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RULE 424(b)(3)
REGISTRATION NO. 33-60413
PROSPECTUS
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MERRILL LYNCH & CO., INC.
6 1/2% STRYPES(SM) DUE AUGUST 15, 1998
PAYABLE WITH SHARES OF COMMON STOCK OF MGIC INVESTMENT CORPORATION
(OR CASH WITH AN EQUAL VALUE)
--------------------
On July 26, 1995, Merrill Lynch & Co., Inc. (the "Company") issued 5,000,000
of its Structured Yield Product Exchangeable for Stock(SM), 6 1/2% STRYPES(SM)
Due August 15, 1998 (each, a "STRYPES"). The issue price of each STRYPES was
$48.00, which amount was equal to the last sale price of the common stock, par
value $1.00 per share (the "MGIC Common Stock"), of MGIC Investment Corporation,
a Wisconsin corporation ("MGIC Investment"), on July 20, 1995, as reported on
the New York Stock Exchange (the "Initial Price"). The STRYPES will mature on
August 15, 1998 (the "Maturity Date"). Interest on the STRYPES, at the rate of 6
1/2% of the issue price per annum, is payable in cash quarterly in arrears on
February 15, May 15, August 15 and November 15, beginning November 15, 1995, and
on the Maturity Date. The STRYPES are not subject to redemption or any sinking
fund prior to maturity. The STRYPES are 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,
the Company will pay and discharge each STRYPES by delivering to the holder
thereof a number of shares of MGIC Common Stock (or, at the Company's option,
which may be exercised with respect to all, but not less than all, shares of
MGIC Common Stock deliverable on the Maturity Date, cash with an equal value)
determined in accordance with the following formula (the "Payment Rate
Formula"), subject to certain adjustments: (a) if the Maturity Price is greater
than or equal to $57.60 per share of MGIC Common Stock (the "Threshold
Appreciation Price"), .8333 shares of MGIC Common Stock per STRYPES, (b) if the
Maturity Price is less than the Threshold Appreciation Price but is greater than
the Initial Price, a number of shares of MGIC Common Stock per STRYPES so that
the value thereof (determined based on the Maturity Price) equals the Initial
Price and (c) if the Maturity Price is less than or equal to the Initial Price,
one share of MGIC Common Stock per STRYPES. The "Maturity Price" means the
average Closing Price (as defined herein) per share of MGIC Common Stock on the
20 Trading Days (as defined herein) immediately prior to the second Trading Day
preceding 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 MATURITY PRICE OF THE
MGIC COMMON STOCK 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. See "Description of the
STRYPES."
MGIC Investment is not affiliated with the Company and has no obligation with
respect to the STRYPES.
SEE "RISK FACTORS" ON PAGE 3 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE STRYPES.
The STRYPES have been listed on the New York Stock Exchange ("NYSE") under
the symbol "MML."
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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. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
This Prospectus has been prepared in connection with the STRYPES and is to be
used by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), a wholly-owned subsidiary of the Company, in connection with offers
and sales related to market-making transactions in the STRYPES. MLPF&S may act
as principal or agent in such transactions. The STRYPES may be offered on the
NYSE or off such exchange in negotiated transactions, or otherwise. Sales will
be made at prices related to prevailing prices at the time of sale. The
distribution of the STRYPES will conform to the requirements set forth in the
applicable sections of Rule 2720 of the Rules of Conduct of the National
Association of Securities Dealers, Inc.
___________________________
MERRILL LYNCH & CO.
____________________________
The date of this Prospectus is August 14, 1996.
(SM)Service Mark of Merrill Lynch & Co., Inc.
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The Commissioner of Insurance of The State of North Carolina has not
approved or disapproved the offering of the STRYPES made hereby, nor has the
Commissioner passed upon the accuracy or adequacy of this Prospectus.
