend payments on the
IMC Common Stock in light of financial demands of litigation arising out of an
explosion at a nitroparaffins plant operated by IMC in Sterlington, Louisiana,
and weakness in concentrated phosphate prices. Although IMC has paid cash
dividends in recent quarters, any future payment of cash dividends is subject
to the discretion of IMC's Board of Directors and will be dependent on IMC's
results of operations, financial condition, cash requirements and other
relevant factors. Since substantially all of IMC's operations are conducted
through subsidiaries, IMC cash flow, and consequently its future ability to pay
dividends, will be dependent upon the earnings of its subsidiaries and the
payment of funds by those subsidiaries to IMC in the form of loans, dividends
or otherwise. Certain of IMC's debt agreements contain restrictions on the
payment of dividends by IMC's subsidiaries.
The Company makes no representation as to the amount of dividends, if any,
that IMC will pay in the future. In any event, holders of STRYPES will not be
entitled to receive any dividends or interest that may be payable on IMC Common
Stock or other Reference Property until such time as the Company, if it so
elects, delivers the Reference Property on the Maturity Date of the STRYPES,
and then only with respect to dividends having a record date on or after the
date of delivery thereof. See "Supplemental Description of the STRYPES."
SUPPLEMENTAL USE OF PROCEEDS
The net proceeds to the Company from the sale of the STRYPES are expected to
be $210,027,515, $153,382,017 of which will be used to purchase an obligation
of the ML&Co. Subsidiary and the remainder of which will be used for general
corporate purposes. The ML&Co. Subsidiary will use a portion of the
consideration that it receives from the Company to pay to GVI the consideration
due under the Purchase Agreement.
S-12
<PAGE>
SUPPLEMENTAL DESCRIPTION OF THE STRYPES
The STRYPES are a series of Senior Debt Securities to be issued under an
indenture, dated as of April 1, 1983 and restated as of April 1, 1987, as
amended and supplemented as of July 1, 1996 (the indenture dated as of April 1,
1983 and restated as of April 1, 1987, as amended and supplemented from time to
time, the "Indenture") between the Company and Chemical Bank (successor by
merger to Manufacturers Hanover Trust Company), as trustee (the "Trustee").
Certain provisions of the Indenture are summarized in the ML&Co. Prospectus.
All capitalized terms not otherwise defined herein have the meanings specified
in the Indenture.
GENERAL
The aggregate number of STRYPES to be issued under the Indenture will be
limited to 5,661,119, plus such additional number of STRYPES as may be issued
pursuant to the over-allotment option granted by the Company to the
Underwriter. See "Underwriting." No fractional STRYPES will be issued.
Each STRYPES, which will be issued at a price of $38.25, will bear interest
at the rate of 6 1/4% of the issue price per annum (or $2.3908 per annum) from
July 9, 1996, or from the most recent Interest Payment Date to which interest
has been paid or provided for, until the Maturity Date or such earlier date on
which such STRYPES is repaid pursuant to the terms thereof. Interest on the
STRYPES will be payable in cash quarterly in arrears on January 1, April 1,
July 1 and October 1, beginning October 1, 1996, and on the Maturity Date
(each, an "Interest Payment Date"), to the persons in whose names the STRYPES
are registered at the close of business on the fifteenth calendar day (whether
or not a Business Day) immediately preceding such Interest Payment Date.
Interest on the STRYPES will be computed on the basis of a 360-day year of
twelve 30-day months. If an Interest Payment Date falls on a day that is not a
Business Day, the interest payment to be made on such Interest Payment Date
will be made on the next succeeding Business Day with the same force and effect
as if made on such Interest Payment Date, and no additional interest will
accrue as a result of such delayed payment.
The STRYPES will mature on July 1, 2001. On the Maturity Date, the Company
will pay and discharge each STRYPES by delivering to the holder thereof a
percentage of each type of Reference Property (subject to the Company's right
to deliver, with respect to all, but not less than all, Reference Property
deliverable on the Maturity Date, cash with an equal value) determined in
accordance with the following formula: (a) if the Reference Property Value (as
defined below) is greater than or equal to the Threshold Appreciation Price,
82.65% of each type of Reference Property, (b) if the Reference Property Value
is less than the Threshold Appreciation Price but is greater than the Initial
Price, a percentage of each type of Reference Property, allocated as
proportionately as practicable, so that the aggregate value thereof is equal to
the Initial Price and (c) if the Reference Property Value is less than or equal
to the Initial Price, 100% of each type of Reference Property. ACCORDINGLY,
THERE CAN BE NO ASSURANCE THAT THE AMOUNT RECEIVABLE BY HOLDERS OF THE STRYPES
ON THE MATURITY DATE WILL BE EQUAL TO OR GREATER THAN THE ISSUE PRICE OF THE
STRYPES. IF THE REFERENCE PROPERTY VALUE IS LESS THAN THE INITIAL PRICE, SUCH
AMOUNT RECEIVABLE ON THE MATURITY DATE WILL BE LESS THAN THE ISSUE PRICE PAID
FOR THE STRYPES, IN WHICH CASE AN INVESTMENT IN STRYPES WILL RESULT IN A LOSS.
Notwithstanding the foregoing, the Company may, in lieu of delivering the
applicable percentage of each type of Reference Property, deliver cash in an
amount equal to the sum of (a) for any portion of the Reference Property
consisting of cash that is otherwise deliverable on the Maturity Date, the
amount of such cash, without interest thereon, (b) for any portion of the
Reference Property consisting of property other than cash or Reference
Securities that is otherwise deliverable on the Maturity Date, the fair market
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose by the Company) as of the third Trading Day
preceding the Maturity Date of such property, and (c) for any portion of the
Reference Property consisting of a Reference Security (as defined below) that
is otherwise deliverable
S-13
<PAGE>
on the Maturity Date (except as described under "Reference Property
Adjustments" below), an amount equal to the average Closing Price (as defined
below) per unit of such Reference Security on the 20 Trading Days immediately
prior to, but not including, the second Trading Day preceding the Maturity Date
multiplied by the number of units of such Reference Security constituting part
of the Reference Property, subject to the Company's agreement contained in the
Purchase Agreement to deliver on the Maturity Date the form of consideration
that the ML&Co. Subsidiary receives from GVI. Such right, if exercised by the
Company, must be exercised with respect to all Reference Property otherwise
deliverable on the Maturity Date in payment of all outstanding STRYPES. On or
prior to the sixth Business Day prior to the Maturity Date, the Company will
notify The Depository Trust Company and the Trustee and publish a notice in The
Wall Street Journal or another daily newspaper of national circulation stating
whether the STRYPES will be paid and discharged by delivery of the applicable
percentage of each type of Reference Property or cash. At the time such notice
is published, the Reference Property Value will not have been determined. If
the Company elects to deliver Reference Property, holders of the STRYPES will
be responsible for the payment of any and all brokerage costs upon the
subsequent sale thereof.
The term "Reference Property" initially means one share of IMC Common Stock
and shall be subject to adjustment from time to time prior to the Maturity Date
to reflect the addition or substitution of any cash, securities and/or other
property resulting from the application of the adjustment provisions described
herein. See "--Reference Property Adjustments" below. The term "Reference
Security" means, at any time, any security (as defined in Section 2(1) of the
Securities Act) then constituting part of the Reference Property. The term
"Reference Property Value" means, subject to the adjustment provisions
described below, the sum of (a) for any portion of the Reference Property
consisting of cash, the amount of such cash, (b) for any portion of the
Reference Property consisting of property other than cash or Reference
Securities, the fair market value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the Company)
as of the third Trading Day preceding the Maturity Date of such property, and
(c) for any portion of the Reference Property consisting of a Reference
Security, an amount equal to the average Closing Price per unit of such
Reference Security on the 20 Trading Days immediately prior to, but not
including, the second Trading Day preceding the Maturity Date multiplied by the
number of units of such Reference Security constituting part of the Reference
Property. The "Closing Price" of any Reference Security on any date of
determination means the closing sale price (or, if no closing price is
reported, the last reported sale price) of such Reference Security on the NYSE
on such date or, if such Reference Security is not listed for trading on the
NYSE on any such date, as reported in the composite transactions for the
principal United States securities exchange on which such Reference Security is
so listed, or if such Reference Security is not so listed on a United States
national or regional securities exchange, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System, or, if such
Reference Security is not so reported, the last quoted bid price for such
Reference Security in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or, if such bid price is not
available, the market value of such Reference Security on such date as
determined by a nationally recognized independent investment banking firm
retained for this purpose by the Company. A "Trading Day" is defined as a day
on which the Reference Security the Closing Price of which is being determined
(A) is not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of business and
(B) has traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of such Reference Security.
For illustrative purposes only, the following table shows the number of
shares of IMC Common Stock or the amount of cash that a holder of STRYPES would
receive for each STRYPES at various Reference Property Values. The table
assumes that there will be no Reference Property adjustments as described below
and, accordingly, that on the Maturity Date the Reference Property will consist
of one share of IMC Common Stock. There can be no assurance that the Reference
Property Value will be within the range set forth below. Given the Initial
Price of $38.25 and the Threshold Appreciation Price of $46.28, a STRYPES
holder would receive on the Maturity Date the following number of shares of IMC
Common Stock or amount of cash (if the Company elects to pay and discharge the
STRYPES with cash) per STRYPES:
S-14
<PAGE>
<TABLE>
<CAPTION>
REFERENCE NUMBER OF AMOUNT
PROPERTY SHARES OF IMC OF
VALUE COMMON STOCK CASH
--------- ------------- ------
<S> <C> <C>
$35.00 1.0000 $35.00
38.25 1.0000 38.25
42.00 0.9107 38.25
46.28 0.8265 38.25
50.00 0.8265 41.33
</TABLE>
REFERENCE PROPERTY ADJUSTMENTS
The Reference Property is subject to adjustment if an issuer of a Reference
Security shall: (i) subdivide or split the outstanding units of such Reference
Security into a greater number of units; (ii) combine the outstanding units of
such Reference Security into a smaller number of units; (iii) issue by
reclassification of units of such Reference Security any units of another
security of such issuer; (iv) issue rights or warrants to all holders of such
Reference Security entitling them, for a period expiring prior to the fifteenth
calendar day following the Maturity Date, to subscribe for or purchase any of
its securities or other property (other than rights to purchase units of such
Reference Security pursuant to a plan for the reinvestment of dividends or
interest); or (v) pay a dividend or make a distribution to all holders of such
Reference Security of cash, securities or other property (excluding any cash
dividend on any Reference Security consisting of capital stock that does not
constitute an Extraordinary Cash Dividend (as defined below), excluding any
payment of interest on any Reference Security consisting of an evidence of
indebtedness and excluding any dividend or distribution referred to in clause
(i), (ii), (iii) or (iv) above) or issue to all holders of such Reference
Security rights or warrants to subscribe for or purchase any of its securities
or other property (other than those referred to in clause (iv) above) (any of
the foregoing cash, securities or other property or rights or warrants are
referred to as the "Distributed Assets").
In the case of the events referred to in clauses (i), (ii) and (iii) above,
the Reference Property shall be adjusted to include the number of units of such
Reference Security and/or other security of such issuer which a holder of units
of such Reference Security would have owned or been entitled to receive
immediately following any such event had such holder held, immediately prior to
such event, the number of units of such Reference Security constituting part of
the Reference Property immediately prior to such event. Each such adjustment
shall become effective immediately after the effective date for such
subdivision, split, combination or reclassification, as the case may be. Each
such adjustment shall be made successively.