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 NYSE, 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.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), covering the STRYPES. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto, to which reference is hereby made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 29,
1995, Quarterly Reports on Form 10-Q for the periods ended March 29, 1996 and
June 28, 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), July 9, 1996 and July 16, 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 maturity of the securities shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE 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.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY
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SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF AN OFFER TO BUY FROM, ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
RISK FACTORS
COMPARISON TO OTHER DEBT SECURITIES; RELATIONSHIP TO MGIC COMMON STOCK
The terms of the STRYPES differ from those of ordinary debt securities in
that the value of the MGIC Common Stock (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 Maturity Price of the MGIC
Common Stock (see "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 MATURITY PRICE OF
THE MGIC COMMON STOCK 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 MGIC COMMON
STOCK MAY DECLINE, AND THAT SUCH DECLINE COULD BE SUBSTANTIAL.
LIMITATIONS 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 MGIC 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 Maturity Price of the MGIC Common Stock exceeds the
Threshold Appreciation Price (which represents an appreciation of 20% over
the Initial Price). Moreover, holders of the STRYPES will only be entitled to
receive on the Maturity Date 83.33% (the percentage equal to the Initial
Price divided by the Threshold Appreciation Price) of any appreciation of the
value of MGIC Common Stock in excess of the Threshold Appreciation Price.
Because the price of the MGIC Common Stock is subject to market fluctuations,
the value of the MGIC Common Stock (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 MGIC Common Stock in the secondary
market. It is impossible to predict whether the price of MGIC Common Stock
will rise or fall. Trading prices of MGIC Common Stock will be influenced by
MGIC Investment's operating results and prospects and by economic, financial
and other factors and market conditions that can affect the capital markets
generally, including the level of, and fluctuations in, the trading prices of
stocks generally and sales of substantial amounts of MGIC Common Stock in the
market subsequent to the offering of the STRYPES or the perception that such
sales could occur.
NO STOCKHOLDER RIGHTS
Holders of the STRYPES will not be entitled to any rights with respect to
the MGIC Common Stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions in respect thereof)
unless and until such time, if any, as the Company shall have delivered
shares of MGIC Common Stock for STRYPES on the Maturity Date and, unless the
applicable record date, if any, for the exercise of such rights occurs after
such date. For example, in the event that an amendment is proposed to the
Articles of Incorporation or By-Laws of MGIC Investment 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.
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NO AFFILIATION BETWEEN THE COMPANY AND MGIC INVESTMENT
The Company has no affiliation with MGIC Investment, and MGIC Investment
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. MGIC Investment
is not responsible for, and will not participate in, the determination or
calculation of the amount receivable by holders of the STRYPES at maturity.
MGIC Investment 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 at maturity.
PURCHASE FROM THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
The Company has entered into a contract (the "Purchase Contract"),
pursuant to which the Company will purchase from The Northwestern Mutual Life
Insurance Company ("NML") immediately prior to the Maturity Date of the
STRYPES, at an aggregate purchase price equal to the total issue price for
the STRYPES, less the total underwriting discount, plus an adjustment for an
interest differential factor, a number of shares of MGIC Common Stock equal
to the number required by the Company to pay and discharge all of the
STRYPES. See "Certain Arrangements With NML." NML will be obligated to
deliver such shares of MGIC Common Stock pursuant to the Purchase Contract
only upon payment by the Company of the consideration therefor. In lieu of
delivering shares of MGIC Common Stock, NML has the option, exercisable in
its sole discretion, to require that obligations under the Purchase Contract
be satisfied by a cash payment or net cash settlement based upon the value of
such number of shares of MGIC Common Stock at the Maturity Price. Such
option, if exercised by NML, must be exercised with respect to all shares of
MGIC Common Stock deliverable pursuant to the Purchase Contract. 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 it receives from
NML under the Purchase Contract.
The Company has no affiliation with NML, and NML 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 shares of MGIC Common
Stock or cash or for any other reason. NML is not responsible for the
determination or calculation of the amount receivable by holders of the
STRYPES at maturity. The Purchase Contract between the Company and NML is a
commercial transaction and does not create any rights in, or for the benefit
of, any third party, including any holder of STRYPES.
In the event NML does not perform under the Purchase Contract, the Company
will be required to otherwise acquire shares of MGIC Common Stock for
delivery to the holders of the STRYPES, unless it elects to exercise its
option to deliver cash with an equal value.
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. The Indenture (as defined below) under which the STRYPES
were issued requires 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 MGIC
Common Stock which the Company is obligated under the STRYPES to deliver at
that time (subject to the Company's right to deliver cash with an equal value
in lieu of the MGIC Common Stock). 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
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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). 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.
DILUTION OF MGIC COMMON STOCK
The number of shares of MGIC Common Stock (or cash with an equal value)
that holders of the STRYPES are entitled to receive on the Maturity Date is
subject to adjustment for certain events arising from stock splits and
combinations, stock dividends and certain other actions of MGIC Investment
that modify its capital structure. See "Description of the STRYPES-Dilution
Adjustments." Such number of shares of MGIC Common Stock (or cash amount) to
be received by such holders on the Maturity Date will not be adjusted for
other events, such as offerings of MGIC Common Stock for cash or in
connection with acquisitions. MGIC Investment is not restricted from issuing
additional MGIC 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 MGIC Common Stock and, because of the relationship of the number of
shares (or cash amount) to be received on the Maturity Date to the price of
the MGIC Common Stock, such other events may adversely affect the trading
price of the STRYPES.
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 listed on the NYSE. 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.
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.
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
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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, through subsidiaries and affiliates,
provides investment, financing, and related services outside the United
States and Canada. Merrill Lynch Government Securities Inc. is a primary
dealer in obligations issued or guaranteed by the U.S. Government and its
agencies. 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 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 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.
RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED LAST FRIDAY IN DECEMBER SIX MONTHS ENDED
1991 1992 1993 1994 1995 JUNE 28, 1996
---- ---- ---- ---- ---- ----------------
Ratio of earnings
to fixed charges 1.2 1.3 1.4 1.2 1.2 1.2
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.
MGIC INVESTMENT CORPORATION
MGIC Investment Corporation is a holding company which, through its
indirect wholly owned subsidiary, Mortgage Guaranty Insurance Corporation, is
a leading provider of private mortgage insurance coverage in the United
States to mortgage bankers, savings institutions, commercial banks, mortgage
brokers, credit unions and other lenders. Private mortgage insurance covers
residential first mortgage loans and expands home ownership opportunities by
enabling people to purchase homes with less than 20% down payments. If the
home owner defaults, private mortgage reduces and, in some instances,
eliminates the loss to the insured institution. Private mortgage insurance
also facilitates the sale of low down payment mortgage loans in the secondary
mortgage market, principally to the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation. In addition to mortgage
insurance, MGIC Investment, through other subsidiaries, provides various
underwriting and contract services related to home mortgage lending.
MGIC Investment is subject to the informational requirements of the
Exchange Act. Accordingly, MGIC Investment 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." Reports, proxy and information statements and other information
concerning MGIC Investment may also be inspected at the offices of the NYSE.
THE COMPANY IS NOT AFFILIATED WITH MGIC INVESTMENT, AND MGIC INVESTMENT HAS
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NO OBLIGATIONS WITH RESPECT TO THE STRYPES. THIS PROSPECTUS RELATES ONLY TO
THE STRYPES OFFERED HEREBY AND DOES NOT RELATE TO MGIC INVESTMENT OR THE MGIC
COMMON STOCK. MGIC INVESTMENT HAS FILED A REGISTRATION STATEMENT ON FORM S-3
WITH THE COMMISSION COVERING THE SHARES OF MGIC COMMON STOCK THAT MAY BE
RECEIVED BY A HOLDER OF STRYPES ON THE MATURITY DATE. THE PROSPECTUS OF MGIC
INVESTMENT (THE "MGIC PROSPECTUS") CONSTITUTING A PART OF SUCH REGISTRATION
STATEMENT INCLUDES INFORMATION RELATING TO MGIC INVESTMENT AND THE MGIC
COMMON STOCK, INCLUDING CERTAIN RISK FACTORS RELEVANT TO AN INVESTMENT IN
MGIC COMMON STOCK. THE MGIC PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS
PROSPECTUS, NOR IS IT INCORPORATED BY REFERENCE HEREIN.