In the case of the event referred to in clause (iv) above, the Reference
Property shall be adjusted to include an amount in cash equal to the fair
market value (determined as described below), as of the fifth Business Day
(except as provided below) following the date on which such rights or warrants
are received by securityholders entitled thereto (the "Receipt Date"), of each
such right or warrant multiplied by the product of (A) the number of such
rights or warrants issued for each unit of such Reference Security and (B) the
number of units of such Reference Security constituting part of the Reference
Property on the date of issuance of such rights or warrants, immediately prior
to such issuance, without interest thereon. For purposes of the foregoing, the
fair market value of each such right or warrant shall be the quotient of (x)
the highest net bid, as of approximately 10:00 A.M., New York City time, on the
fifth Business Day following the Receipt Date for settlement three Business
Days later, by a recognized securities dealer in The City of New York selected
by or on behalf of the Company (from three (or such fewer number of dealers as
may be providing such bids) such recognized dealers selected by or on behalf of
the Company), for the purchase by such quoting dealer of the number of rights
or warrants (the "Aggregate Number") that a holder of such Reference Security
would receive if such holder held, as of the record date for determination of
stockholders entitled to receive such rights or warrants, a number of units of
such Reference Security equal to the product of (1) the aggregate number of
Outstanding STRYPES as of such record date and (2) the number of units of such
Reference Security constituting part of the Reference Property, divided by (y)
the Aggregate Number. Each such adjustment shall become effective on the fifth
Business Day following the Receipt Date of such rights or warrants. If for any
reason the Company is unable to obtain the required bid on the fifth Business
Day
S-15
<PAGE>
following the Receipt Date, it shall attempt to obtain such bid at successive
intervals of three months thereafter and on the third Trading Day prior to the
Maturity Date until it is able to obtain the required bid. From the date of
issuance of such rights or warrants until the required bid is obtained, the
Reference Property shall include the number of such rights or warrants issued
for each unit of such Reference Security multiplied by the number of units of
such Reference Security constituting part of the Reference Property on the date
of issuance of such rights or warrants, immediately prior to such issuance, and
such rights or warrants constituting part of the Reference Property shall be
deemed for all purposes hereof to have a fair market value of zero.
In the case of the event referred to in clause (v) above, the Reference
Property shall be adjusted to include, from and after such dividend,
distribution or issuance, (x) in respect of that portion, if any, of the
Distributed Assets consisting of cash, the amount of such Distributed Assets
consisting of cash received for each unit of such Reference Security multiplied
by the number of units of such Reference Security constituting part of the
Reference Property on the date of such dividend, distribution or issuance,
immediately prior to such dividend, distribution or issuance, without interest
thereon, plus (y) in respect of that portion, if any, of the Distributed Assets
which are other than cash, the number or amount of each type of Distributed
Assets other than cash received with respect to each unit of such Reference
Security multiplied by the number of units of such Reference Security
constituting part of the Reference Property on the date of such dividend,
distribution or issuance, immediately prior to such dividend, distribution or
issuance.
An "Extraordinary Cash Dividend" means, with respect to any consecutive 12-
month period, the amount, if any, by which the aggregate amount of all cash
dividends on any Reference Security consisting of capital stock occurring in
such 12-month period (or, if such Reference Security was not outstanding at the
commencement of such 12-month period, occurring in such shorter period during
which such Reference Security was outstanding) exceeds on a per share basis 12%
of the average of the Closing Prices per share of such Reference Security over
such 12-month period (or such shorter period during which such Reference
Security was outstanding); provided that, for purposes of the foregoing
definition, the amount of cash dividends paid on a per share basis will be
appropriately adjusted to reflect the occurrence during such period of any
stock dividend or distribution of shares of capital stock of the issuer of such
Reference Security or any subdivision, split, combination or reclassification
of shares of such Reference Security.
In the event of (A) any consolidation or merger of an issuer of a Reference
Security with or into another entity (other than a merger or consolidation in
which such issuer is the continuing corporation and in which the Reference
Security outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of such issuer or another
entity), (B) any statutory exchange of securities of an issuer of a Reference
Security with another entity (other than in connection with a merger or
acquisition) or (C) any liquidation, dissolution, winding up or bankruptcy of
an issuer of a Reference Security (excluding any distribution in such event
referred to in clause (v) above) (any such event described in clause (A), (B)
or (C), a "Reorganization Event"), the Reference Property shall be adjusted to
include, from and after the effective date for such Reorganization Event, in
lieu of the number of units of such Reference Security constituting part of the
Reference Property immediately prior to the effective date for such
Reorganization Event, the amount or number of any cash, securities and/or other
property owned or received in such Reorganization Event with respect to each
unit of such Reference Security multiplied by the number of units of such
Reference Security constituting part of the Reference Property immediately
prior to the effective date for such Reorganization Event.
No adjustments will be made for certain other events, such as offerings of
IMC Common Stock by IMC for cash or in connection with acquisitions. Likewise,
no adjustments will be made for any sales of IMC Common Stock by GVI.
The Company is required, within ten Business Days following the occurrence of
an event that requires an adjustment to the Reference Property (or if the
Company is not aware of such occurrence, as soon as practicable after becoming
so aware), to provide written notice to the Trustee and to the holders of the
S-16
<PAGE>
STRYPES of the occurrence of such event and a statement in reasonable detail
setting forth the amount or number of each type of Reference Security and other
property then constituting part of the Reference Property.
FRACTIONAL INTERESTS
No fractional units of any Reference Security will be delivered if the
Company pays and discharges the STRYPES by delivering Reference Property. In
lieu of any fractional unit otherwise deliverable in respect of all STRYPES of
any holder on the Maturity Date, such holder shall be entitled to receive an
amount in cash equal to the value of such fractional unit based on the average
Closing Price per unit of such Reference Security on the 20 Trading Days
immediately prior to, but not including, the second Trading Day preceding the
Maturity Date.
To the extent practicable, the Company will deliver fractional interests of
any Reference Property other than cash or a Reference Security if the Company
pays and discharges the STRYPES by delivering Reference Property. If such
delivery is not practicable, in lieu of delivering any such fractional interest
otherwise deliverable in respect of all STRYPES of any holder on the Maturity
Date, such holder shall be entitled to receive an amount in cash equal to the
value of such fractional interest based on the fair market value (as determined
by a nationally recognized independent investment banking firm retained for
this purpose by the Company) as of the third Trading Day preceding the Maturity
Date of such Reference Property other than cash or a Reference Security.
REDEMPTION, SINKING FUND AND PAYMENT PRIOR TO MATURITY
The STRYPES are not subject to redemption by the Company prior to the
Maturity Date and do not contain sinking fund or other mandatory redemption
provisions. The STRYPES are not subject to payment prior to the Maturity Date
at the option of the holder.
RANKING
The STRYPES will be unsecured obligations and will rank pari passu with all
other unsecured and unsubordinated indebtedness of the Company. At March 29,
1996, the Company had long-term borrowings outstanding of $20,226 million. In
addition, at March 29, 1996, there were $526 million of bank loans and $17,222
million of commercial paper outstanding.
The Company had no secured debt at March 29, 1996. At such date,
collateralized financing transactions of the Company's subsidiaries consisted
of $3,768 million of cash deposits for securities loaned and $61,657 million of
securities sold under agreements to repurchase. See Note 4 to "Summary
Financial Information" in the ML&Co. Prospectus.
There are no contractual restrictions on the ability of the Company or its
subsidiaries to incur additional secured or unsecured debt. However, borrowings
by certain subsidiaries, including MLPF&S, are restricted by net capital
requirements under the Exchange Act and under rules of certain exchanges and
other regulatory bodies. See "Description of the STRYPES--Ranking" in the
ML&Co. Prospectus.
PURCHASE AGREEMENT
Pursuant to the Purchase Agreement described under "Certain Arrangements with
GVI," GVI is obligated to deliver to the ML&Co. Subsidiary immediately prior to
the Maturity Date the Reference Property required by the Company to pay and
discharge all of the STRYPES (including any STRYPES issued pursuant to the
over-allotment option granted by the Company to the Underwriter). In lieu of
delivering the Reference Property immediately prior to the Maturity Date, GVI
has the right to satisfy its obligation under the Purchase Agreement by
delivering at such time cash in an amount equal to the value of such Reference
Property immediately prior to the Maturity Date. Such right, if exercised by
GVI, must be exercised with respect to all of the Reference Property
deliverable pursuant to the Purchase Agreement.
LISTING
The STRYPES have been approved for listing on the NYSE, subject to official
notice of issuance.
S-17
<PAGE>
CERTAIN ARRANGEMENTS WITH GVI
Pursuant to the Purchase Agreement, GVI is obligated to deliver to the ML&Co.
Subsidiary immediately prior to the Maturity Date the Reference Property
required by the Company to pay and discharge all of the STRYPES. In lieu of
delivering the Reference Property immediately prior to the Maturity Date, GVI
has the right to satisfy its obligation under the Purchase Agreement by
delivering at such time cash in an amount equal to the value of such Reference
Property immediately prior to the Maturity Date. Such right, if exercised by
GVI, must be exercised with respect to all of the Reference Property
deliverable pursuant to the Purchase Agreement. Under the Purchase Agreement,
the Company has agreed to pay and discharge the STRYPES by delivering to the
holders thereof on the Maturity Date the form of consideration that the ML&Co.
Subsidiary receives from GVI. The consideration to be paid by the ML&Co.
Subsidiary under the Purchase Agreement is $153,382,017 in the aggregate, and
is payable to GVI on or about July 9, 1996. No other consideration is payable
by the ML&Co. Subsidiary to GVI in connection with its acquisition of the
Reference Property pursuant to the Purchase Agreement or the performance of the
Purchase Agreement by GVI. The Company has agreed with GVI that, without the
prior consent of GVI, it will not amend the Indenture in any respect that would
adversely affect any obligation of GVI under the Purchase Agreement, including,
without limitation, increasing the consideration that GVI is obligated to
deliver pursuant to the Purchase Agreement.
Until such time, if any, as GVI shall have delivered the Reference Property
to the ML&Co. Subsidiary pursuant to the terms of the Purchase Agreement, GVI
will retain all ownership rights with respect to the Reference Property held by
it (including, without limitation, voting rights and rights to receive any
dividends, interest or other distributions in respect thereof).
GVI has no obligations with respect to the STRYPES or amounts to be paid to
holders thereof, including any obligation to take the needs of the Company or
of holders of the STRYPES into consideration in determining whether to deliver
the Reference Property or cash or for any other reason. The Purchase Agreement
among the Company, the ML&Co. Subsidiary and GVI is a commercial transaction
and does not create any rights in, or for the benefit of, any holder of
STRYPES.
In the event GVI does not perform under the Purchase Agreement, the Company
will be required to otherwise acquire the Reference Property for delivery to
the holders of the STRYPES on the Maturity Date, unless it elects to exercise
its option to deliver cash with an equal value.