DESCRIPTION OF THE STRYPES
The STRYPES are a series of Senior Debt Securities 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, 1995 (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 The Chase Manhattan
Bank, formerly known as Chemical Bank (successor by merger to Manufacturers
Hanover Trust Company), as trustee (the "Trustee"). 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, a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. 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
Each STRYPES, which was issued at a price of $48.00, bears interest at the
rate of 6 1/2% of the issue price per annum (or $3.12 per annum) from July
26, 1995, 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 the issue price of such STRYPES is repaid pursuant to the terms
thereof. Interest on the STRYPES is payable in cash quarterly in arrears on
February 15, May 15, August 15 and November 15, commencing November 15, 1995,
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
last day (whether or not a Business Day) of the calendar month 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 August 15, 1998. On the Maturity Date, the
Company will pay and discharge each STRYPES by delivering to the holder
thereof a number of shares (such number of shares being hereinafter referred
to as the "Payment Rate") of MGIC Common Stock (or, at the Company's option,
which may be exercised with respect to all, but not less than all, shares of
all MGIC Common Stock deliverable on the Maturity Date, cash with an equal
value) determined in accordance with the Payment Rate Formula. The "Payment
Rate Formula" is, subject to adjustment as a result of certain dilution
events: the Payment Rate equals (a) if the Maturity Price (as defined below)
per share of MGIC Common Stock is greater than or equal to the Threshold
Appreciation Price, .8333 shares of MGIC Common Stock per STRYPES, (b) if the
Maturity Price is less than the Threshold Appreciation Price but is greater
than the Initial Price, a number of shares of MGIC Common Stock per STRYPES
so that the value thereof (determined based on the Maturity Price) is equal
to the Initial Price and (c) if the Maturity Price is less than or equal to
the Initial Price, one share of MGIC Common Stock per STRYPES. 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 MATURITY PRICE OF THE MGIC COMMON STOCK IS LESS THAN
THE INITIAL PRICE, SUCH AMOUNT RECEIVABLE ON THE MATURITY DATE WILL BE LESS
THAN THE ISSUE
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PRICE PAID FOR THE STRYPES, IN WHICH CASE AN INVESTMENT IN STRYPES WILL
RESULT IN A LOSS. The numbers of shares of MGIC Common Stock per STRYPES
specified in clauses (a) and (c) of the Payment Rate Formula are hereinafter
referred to as the "Share Components."
Notwithstanding the foregoing, the Company may, at its option, in lieu of
delivering shares of MGIC Common Stock, deliver cash in an amount equal to
the value of such number of shares of MGIC Common Stock at the Maturity
Price, subject to the Company's agreement contained in the Purchase Contract
to deliver on the Maturity Date the form of consideration that it receives
from NML. Such option, if exercised by the Company, must be exercised with
respect to all shares of MGIC Common Stock 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 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 with shares of MGIC Common Stock or cash. At the time such notice
is published, the Maturity Price will not have been determined. If the
Company elects to deliver shares of MGIC Common Stock, holders of the STRYPES
will be responsible for the payment of any and all brokerage costs upon their
subsequent sale of such stock.
The "Maturity Price" is defined as the average Closing Price per share of
MGIC Common Stock on the 20 Trading Days immediately prior to, but not
including, the second Trading Day preceding the Maturity Date. The "Closing
Price" of any 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 security on the NYSE on such date or, if such 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 security is so listed, or if such 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 security is not so reported, the last quoted bid price for such 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 security on such date as determined by a nationally recognized
independent investment banking firm retained for this purpose by the Company.
In the event that the Payment Rate is adjusted as described under "-Dilution
Adjustments" below, the Maturity Price is subject to adjustment to reflect
the average Closing Price per share of MGIC Common Stock on a pre-adjusted
basis. A "Trading Day" is defined as a day on which the 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 security.
For illustrative purposes only, the following chart shows the number of
shares of MGIC Common Stock or the amount of cash that a holder of STRYPES
would receive for each STRYPES at various Maturity Prices. The table assumes
that there will be no dilution adjustments to the Payment Rate Formula as
described below. There can be no assurance that the Maturity Price will be
within the range set forth below. Given the Initial Price of $48.00 and the
Threshold Appreciation Price of $57.60, a STRYPES holder would receive on the
Maturity Date the following number of shares of MGIC Common Stock or amount
of cash (if the Company elects to pay and discharge the STRYPES with cash)
per STRYPES:
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Number of
Maturity Price Shares of
of MGIC MGIC
Common Stock Common Stock Amount of Cash
------------ ------------ --------------
$38.00 1.0000 $38.00
43.00 1.0000 43.00
48.00 1.0000 48.00
53.00 0.9057 48.00
57.60 0.8333 48.00
63.00 0.8333 52.50
DILUTION ADJUSTMENTS
The Payment Rate Formula is subject to adjustment if MGIC Investment
shall: (i) pay a stock dividend or make a distribution with respect to MGIC
Common Stock in shares of such stock; (ii) subdivide or split the outstanding
shares of MGIC Common Stock into a greater number of shares; (iii) combine
the outstanding shares of MGIC Common Stock into a smaller number of shares;
(iv) issue by reclassification of shares of MGIC Common Stock any shares of
common stock of MGIC Investment; (v) issue rights or warrants to all holders
of MGIC Common Stock entitling them to subscribe for or purchase shares of
MGIC Common Stock at a price per share less than the then current market
price of the MGIC Common Stock (other than rights to purchase MGIC Common
Stock pursuant to a plan for the reinvestment of dividends or interest); or
(vi) pay a dividend or make a distribution to all holders of MGIC Common
Stock of evidences of its indebtedness or other assets (excluding any stock
dividends or distributions referred to in clause (i) above or any cash
dividends other than any Extraordinary Cash Dividends (as defined below)) or
issue to all holders of MGIC Common Stock rights or warrants to subscribe for
or purchase any of its securities (other than those referred to in clause (v)
above). In the case of the events referred to in clauses (i), (ii), (iii) and
(iv) above, the Payment Rate Formula shall be adjusted so that each holder of
any STRYPES shall thereafter be entitled to receive, upon payment and
discharge of such STRYPES on the Maturity Date, the number of shares of MGIC
Common Stock which such holder would have owned or been entitled to receive
immediately following any event described above had such STRYPES been paid
and discharged immediately prior to such event or any record date with
respect thereto. Nevertheless, the Maturity Price shall equal the average
Closing Price per share of MGIC Common Stock on the 20 Trading Days
immediately prior to, but not including, the second Trading Day preceding the
Maturity Date. In the case of the event referred to in clause (v) above, the
Payment Rate Formula shall be adjusted by multiplying each of the Share
Components in the Payment Rate Formula in effect immediately prior to the
date of issuance of the rights or warrants referred to in clause (v) above,
by a fraction, of which the numerator shall be the number of shares of MGIC
Common Stock outstanding on the date of issuance of such rights or warrants,
immediately prior to such issuance, plus the number of additional shares of
MGIC Common Stock offered for subscription or purchase pursuant to such
rights or warrants, and of which the denominator shall be the number of
shares of MGIC Common Stock outstanding on the date of issuance of such
rights or warrants, immediately prior to such issuance, plus the number of
additional shares of MGIC Common Stock which the aggregate offering price of
the total number of shares of MGIC Common Stock so offered for subscription
or purchase pursuant to such rights or warrants would purchase at the market
price (determined as the average Closing Price per share of MGIC Common Stock
on the 20 Trading Days immediately prior to the date such rights or warrants
are issued), which shall be determined by multiplying such total number of
shares by the exercise price of such rights or warrants and dividing the
product so obtained by such market price. To the extent that shares of MGIC
Common Stock are not delivered after the expiration of such rights or
warrants, the Payment Rate Formula shall be readjusted to the Payment Rate
Formula which would then be in effect had such adjustments for the issuance
of such rights or warrants been made upon the basis of delivery of only the
number of shares of MGIC Common Stock actually delivered. In the case of the
event referred to in clause (vi) above, the Payment Rate Formula shall be
adjusted by multiplying each of the Share Components in the Payment Rate
Formula in effect on the record date, by a fraction of which the numerator
shall be the market price per share of the MGIC Common Stock on the record
date for the determination of stockholders entitled to receive the dividend
or distribution referred
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to in clause (vi) above (such market price being determined as the average
Closing Price per share of MGIC Common Stock on the 20 Trading Days