For more information regarding the relationship between GVI and IMC and the
IMC Common Stock (including the preferred stock purchase rights associated
therewith) that may be delivered to the holders of STRYPES on the Maturity
Date, see the IMC Prospectus which accompanies this Prospectus Supplement and
the ML&Co. Prospectus.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth in full below is the opinion of Brown & Wood LLP, counsel to the
Company, as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the STRYPES. Such opinion is based upon
laws, regulations, rulings and decisions now in effect (or, in the case of
certain regulations, in proposed form or in final form but not yet effective),
all of which are subject to change (including retroactive changes in effective
dates) or possible differing interpretations. The discussion below deals only
with STRYPES held as capital assets and does not purport to deal with persons
in special tax situations, such as financial institutions, insurance companies,
regulated investment companies, dealers in securities or currencies, tax-exempt
entities, or persons holding STRYPES as a hedge against currency risks or as a
position in a "straddle" for tax purposes. It also does not deal with holders
of STRYPES other than original purchasers thereof (except where otherwise
specifically noted herein). The following discussion also does not address the
tax consequences of investing in the STRYPES arising under the laws of any
state, local or foreign jurisdiction. Persons considering the purchase of the
STRYPES should consult their own tax advisors concerning 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 STRYPES
arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a STRYPES
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 STRYPES 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 STRYPES that
is not a U.S. Holder.
GENERAL
There are no statutory provisions, regulations (except possibly the Treasury
Regulations as described below), published rulings or judicial decisions
addressing or involving the characterization, for United States Federal income
tax purposes, of the STRYPES or securities with terms substantially the same as
the STRYPES. Accordingly, the proper United States Federal income tax
characterization and treatment of the STRYPES is uncertain. Pursuant to the
terms of the Indenture, the Company and any holder of a STRYPES agree to treat
each STRYPES as a unit (a "Unit") consisting of (i) a debt instrument (the
"Debt Instrument") with a fixed principal amount unconditionally payable on the
Maturity Date equal to the issue price of the STRYPES and bearing interest at
the stated interest rate on the STRYPES and (ii) a forward purchase contract
(the "Forward Contract") pursuant to which the holder agrees to use the
principal payment due on the Debt Instrument to purchase on the Maturity Date
the Reference Property which the Company is obligated to deliver at that time
(subject to the Company's right to deliver cash in lieu of the Reference
Property). Therefore, the Company currently intends to treat each STRYPES as a
Unit consisting of the Debt Instrument and the Forward Contract for United
States Federal income tax purposes and, where required, intends to file
information returns with the Internal Revenue Service ("IRS") in accordance
with such treatment, in the absence of any change or clarification in the law,
by regulation or otherwise, requiring a different characterization and
treatment of the STRYPES for United States Federal income tax purposes. In the
opinion of Brown & Wood LLP, counsel to the Company, such characterization and
tax treatment of the STRYPES, although not the only reasonable characterization
and tax treatment, is based on reasonable interpretations of law currently in
effect and, even if successfully challenged by the IRS, will not result in the
imposition of penalties.
Prospective investors in the STRYPES should be aware, however, that no ruling
is being requested from the IRS with respect to the STRYPES, the IRS is not
bound by the characterization of each STRYPES by the Company and the holders
thereof as a Unit consisting of the Debt Instrument and the Forward Contract,
and the IRS could possibly assert a different position as to the proper United
States Federal income tax characterization and treatment of the STRYPES. For
instance, it is possible that the IRS could assert that
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each STRYPES should be treated entirely as a single debt instrument of the
Company for United States Federal income tax purposes. Except where otherwise
specifically provided herein, the following discussion of the principal United
States Federal income tax consequences of the purchase, ownership and
disposition of the STRYPES is based upon the assumption that each STRYPES will
be characterized and treated as a Unit consisting of the Debt Instrument and
the Forward Contract for United States Federal income tax purposes. As
discussed in greater detail herein, if the STRYPES are not in fact ultimately
characterized and treated as a Unit consisting of the Debt Instrument and the
Forward Contract for United States Federal income tax purposes, then the United
States Federal income tax treatment of the purchase, ownership and disposition
of the STRYPES could significantly differ from the treatment discussed
immediately below with the result that the timing and character of income, gain
or loss recognized on a STRYPES could significantly differ from the timing and
character of income, gain or loss recognized on a STRYPES had each STRYPES in
fact been characterized and treated as a Unit consisting of the Debt Instrument
and the Forward Contract for United States Federal income tax purposes.
U.S. HOLDERS
As previously discussed, pursuant to the terms of the Indenture, the Company
and any holder of a STRYPES agree to treat each STRYPES as a Unit consisting of
the Debt Instrument and the Forward Contract. Consistent with this treatment of
the STRYPES, pursuant to the terms of the Indenture, a U.S. Holder of a STRYPES
will be required to include currently in income payments denominated as
interest that are made with respect to a STRYPES in accordance with such U.S.
Holder's regular method of tax accounting. Furthermore, pursuant to the
agreement contained in the Indenture to treat each STRYPES for tax purposes as
a Unit consisting of the Debt Instrument and the Forward Contract, any holder
of a STRYPES agrees to allocate the purchase price paid by such holder to
acquire the STRYPES between the two components of the Unit (i.e., the Debt
Instrument and the Forward Contract) based upon their relative fair market
values (as determined on the purchase date). The portion of the total purchase
price so allocated by the holder to each component of the Unit will generally
constitute the holder's initial tax basis for each such component of the Unit.
Accordingly, in the event that the fair market value of the Debt Instrument (as
determined on the purchase date) exceeds the purchase price paid by the holder
to acquire the STRYPES, the holder would be deemed to have acquired the Debt
Instrument for an amount equal to the fair market value of the Debt Instrument
(as determined on the purchase date) and would be deemed to have assumed the
Forward Contract component of the STRYPES in exchange for a payment in an
amount equal to the excess of the fair market value of the Debt Instrument (as
determined on the purchase date) over the purchase price paid by the holder to
acquire the STRYPES. In such event, such deemed payment received by the holder
in respect of the Forward Contract should only be taken into account by the
holder as an additional amount realized with respect to the Forward Contract on
the earlier of the sale or other disposition of the STRYPES by the holder or
the Maturity Date (which would either reduce the holder's tax basis in any
Reference Property received thereby or, if the STRYPES are paid in cash on the
Maturity Date or sold prior to the Maturity Date, increase the amount of gain
or decrease the amount of loss realized with respect to the Forward Contract).
Pursuant to the terms of the Indenture, with respect to acquisitions of STRYPES
in connection with the original issuance thereof, the Company and the holders
agree to allocate $37.045 of the entire initial purchase price of a STRYPES
(i.e., the issue price of a STRYPES) to the Debt Instrument component and to
allocate the remaining $1.205 of the entire initial purchase price of a STRYPES
to the Forward Contract component. Based upon the foregoing, pursuant to the
agreement to treat each STRYPES as a Unit consisting of the Debt Instrument and
the Forward Contract, a holder who acquires a STRYPES in connection with the
original issuance thereof, will have agreed to treat such acquisition of the
STRYPES by the holder as a purchase of the Debt Instrument by the holder for
$37.045 and the making of an initial payment by the holder with respect to the
Forward Contract of $1.205.
Under general principles of current United States Federal income tax law,
payments of interest on a debt instrument (e.g., the Debt Instrument) generally
will be taxable to a U.S. Holder as ordinary interest income at the time such
payments are accrued or are received (in accordance with the U.S. Holder's
regular
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method of tax accounting). In addition, a debt instrument will be treated as
having been issued with original issue discount for United States Federal
income tax purposes to the extent that the stated redemption price at maturity
of the debt instrument (generally the debt instrument's stated principal
amount) exceeds the debt instrument's issue price, if such excess equals or
exceeds a de minimis amount (generally 1/4 of 1% of the debt instrument's
stated redemption price at maturity multiplied by the number of complete years
to maturity from its issue date). Pursuant to the agreement to treat each
STRYPES as a Unit consisting of the Debt Instrument and the Forward Contract,
each such Debt Instrument component will be treated, for these purposes as
having an issue price equal to $37.045. Since the stated redemption price at
maturity of each such Debt Instrument component (i.e., $38.25) exceeds its
issue price (i.e., $37.045) by an amount that is greater than $.478 (i.e., the
applicable de minimis amount), the Debt Instrument component of each Unit will
be treated as having been issued with any original issue discount.
Under the foregoing principles and in accordance with the agreement to treat
each STRYPES as a Unit consisting of the Debt Instrument and the Forward
Contract, the quarterly interest payments payable with respect to the STRYPES
at the stated interest rate of 6 1/4% of the issue price of the STRYPES per
annum (the "Interest Payments") generally will be taxable to a U.S. Holder as
ordinary interest income on the respective dates that such Interest Payments
are accrued or are received (in accordance with the U.S. Holder's regular
method of tax accounting). In addition, as previously discussed, each Debt
Instrument component will be treated as having been issued with original issue
discount in an amount equal to $1.205. In general, such original issue discount
will be includible in income by a U.S. Holder as ordinary interest as it
accrues over the term of the STRYPES under a constant yield method, regardless
of the U.S. Holder's regular method of tax accounting. On the Maturity Date,
pursuant to the agreement to treat each STRYPES as a Unit consisting of the
Debt Instrument and the Forward Contract, a U.S. Holder will recognize capital
gain or loss with respect to the Debt Instrument in an amount equal to the
difference, if any, between the principal amount of the Debt Instrument (i.e.,
the issue price of the STRYPES) and such U.S. Holder's adjusted tax basis in
the Debt Instrument. A U.S. Holder's adjusted tax basis in the Debt Instrument
generally will equal such U.S. Holder's initial investment in the Debt
Instrument increased by any original issue discount included in income by such
U.S. Holder. Such capital gain or loss will generally be long-term capital gain
or loss if the STRYPES has been held by the U.S. Holder for more than one year
as of the Maturity Date. In addition, pursuant to the agreement to treat each
STRYPES as a Unit consisting of the Debt Instrument and the Forward Contract,
on the Maturity Date, if the Company delivers the Reference Property upon
payment of the STRYPES, a U.S. Holder will generally not realize any taxable
gain or loss on the exchange, pursuant to the Forward Contract, of the
principal amount of the Debt Instrument for the Reference Property. However, a
U.S. Holder will generally be required to recognize taxable gain or loss with
respect to any cash received in lieu of fractional interests and any Reference
Property consisting of cash. The amount of such gain or loss recognized by a
U.S. Holder will be equal to the difference, if any, between the amount of cash
received by the U.S. Holder and the portion of the sum of the principal amount
of the Debt Instrument and the U.S. Holder's tax basis in the Forward Contract
that is allocable to the fractional interests and any Reference Property
consisting of cash. Any such taxable gain or loss attributable to cash received
in lieu of fractional interests will be treated as short-term capital gain or
loss, and, because the matter is uncertain, any such taxable gain or loss
attributable to any Reference Property consisting of cash could be treated as
short-term capital gain or loss, as long-term or short-term capital gain or
loss (depending upon the U.S. Holder's holding period for the STRYPES), or as
ordinary income or loss. A U.S. Holder will have an initial tax basis (as
allocated among the Reference Property in accordance with the relative fair
market values thereof, as determined on the Maturity Date) in any Reference
Property (other than any cash received in lieu of fractional interests and any
Reference Property consisting of cash) received on the Maturity Date in an
amount equal to the sum of the principal amount of the Debt Instrument and the
U.S. Holder's tax basis in the Forward Contract less the portion of such sum
that is allocable to any fractional interests and any Reference Property
consisting of cash (as described above) and will realize taxable gain or loss
with respect to such Reference Property received on the Maturity Date only upon
the subsequent sale or disposition by the U.S. Holder of such Reference
Property. In addition, a U.S. Holder's holding period for any Reference
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Property received by such U.S. Holder on the Maturity Date will begin on the
day immediately following the Maturity Date and will not include the period
during which the U.S. Holder held such STRYPES.