immediately prior to such record date), and of which the denominator shall be
such market price per share of MGIC Common Stock less the fair market value
(as determined by the Board of Directors of the Company, whose determination
shall be conclusive, and described in a resolution adopted with respect
thereto) as of such record date of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or warrants
applicable to one share of MGIC Common Stock. An "Extraordinary Cash
Dividend" means, with respect to any consecutive 12-month period, all cash
dividends on the MGIC Common Stock during such period to the extent such
dividends exceed on a per share basis 10% of the average Closing Price of the
MGIC Common Stock over such period (less any such dividends for which a prior
adjustment to the Payment Rate Formula was previously made). All adjustments
to the Payment Rate Formula will be calculated to the nearest 1/10,000th of a
share of MGIC Common Stock (or if there is not a nearest 1/10,000th of a
share to the next lower 1/10,000th of a share). No adjustment in the Payment
Rate Formula shall be required unless such adjustment would require an
increase or decrease of at least one percent therein; provided, however, that
any adjustments which by reason of the foregoing are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
If an adjustment is made to the Payment Rate Formula as described above, an
adjustment will also be made to the Maturity Price solely to determine which
of clauses (a), (b) or (c) of the Payment Rate Formula will apply on the
Maturity Date. The required adjustment to the Maturity Price will be made by
multiplying each of the Closing Prices used in determining the Maturity Price
by a fraction of which the numerator shall be the Share Component in clause
(c) of the Payment Rate Formula immediately after such adjustment described
above and of which the denominator shall be the Share Component in clause (c)
of the Payment Rate Formula immediately before such adjustment described
above. Each such adjustment to the Payment Rate Formula shall be made
successively.
In the event of (A) any consolidation or merger of MGIC Investment, or any
surviving entity or subsequent surviving entity of MGIC Investment (a "MGIC
Successor"), with or into another entity (other than a merger or
consolidation in which MGIC Investment is the continuing corporation and in
which the MGIC Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of MGIC
Investment or another corporation), (B) any sale, transfer, lease or
conveyance to another corporation of the property of MGIC Investment or any
MGIC Successor as an entirety or substantially as an entirety, (C) any
statutory exchange of securities of MGIC Investment or any MGIC Successor
with another corporation (other than in connection with a merger or
acquisition) or (D) any liquidation, dissolution or winding up of MGIC
Investment or any MGIC Successor (any such event described in clause (A),
(B), (C) or (D), a "Reorganization Event"), the Payment Rate Formula used to
determine the amount payable on the Maturity Date for each STRYPES will be
adjusted to provide that each holder of STRYPES will receive on the Maturity
Date for each STRYPES cash in an amount equal to (a) if the Transaction Value
(as defined below) is greater than or equal to the Threshold Appreciation
Price, .8333 multiplied by the Transaction Value, (b) if the Transaction
Value is less than the Threshold Appreciation Price but greater than the
Initial Price, the Initial Price and (c) if the Transaction Value is less
than or equal to the Initial Price, the Transaction Value. "Transaction
Value" means (i) for any cash received in any such Reorganization Event, the
amount of cash received per share of MGIC Common Stock, (ii) for any property
other than cash or securities received in any such Reorganization Event, an
amount equal to the market value on the Maturity Date of such property
received per share of MGIC Common Stock as determined by a nationally
recognized independent investment banking firm retained for this purpose by
the Company and (iii) for any securities received in any such Reorganization
Event, an amount equal to the average Closing Price per unit of such
securities on the 20 Trading Days immediately prior to the second Trading Day
preceding the Maturity Date multiplied by the number of such securities
received for each share of MGIC Common Stock. Notwithstanding the foregoing,
in the event that property or securities, or a combination of cash, on the
one hand, and property or securities, on the other, are received in such
Reorganization Event, the Company may, at its option, in lieu of delivering
cash as described above, deliver the amount of cash, securities and other
property, received per share of MGIC Common Stock in such Reorganization
Event determined in accordance with clause (i), (ii) or (iii) above, as
applicable. If the Company elects to deliver securities or other property,
holders of the STRYPES will be responsible for the payment of any and all
brokerage and other transaction costs upon any subsequent sale of such
securities or other property. The kind and amount of securities with which
the STRYPES shall be paid and
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discharged after consummation of such transaction shall be subject to
adjustment as described in the immediately preceding paragraph following the
date of consummation of such transaction.