Alternatively, pursuant to the agreement to treat the STRYPES as a Unit
consisting of the Debt Instrument and the Forward Contract, if the Company pays
the STRYPES in cash on the Maturity Date, a U.S. Holder will recognize taxable
gain or loss on the Maturity Date with respect to the Forward Contract (in
addition to any gain or loss recognized with respect to the Debt Instrument as
described above) in an amount equal to the difference, if any, between the
total amount of cash received by such U.S. Holder on the Maturity Date and an
amount equal to the sum of the principal amount of the Debt Instrument and the
U.S. Holder's tax basis in the Forward Contract. It is uncertain whether such
gain or loss would be treated as capital or ordinary gain or loss. If such gain
or loss is properly treated as capital gain or loss, then such gain or loss
generally will be treated as long-term capital gain or loss if the STRYPES has
been held by the U.S. Holder for more than one year as of the Maturity Date. If
such gain or loss is properly treated as ordinary gain or loss, it is possible
that the deductibility of any loss recognized on the Maturity Date with respect
to the Forward Contract by a U.S. Holder who is an individual could be subject
to the limitations applicable to miscellaneous itemized deductions provided for
under Section 67(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). In general, Section 67(a) of the Code provides that an individual may
only deduct miscellaneous itemized deductions for a particular taxable year to
the extent that the aggregate amount of the individual's miscellaneous itemized
deductions for such taxable year exceed two percent of the individual's
adjusted gross income for such taxable year (although the miscellaneous
itemized deductions allowable to high-income individuals are generally subject
to further limitations). Prospective investors in the STRYPES are urged to
consult their own tax advisors concerning the character of any gain or loss
realized on the Maturity Date with respect to the Forward Contract in the event
that either (i) the Reference Property consists of cash, securities (other than
IMC Common Stock) or other property or (ii) the Company elects to pay the
STRYPES in cash on the Maturity Date as well as the deductibility of any such
loss.
Pursuant to the agreement to treat each STRYPES as a Unit consisting of the
Debt Instrument and the Forward Contract, upon the sale or other disposition of
a STRYPES prior to the Maturity Date, a U.S. Holder generally will be required
to allocate the total amount realized by such U.S. Holder upon such sale or
other disposition (other than amounts representing accrued and unpaid Interest
Payments) between the two components of the Unit (i.e., the Debt Instrument and
the Forward Contract) based upon their relative fair market values (as
determined on the date of disposition). Accordingly, in the event that the fair
market value of the Debt Instrument (as determined on the date of disposition)
exceeds the actual amount realized by the U.S. Holder upon the sale or other
disposition of a STRYPES prior to the Maturity Date, the U.S. Holder would be
deemed to have sold the Debt Instrument for an amount equal to the fair market
value of the Debt Instrument (as determined on the date of disposition) and
would be deemed to have made a payment to the purchaser of the STRYPES in
exchange for such purchaser's assumption of the Forward Contract in an amount
equal to the excess of the fair market value of the Debt Instrument (as
determined on the date of disposition) over the actual amount realized by the
U.S. Holder upon such sale or disposition of the STRYPES. A U.S. Holder will
generally be required to recognize taxable gain or loss with respect to each
such component in an amount equal to the difference, if any, between (or, in
some cases, the sum of) the amount realized (or paid) with respect to each such
component upon the sale or disposition of the STRYPES (as determined in the
manner described above) and the U.S. Holder's adjusted tax basis in each such
component (or, the amount deemed to have been realized by the U.S. Holder in
respect of the Forward Contract). Any such gain or loss will generally be
treated as long-term capital gain or loss if the U.S. Holder has held the
STRYPES for more than one year at the time of disposition.
As previously discussed, prospective investors in the STRYPES should be aware
that the IRS is not bound by the characterization of the STRYPES by the Company
and the holders thereof as a Unit consisting of the Debt Instrument and the
Forward Contract, and the IRS could possibly assert a different position as to
the proper United States Federal income tax characterization and treatment of
the STRYPES. For instance, it is possible that the IRS could assert that each
STRYPES should be treated entirely as a single debt instrument of the Company
for United States Federal income tax purposes.
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If the STRYPES were ultimately characterized and treated entirely as debt
instruments of the Company for United States Federal income tax purposes, then
the timing and character of income, gain or loss recognized on a STRYPES would
differ from the timing and character of income, gain or loss recognized on a
STRYPES had each STRYPES in fact been characterized and treated for United
States Federal income tax purposes as a Unit consisting of the Debt Instrument
and the Forward Contract. If the STRYPES were ultimately characterized and
treated entirely as indebtedness of the Company for United States Federal
income tax purposes, under general principles of current United States Federal
income tax law, the Interest Payments generally would be taxable to a U.S.
Holder as ordinary interest income on the respective dates that such Interest
Payments are accrued or are received (in accordance with the U.S. Holder's
regular method of tax accounting). Under this same analysis and treatment of
each STRYPES as a single debt instrument of the Company for United States
Federal income tax purposes, under general principles of current United States
Federal income tax law, if the fair market value (as determined on the Maturity
Date) of the amount of Reference Property or cash in lieu thereof payable on
the Maturity Date with respect to a STRYPES exceeds the issue price thereof,
such excess could be treated as contingent interest and, if so treated,
generally would be includible in income by a U.S. Holder as ordinary interest
on the Maturity Date (regardless of the U.S. Holder's regular method of tax
accounting). In addition, if the fair market value (as determined on the
Maturity Date) of the Reference Property or cash in lieu thereof payable on the
Maturity Date with respect to a STRYPES exceeds the issue price thereof, then
such STRYPES would be treated as having been retired on the Maturity Date in
exchange for an amount equal to the issue price thereof. If, however, the fair
market value (as determined on the Maturity Date) of the Reference Property or
cash in lieu thereof payable on the Maturity Date with respect to a STRYPES is
equal to or less than the issue price thereof, then such STRYPES would be
treated as having been retired on the Maturity Date in exchange for an amount
equal to the fair market value (as determined on the Maturity Date) of the
entire amount payable on the Maturity Date with respect to such STRYPES and no
portion of the amount payable on the Maturity Date with respect to such STRYPES
would be treated as contingent interest. A U.S. Holder's initial tax basis in
any Reference Property received by such U.S. Holder on the Maturity Date of a
STRYPES would equal the fair market value (as determined on the Maturity Date)
of the Reference Property received by such U.S. Holder. Furthermore, a U.S.
Holder's holding period for any Reference Property received by such U.S. Holder
on the Maturity Date of a STRYPES would begin on the day immediately following
the Maturity Date and would not include the period during which the U.S. Holder
held such STRYPES.
Moreover, under this analysis and treatment of each STRYPES as a single debt
instrument of the Company for United States Federal income tax purposes, upon
the sale, exchange or retirement of a STRYPES, a U.S. Holder generally would
recognize taxable gain or loss in an amount equal to the difference, if any,
between the amount realized on the sale, exchange or retirement (other than
amounts representing accrued and unpaid Interest Payments) and such U.S.
Holder's adjusted tax basis in the STRYPES. A U.S. Holder's adjusted tax basis
in a STRYPES generally would equal such U.S. Holder's initial investment in the
STRYPES (as adjusted pursuant to the market discount and bond premium rules
described below). Such gain or loss generally would be long-term capital gain
or loss if the STRYPES were held by the U.S. Holder for more than one year
(subject to the market discount rules, as discussed below). It is possible,
however, that under this analysis and treatment of the STRYPES the IRS could
assert that any amounts realized upon the sale or exchange of a STRYPES prior
to the Maturity Date in excess of the STRYPES issue price constitutes ordinary
interest income (subject to the bond premium rules, as discussed below).
Nonetheless, if the STRYPES were ultimately characterized and treated entirely
as indebtedness of the Company for United States Federal income tax purposes,
although the matter is not free from doubt, in the opinion of Brown & Wood LLP,
counsel to the Company, under current law, any gain realized upon the sale or
exchange of a STRYPES prior to the Maturity Date should be treated entirely as
capital gain (subject to the market discount rules, as discussed below).
Prospective investors in the STRYPES should also be aware that on June 11,
1996, the Treasury Department issued final regulations (the "Treasury
Regulations") concerning the proper United States Federal income tax treatment
of contingent payment debt instruments. In the event that the STRYPES were
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characterized and treated entirely as debt instruments of the Company for
United States Federal income tax purposes, the STRYPES would be treated as
contingent payment debt instruments. The Treasury Regulations, however, only
apply to debt instruments issued on or after August 13, 1996. Accordingly, due
to the effective date of the Treasury Regulations, the Treasury Regulations
will not apply to the STRYPES even if the STRYPES were characterized and
treated entirely as debt instruments of the Company for United States Federal
income tax purposes. In general, the Treasury Regulations would cause the
timing and character of income, gain or loss reported on a contingent payment
debt instrument to substantially differ from the timing and character of
income, gain or loss reported on a contingent payment debt instrument under
general principles of current United States Federal income tax law (as
described immediately above). The Treasury Regulations provide no definitive
guidance as to whether or not an instrument is properly characterized as a
single debt instrument for United States Federal income tax purposes.
Prospective investors in the STRYPES are urged to consult their own tax
advisors concerning the effect, if any, of the Treasury Regulations on their
investment in the STRYPES.
Prospective investors in the STRYPES should also be aware that it is possible
that the ultimate characterization and treatment of the STRYPES for United
States Federal income tax purposes could differ from the possible
characterizations and treatments described herein with the result that the
ultimate United States Federal income tax treatment of the purchase, ownership
and disposition of the STRYPES could significantly differ from any of the
treatments described herein.
Despite the foregoing, as previously discussed, pursuant to the agreement
contained in the Indenture to treat each STRYPES as a Unit consisting of the
Debt Instrument and the Forward Contract, the Company, where required,
currently intends to file information returns with the IRS treating each
STRYPES as a Unit consisting of the Debt Instrument and the Forward Contract
for United States Federal income tax purposes (as described above), in the
absence of any change or clarification in the law, by regulation or otherwise,
requiring another characterization and treatment of the STRYPES for United
States Federal income tax purposes.
MARKET DISCOUNT AND PREMIUM
In general, if a U.S. Holder purchases a debt instrument issued with original
issue discount (e.g., the Debt Instrument component of a Unit) for an amount
that is less than the adjusted issue price thereof (i.e., the issue price
thereof increased by any previously accrued original issue discount), the
amount of the difference will be treated as "market discount," unless such
difference is less than a specified de minimis amount (generally 1/4 of 1% of
the debt instrument's stated principal amount multiplied by the number of
complete years to maturity from the date the U.S. Holder purchased such debt
instrument).
Under the market discount rules, a U.S. Holder will be required to treat any
gain realized on the sale, exchange, retirement or other disposition of a debt
instrument as ordinary income to the extent of the lesser of (i) the amount of
such realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such debt instrument at
the time of such payment or disposition. Market discount will be considered to
accrue ratably during the period from the date of acquisition to the maturity
of the debt instrument, unless the U.S. Holder elects to accrue market discount
on the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a debt instrument with market discount until the maturity of
the debt instrument or its earlier disposition in a taxable transaction and
certain nontaxable transactions, because a current deduction is only allowed to
the extent that the interest expense exceeds an allocable portion of the market
discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the deferral of interest
deductions will not apply. Generally, such currently included market discount
is treated as ordinary interest income for United States Federal income tax
purposes
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and a U.S. Holder would increase its tax basis in a debt instrument by the
amount of any such currently included market discount. Such an election will
apply to all debt instruments acquired by the U.S. Holder on or after the first
day of the first taxable year to which such election applies and may be revoked
only with the consent of the IRS.