No adjustments will be made for certain other events, such as offerings of
MGIC Common Stock by MGIC Investment for cash or in connection with
acquisitions. Likewise, no adjustments will be made for any sales of MGIC
Common Stock by NML.
The Company is required, within ten Business Days following the occurrence
of an event that requires an adjustment to the Payment Rate Formula (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 STRYPES of the occurrence of such event and a statement in
reasonable detail setting forth the adjusted Payment Rate Formula and the
method by which the adjustment to the Payment Rate Formula was determined,
provided that, in respect of any adjustment to the Maturity Price, such
notice will only disclose the factor by which each of the Closing Prices used
in determining the Maturity Price is to be multiplied in order to determine
the Payment Rate on the Maturity Date. Until the Maturity Date, the Payment
Rate itself cannot be determined.
FRACTIONAL SHARES
No fractional shares of MGIC Common Stock will be delivered if the Company
pays and discharges the STRYPES by delivering shares of MGIC Common Stock. In
lieu of any fractional share 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 share at the Maturity
Price.
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 are unsecured obligations and rank "pari passu" with all other
unsecured and unsubordinated indebtedness of the Company.
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.
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.
PURCHASE CONTRACT
Pursuant to the Purchase Contract described under "Certain Arrangements
With NML," the Company will purchase from NML immediately prior to the
Maturity Date of the STRYPES a number of shares of MGIC Common Stock equal to
the number required by the Company to pay and discharge all of the STRYPES.
In lieu
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<PAGE>
of delivering shares of MGIC Common Stock, NML has the option, exercisable in
its sole discretion, to require that obligations under the Purchase Contract
be satisfied by a cash payment or net cash settlement based upon the value of
such number of shares of MGIC Common Stock at the Maturity Price. Such
option, if exercised by NML, must be exercised with respect to all shares of
MGIC Common Stock deliverable pursuant to the Purchase Contract.
In the event NML does not perform under the Purchase Contract, the Company
will be required to otherwise acquire shares of MGIC Common Stock for
delivery to the holders of the STRYPES, unless it elects to exercise its
option to deliver cash with an equal value.
SECURITIES DEPOSITORY
Upon issuance, all STRYPES were represented by one or more fully
registered global securities (the "Global Notes"). Each such Global Note was
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 Exchange Act. 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 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
represented by such Global Note for all purposes under the Indenture. Except
as provided below, Beneficial Owners
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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 (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 the STRYPES, the Company will issue STRYPES in definitive form in
exchange for all of the Global Notes representing the STRYPES. 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 shares of
MGIC Common Stock (or cash with an equal value) in respect of, and interest
on, the STRYPES 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.
Except as provided above, there are no "event risk" or similar provisions
of the Indenture or the STRYPES that are intended to afford protection to
holders in the event of a merger or other significant corporate event
involving the Company.
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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 more than 50% of the shares of Voting Stock) 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
Each of the following will constitute an Event of Default under the
Indenture with respect to the STRYPES: (a) failure to pay and discharge the
STRYPES with MGIC Common Stock or, if the Company so elects, to pay an
equivalent amount in cash in lieu thereof when due; (b) failure to pay any
interest on any STRYPES when due, continued for 30 days; (c) failure to
perform any other covenant of the Company in the Indenture, 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, as provided in the Indenture; and (d)
certain events in bankruptcy, insolvency or reorganization of the Company.
If an Event of Default (other than an Event of Default described in clause
(d) of the immediately preceding paragraph) with respect to the STRYPES shall
occur and be continuing, either the Trustee or the holders of at least 25% of
the aggregate issue price of the Outstanding STRYPES by notice as provided in
the Indenture may declare an amount equal to the issue price of all the
STRYPES to be immediately due and payable in cash. If an Event of Default
described in said clause (d) shall occur, an amount equal to the issue price
of all the STRYPES 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 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 issue price of all the STRYPES due by reason of such
acceleration, have been cured or waived as provided in the Indenture. See
"Modification and Waiver" below.
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, unless such holders 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 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.
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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 do not have the benefit of any cross-default provisions with other
indebtedness of the Company.