In general, a U.S. Holder who purchases a debt instrument issued with
original issue discount for an amount that is greater than its adjusted issue
price as of the purchase date and less than or equal to the principal amount
thereof will be considered to have purchased the debt instrument at an
"acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross income
with respect to such debt instrument for any taxable year (or portion thereof
in which the U.S. Holder holds the debt instrument) will be reduced (but not
below zero) by the portion of the acquisition premium properly allocable to the
period.
In general, if a U.S. Holder purchases a debt instrument issued with original
issue discount for an amount that is greater than the principal amount thereof,
such U.S. Holder will be considered to have purchased the debt instrument with
"amortizable bond premium" equal in amount to such excess. A U.S. Holder may
elect to amortize such premium using a constant yield method over the remaining
term of the debt instrument and may offset ordinary interest otherwise required
to be included in respect of the debt instrument during any taxable year by the
amortized amount of such premium for such year (or, prior years, if such
amortized premium for prior years has not yet offset interest) and would reduce
its tax basis in the debt instrument by the amount of any such interest offset
taken. Such election, if made, would apply to all debt instruments held by the
U.S. Holder at the beginning of the taxable year to which such election applies
and to all debt instruments acquired by the U.S. Holder thereafter. Such
election would also be irrevocable once made, unless the U.S. Holder making
such an election obtains the express written consent of the IRS to revoke such
election.
MISCELLANEOUS TAX MATTERS
Special tax rules may apply to persons holding a STRYPES as part of a
"synthetic security" or other integrated investment, or as part of a straddle,
hedging transaction or other combination of offsetting positions. For instance,
Section 1258 of the Code may possibly require certain U.S. Holders of the
STRYPES who enter into hedging transactions or offsetting positions with
respect to the STRYPES to treat all or a portion of any gain realized on the
STRYPES as ordinary income in instances where such gain may have otherwise been
treated as capital gain. U.S. Holders hedging their positions with respect to
the STRYPES or otherwise holding their STRYPES in a manner described above
should consult their own tax advisors regarding the applicability of Section
1258 of the Code, or any other provision of the Code, to their investment in
the STRYPES.
NON-U.S. HOLDERS
Based on the treatment of each STRYPES as a Unit consisting of the Debt
Instrument and the Forward Contract, in the case of a non-U.S. Holder, payments
made with respect to the STRYPES should not be subject to United States
withholding tax, provided that such non-U.S. Holder complies with applicable
certification requirements. Any capital gain realized upon the sale or other
disposition of a STRYPES by a non-U.S. Holder will generally not be subject to
United States Federal income tax if (i) such gain is not effectively connected
with a United States trade or business of such non-U.S. Holder and (ii) in the
case of an individual non-U.S. Holder, such individual is not present in the
United States for 183 days or more in the taxable year of the sale or other
disposition, or the gain is not attributable to a fixed place of business
maintained by such individual in the United States and such individual does not
have a "tax home" (as defined for United States Federal income tax purposes) in
the United States.
As discussed above, alternative characterizations of the STRYPES for United
States Federal income tax purposes are possible. Should an alternative
characterization of the STRYPES, by reason of a change or
S-25
<PAGE>
clarification of the law, by regulation or otherwise, cause payments with
respect to the STRYPES to become subject to withholding tax, the Company will
withhold tax at the statutory rate. Prospective non-U.S. Holders of the STRYPES
should consult their own tax advisors in this regard.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A beneficial owner of a STRYPES may be subject to information reporting and
to backup withholding at a rate of 31 percent of certain amounts paid to the
beneficial owner unless such beneficial owner provides proof of an applicable
exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the backup withholding rules.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter"), and the Underwriter has agreed to purchase
from the Company, 5,661,119 STRYPES. Under the terms and conditions of the
Underwriting Agreement, the Underwriter is committed to take and pay for all of
the STRYPES, if any are taken.
The Underwriter has advised the Company that it proposes initially to offer
the STRYPES directly to the public at the public offering price set forth on
the cover page of this Prospectus Supplement, and to certain dealers at such
price less a concession not to exceed $.69 per STRYPES. After the initial
public offering, the public offering price and concession may be changed.
The Company has granted the Underwriter an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
849,167 additional STRYPES at the public offering price set forth on the cover
page of this Prospectus Supplement, less the underwriting discount. The
Underwriter may exercise this option only to cover over-allotments, if any,
made on the sale of the STRYPES offered hereby.
IMC and its directors and certain officers have agreed not to offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, or file a
registration statement under the Securities Act with respect to, any shares of
IMC Common Stock, securities convertible into, exchangeable for or repayable
with such shares or rights or warrants to acquire such shares, for a period of
90 days after the date of this Prospectus Supplement without the prior written
consent of the Underwriter, subject to certain exceptions. GVI has agreed not
to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, or cause to be filed a registration statement under the Securities
Act with respect to, any shares of IMC Common Stock, securities convertible
into, exchangeable for or repayable with such shares or rights or warrants to
acquire such shares, for a period of 90 days after the date of this Prospectus
Supplement without the prior written consent of the Underwriter.
The underwriting of the STRYPES will conform to the requirements set forth in
the applicable sections of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
The STRYPES have been approved for listing on the NYSE, subject to official
notice of issuance.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act relating to this
Prospectus Supplement and the ML&Co. Prospectus (including the documents
incorporated by reference therein).
VALIDITY OF THE STRYPES
The validity of the STRYPES offered hereby will be passed upon for the
Company and for the Underwriter by Brown & Wood LLP, New York, New York.
S-26
<PAGE>
PROSPECTUS
[LOGO OF MERRILL LYNCH & CO., INC. APPEARS HERE]
MERRILL LYNCH & CO., INC.
STRYPES/SM/
PAYABLE WITH SHARES OF COMMON STOCK OR OTHER SECURITIES
OF THE UNDERLYING ISSUER
(OR CASH WITH AN EQUAL VALUE)
----------------
Merrill Lynch & Co., Inc. (the "Company") intends to sell from time to time
its Structured Yield Product Exchangeable for Stock/SM/, STRYPES/SM/. The
STRYPES will be offered to the public in series and on terms determined by
market conditions at the time of sale and set forth in the accompanying
prospectus supplement (the "Prospectus Supplement"). The STRYPES will be
unsecured obligations of the Company ranking pari passu with all of its other
unsecured and unsubordinated indebtedness. See "Description of the STRYPES--
Ranking."
On the maturity date of each series of STRYPES (the "Maturity Date"), the
Company will pay and discharge such STRYPES by delivering to the holder
thereof a number of shares of common stock or other securities (the
"Underlying Securities") of the unaffiliated corporation identified in the
Prospectus Supplement (the "Underlying Issuer") determined in accordance with
a payment rate formula specified in the Prospectus Supplement (subject to the
Company's right to deliver, with respect to all, but not less than all,
STRYPES of such series, cash with an equal value). THERE CAN BE NO ASSURANCE
THAT THE VALUE OF THE UNDERLYING SECURITIES (OR CASH) PAYABLE TO HOLDERS OF A
SERIES OF STRYPES ON THE MATURITY DATE WILL BE EQUAL TO OR GREATER THAN THE
ISSUE PRICE OF SUCH STRYPES. IF THE VALUE OF THE UNDERLYING SECURITIES (OR
CASH) RECEIVED ON THE MATURITY DATE OF A SERIES OF STRYPES IS LESS THAN THE
ISSUE PRICE PAID FOR SUCH STRYPES, AN INVESTMENT IN STRYPES WILL RESULT IN A
LOSS. SEE "DESCRIPTION OF THE STRYPES."
Each series of STRYPES may vary, where applicable, as to aggregate issue
price, Maturity Date, Underlying Issuer, Underlying Securities deliverable
upon maturity, formula or other method by which the amount of such Underlying
Securities will be determined, public offering or purchase price, interest
rate or rates, if any, and timing of payments thereof, provision for
redemption, currencies of denomination or currencies otherwise applicable
thereto and any other variable terms and method of distribution. The
accompanying Prospectus Supplement sets forth the specific terms with regard
to the series of STRYPES in respect of which this Prospectus is being
delivered.
Reference is made to any accompanying prospectus of the Underlying Issuer
covering the Underlying Securities which may be received by holders of a
series of STRYPES on the Maturity Date.
----------------
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 STRYPES may be sold through Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"). STRYPES may not be sold without
delivery of a Prospectus Supplement describing such issue of STRYPES and the
method and terms of offering thereof, and any accompanying prospectus of the
Underlying Issuer covering the Underlying Securities which may be received by
holders of a series of STRYPES on the Maturity Date.
- --------
/SM/Service mark of Merrill Lynch & Co., Inc.
----------------
The date of this Prospectus is July 2, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (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: Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and Northeast 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. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 29,
1995, Quarterly Report on Form 10-Q for the period ended March 29, 1996, and
Current Reports on Form 8-K dated January 17, 1996, January 22, 1996, February
7, 1996, February 29, 1996, March 1, 1996, March 12, 1996, March 18, 1996,
April 1, 1996, April 15, 1996, May 1, 1996, May 13, 1996, May 15, 1996 and May
28, 1996 (as amended by Form 8-K/A filed June 7, 1996) 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 Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the STRYPES 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.
----------------
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT APPROVED
OR DISAPPROVED THE OFFERING OF THE SECURITIES MADE HEREBY NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
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
on a global basis. Its principal subsidiary, MLPF&S, one of the largest
securities firms in the world, is a leading broker in securities, options
contracts, and commodity and financial futures contracts; a leading dealer in
options and in corporate and municipal securities; a leading investment banking
firm that provides advice to, and raises capital for, its clients; and an
underwriter of selected insurance products. Other subsidiaries provide
financial services on a global basis similar to those of MLPF&S and are engaged
in such other activities as international banking, lending, and providing other
investment and financing services. Merrill Lynch International Incorporated,
through subsidiaries and affiliates, provides investment, financing, and
related services outside the United States and Canada. Merrill Lynch Asset
Management, LP and Fund Asset Management, LP together constitute one of the
largest mutual fund managers in the world and provide investment advisory
services. Merrill Lynch Government Securities Inc. is a primary dealer in
obligations issued or guaranteed by the U.S. Government and its agencies.
Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative Products, Inc.,
and Merrill Lynch Capital Markets PLC are the Company's primary derivative
product dealers and enter into interest rate and currency swaps and other
derivative transactions as intermediaries and as principals. The Company's
insurance underwriting operations consist of the underwriting of life insurance
and annuity products. Banking, trust, and mortgage lending operations conducted
through subsidiaries of the Company include issuing certificates of deposit,
offering money market deposit accounts, making secured loans, and providing
foreign exchange trading facilities and other related services.
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 STRYPES 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 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. 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 STRYPES 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 of 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 29, 1995 and Quarterly Report on Form 10-Q for
the period ended March 29, 1996 (the "Quarterly Report"). See "Incorporation of
Certain Documents by Reference." The condensed consolidated financial
statements contained in the Quarterly Report are unaudited; however, in the
opinion of management of the Company, all adjustments, consisting only of
normal recurring accruals, necessary for a fair statement of the results of
operations have been included. The year-end results include 52 weeks for 1991,
1992, 1994, and 1995 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 THREE MONTHS ENDED
--------------------------------------------- -------------------
MARCH 31, MARCH 29,
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- --------- ---------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $12,353 $ 13,413 $ 16,588 $ 18,234 $ 21,513 $ 5,204 $ 6,019
Net revenues............ $ 7,246 $ 8,577 $ 10,558 $ 9,625 $ 10,265 $ 2,421 $ 3,261
Earnings before income
taxes and cumulative
effect of changes in
accounting princi-
ples(1)................ $ 1,017 $ 1,621 $ 2,425 $ 1,730 $ 1,811 $ 380 $ 671
Cumulative effect of
changes in accounting
principles (net of
applicable income
taxes)(1).............. -- $ (58) $ (35) -- -- -- --
Net earnings(1)......... $ 696 $ 894 $ 1,359 $ 1,017 $ 1,114 $ 228 $ 409
Ratio of earnings to
fixed charges(2)....... 1.2 1.3 1.4 1.2 1.2 1.1 1.2
Total assets(3)......... $86,259 $107,024 $152,910 $163,749 $176,857 $176,733 $195,884
Long-term borrowings(4). $ 7,964 $ 10,871 $ 13,469 $ 14,863 $ 17,340 $ 14,485 $ 20,226
Stockholders' equity.... $ 3,818 $ 4,569 $ 5,486 $ 5,818 $ 6,141 $ 5,704 $ 6,364
</TABLE>
- --------
(1) Net earnings for 1992 have been reduced by $58 million to reflect 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 were reduced
by $35 million to reflect 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,
amortization of debt expense, preferred stock dividend requirements of
majority-owned subsidiaries, and that portion of rentals estimated to be
representative of the interest factor.
(3) In 1994, the Company adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts,
and FASB Interpretation No. 41, Offsetting of Amounts Related to Certain
Repurchase and Reverse Repurchase Agreements, which increased assets and
liabilities at December 30, 1994 by approximately $8,500 million.
(4) To finance its diverse activities, the Company and certain of its
subsidiaries borrow substantial amounts of short-term funds on a regular
basis. Although the amount of short-term borrowings varies significantly with
the level of general business activity, on March 29, 1996, $526 million of
bank loans and $17,222 million of commercial paper were outstanding. In
addition, certain of the Company's subsidiaries lend securities and enter
into repurchase agreements to obtain financing. At March 29, 1996, cash
deposits for securities loaned and securities sold under agreements to
repurchase amounted to $3,768 million and $61,657 million, respectively. From
March 30, 1996 to June 27, 1996, long-term borrowings, net of repayments and
repurchases, increased by approximately $2,271 million.
4
<PAGE>
FISCAL YEAR 1995
Global financial markets, which steadily weakened during most of 1994,
generally improved during 1995, led by a more stable U.S. economy, declining
interest rates, and heightened investor activity. Inflationary fears eased
throughout 1995 as key U.S. economic statistics indicated slow to moderate
growth. The Federal Reserve decreased short-term interest rates in July and
December 1995 following seven rate increases between February 1994 and February
1995. Investors reacted favorably to these events and were more active in stock
and bond markets during 1995. Net earnings for the 1995 fourth quarter were
$303 million, up 1% from the 1995 third quarter and up 88% from the 1994 fourth
quarter.
Net earnings for 1995 were $1,114 million, up 10% from 1994 net earnings of
$1,017 million. Earnings per common share were $5.44 primary and $5.42 fully
diluted in 1995, compared with $4.75 primary and $4.74 fully diluted in 1994.
Total revenues were a record $21,513 million, up 18% from 1994. Net revenues
(revenues after interest expense) totaled $10,265 million in 1995, up 7% from
1994.
Commission revenues increased 9% to a record $3,126 million from $2,871
million in 1994, due primarily to higher levels of listed and over-the-counter
securities transactions and mutual fund commissions, partially offset by lower
revenues from commodities. Commissions from listed and over-the-counter
securities increased due primarily to higher trading volumes on most major U.S.
and international exchanges. Mutual fund commissions increased due primarily to
higher distribution and redemption fees. Distribution fees from deferred-charge
funds increased due to strong fund sales in prior periods and higher asset
levels. Redemption fees increased as clients repositioned invested assets.
Interest and dividend revenues increased 28% to $12,221 million from $9,578
million in 1994. Interest expense, which includes dividend expense, increased
31% from 1994 to $11,248 million. Net interest and dividend profit was $973
million, virtually unchanged from $969 million in 1994, with increases in net
interest-earning assets offset by declining interest spreads due to the
flattening of the U.S. Treasury yield curve. The change in the yield curve
resulted from long-term interest rates falling more than short-term rates
during 1995.
Principal transactions revenues increased 8% from 1994 to $2,519 million in
1995. Increases in equities and equity derivatives and taxable fixed-income
trading revenues were partially offset by decreases in trading revenues from
municipal securities, foreign exchange and commodities, and interest rate and
currency swaps. Equities and equity derivatives trading revenues, in the
aggregate, increased 46% to $912 million, due primarily to improved volumes in
the convertible, over-the-counter, and international equities markets,
partially offset by lower equity derivatives trading revenues. Taxable fixed-
income trading revenues increased 10% to $516 million due, in part, to higher
revenues from corporate bonds and preferred stock, high-yield bonds, and non-
U.S. governments and agencies securities. Trading revenues from mortgage-backed
products were negatively affected by reduced market liquidity, leading to a
loss. Nevertheless, trading results from mortgage-backed products, which
include related net interest revenues, were positive. U.S. Government and
agencies securities trading revenues were down from 1994 due to tighter spreads
between U.S. Treasury securities and related futures hedges, as well as reduced
retail investor demand attributable to lower interest rates. Municipal
securities revenues decreased 28% to $273 million as a result of decreased
investor demand for tax-exempt investments as investors remained wary of
potential tax law changes and sought higher returns in equity and taxable
fixed-income securities. Foreign exchange and commodities revenues, in the
aggregate, declined 22% to $86 million. Commodities trading revenues decreased
due to lower volumes. Increases in foreign exchange trading revenues resulted
from higher customer volume caused by the strengthening of the U.S. dollar
versus other major currencies during 1995. Interest rate and currency swaps
revenues declined 2% to $732 million. Decreases in U.S. dollar-denominated
transactions were substantially offset by increased revenues in non-dollar-
denominated transactions, particularly in Japanese and European markets.
5
<PAGE>
Investment banking revenues were $1,308 million, up 5% from $1,240 million in
1994. Strategic services revenues, which include fees for merger and
acquisition activity, debt restructuring, and other advisory services,
increased, as companies worldwide sought strategic partners to promote growth
while cutting costs and increasing efficiencies. Underwriting revenues were
down, as lower revenues from equities, private placements, high-yield debt, and
mortgage-backed securities underwriting were partially offset by increased
underwriting revenues from corporate bonds and preferred stock and defined
asset funds.
Asset management and portfolio service fees rose 9% in 1995 to a record
$1,890 million from $1,739 million in 1994, as a result of higher fees earned
from asset management and other fee-based services. Other revenues decreased 5%
from 1994 to $449 million, due to lower net realized investment gains in 1995
compared with 1994.
Non-interest expenses were $8,454 million, up 7% from $7,895 million in the
year-ago period. Compensation and benefits expense, which represented
approximately 62% of non-interest expenses, increased 6% due primarily to
increased production-related and incentive compensation and the addition of
Smith New Court PLC ("Smith New Court") employees. Compensation and benefits
expense as a percentage of net revenues was 51.3% in 1995, compared with 51.5%
in 1994.
Occupancy costs increased 3% from 1994 primarily due to international growth.
Other facilities-related costs, which include communications and equipment
rental expense and depreciation and amortization expenses, rose 13% primarily
due to expanded use of market data services, as well as higher depreciation
expense from the purchase of technology-related assets over the past year.
Professional fees increased 16% from the year-ago period, due to higher legal
fees and systems development costs related to upgrading technology and
processing capabilities in customer, trading, and transaction processing
systems. Advertising and market development expenses increased 6% from 1994 as
a result of increased advertising, international travel, and sales promotion
primarily related to international growth. Brokerage, clearing, and exchange
fees increased 7% as a result of higher securities volume, particularly in
international markets. Other expenses increased 4% from 1994, due primarily to
a $26 million first quarter charge for the write-off of assets related to a
technology contract and $14 million of goodwill amortization related to Smith
New Court.
Income tax expense totaled $697 million in 1995. The effective tax rate in
1995 was 38.5%, compared with 41.2% in 1994. The decrease in the effective tax
rate was attributable to lower state income taxes, expanded international
business activities in jurisdictions with lower tax rates, and increases in
deductions for dividends received.
In 1995 the Company acquired Smith New Court, a U.K.-based global securities
firm, for approximately $800 million. The Company recorded approximately $530
million of goodwill related to the acquisition, which is being amortized on a
straight-line basis over 15 years. The Company's 1995 results include those of
Smith New Court since mid-August 1995.
CERTAIN BALANCE SHEET INFORMATION AS OF DECEMBER 29, 1995
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 investment banking,
market-making, and derivative structuring activities. These activities are
subject to risks related to the creditworthiness of the issuers of, and the
liquidity of the market for, such securities, in addition to the usual risks
associated with investing in, financing, underwriting, and trading in
investment grade instruments.
6
<PAGE>
At December 29, 1995, the fair value of long and short non-investment grade
trading inventories amounted to $5,489 million and $353 million, respectively,
and in the aggregate (i.e. the sum of long and short trading inventories)
represented 6.3% of aggregate consolidated trading inventories.
At December 29, 1995, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $489 million
(excluding unutilized revolving lines of credit and other lending commitments
of $127 million), consisting primarily of senior term and subordinated
financings to 30 medium-sized corporations. At December 29, 1995, the Company
had no bridge loans outstanding. Loans to highly leveraged corporations are
carried at unpaid principal balances 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. Direct equity
investments made in conjunction with the Company's investment and merchant
banking activities aggregated $211 million at December 29, 1995, representing
investments in 62 enterprises. Equity investments in privately-held companies
for which sale is restricted by government or contractual requirements are
carried at the lower of cost or estimated net realizable value. At December 29,
1995, the Company held interests in partnerships, totaling $91 million
(recorded on the cost basis), that invest in highly leveraged transactions and
non-investment grade securities. At December 29, 1995, the Company also
committed to invest an additional $79 million in partnerships that invest in
leveraged transactions.
The Company's insurance subsidiaries hold non-investment grade securities.
Non-investment grade securities were 4.2% of total insurance investments at
December 29, 1995. Non-investment grade securities of insurance subsidiaries
are classified as available-for-sale and are carried at fair value.
At December 29, 1995, the largest non-investment grade concentration
consisted of various issues of a South American sovereign totaling $674
million, of which $672 million represented on-balance-sheet hedges for off-
balance-sheet financial instruments. No one industry sector accounted for more
than 35% of total non-investment grade positions. At December 29, 1995, the
Company held an aggregate carrying value of $164 million in debt and equity
securities of issuers in various stages of bankruptcy proceedings or in
default, of which 75% resulted from the Company's market-making activities in
such securities.
FIRST QUARTER 1996
Global financial markets were generally strong during 1995, led by a stable
U.S. economy, declining interest rates, and heightened investor activity.
Market expectations for additional declines in interest rates continued through
February 1996, fueling further market advances, strong investor and issuer
activity, higher fee-based revenues, and improved trading profits industrywide.