MODIFICATION AND WAIVER
Modifications of and amendments to the Indenture affecting the 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; provided,
however, that no such modification or amendment may, without the consent of
the holder of each Outstanding STRYPES affected thereby, (a) change the
Maturity Date or the Stated Maturity of any installment of interest on any
STRYPES or reduce the amount of MGIC Common Stock payable with respect to any
STRYPES (or reduce the amount of cash payable in lieu thereof), (b) reduce
the amount of interest payable on any STRYPES or reduce the amount of cash
payable with respect to any STRYPES upon acceleration of the Maturity
thereof, (c) change the place or currency of payment of interest on, or any
amount of cash payable with respect to, any STRYPES, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
STRYPES, including the payment of MGIC Common Stock with respect to any
STRYPES, (e) reduce the percentage of the aggregate issue price of
Outstanding STRYPES, the consent of whose holders is required to modify or
amend the Indenture, (f) reduce the percentage of the aggregate issue price
of Outstanding STRYPES necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults or (g) modify
such provisions with respect to modification and waiver.
The holders of a majority of the aggregate issue price of the 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 the
STRYPES may waive any past default under the Indenture, except a default in
the payment of MGIC Common Stock with respect to any STRYPES, or the payment
of cash payable in lieu thereof, or in the payment of interest and certain
covenants and provisions of the Indenture which cannot be amended without the
consent of the holder of each Outstanding STRYPES 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.
LISTING
The STRYPES have been listed on the NYSE under the symbol "MML."
CERTAIN ARRANGEMENTS WITH NML
Pursuant to the Purchase Contract, the Company is obligated to purchase
from NML immediately prior to maturity of the STRYPES, at an aggregate
purchase price equal to the total issue price for the STRYPES, less the total
underwriting discount, plus an adjustment for an interest differential
factor, a number of shares of MGIC Common Stock equal to the number required
by the Company to pay and discharge all of the STRYPES. In lieu of delivering
shares of MGIC Common Stock, NML has the option, exercisable in its sole
discretion, to require that obligations under the Purchase Contract be
satisfied by a cash payment or net cash settlement based upon the value of
such number of shares of MGIC Common Stock at the Maturity Price. Such
option, if exercised by NML, must be exercised with respect to all shares of
MGIC Common Stock deliverable pursuant to the Purchase Contract. The Company
has agreed with NML that, without the prior consent of NML, it will not amend
the Indenture to
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increase the consideration that NML is obligated to deliver pursuant to the
Purchase Contract. The Company has also agreed to pay and discharge the
STRYPES by delivering to the holders thereof on the Maturity Date the form of
consideration that it receives from NML under the Purchase Contract.
The Purchase Contract does not contain any restriction on the ability of
NML to sell, pledge or otherwise convey all or any portion of the MGIC Common
Stock held by it, and no such shares of MGIC Common Stock will be pledged or
otherwise held in escrow for use at maturity of the STRYPES. In the event of
a significant sale, pledge or conveyance by NML, or an insolvency or
liquidation of NML (in which case the MGIC Common Stock, if any, owned by NML
will be subject to the claims of policyholders and/or creditors of NML), the
Company may be more likely to deliver to a holder of STRYPES cash in lieu of
MGIC Common Stock.
Until such time, if any, as NML shall have delivered shares of MGIC Common
Stock to the Company at maturity of the STRYPES pursuant to the terms of the
Purchase Contract, NML will retain all ownership rights with respect to the
MGIC Common Stock held by it (including, without limitation, voting rights
and rights to receive any dividends or other distributions in respect
thereof).
NML 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 shares of MGIC Common Stock or cash or for any other reason. The
Purchase Contract between the Company and NML is a commercial transaction and
does not create any rights in, or for the benefit of, any third party,
including any holder of STRYPES.
In the event NML does not perform under the Purchase Contract, the Company
will be required to otherwise acquire shares of MGIC Common Stock for
delivery to the holders of the STRYPES, unless it elects to exercise its
option to deliver cash with an equal value.
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 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, have been
derived from consolidated financial statements audited by Deloitte & Touche
LLP, as set forth in their reports incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules,
and such Summary Financial Information and Selected Financial Data
incorporated by reference in this Prospectus and the Registration Statement
of which this Prospectus is a part, have been 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 any of the Quarterly Reports on Form 10-Q which may be
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 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 Securities Act.
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