In March 1996, inflationary fears were stirred by the release of U.S. economic
statistics indicating stronger than anticipated growth and the Federal
Reserve's decision to hold short-term interest rates at current levels. This
led to increases in long-term interest rates and greater market volatility,
although interest rates remained low relative to the year-ago period.
Net earnings for the 1996 first quarter were a record $409 million, up 80%
from 1995 first quarter net earnings of $228 million. Earnings per common share
were $2.03 primary and fully diluted in the 1996 first quarter, compared with
$1.08 primary and fully diluted in the 1995 first quarter. Total revenues were
a record $6,019 million in the first quarter of 1996, up 16% from the 1995
first quarter. Net revenues (revenues after interest expense) totaled $3,261
million in the first quarter of 1996, up 35% from the 1995 first quarter.
Commissions revenues rose 44% to a record $989 million from $685 million in
the 1995 first quarter. Commissions revenues from listed and over-the-counter
securities increased to record levels due to higher trading volumes on most
major U.S. and international exchanges. Mutual fund commissions advanced to
record levels due to strong sales of both domestic and offshore funds.
Interest and dividend revenues decreased to $3,010 million from $3,030
million in the 1995 first quarter. Interest expense, which includes dividend
expense, decreased to $2,758 million from $2,783 million in the year-ago
quarter. Net interest and dividend profit was $252 million, up slightly from
$247 million in 1995, with increases in net interest-earning assets
substantially offset by the effect of lower interest rates.
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Principal transactions revenues increased 46% from the 1995 first quarter to
a record $982 million, as higher investor activity and market volatility led to
increases in virtually all trading products. Equities and equity derivatives
trading revenues, in the aggregate, were up 109% to $347 million. Trading
revenues from most equity products increased, due primarily to higher trading
volume and rising stock prices. International equities trading revenues, in
particular, benefited from the addition of Smith New Court trading activity.
Taxable fixed-income trading revenues rose 62% to $265 million due primarily to
higher revenues from non-U.S. governments and agencies, mortgage-backed
securities, and high-yield bonds. Non-U.S. governments and agencies trading
revenues advanced due to improved results from trading of Japanese Government
Bonds, as well as increased trading volume in certain Latin American emerging
markets as credit ratings improved and investors sought higher returns.
Mortgage-backed securities trading revenues increased due primarily to improved
liquidity and increased customer demand compared with the year-ago period.
Trading revenues from high-yield bonds were up due to lower interest rates and
improved credit ratings of certain issuers. Interest rate and currency swap
trading revenues increased 9% to $255 million due to higher trading revenues
from non-U.S. dollar-denominated transactions, partially offset by decreases in
revenues from U.S. dollar-denominated transactions. Foreign exchange and
commodities trading revenues, in the aggregate, rose 94% from the 1995 first
quarter to $40 million, as foreign exchange trading revenues continued to
benefit from the strengthening of the U.S. dollar versus other major
currencies. Municipal securities trading revenues declined 17% to $75 million,
primarily due to continued weak investor demand for tax-exempt investments.
Investment banking revenues were $378 million, up 52% from $249 million in
the 1995 first quarter. Underwriting revenues increased 82%, benefiting from
strong levels of debt and equity underwriting industrywide, with higher fees
from convertibles, corporate bonds and preferred stock, equities, and high-
yield securities. Strategic services revenues were down slightly from a year
ago, but remained comparable to record 1995 levels, benefiting from continued
strong merger and acquisition activity.
Asset management and portfolio service fees rose 20% in 1996 to a record $538
million from $448 million in the first quarter of 1995, primarily as a result
of strong inflows of client assets. Other revenues were $122 million, up 4%
from $117 million reported in the 1995 first quarter.
Non-interest expenses were $2,590 million, up 27% from $2,041 million in the
year-ago period. Compensation and benefits expense, which represented
approximately 65% of non-interest expenses, increased 33% due primarily to
higher incentive and production-related compensation as well as a 6% increase
in the number of full-time employees, largely due to acquisitions. Compensation
and benefits expense as a percentage of net revenues was 51.8% in the first
quarter of 1996, compared with 52.5% in the 1995 first quarter.
Occupancy costs increased 5% from the 1995 first quarter primarily due to
international growth. Other facilities-related costs, which include
communications and equipment rental expense and depreciation and amortization
expense, rose 16% primarily due to higher levels of business activity and
increased use of market data services, as well as higher depreciation expense
from the purchase of technology-related assets over the past year.
Professional fees increased 32% from the year ago period, primarily as a
result of higher systems development costs related to upgrading technology and
processing capabilities. Advertising and market development expenses increased
33% from the 1995 first quarter. Increased international travel and higher
advertising and client promotion costs contributed to this advance. Brokerage,
clearing, and exchange fees rose 27% as a result of higher trading volume,
particularly in international markets. Other expenses increased 4% from 1995,
primarily due to goodwill amortization related to Smith New Court.
Income tax expense totaled $262 million in the 1996 first quarter. The
effective tax rate in the 1996 first quarter was 39.0%, compared with 40.0% in
the first quarter of 1995. The decrease in the effective tax rate was primarily
attributable to increases in dividends qualifying for the Federal dividends
received deduction, lower state taxes, and expanded international business
activities.
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CERTAIN BALANCE SHEET INFORMATION AS OF MARCH 29, 1996
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 investment banking,
market making, and derivative structuring activities. These activities are
subject to additional risks related to the creditworthiness of the issuers and
the liquidity of the market for such securities.
At March 29, 1996, the fair value of long and short non-investment grade
trading inventories amounted to $6,026 million and $529 million, respectively,
and in the aggregate (i.e., the sum of long and short trading inventories)
represented 6.6% of aggregate consolidated trading inventories.
At March 29, 1996, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $517 million
(excluding unutilized revolving lines of credit and other lending commitments
of $75 million), consisting primarily of senior term and subordinated
financings to 34 medium-sized corporations. In addition, at March 29, 1996, the
Company had an outstanding bridge loan of $90 million, and as of May 6, 1996,
the Company had an outstanding bridge loan commitment for $100 million. Direct
equity investments made in conjunction with the Company's investment and
merchant banking activities aggregated $189 million at March 29, 1996,
representing investments in 62 enterprises. At March 29, 1996, the Company held
interests in partnerships, totaling $82 million, that invest in highly
leveraged transactions and non-investment grade securities. At March 29, 1996,
the Company also committed to invest an additional $83 million in partnerships
that invest in leveraged transactions.
The Company's insurance subsidiaries hold non-investment grade securities.
Non-investment grade securities were 4.7% of total insurance investments at
March 29, 1996. Non-investment grade securities of insurance subsidiaries are
classified as available-for-sale and are carried at fair value.
At March 29, 1996, the largest non-investment grade concentration consisted
of various issues of a South American sovereign totaling $764 million, which
primarily represented on-balance-sheet hedges for off-balance-sheet financial
instruments. No one industry sector accounted for more than 31% of total non-
investment grade positions. At March 29, 1996, the Company held an aggregate
carrying value of $169 million in debt and equity securities of issuers in
various stages of bankruptcy proceedings or in default, of which 80% resulted
from the Company's market-making activities in such securities.
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DESCRIPTION OF THE STRYPES
Each issue of STRYPES will be a series of Senior Debt Securities 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 (the "Trustee"), as
further amended and supplemented by a supplemental indenture to be entered into
by the Company and the Trustee relating to each series of STRYPES (the
"Supplemental Indenture") (the Chemical Indenture, as so amended and
supplemented by the Supplemental Indenture with respect to each series of
STRYPES, the "Indenture"). The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture. All capitalized terms not otherwise defined herein
have the meanings specified in the Indenture. Whenever defined terms of the
Indenture are referred to herein, such defined terms are incorporated by
reference herein.
GENERAL
The Supplemental Indenture will provide that STRYPES of the related series
may be issued from time to time under the Indenture, up to a specified
aggregate issue price, upon satisfaction of certain conditions precedent. The
Supplemental Indenture will establish the terms of the related series of
STRYPES, including: (1) the issue price per STRYPES; (2) the date on which such
STRYPES will mature; (3) the consideration deliverable or payable with respect
to such STRYPES, whether at maturity or upon earlier acceleration, and the
formula or other method by which the amount of such consideration will be
determined; (4) the rate or rates per annum (which may be fixed or variable) at
which such STRYPES will bear interest, if any; (5) the dates on which such
interest, if any, will be payable; (6) the provisions for redemption of such
STRYPES, if any, the redemption price and any remarketing arrangements relating
thereto; (7) the sinking fund requirements, if any, with respect to such
STRYPES; (8) whether such STRYPES 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) whether and under what circumstances the Company will
pay additional amounts ("Additional Amounts") in respect of such STRYPES 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 STRYPES
rather than pay such Additional Amounts; (10) the title of the STRYPES and the
series of which such STRYPES shall be a part; and (11) the obligation of the
Company to pay and discharge such STRYPES at maturity by delivery of Underlying
Securities (or, cash with an equal value), the formula or other method by which
the amount of such Underlying Securities will be determined, and the terms and
conditions upon which such payment and discharge shall be effected. Reference
is made to the Prospectus Supplement for the terms of the STRYPES being offered
thereby.
Under the Indenture, the Company will have the ability, in addition to the
ability to issue STRYPES with terms different from those of STRYPES previously
issued, to "reopen" a previous series of STRYPES and issue additional STRYPES
of such series.
Issue price and interest, premium and Additional Amounts, if any, and
Underlying Securities will be payable or deliverable in the manner, at the
places and subject to the restrictions set forth in the Indenture, the STRYPES
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 STRYPES at their registered
addresses.
STRYPES may be presented for exchange, and registered STRYPES may be
presented for transfer, in the manner, at the places and subject to the
restrictions set forth in the Indenture, the STRYPES and the Prospectus
Supplement relating thereto. No service charge will be made for any transfer or
exchange of STRYPES, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
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RANKING
The STRYPES will be unsecured obligations and will rank pari passu with all
other unsecured and unsubordinated indebtedness 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 STRYPES), 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 Exchange Act
and under rules of certain exchanges and other regulatory bodies.
SECURITIES DEPOSITORY
Upon issuance, each series of STRYPES will be represented by one or more
fully registered global securities (the "Global Notes"). Each such Global Note
will be deposited with, or on behalf of, The Depository Trust Company, as
Securities Depository (the "Securities Depository"), and registered in the name
of the Securities Depository or a nominee thereof. Unless and until it is
exchanged in whole or in part for STRYPES in definitive form under the limited
circumstances described below, no Global Note may be transferred except as a
whole by the Securities Depository to a nominee of such Securities Depository
or by a nominee of such Securities Depository to such Securities Depository or
another nominee of such Securities Depository or by such Securities Depository
or any such nominee to a successor of such Securities Depository or a nominee
of such successor.
The Securities Depository has advised the Company as follows: The Securities
Depository is a limited-purpose trust company organized under the Banking Law
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. The Securities Depository was
created to hold securities of its participants ("Participants") and to
facilitate the clearance and settlement of securities transactions among its
Participants in such securities through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical
movement of securities certificates. The Securities Depository's Participants
include securities brokers and dealers (including MLPF&S), banks, trust
companies, clearing corporations, and certain other organizations.
The Securities Depository is owned by a number of Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Securities Depository's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly ("Indirect Participants").
Purchases of STRYPES must be made by or through Participants, which will
receive a credit on the records of the Securities Depository. The ownership
interest of each actual purchaser of each STRYPES ("Beneficial Owner") is in
turn to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmations from the Securities
Depository of their purchase, but Beneficial Owners are expected to receive
written confirmation providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interest in such Global Note will be shown on, and the transfer of
such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Participants) and on
the records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Notes.
So long as the Securities Depository, or its nominee, is the registered owner
of a Global Note, the Securities Depository or its nominee, as the case may be,
will be considered the sole owner or holder of the STRYPES
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represented by such Global Note for all purposes under the Indenture. Except as
provided below, Beneficial Owners in a Global Note will not be entitled to have
the STRYPES represented by such Global Notes registered in their names, will
not receive or be entitled to receive physical delivery of the STRYPES in
definitive form and will not be considered the owners or holders thereof under
the Indenture. Accordingly, each Person owning a beneficial interest in a
Global Note must rely on the procedures of the Securities Depository and, if
such Person is not a Participant, on the procedures of the Participant through
which such Person owns its interest, to exercise any rights of a holder under
the Indenture. The Company understands that under existing industry practices,
in the event that the Company requests any action of holders or that an owner
of a beneficial interest in such a Global Note desires to give or take any
action which a holder is entitled to give or take under the Indenture, the
Securities Depository would authorize the Participants holding the relevant
beneficial interests to give or take such action, and such Participants would
authorize Beneficial Owners owning through such Participants to give or take
such action or would otherwise act upon the instructions of Beneficial Owners.
Conveyance of notices and other communications by the Securities Depository to
Participants, by Participants to Indirect Participants, and by Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Payment of any amount with respect to STRYPES registered in the name of the
Securities Depository or its nominee will be made to the Securities Depository
or its nominee, as the case may be, as the holder of the Global Notes
representing such STRYPES. None of the Company, the Trustee or any other agent
of the Company or agent of the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests or for supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that the
Securities Depository, upon receipt of any payment in respect of a Global Note,
will credit the accounts of the Participants with payment in amounts
proportionate to their respective holdings of beneficial interest in such
Global Note as shown on the records of the Securities Depository. The Company
also expects that payments by Participants to Beneficial Owners will be
governed by standing customer instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of such
Participants.
If, with respect to a series of STRYPES, (x) the Securities Depository is at
any time unwilling or unable to continue as Securities Depository and a
successor depository is not appointed by the Company within 60 days, (y) the
Company executes and delivers to the Trustee a Company Order to the effect that
the Global Notes shall be exchangeable or (z) an Event of Default has occurred
and is continuing with respect to any STRYPES of that series, the Company will
issue STRYPES in definitive form in exchange for all of the Global Notes
representing the STRYPES of that series. Such definitive STRYPES shall be
registered in such name or names as the Securities Depository shall instruct
the Trustee. It is expected that such instructions may be based upon directions
received by the Securities Depository from Participants with respect to
ownership of beneficial interests in such Global Notes.
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
the due and punctual delivery or payment of the Underlying Securities (or cash
with an equal value) in respect of, any interest and Additional Amounts on, and
any other amounts payable with respect to, the STRYPES of each series and the
due and punctual performance and observance of all of the covenants and
conditions of the Indenture 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 Indenture.
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LIMITATIONS UPON LIENS
The Indenture provides that the Company may not, and may not permit any
Subsidiary (defined in the Indenture as any corporation of which at the time of
determination the Company and/or one or more Subsidiaries owns or controls
directly or indirectly 50% of the shares of Voting Stock of such corporation)
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 Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
STRYPES will be secured equally and ratably with such secured indebtedness.
LIMITATIONS ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS
BY, MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the Indenture provides that the Company may not permit MLPF&S to (i)
merge or consolidate, unless the surviving company is a Controlled Subsidiary,
or (ii) convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
EVENTS OF DEFAULT
Unless otherwise specified in a Prospectus Supplement, each of the following
will constitute an Event of Default under the Indenture with respect to each
series of STRYPES: (a) failure to pay and discharge the STRYPES of that series
with the Underlying Securities or, if the Company so elects, to pay an
equivalent amount in cash in lieu thereof when due; (b) failure to pay the
Redemption Price or any redemption premium with respect to any STRYPES of that
series when due; (c) failure to deposit any sinking fund payment, when and as
due by the terms of any STRYPES of that series; (d) failure to pay any interest
on or any Additional Amounts in respect of any STRYPES of that series when due,
continued for 30 days; (e) failure to perform any other covenant of the Company
contained in the Indenture for the benefit of that series or in the STRYPES of
that series, continued for 60 days after written notice has been given to the
Company by the Trustee, or to the Company and the Trustee by the holders of at
least 10% of the aggregate issue price of the Outstanding STRYPES of that
series, as provided in the Indenture; (f) certain events in bankruptcy,
insolvency or reorganization of the Company; and (g) any other Event of Default
provided with respect to STRYPES of that series.
Unless otherwise specified in a Prospectus Supplement, if an Event of Default
(other than an Event of Default described in clause (f) of the immediately
preceding paragraph) with respect to the STRYPES of any series shall occur and
be continuing, either the Trustee or the holders of at least 25% of the
aggregate issue price of the Outstanding STRYPES of that series by notice as
provided in the Indenture may declare an amount equal to the aggregate issue
price of all the STRYPES of that series and the interest accrued thereon and
Additional Amounts payable in respect thereof, if any, to be immediately due
and payable in cash. If an Event of Default described in said clause (f) shall
occur, an amount equal to the aggregate issue price of all the STRYPES of that
series and the interest accrued thereon and Additional Amounts payable in
respect thereof, if any, will become immediately due and payable in cash
without any declaration or other action on the part of the Trustee or any
holder. After such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority of the aggregate issue price of the
Outstanding STRYPES of that series may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the non-
payment of the amount equal to the aggregate issue price of all the STRYPES of
that series due by reason of such acceleration, have been cured or waived as
provided in the Indenture. See "Modification and Waiver" below.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders of STRYPES of any
series, unless such holders of that series shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction.
Subject to such provisions for the indemnification of the Trustee, the holders
of a majority of the aggregate issue price of the STRYPES of any series will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the STRYPES of that series.
The Company will be required to furnish to the Trustee annually a statement
by certain of its officers as to whether or not the Company, to their
knowledge, is in default in the fulfillment of any of its obligations under the
Indenture and, if so, specifying all such known defaults.
The STRYPES and other series of Senior Debt Securities issued under the
Indenture will not have the benefit of any cross-default provisions with other
indebtedness of the Company.
MODIFICATION AND WAIVER
Unless otherwise specified in a Prospectus Supplement, modifications of and
amendments to the Indenture affecting a series of STRYPES may be made by the
Company and the Trustee with the consent of the holders of 66 2/3% of the
aggregate issue price of the Outstanding STRYPES of such series; provided,
however, that no such modification or amendment may, without the consent of the
holder of each Outstanding STRYPES of such series affected thereby, (a) change
the Maturity Date or the Stated Maturity of any installment of interest or
Additional Amounts on any STRYPES or any premium payable on the redemption
thereof, or change the Redemption Price, (b) reduce the amount of Underlying
Securities payable with respect to any STRYPES (or reduce the amount of cash
payable in lieu thereof), (c) reduce the amount of interest or Additional
Amounts payable on any STRYPES or reduce the amount of cash payable with
respect to any STRYPES upon acceleration of the maturity thereof, (d) change
the place or currency of payment of interest or Additional Amounts on, or any
amount of cash payable with respect to, any STRYPES, (e) impair the right to
institute suit for the enforcement of any payment on or with respect to any
STRYPES, including the payment of Underlying Securities with respect to any
STRYPES, (f) reduce the percentage of the aggregate issue price of Outstanding
STRYPES of such series, the consent of whose holders is required to modify or
amend the Indenture, (g) reduce the percentage of the aggregate issue price of
Outstanding STRYPES of such series necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults or (h)
modify such provisions with respect to modification and waiver. Except as
provided in the Indenture, no modification of or amendment to the Indenture may
adversely affect the rights of a holder of any other Senior Debt Security
without the consent of such holder.
The holders of a majority of the aggregate issue price of each series of
STRYPES may waive compliance by the Company with certain restrictive provisions
of the Indenture. The holders of a majority of the aggregate issue price of
each series of STRYPES may waive any past default under the Indenture, except a
default in the payment of the Underlying Securities with respect to any STRYPES
of that series, or of cash payable in lieu thereof, or in the payment of any
premium, interest or Additional Amounts on any STRYPES of that series for which
payment had not been subsequently made or in respect of a covenant and
provision of the Indenture which cannot be modified or amended without the
consent of the holder of each Outstanding STRYPES of such series affected.
GOVERNING LAW
The Indenture and the STRYPES will be governed by, and construed in
accordance with, the laws of the State of New York.
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PLAN OF DISTRIBUTION
The Company may sell STRYPES to the public through MLPF&S. The accompanying
Prospectus Supplement describes the terms of the STRYPES offered thereby,
including the public offering or purchase price, any discounts and commissions
to be allowed or paid to MLPF&S, 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 STRYPES will be listed. Only
MLPF&S will act as an underwriter in connection with the STRYPES. Under certain
circumstances, the Company may repurchase STRYPES and reoffer them to the
public as set forth above. The Company may also arrange for repurchases and
resales of such STRYPES by dealers.
The underwriting of STRYPES will conform to the requirements set forth in the
applicable sections of Rule 2720 of the Conduct Rules 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 1995 Annual Report on Form 10-K, and incorporated by
reference in this Prospectus, have been audited by Deloitte & Touche LLP,
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 29, 1995 included in this
Prospectus and the Selected Financial Data under the captions "Operating
Results," "Financial Position" and "Common Share Data" for each of the five
years in the period ended December 29, 1995 included in the 1995 Annual Report
to Stockholders of the Company, and incorporated by reference herein, has been
derived from consolidated financial statements audited by Deloitte & Touche
LLP, as set forth in their reports included as an exhibit to the Registration
Statement or incorporated by reference herein. Such consolidated financial
statements and related financial statement schedules, such Summary Financial
Information and 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 LLP given upon their authority as experts in
accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP 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 LLP are
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, (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.
15
<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 OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPEC-
TUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY SECURI-
TIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................... S-3
Risk Factors............................................................... S-8
IMC Global Inc. ........................................................... S-11
Price Range of IMC Common Stock and Dividends.............................. S-12
Supplemental Use of Proceeds............................................... S-12
Supplemental Description of the STRYPES.................................... S-13
Certain Arrangements With GVI.............................................. S-18
Certain United States Federal Income Tax Considerations.................... S-19
Underwriting............................................................... S-26
Validity of the STRYPES.................................................... S-26
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 the STRYPES................................................. 10
Plan of Distribution....................................................... 15
Experts.................................................................... 15
</TABLE>
PROSPECTUS RELATING TO COMMON STOCK OF IMC GLOBAL INC.
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5,661,119 STRYPES
[LOGO OF MERRILL LYNCH & CO. INC., APPEARS HERE]
MERRILL LYNCH & CO., INC.
6 1/4% STRYPES/SM/
DUE JULY 1, 2001
PAYABLE WITH SHARES OF COMMON STOCK OF
[LOGO OF IMC GLOBAL INC. APPEARS HERE]
IMC GLOBAL INC.
(OR CASH WITH AN EQUAL VALUE)
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
JULY 2, 1996
/SM/Service mark of Merrill Lynch & Co., Inc.
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